Back to GetFilings.com
1
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 ON 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-18492
TEAMSTAFF, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1899798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 ATRIUM DRIVE, SOMERSET, NEW JERSEY 08873
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (732) 748-1700
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
NONE
[Cover Page 1 of 2 Pages]
1
2
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 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.
[ ]
On January 10, 2001 the aggregate market value of the voting stock of
TeamStaff, Inc. (consisting of Common Stock, $.001 par value per share) held by
non-affiliates of the Registrant was approximately $46,723,685 based upon the
average bid and asked price for such Common Stock on said date as reported by
NASDAQ Small Cap Market. On such date, there were 7,991,719 shares issued and
outstanding of Common Stock of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
[Cover Page 2 of 2 Pages]
2
3
PART I
SAFE HARBOR STATEMENT
Certain statements contained herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "1995 Reform Act"). The Company desires to avail itself of certain
"safe harbor" provisions of the 1995 Reform Act and is therefore including this
special note to enable the Company to do so. Forward-looking statements included
in this Report on Form 10-K involve known and unknown risks, uncertainties, and
other factors which could cause the Company's actual results, performance
(financial or operating) or achievements to differ from the future results,
performance (financial or operating) or achievements expressed or implied by
such forward-looking statements. Such future results are based upon management's
best estimates based upon current conditions and the most recent results of
operations. These risks include, but are not limited to, risks related to
recently consummated acquisitions as well as future acquisitions, the Company's
ability to increase its revenues and produce net income, effects of competition
and technological changes, risks related to exposure to personal injury and
workers' compensation claims, risks that the Company's insurance company may not
provide adequate coverage, risks associated with compliance with government
regulations such as ERISA, state and local employment regulations and workers'
compensation and dependence upon key personnel.
Some of the information in this filing contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "intend", "estimate", and "continue" or other similar
words.
ITEM 1. BUSINESS
INTRODUCTION
TeamStaff, Inc. (referred to as the "Company"), formerly named Digital
Solutions, Inc., a New Jersey Corporation, was founded in 1969 as a payroll
service company and has evolved into a leading provider of human resource
management and professional employer organization ("PEO") to a wide variety of
industries in 50 states. TeamStaff's wholly-owned subsidiaries include TeamStaff
Solutions, Inc., DSI Staff ConnXions-Northeast, DSI Staff ConnXions-Southwest,
TeamStaff Rx, Inc., TeamStaff I, Inc., TeamStaff II, Inc., TeamStaff III, Inc.,
TeamStaff IV, Inc., TeamStaff V, Inc., TeamStaff VI, Inc., TeamStaff Insurance
Services, Inc., TeamStaff VIII, Inc., Employee Support Services, Inc., TeamStaff
IX, Inc., Digital Insurance Services, Inc., and HR2, Inc. (collectively referred
to, with TeamStaff, as the "Company").
The Company currently provides three types of services related to the
employee leasing, temporary staffing and payroll service businesses: (1)
professional employer organization services, such as payroll processing,
personnel and administration, benefits administration, workers' compensation
administration and tax filing; (2) employer administrative services, such as
payroll processing and tax filing; and (3) contract staffing, or the placement
of temporary and permanent employees. TeamStaff currently furnishes PEO
employees, payroll and contract staffing services to over 4,300 client
organizations with approximately 21,800 worksite employees, 2,600 staffing
employees and processing for approximately 30,000 payroll service employees and
believes that it currently ranks, in terms of revenues and worksite employees,
as one of the top professional employer organizations in the United States. The
Company's contract staffing business mainly places temporary help in hospitals
and clinics throughout the United States through its Clearwater, Florida and
Houston, Texas offices. The Company has six regional offices located in
Somerset, New Jersey; Houston and El Paso, Texas; Woburn, Massachusetts; and
Delray and Clearwater, Florida and seven sales service centers in New York, New
York; El Paso and Houston, Texas; Delray, and Clearwater, Florida; Woburn,
Massachusetts; and Somerset, New Jersey.
Recognizing the desire by many small businesses to be relieved of the
human resource administrative functions, the Company has formulated a strategy
of emphasizing PEO and "outsourcing" services. In PEO, a service provider
becomes a co-employer of the client company's employees and assigns these
employees to the client to
3
4
perform their intended functions at the worksite.
As a PEO, the Company essentially provides services that function as
the personnel department for small to medium sized companies. The Company
believes that by offering services which relieve small and medium sized
businesses of the ever increasing administrative burden of employee related
record keeping, payroll processing, benefits administration, employment of
temporary and permanent specialized employees and other human resource
functions, the Company has positioned itself to take advantage of a major growth
opportunity during this decade and the next.
Effective January 25, 1999, the Company acquired the ten entities
operating under the trade name, "The TeamStaff Companies". In conjunction with
the acquisition, the Company changed its name from Digital Solutions, Inc. to
TeamStaff, Inc. on February 10, 1999.
Effective April 8, 2000, the Company acquired substantially all of the
assets of the PEO division of Outsource International, Inc. ("Outsource") which
had operated under the trade name "Synadyne".
Effective June 2, 2000, the Company effected a reverse stock split at a
rate of one (1) new share for each existing 3.5 shares of TeamStaff common
stock. All common shares and per share amounts in this Form 10-K have been
adjusted retroactively to effect the reverse stock split.
Management has determined to emphasize the Company's future growth in
the PEO and outsourcing industry. The Company's expansion program will focus on
internal growth through the cross marketing of its PEO services to its entire
client base and the acquisition of compatible businesses strategically situated
in new areas or with a client base serviceable from existing facilities. As part
of its effort to expand its PEO business, management has expanded the services
of TeamStaff Rx, Inc., the Company's medical contract staffing subsidiary, to
include PEO, outsourcing and facilities management. While TeamStaff continues to
sell stand-alone employer services, such as payroll and tax filing, it will
emphasize the PEO component of its service offerings with a goal of becoming the
leading provider of PEO services in the United States. A major component of the
Company's growth strategy is the acquisition of well-situated, independent PEO
companies whose business can be integrated into the Company's operations.
However, there can be no assurance any such acquisition will be consummated by
the Company.
TeamStaff, Inc. was organized under the laws of the State of New Jersey
on November 25, 1969 and maintains its executive offices at 300 Atrium Drive,
Somerset, New Jersey 08873 where its telephone number is (732) 748-1700.
RECENT DEVELOPMENTS
SYNADYNE ACQUISITION
Effective April 8, 2000, the Company acquired substantially all of the
assets of the professional employer organization ("PEO") division of Outsource
International, Inc. ("Outsource") which had operated under the trade name
"Synadyne". TeamStaff acquired the tradename "Synadyne" as part of the
transaction, as well as all of the customer contracts of the PEO business. Under
the terms of the Asset Purchase Agreement, TeamStaff paid an aggregate purchase
price of $3,500,000. The agreement also provides for an additional potential
payment in one year of up to $1,250,000 provided that the former clients have at
least 9,500 worksite employees as of March 31, 2001. In the event there are less
than 9,500 employees, the amount of the earnout will be reduced by a
pre-determined formula. As of September 30, 2000 the number of worksite
employees were approximately 8,000, which is subject to audit by Outsource
International, Inc. Based upon the 8,000 worksite employees the earnout would be
reduced by approximately $750,000.
4
5
HR2 ACQUISITION
Effective October 2, 2000, the Company acquired the Professional
Employer Organization HR2, Inc. in a stock purchase transaction. The Company
acquired all of the capital stock of HR2 in exchange for an aggregate of 89,224
shares of the Company's Common Stock and $100,000 in cash. HR2 operates
primarily in Massachusetts, Rhode Island and New Hampshire.
FINANCING
The Company has a long-term credit facility from FINOVA Capital
Corporation totaling $12.5 million. The facility is comprised of (i) two
three-year term loans each for $2.5 million, with a five-year amortization, at
prime plus 3% (12.50% at September 30, 2000); (ii) a three-year term loan for
$4.0 million, with a five-year amortization, at prime plus 3% (12.50% at
September 30, 2000) and (iii) a $3.5 million revolving line of credit at prime
plus 1% (10.50% at September 30, 2000) secured by certain accounts receivable of
the Company. The credit facility is subject to success fees for each of the $2.5
million term loans in the amounts of $200,000, $225,000 and $250,000 due on the
anniversary dates of the loan. In addition the $4.0 million term loan is subject
to annual success fees at the beginning of each loan year in the amount of
$500,000. The credit facility is subject to certain covenants including, but not
limited to, a debt to net worth ratio, a minimum net worth and a minimum debt
service coverage ratio, as defined. On January 24 and April 27, 2000, the
Company remitted success fees in the amount of $200,000 and $225,000
respectively.
In connection with the Synadyne acquisition the two three-year term
loans, each for $2.5 million, have been extended to April 30, 2003 and March 1,
2003. The $4.0 million term loan consists of no principal payments for the first
six months and expires on April 30, 2003, with a balloon payment at the end of
the three years. The revolving line of credit expires on April 30, 2003.
SERVICES
PROFESSIONAL EMPLOYER ORGANIZATION (PEO)
The Company's core business, and the area management will continue to
emphasize, is its PEO services business. When a client utilizes the Company's
PEO services, the client administratively transfers all or some of its employees
to the Company, which then provides them to the client. TeamStaff thereby
becomes a co-employer and is responsible for all human resource functions,
including payroll, benefits administration, tax reporting and personnel record
keeping. The client still manages the employees and determines salary and duties
in the same fashion as any employer. The client is, however, relieved of
reporting and tax filing requirements and other administrative tasks. Moreover,
because of economies of scale, the Company is able to negotiate favorable terms
on workers' compensation insurance, health benefits, retirement programs, and
other valuable services. The client company benefits because it can then offer
its employees the same or similar benefits as larger companies, and successfully
compete in recruiting highly qualified personnel, as well as build the morale
and loyalty of its staff.
As a PEO service provider, the Company can offer the following benefits
to employees:
COMPREHENSIVE MAJOR MEDICAL PLANS - Management of the Company believes
that medical insurance costs have forced small employers to reduce coverage
provided to its employees and to increase employee contributions. TeamStaff is
able to leverage its large employee base and offer the employees assigned to
their clients a variety of health coverage plans from traditional indemnity
plans to Health Maintenance Organizations (HMO), Preferred Provider
Organizations (PPO), or a Point of Service Plan (POS).
DENTAL AND VISION COVERAGE - These types of benefits are generally
beyond the reach of most small groups. As a result of economies of scale
available, a client of the Company can obtain these benefits for the assigned
employees.
5
6
LIFE INSURANCE - Affordable basic coverage is available.
SECTION 125 PREMIUM CONVERSION PLAN - Employees can pay for benefits
with pre-tax earnings, reduce their taxable income and FICA payments, and
increase their take-home pay.
401(K) RETIREMENT PLANS - Management believes that most small
employers do not provide any significant retirement benefits due to the
administrative and regulatory requirements associated with the establishment and
maintenance of retirement plans. The Company enables small business owners to
offer the assigned employees retirement programs comparable to those of major
corporations. Such plans can be used to increase morale, productivity and
promote employee loyalty.
CREDIT UNION - The Company provides an opportunity for employees to
borrow money at lower interest rates than offered at most banks.
PAYROLL SERVICES - Although ancillary to the PEO services, clients no
longer incur the expense of payroll processing either through in-house staff or
outside service. The Company's PEO services include all payroll and payroll tax
processing.
UNEMPLOYMENT COMPENSATION COST CONTROL - The Company provides an
unemployment compensation cost control program to aggressively manage
unemployment claims.
HUMAN RESOURCES MANAGEMENT SERVICES - The Company can provide clients
with expertise in areas such as personnel policies and procedures, hiring and
firing, training, compensation and performance evaluation.
WORKERS' COMPENSATION PROGRAM - The Company has a national workers'
compensation policy which can provide the Company with a significant advantage
in marketing its services, particularly in jurisdictions where workers'
compensation policies are difficult to obtain at reasonable costs. The Company
also provides its clients, where applicable, with independent safety analyses
and risk management services to reduce workers' injuries and claims.
Relieved of personnel administrative tasks, the client is able to focus
on its core business. The client is also offered a broader benefits package for
its assigned employees, a competitive rate in workers' compensation insurance,
and savings in time and paperwork previously required in connection with
personnel administration.
PAYROLL SERVICES
The Company was established as a payroll service firm in 1969, and
continues to provide basic payroll services to its clients. Historically, the
payroll division provided these services primarily to the construction industry
and currently 70% of the Company's approximately 750 payroll service clients are
in the construction industry. The Company offers most, if not all, of what other
payroll services provide, including the preparation of checks, government
reports, W-2's (including magnetic tape filings), remote processing (via modem)
directly to the clients offices, and certified payrolls.
In addition, the Company offers a wide array of tax reporting services
including timely deposit of taxes, impounding of tax payments, filing of
returns, distribution of quarterly and year-end statements and responding to
agency inquiries.
TEMPORARY STAFFING SERVICES
TeamStaff provides temporary staffing services through two subsidiaries
which have, in the aggregate, more than 30 years of experience in placing
permanent and temporary employees with specialized skills and talents with
regional, national and international employers. Temporary staffing enables
clients to attain management and
6
7
productivity goals by matching highly trained professionals and technical
personnel to specific project requirements. TeamStaff focuses its temporary
staffing services in two specific markets where it places people on a temporary
long-term assignment, or on a permanent basis: (1) radiological technologist,
diagnostic sonographers, cardiovascular technologists, radiation therapist and
other medical professionals with hospitals, clinics and therapy centers
throughout the 50 states and (2) technical employees such as engineers,
information systems specialists and project managers primarily with Fortune 100
companies for specific projects. Clients whose staff requirements vary depending
on the level of current projects or business are able to secure the services of
highly qualified individuals on an interim basis.
The Company's temporary staffing services provide clients with the
ability to "rightsize"; that is, expand or reduce its workforce in response to
changing business conditions. Management believes that these services provide
numerous benefits to the client, such as saving the costs of salary and benefits
of a permanent employee whose services are not needed throughout the year. The
client also avoids the costs, uncertainty and delays associated with searches
for qualified interim employees. The Company also provides insurance bonding
where necessary and assumes all responsibility for payroll tax filing and
reporting functions, thereby saving the client administrative responsibility for
all payroll, workers' compensation, unemployment and medical benefits.
Management believes that its temporary staffing services provides an
employer with an increased pool of qualified applicants, since temporary
staffing employees have access to a wide array of benefits such as health and
life insurance, Section 125 premium conversion plans, and 401(k) retirement
plans. These benefits provide interim employees with the motivation of full-time
workers without additional benefit costs to the client. A client is also able to
temporarily rehire a retired employee for short-term or specialized projects
without jeopardizing their pension plan. The Company believes that it has
attained the position of being number one or two in terms of gross revenues for
firms specializing in the placement of temporary medical imaging personnel.
ACQUISITION STRATEGY
A key component of the Company's growth strategy has been, and will
continue to be, the acquisition of compatible businesses to expand its
operations and customer base. Currently, the human resource service industry
includes numerous small companies seeking to develop services, operations and
customer base similar to those developed by the Company. The Company has
acquired companies in the human resource industry in the past. However, with the
business and strategy of the Company further developed, acquisitions in the
future will be concentrated in the PEO and outsourcing business. The Company
believes that with a limited number of key acquisitions of regional PEO
companies, who possess a strong customer base and regional reputation, the
Company will be able to grow into an industry leader in revenue size and scope
of services offered.
A prospective acquisition candidate may be either a public or private
company, but will be required to meet certain financial criteria and growth
potential established by the Company. In addition, as the market and industry
evolves, the Company may also consider non-PEO entities for strategic
acquisitions or mergers, in an effort to expand the potential client base. The
Company evaluates acquisition candidates by analyzing the company's management,
operations and customer base, which must complement or expand the Company's
operations and financial stability, including the Company's profitability and
cash flow. The Company's long-term plan is to expand sales and income potential
by achieving economies of scale as it expands and regionalizes its revenue base.
There can be no assurance, however, that the Company will be able to
successfully identify, acquire and integrate into the Company operations
compatible PEO companies.
In furtherance of its acquisition strategy, the Company entered into a
letter of intent on November 17, 2000 to acquire Paradyme Human Resources, a PEO
located in Florida. The Company is continuing its due diligence with respect to
the operations and financial condition of Paradyme. The definitive terms of the
proposed acquisition have not been negotiated by the parties, and consummation
of the transaction is subject to approval by the Board of Directors of the
parties, shareholder approval and negotiation and execution of a definitive
agreement. There can be no assurance that the transaction will be consummated.
7
8
In addition, on November 27, 2000, the Company and BrightLane.com, a
privately-held Online Business Center (OBC), executed a non-binding term sheet
to enter into a business combination to create a technologically advanced
Business Process Outsourcing (BPO) services organization. Under the proposal,
the Company and BrightLane would merge to provide small and middle market
businesses with the alternative choices of a full service co-employment
outsourcing relationship, Human Resource (HR) and administrative services
without the co-employment relationship or the opportunity to select specific
products such as banking, payroll, benefits, insurance, financial services,
procurement, recruiting and web services, which can be delivered via the
BrightLane OBC. Management believes that the combination of TeamStaff's existing
client and employee base with BrightLane's advanced technology for the
automation and Internet delivery of administrative and HR functions gives the
combined entity a unique position in the marketplace. Although a non-binding
term sheet has been approved by both parties' boards, the principle terms of the
transaction including the number of shares to be issued by TeamStaff to the
shareholders of BrightLane.com is subject to further negotiation. In addition
the transaction requires shareholder approval and is subject to due diligence,
execution of a definitive agreement, approval of regulatory authorities and the
shareholders of both parties and customary closing conditions. There can be no
assurance that the transaction will be consummated.
CUSTOMERS
The Company's customer base consists of over 4,300 client companies,
representing approximately 54,400 employees (including payroll services) as of
September 30, 2000. The Company's client base is broadly distributed throughout
a wide variety of industries; however, more than 70% of the customers in the
payroll processing area are in the construction industry and substantially all
of the customers of the Company's subsidiary TeamStaff Rx, Inc. are engaged in
the healthcare industry.
The Company intends to maintain diversity within its client base to
lower its exposure to downturns or volatility in any particular industry and
help insulate the Company to some extent from general economic cycles. All
prospective customers are also evaluated individually on the basis of workers'
compensation risk, group medical history, unemployment history and operating
stability.
SALES AND MARKETING
The Company maintains sales and marketing personnel in all of its
locations, which presently include New Jersey, New York, Texas, Florida, and
Massachusetts. Our sales and marketing personnel travel throughout the United
States in an effort to expand our business.
Sales personnel offer to customers a full array of the Company's
services, professional employment, payroll and contract staffing, which supports
the cross-marketing of TeamStaff's products and enables the sales representative
to employ a professional consultative approach to satisfying clients needs
rather than forcing a single solution.
The Company has also implemented several focused marketing activities
to increase sales opportunities. The Company has been licensed by various state
Boards of Accountancy to hold continuing professional education seminars for
CPAs. In addition, the Company and its management have become active
participants in many trade and community associations and chambers of commerce.
Management intends to implement an internet-based sophisticated human
resource management system during the current fiscal year. Management believes
that an internet-based system will assist the Company's growth in the future and
grow its e-business, interacting with both our clients and employees through the
Internet. Management's belief is that the system will allow the Company to grow
dramatically in the future.
COMPETITION
The PEO industry consists of approximately 2,500 companies, most of
which serve a single market or
8
9
region. The Company believes that there are several PEOs with annual revenue
exceeding $500 million. The largest PEO is Staff Leasing of Bradenton, Florida
with revenue in excess of $2 billion. While there are several other large PEOs
among the approximately 2,500 companies, many are located in Florida and other
states in the Sunbelt. The Company considers its primary competition to be these
large national and regional PEO providers, as well as the traditional form of
employment of employees.
The payroll services industry is characterized by intense competition.
The principal competitive factors are price and service. Management believes
that Automatic Data Processing, Inc., and Paychex, Inc., which have purchased
PEOs in Florida, will be major competitors in the future. The Company also
competes with manual payroll systems sold by numerous companies, as well as
other providers of computerized payroll services including banks, and smaller
independent companies. Some companies have in-house computer capability to
generate their own payroll documents and reports. The increasing availability of
personal computers at low cost may result in additional businesses acquiring
such capabilities. In the area of providing temporary technical personnel, the
Company competes with companies such as Volt Information Services, Butler Arde,
Olsten and Tech Aid, Inc., among others. Many of these competitors have longer
operating histories and greater financial resources than the Company.
The Company competes with these companies by offering customized
products, personalized service, competitive prices and specialized personnel to
satisfy a client's particular employee requirements.
Management of the Company believes that its broad scope of human
resource management services and its commitment to quality service differentiate
it from its competition. Many companies compete in the various segments of the
human resource and financial services marketplace. Management believes that its
concentration on providing comprehensive services and moving into facilities
management or outsourcing of human resource management services will set it
apart from its competitors. While many of the PEOs entered the industry as a
result of workers' compensation or health insurance problems, the Company is
establishing itself as a professional employer organization which will assist
companies, small and large, with all of their human resource management
challenges.
INDUSTRY/GOVERNMENT REGULATION
INTRODUCTION
The Company's operations are affected by numerous federal and state
laws relating to labor, tax and employment matters. By entering into a
co-employer relationship with employees who are assigned to work at client
company locations (sometimes referred to as "worksite employees"), the Company
assumes certain obligations and responsibilities of an employer under these
federal and state laws. Many of these federal and state laws were enacted prior
to the development of nontraditional employment relationships, such as
professional employer organizations, temporary employment, and outsourcing
arrangements, and do not specifically address the obligations and
responsibilities of nontraditional employers. In addition, the definition of
"employer" under these laws is not uniform. Accordingly, the application of
these laws to the Company's business cannot be assured.
Some governmental agencies that regulate employment and labor laws have
developed rules that specifically address labor and employment issues raised by
the relationship among clients and PEOs. Existing regulations are relatively new
and, therefore, their interpretation and application by administrative agencies
and federal and state courts is limited or non-existent. The development of
additional regulations and interpretation of existing regulations can be
expected to evolve over time. The Company cannot predict with certainty the
nature or direction of the development of federal, state and local regulations.
As an employer, the Company is subject to all federal statutes and
regulations governing its employer-employee relationships.
9
10
FEDERAL EMPLOYMENT TAXES
The Company assumes the sole responsibility and liability for the
payment of federal and state employment taxes with respect to wages and salaries
paid to its employees, including worksite employees. There are essentially three
types of federal employment tax obligations: (i) withholding of income tax
requirements; (ii) obligations under FICA; and, (iii) obligations under the
Federal Unemployment Tax Act (FUTA).
Under these Code sections, employers have the obligation to withhold
and remit the employer portion and, where applicable, the employee portion of
these taxes. There is still considerable uncertainty as to the status of leased
employees in relation to these statutes. While the Company believes that it can
assume the client company's withholding obligations, in the event the Company
fails to meet these obligations, the client company may be held jointly and
severally liable for these payments. These interpretive uncertainties may have
an impact on the Company's PEO business.
EMPLOYEE BENEFIT PLANS
The Company offers various employee benefit plans to its full-time
employees, including its worksite employees. These plans include a 401(k) Plan
(a profit-sharing plan with a cash or deferred arrangement ("CODA") under Code
Section 401(k)), a Section 125 plan, group health plans, dental insurance, a
group life insurance plan and a group disability insurance plan. Generally,
employee benefit plans are subject to provisions of both the Code and the
Employee Retirement Income Security Act ("ERISA").
In order to qualify for favorable tax treatment under the Code, the
plans must be established and maintained by an employer for the exclusive
benefit of its employees. In addition to the employer/employee threshold,
pension and profit-sharing plans, including plans that offer CODAs under Code
Section 401(k) and matching contributions under Code Section 401(m), must
satisfy certain other requirements under the Code. These other requirements are
generally designed to prevent discrimination in favor of highly compensated
employees to the detriment of non-highly compensated employees with respect to
both the availability of, and the benefits, rights and features offered in
qualified employee benefit plans.
Employee pension and welfare benefit plans are also governed by ERISA.
ERISA defines "employer" as "any person acting directly as an employer, or
indirectly in the interest of an employer, in relation to an employee benefit
plan." ERISA defines the term "employee" as "any individual employed by an
employer." A definitive judicial interpretation of "employer" in the context of
a PEO arrangement has not been established. If the Company were found not to be
an employer for ERISA purposes, its plans would not comply with ERISA and the
level of services the Company could offer may be adversely affected. Further, as
a result of such finding, the Company and its plans would not enjoy the
preemption of state laws provided by ERISA and could be subject to varying state
laws and regulations, as well as to claims based upon state common laws.
In addition to ERISA and the Code provisions discussed herein, issues
related to the relationship between the Company and its worksite employees may
also arise under other federal laws, including other federal income tax laws.
STATE REGULATION
As an employer, the Company is subject to all statutes and regulations
governing the employer-employee relationship. For example, the Company's
activities in the State of Texas are governed by the Staff Leasing Services
Licensing Act (the "Act"), which regulates PEOs in the state of Texas. The Act,
which became effective on September 1, 1993, established a mandatory licensing
scheme for PEOs and expressly recognizes a licensee as the employer of the
assigned employee for purposes of the Texas Unemployment Compensation Act. The
Company or a subsidiary possesses a license to offer PEO services in the state
of Texas.
While many states do not explicitly regulate PEOs, approximately 21
states have passed laws that have
10
11
licensing or registration requirements for PEOs and other states are considering
such regulation. Such laws vary from state to state, but generally provide for
monitoring the fiscal responsibility of PEOs. Whether or not a state has
licensing, registration or certification requirements, the Company faces a
number of other state and local regulations that could impact its operations. A
TeamStaff subsidiary is currently licensed in Arizona, Florida, Illinois, Maine,
New Hampshire, New Mexico, Oregon, South Carolina, Tennessee, Texas and
Vermont.
EMPLOYEES
As of December 31, 2000, the Company employed 263 employees, both
full-time and part-time, including executive officers, an increase from 176
during the previous fiscal year. A major part of this increase is a direct
result of the Company's acquisition of the assets of the Synadyne division of
Outsource International, Inc. in Delray, Florida. The Company also employs
approximately 21,800 leased employees and 2,600 temporary employees on client
assignments. The Company believes its relationship with its employees is
satisfactory.
RISK FACTORS
You should carefully consider the risks described below with respect to
the Company. The risks and uncertainties described below are not the only ones
facing the Company. Other risks and uncertainties that we have not predicted or
assessed may also adversely affect the Company. Some of the information in this
filing contains forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such
as "may," "will," "expect," "anticipate," "believe," "intend," "estimate," and
"continue" or other similar words. You should read statements that contain these
words carefully for the following reasons:
-- the statements may discuss our future expectations;
-- the statements may contain projections of our future earnings
or of our financial condition; and
-- the statements may state other "forward-looking" information.
We believe it is important to communicate our expectations to our
investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed below, as well as any cautionary language in this filing, provide
examples of risks, uncertainties and events that may cause the Company's actual
results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in the Company, you should be
aware that the occurrence of any of the events described in the risk factors
below, elsewhere in this filing and other events that we have not predicted or
assessed could have a material adverse effect on our earnings, financial
condition or business. In such case, the price of the Company's securities could
decline and you may lose all or part of your investment.
WE HAVE GRANTED TO OUR LENDER A SECURITY INTEREST IN OUR ASSETS AND
UPON A DEFAULT THE LENDER MAY FORECLOSE ON OUR ASSETS.
We have granted security interests with respect to substantially all of
our assets to secure certain of our indebtedness, including our credit
facilities with FINOVA Capital Corporation. In the event we default on our
secured obligations, the secured creditor could declare our indebtedness to be
immediately due and payable and foreclose on the assets securing the defaulted
indebtedness. Moreover, to the extent that all of our assets continue to be
pledged to secure outstanding indebtedness, such assets will not be available to
secure additional indebtedness. Our loan agreement with our institutional lender
restricts our ability to incur additional indebtedness and may limit our ability
to obtain additional financing on terms favorable to us or at all.
WE MAY ACQUIRE ADDITIONAL COMPANIES WHICH MAY RESULT IN ADVERSE EFFECTS
ON OUR EARNINGS.
11
12
We may at times become involved in discussions with potential
acquisition candidates. Any acquisition that we may consummate may have an
adverse effect on our liquidity and earnings and may not be profitable to us. In
the event that we consummate an acquisition or obtain additional capital through
the sale of debt or equity to finance an acquisition, then current shareholders
may experience dilution in their shareholder's equity.
SIGNIFICANT GROWTH THROUGH ACQUISITIONS MAY ADVERSELY AFFECT OUR
MANAGEMENT AND OPERATING SYSTEMS.
We completed two significant acquisitions during the past two years and
intend to continue to pursue a strategy of acquiring compatible businesses in
the future. Our growth is making significant demands on our management,
operations and resources, including working capital. If we are not able to
effectively manage our growth, our business and operations will be materially
harmed. To manage growth effectively, we will be required to continue to improve
our operational, financial and managerial systems, procedures and controls, hire
and train new employees while managing our current operations and employees.
OUR PAYROLL BUSINESS MAY BE ADVERSELY AFFECTED IF THERE IS AN ECONOMIC
DOWNTURN IN THE CONSTRUCTION BUSINESS.
Although we have expanded our services to a number of industries, our
payroll service business continues to rely to a material extent on the
construction industry. During the last fiscal year, construction related
business accounted for approximately 70% of our payroll division's client base.
Accordingly, if there is a slowdown in construction activities, it may affect
our revenues and profitability. Management believes our reliance on the
construction business will continue to decline as our customer base expands and
becomes more diversified.
UNFAVORABLE INTERPRETATIONS OF GOVERNMENT LAWS MAY HARM OUR OPERATIONS.
Our operations are affected by many federal, state and local laws
relating to labor, tax, insurance and employment matters and the provision of
managed care services. Many of the laws related to the employment relationship
were enacted before the development of alternative employment arrangements, such
as those that we provide, and do not specifically address the obligations and
responsibilities of non-traditional employers. The unfavorable resolution of
unsettled interpretive issues concerning our relationship could have a material
adverse effect on our results of operations, financial condition and liquidity.
Uncertainties arising under the Internal Revenue Code of 1986 include, but are
not limited to, the qualified tax status and favorable tax status of certain
benefit plans we and other alternative employers provide. In addition, new laws
and regulations may be enacted with respect to our activities which may also
have a material adverse effect on the Company's business, financial condition,
and results of operations and liquidity.
OUR FINANCIAL CONDITION MAY BE AFFECTED BY INCREASES IN HEALTH CARE AND
WORKERS' COMPENSATION INSURANCE COSTS.
Health care costs, insurance premiums and workers' compensation
insurance coverage comprise a significant part of our operating expenses.
Accordingly, we use managed care procedures in an attempt to control these
costs. Changes in health care and workers' compensation laws or regulations may
result in an increase in our costs and we may not be able to immediately
incorporate such increases into the fees charged to clients because of our
existing contractual arrangements with clients. As a result, any such increases
in these costs could have a material adverse effect on our financial condition,
results of operations and liquidity.
RISKS ASSOCIATES WITH HEALTH AND WORKERS' COMPENSATION CLAIMS
EXPERIENCE OF CLIENTS.
The Company utilizes only fully-insured plans of health care, and
therefore incurs no direct risk of loss under those plans. However, the premiums
that the Company pays for health care insurance are directly affected by the
claims experience of its clients. If the experience of the clients is
unfavorable, the premiums payable by the Company will increase. Such increases
may not be able to be passed on to the Company's clients and could,
12
13
therefore, reduce the Company's profit margin. Increasing health care premiums
could also place the Company at a disadvantage in competing for new clients. In
addition, periodic reassessments of workers' compensation claims of prior
periods may require reserves to increase or decrease, and therefore may also
effect the financial condition of the Company.
WE MAY NOT BE ABLE TO OBTAIN ALL OF THE LICENSES AND CERTIFICATIONS
THAT WE NEED TO OPERATE.
State and federal authorities extensively regulate the managed health
care industry and some of our arrangements relating to specialty managed care
services or the maintenance or operation of health care provider networks
require us to satisfy operating, licensing or certification requirements. Any
further expansion of the range of specialty managed care services that we offer
is likely to require that we satisfy additional licensing and regulatory
requirements. If we are unable to obtain or maintain all of the required
licenses or certifications that we need, we could experience material adverse
effects on our results of operations, financial condition and liquidity.
HEALTH CARE OR WORKERS' COMPENSATION REFORM COULD IMPOSE UNEXPECTED
BURDENS ON OUR ABILITY TO CONDUCT OUR BUSINESS.
Regulation in the health care and workers' compensation fields
continues to evolve, and we cannot predict what additional government
regulations affecting our business may be adopted in the future. Changes in any
of these laws or regulations may adversely impact the demand for our services,
require that we develop new or modified services to meet the demands of the
marketplace, or require that we modify the fees that we charge for our services.
Any such changes may adversely impact our competitiveness and our financial
condition.
IF WE LOSE OUR QUALIFIED STATUS FOR CERTAIN TAX PURPOSES, OUR BUSINESS
WOULD BE ADVERSELY AFFECTED.
Several years ago, the Internal Revenue Service established an Employee
Leasing Market Segment Group for the purpose of identifying specific compliance
issues prevalent in certain segments of the PEO industry. One issue that arose
in the course of these audits is whether PEOs should be considered the employers
of worksite employees under Internal Revenue Code provisions applicable to
employee benefit plans, which would permit PEOs to offer benefit plans that
qualify for favorable tax treatment to worksite employees. If the IRS concludes
that PEOs are not employers of worksite employees for purposes of the Internal
Revenue Code, we would need to respond to the following adverse implications:
-- the tax qualified status of our 401(k) plan could be revoked
and our cafeteria plan may lose its favorable tax status;
-- worksite employees would not be able to continue to
participate in such plans or in other employee benefit plans;
-- we may no longer be able to assume the client company's
federal employment tax withholding obligations;
-- if such a conclusion were applied retroactively, then
employees' vested account balances would become taxable
immediately, the Company would lose its tax deduction to the
extent contributions were not vested, the plan trust would
become a taxable trust and penalties and additional taxes for
prior periods could be assessed.
In such a circumstance, we would face the risk of client
dissatisfaction as well as potential litigation, and our financial condition,
results of operations and liquidity could be materially adversely affected.
WE MAY BE HELD LIABLE FOR THE ACTIONS OF OUR CLIENTS AND EMPLOYEES AND
THEREFORE INCUR UNFORESEEN LIABILITIES.
A number of legal issues with respect to the co-employment arrangements
among PEOs, their clients and worksite employees remain unresolved. These issues
include who bears the ultimate liability for violations of employment and
discrimination laws. As a result of our status as a co-employer, we may be
liable for violations of
13
14
these or other laws despite contractual protections. While our client service
agreements generally provide that the client is to indemnify us for any
liability caused by the client's failure to comply with its contractual
obligations and the requirements imposed by law, we may not be able to collect
on such a contractual indemnification claim and may then be responsible for
satisfying such liabilities. In addition, worksite employees may be deemed to be
our agents, which could make us liable for their actions.
OUR STAFFING OF HEALTHCARE PROFESSIONALS EXPOSES US TO POTENTIAL
MALPRACTICE LIABILITY.
Through our TeamStaff Rx subsidiary, we engage in the business of
contract staffing of temporary and permanent healthcare professionals. The
placement of such employees increases our potential liability for negligence and
professional malpractice of those employees. Although TeamStaff is covered by
liability insurance which we deem reasonable under the circumstances, not all of
the potential liability we face will be fully covered by insurance. Any
significant adverse claim which is not covered by insurance may have a material
adverse effect on us.
WE MAY NOT BE FULLY COVERED BY THE INSURANCE WE PROCURE.
Although we carry liability insurance, the insurance we purchase may
not be sufficient to cover the full extent of any judgments, settlements or
costs relating to any present or future claims, suits or complaints. In
addition, sufficient insurance may not be available to us in the future on
satisfactory terms or at all. If the insurance we carry is not sufficient to
cover any judgments, settlements or costs relating to any present or future
claims, suits or complaints, our business, financial condition, results of
operations and liquidity could be materially adversely affected.
OUR BUSINESS WILL SUFFER IF OUR SERVICES ARE NOT COMPETITIVE.
Each of the payroll, temporary employee placement and the employee
leasing industries are characterized by vigorous competition. Since we compete
with numerous entities that have greater resources than us in our business
lines, our business will suffer if we are not competitive with respect to each
of the services we provide. We believe that our major competitors with respect
to our payroll and accounting services are Automatic Data Processing, Inc.,
Ceridian Corp. and Paychex, Inc. and with respect to employee placement
(including temporary placements and employee leasing), Butler Arde, Tech Aid,
Inc., Comp Health, Staff Leasing, Inc. and Administaff, Inc. These companies
have greater financial and marketing resources than do we. We also compete with
manual payroll systems and computerized payroll services provided by banks, and
smaller independent companies.
IF WE CANNOT OBTAIN SUFFICIENT LEVELS OF TEMPORARY EMPLOYEES, OUR
BUSINESS MAY BE AFFECTED.
Two of our subsidiaries, TeamStaff Solutions, and TeamStaff Rx are
temporary employment agencies which depend on a pool of qualified temporary
employees willing to accept assignments for our clients. The business of these
subsidiaries is materially dependent upon the continued availability of such
qualified temporary personnel. Our inability to secure temporary personnel would
have a material adverse effect on our business.
SINCE WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK YOU CANNOT EXPECT
INCOME FROM AN INVESTMENT IN OUR COMMON STOCK.
We have not paid any dividends on our common stock since our inception
and do not contemplate or anticipate paying any dividends on our common stock in
the foreseeable future. We may not pay dividends on our common stock unless we
have earnings or capital surplus and our lender prohibits us from paying
dividends without its prior consent. Therefore, holders of our common stock may
not receive any dividends on their investment in us. Earnings, if any, will be
retained and used to finance the development and expansion of our business.
WE HAVE SOLD RESTRICTED SHARES OF COMMON STOCK WHICH MAY DILUTE OUR
STOCK PRICE WHEN THEY ARE SELLABLE UNDER RULE 144.
14
15
Of the 7,946,205 issued and outstanding shares of the Company's common
stock prior to this filing, approximately 3,183,300 shares may be deemed
"restricted shares" and, in the future, may be sold in compliance with Rule 144
under the Act. Possible or actual sales of common stock by our present
shareholders under Rule 144 may, in the future, have a depressing effect on the
price of our common stock in the open market. Rule 144 provides that a person
holding restricted securities which have been outstanding for a period of one
year after the later of the issuance by the Company or sale by an affiliate of
the Company, may sell in brokerage transactions an amount equal to 1% of the
Company's outstanding common stock every three months. A person who is a
"non-affiliate" of the Company and who has held restricted securities for over
two years is not subject to the aforesaid volume limitations as long as the
other conditions of the Rule are met. In addition, (1) during fiscal 2000 we
registered approximately 2,570,000 shares on behalf of selling stockholders and
(2) have outstanding approximately 577,821 previously registered shares under
our stock option plans. The sale of these shares may have a depressive effect
on the market for our common stock.
WE MAY ISSUE PREFERRED STOCK WITH RIGHTS SENIOR TO OUR COMMON STOCK
WHICH MAY ADVERSELY IMPACT THE VOTING AND OTHER RIGHTS OF THE HOLDERS OF OUR
COMMON STOCK.
Our certificate of incorporation authorizes the issuance of "blank
check" preferred stock with such designations, rights and preferences as may be
determined from time to time by our board of directors up to an aggregate of
5,000,000 shares of preferred stock. Accordingly, our board of directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which would adversely affect the
voting power or other rights of the holders of our common stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of our
company, which could have the effect of discouraging bids for our company and
thereby prevent stockholders from receiving the maximum value for their shares.
Although we have no present intention to issue any shares of our preferred stock
in order to discourage or delay a change of control of our company, we may do so
in the future.
ITEM 2. PROPERTIES
OPERATION AND FACILITIES
The Company currently has processing centers in Somerset, New Jersey;
Houston and El Paso, Texas; Woburn, Massachusetts; and Clearwater and Delray,
Florida. The Company also has sales service centers which are located in New
York City, Somerset, New Jersey; Clearwater and Delray Florida; Houston and El
Paso, Texas; and Woburn, Massachusetts. A sales service center is an office used
primarily for sales efforts and client services. The Company's strategy is to
target acquisitions in the current areas of operation, whereby the Company will
acquire a business or business accounts and absorb these accounts into the
current operations with minimal additional overhead. The Company intends to
continue its national expansion efforts in fiscal years 2001-2002, most likely
through additional acquisitions and internal growth.
TeamStaff leases its 15,000 square foot corporate headquarters in
Somerset, New Jersey, as well as offices in Clearwater and Delray, Florida and
Houston, Texas. The Company also leases sales offices in New York City; Woburn,
Massachusetts; and El Paso, Texas. The facilities provide sufficient capacity to
meet demands for the foreseeable future. In the fiscal year ended September 30,
2000, the Company's total lease expenses were $988,000.
Although TeamStaff's offices are equipped with software and computer
systems, the Company is currently evaluating all systems including hardware and
will upgrade accordingly. At the Company's headquarters in Somerset, New Jersey,
one high speed Xerox printer produces 200,000 plus checks monthly for its client
base. This machine, which is integrated with the software system, does all of
the printing on the checks, including the client name, the employee, dates, as
well as the "Micro Encoding".
15
16
The following is summary information on the Company's facilities:
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET DATE TERMS
- -------- ----------- ---- -----
TeamStaff RX, Inc. (Houston) 4,610 7/01/02 $ 7,108 per month
2 Northpoint Drive,
Houston, TX
TeamStaff RX, Inc. (Clearwater) 19,361 5/31/05 $ 35,288 per month
1901 Ulmerton Road
Clearwater, FL
Staff ConnXions Southwest (El Paso) 3,126 3/31/02 $ 3,759 per month
4050 Rio Bravo, Suite 151
El Paso, TX
Corporate Office 15,244 9/30/07 $ 23,819 per month
300 Atrium Drive
Somerset, NJ
TeamStaff Solutions, Inc. 1,890 4/30/01 $ 3,082 per month
245 Fifth Avenue, Suite 2104
New York, NY
TeamStaff, Inc. 100 5/31/01 $ 548 per month
283 N. North Lake Suite 111
Altamonte Springs, FL
TeamStaff, Inc. 10,379 8/31/05 $ 19,905 per month
Suite 108
1690 South Congress Ave.
Delray Beach, FL
HR2, Inc. 1,900 9/14/05 $ 3,195 per month
400 West Cummings Park
Suite 4350
Woburn, MA
ITEM 3. LEGAL PROCEEDINGS
In October 1995, the Company entered into a note and finance agreement
with LNB Investment Corporation ("LNB") providing for the loan to the Company of
up to $3,000,000. LNB agreed not to sell or otherwise liquidate the shares the
Company provided as collateral unless the Company were to default under the loan
agreement and failed to cure such default after notice. A maximum of 2,142,857
shares were pledged as collateral.
The Company issued 509,524 shares in the name of LNB and delivered the
shares to a depository to secure the first portion of the loan of $1,000,000. In
January 1996, the Company determined that the shares pledged as collateral had
been transferred and sold in violation of the loan and finance agreement. As a
result, the financing agreement was terminated and never funded. Through the
efforts of the Company, 359,524 of these shares were recovered and the Company
received proceeds of $229,000 for a partial payment on the 150,000 shares not
recovered.
16
17
In March 1996, the Company commenced action against LNB, Donaldson,
Lufkin & Jenrette Securities Corporation and other individuals to recover
damages on account of the wrongful sale of the Company's common stock. On July
2, 1997, the Company settled the action. Without admitting or denying the
allegations in the complaint, the defendants agreed to pay $676,000 of which
$426,000 has been paid with the balance of $250,000 to be paid by LNB on or
before August 4, 1997. The payment was not made by LNB as of December 28, 1998.
The Company obtained a confession of judgment and a mortgage in the amount of
$625,000. The payments under the settlement agreement are in addition to
$229,000 previously received from LNB bringing the total recovered to
approximately $905,000, assuming LNB complies with the terms of the settlement
and remits the last payment of $250,000. To date, LNB has not complied with the
settlement agreement and the Company has undertaken various steps to secure
payment.
The Company's subsidiary, DSI Staff Connxions-Southwest, Inc., was a
defendant in a lawsuit (Frederico Farias v. Thomson Consumer Electronics and DSI
Staff Connxions-Southwest, Inc.; 327th Judicial District Case No. 96-3036;
District Court of El Paso County, Texas) whereby a former leased employee of a
client obtained a judgment against the Company during August, 1998 in the amount
of $315,000 including interest. The judgment included approximately $95,000 in
compensatory damages, $200,000 in punitive damages and $20,000 in pre-trail
interest. In November, 2000 the parties settled this case resulting in the
payment of $230,000 by the Company.
As previously disclosed, several of the entities operating under the
trade name "The TeamStaff Companies", which were acquired by the Company in
January 1999, were part of a class of defendants in a proceeding stemming from
the failure of the United States Employer Consumer Self Insurance Fund of
Florida ("USEC") in 1995. Several of the TeamStaff Companies had been members of
USEC, which was a self-insurance fund for workers' compensation. USEC was
declared insolvent in 1995. The action was entitled in Re: The Receivership of
United States Employer Consumer Self Insurance Fund of Florida, Case No. 95-2359
(FLA 2nd Cir Ct) and was brought by the Florida Department of Insurance, (the
"Department") as the receiver of the Fund. Because of management's knowledge of
the USEC proceedings and the amount of potential assessments at the time of
acquisition, the acquisition agreements governing the Company's acquisition of
the TeamStaff Companies provided indemnification by the sellers in favor of the
Company for damages of up to $1,222,000. The financial statements of the
TeamStaff Companies at the time of acquisition included a reserve of $391,000
for which the Company would be responsible for. On October 18, 1999 the Company
and the former shareholders of the TeamStaff Companies entered into an agreement
with the Department that settled all claims. The Company paid $391,000 to the
Department while the former shareholders of the TeamStaff Companies entered into
a payment plan with the Department for the remainder of the settlement amount in
excess of $391,000. On December 2, 1999 the receivership court, which had
jurisdiction over the lawsuit, approved the settlement agreement.
One of the Company's subsidiaries (TeamStaff V. Inc., formerly named
Employer Support Services Inc. which was acquired in January 1999) is party to a
litigation entitled Georgia Department of Insurance v. Peach State Pies et al
(Superior Court, Fulton County, GA Case No. E-37623). The litigation involves
the receivership proceedings related to the United States Employer Consumer
Group Self-Insurance Fund of Georgia ("USEC") of which TeamStaff V was a member.
To date TeamStaff V has paid approximately $113,000 to the receivership fund.
There can be no estimate of whether the receiver will request that former
members of the USEC fund contribute more to the fund. Under the terms of the
acquisition agreements governing the acquisition of the TeamStaff companies in
January 1999, the former shareholders agreed to indemnify the Company against
certain claims, including proceedings related to the Georgia USEC fund. Although
the Company seeks to obtain indemnification for payments made after the
acquisition (approximately $75,000 to date), there can be no assurance that it
will be able to collect all or any portion of the payments.
The Company is engaged in litigation from time to time during the
ordinary course of business in connection with employee suits, workers'
compensation and other matters. The Company is engaged in no other litigation,
the effect of which would be anticipated to have a material adverse impact on
the Company's financial conditions or results of operations.
17
18
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to our shareholders during the fourth quarter
of fiscal 2000.
PART II
ITEM 5. MARKET OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
A. PRINCIPAL MARKET
The Company's Common Stock is traded in the over-the-counter market and
included in the SmallCap Market System of the National Association of Securities
Dealers, Inc. ("NASDAQ") under the symbol "TSTF". Effective June 2, 2000 the
Company effected a reverse stock split at a rate of one (1) new share for each
existing 3.5 shares of TeamStaff common stock. All common shares and per share
amounts in the accompanying financial statements have been adjusted
retroactively to effect the reverse stock split.
B. MARKET INFORMATION
The range of high and low bid prices, which have been adjusted to
reflect the reverse stocks split of 3.5 to 1 effected in June 2000, for the
Company's Common Stock for the periods indicated below, are:
COMMON STOCK
FISCAL YEAR 1998 HIGH LOW
---------------- ---- ---
1st Quarter 9 13/32 5 1/4
2nd Quarter 8 55/64 6 1/8
3rd Quarter 8 41/64 5 15/32
4th Quarter 6 11/32 3 1/2
FISCAL YEAR 1999 HIGH LOW
---------------- ---- ---
1st Quarter 6 29/64 3 9/32
2nd Quarter 5 11/16 3 9/32
3rd Quarter 5 9/64 3 1/16
4th Quarter 5 1/4 3 1/2
FISCAL YEAR 2000 HIGH LOW
----------------- ---- ---
1st Quarter 5 1/32 2 5/8
2nd Quarter 7 21/32 4 3/8
3rd Quarter 7 21/64 3 1/2
4th Quarter 3 13/16 2 1/4
FISCAL YEAR 2001 HIGH LOW
---------------- ---- ---
1st Quarter 6 1/8 2 13/32
The above quotations, reported by NASDAQ, represent prices between
dealers and do not include retail mark-ups, mark-downs or commissions. Such
quotations do not necessarily represent actual transactions. On January 10,
2001, the Company's Common Stock had a closing price of $5.875 per share.
18
19
C. DIVIDENDS
The payment of cash dividends by the Company is restricted by the
Company's debt facility provider, FINOVA Capital Corporation ("FINOVA"). Without
FINOVA's prior written consent, which FINOVA may withhold in its sole
discretion, the Company may not declare or pay cash dividends upon any of its
stock. The Company has not declared any cash dividends on its common stock since
inception, and has no present intention of paying any cash dividends on its
common stock in the foreseeable future.
D. APPROXIMATED NUMBER OF EQUITY SECURITY HOLDERS
The approximate number of record holders of the Company's common stock
as of January 10, 2000 was 276. Such number of record holders was determined
from the Company's stockholder records, and does not include beneficial owners
of the Company's common stock whose shares are held in the names of various
security holders, dealers and clearing agencies. The Company believes there are
in excess of 4,100 beneficial holders of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
2000(3) 1999(2) 1998 1997 1996
------- ------- ---- ---- ----
Revenues $ 447,743,000 $ 244,830,000 $ 139,435,000 $ 122,559,000 $ 100,927,000
Direct Expenses 426,987,000 228,294,000 129,747,000 113,894,000 92,490,000
Gross Profit 20,756,000 16,536,000 9,688,000 8,665,000 8,437,000
Selling, General & Administrative
Expenses (includes Depreciation
and Amortization) 18,338,000 13,305,000 8,050,000 11,316,000 8,801,000
Income (Loss) From Operations 2,418,000 3,231,000 1,638,000 (2,651,000) (364,000)
Net Income (Loss) $ 951,000 $ 1,776,000 $ 2,703,000 $ (2,832,000) $ (597,000)
Earnings (Loss) per share(1)
Basic $ .12 $ .25 $ .49 $ (.52) $ (.12)
Diluted $ .12 $ .25 $ .49 $ (.52) $ (.12)
Weighted average shares
outstanding(1)
Basic 7,954,176 7,127,806 5,506,256 5,448,671 4,811,535
Diluted 7,990,912 7,145,390 5,543,799 5,448,671 4,811,535
BALANCE SHEET DATA:
Assets $ 49,514,000 $ 36,382,000 $ 16,648,000 $ 14,163,000 $ 14,800,000
Liabilities 31,455,000 19,417,000 8,774,000 9,291,000 7,632,000
Long-Term Debt 6,222,000 4,502,000 2,981,000 89,000 100,000
Working Capital (Deficiency) 3,065,000 2,968,000 3,319,000 (1,401,000) 286,000
Shareholders' Equity $ 18,059,000 $ 16,965,000 $ 7,874,000 $ 4,872,000 $ 7,168,000
19
20
(1) In accordance with Statement of Accounting Standards 128 ("SFAS"),
basic and diluted earnings (loss) per share have replaced primary and
diluted earnings (loss) per share.
(2) On January 25, 1999, the Company acquired the TeamStaff Companies
through the issuance of 2,352,381 shares of TeamStaff, Inc. common
stock and $3.2 million in cash in exchange for all capital stock of the
TeamStaff Companies and for the repayment of debt.
(3) On April 8, 2000, the Company acquired the assets of the Synadyne
division of Outsource International, Inc. for $3,500,000 plus a
potential earnout payment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL YEAR 2000 AS COMPARED TO FISCAL YEAR 1999
The Company's revenues for the fiscal year ended September 30, 2000 were
$447,743,000 as compared to fiscal year 1999 of $244,830,000, which represents
an increase of $202,913,000 or 82.9%. Of this increase, $114,300,000 was due to
the acquisition of the Synadyne assets, which were acquired in April, 2000,
while $37,500,000 was due to the full year impact of the acquisition of the
TeamStaff Companies which was completed in January, 1999. Internal growth
accounted for the remaining $51,113,000 increase in revenue, representing a
20.9% over fiscal 1999.
Direct expenses for fiscal 2000 were $426,987,000 as compared to $228,294,000
for fiscal year 1999, which represents an increase of $198,693,000 or 87%. As a
percentage of revenue, direct expenses for the fiscal years 2000 and 1999 were
95.4% and 93.2% respectively. These increases represent the higher direct
expenses associated with the increased PEO business as well as $838,000 in
increased workers' compensation charges necessary to reflect the changes in
estimates related to open workers' compensation periods prior to fiscal 2000,
covering the three year period from 1997 to 1999.
Gross profits were $20,756,000 and $16,536,000 for fiscal years 2000 and 1999,
respectively, representing an increase of $4,220,000 or 25.5%. As a result of
the $838,000 in workers' compensation charges discussed above and additional
workers' compensation exposure incurred in one of the Company's market centers,
the Company earned $1.9 million less in workers' compensation profits in fiscal
2000 versus fiscal 1999. For comparison purposes, these workers' compensation
profit figures do not include the Synadyne operations. The market center
mentioned above primarily services the construction industry and experienced
higher than normal workers' compensation losses in the fourth quarter of fiscal
2000. The Company is currently evaluating its options to mitigate future
exposure in this area. Gross profits, as a percentage of revenue, were 4.6% and
6.8% for fiscal years 2000 and 1999, respectively. A substantial portion of the
Company's revenue growth occurred in the PEO business which has lower gross
profit margins as a percentage of revenue compared to the rest of the Company's
operations but earns a higher dollar amount of gross profit.
Selling, general and administrative expenses ("SG&A") for fiscal 2000 increased
$4,824,000, or 39.6%. This increase is attributed to the Synadyne and TeamStaff
acquisitions, a $200,000 charge for noncash consulting expenses associated with
the issuance of warrants to consultants and a $230,000 charge associated with
the Farias settlement (see Item 3 in this Form 10-K). After adjusting for these
aforementioned increases, SG&A increased $1,209,000, 10% over the same period
last year. SG&A expenses as a percentage of revenue were 3.8% and 5.0% for the
fiscal years 2000 and 1999 respectively.
20
21
Depreciation and amortization increased $209,000, or 18.6%, in fiscal
2000 primarily due to the increase in amortization of intangible assets related
to the acquisition of the TeamStaff Companies and the assets of the Synadyne
operations completed in January, 1999 and April, 2000 respectively.
Interest expense in fiscal 2000 increased $468,000, or 41.3%, from
$1,133,000 in fiscal 1999 to $1,601,000 in fiscal 2000. This increase was due to
an increase in debt financing associated with the Company's acquisitions in
fiscal 1999 and 2000.
Income tax expense for fiscal 2000 was $428,000 versus $849,000 in
fiscal 1999. The lower tax expense is primarily attributable to lower earnings
in fiscal 2000. The fiscal 2000 income tax expense was reduced by $374,000 in
tax credits which are available to the Company. Additionally, the fiscal 1999
income tax expense was reduced by a $400,000 net tax benefit reflecting the
elimination of the remaining deferred tax valuation allowance. Management has
determined it is more likely than not that the deferred tax assets will be
realized in the future.
Net income for fiscal 2000 was $951,000 versus $1,776,000 in fiscal
1999. This decrease is attributable to the changes in estimates related to open
workers' compensation periods as well as the costs of warrants issued and the
Farias settlement. After adjusting for these charges, net income for fiscal 2000
would have been $1,672,000, or $.21 per share. Further impacting fiscal 2000's
performance was the lower overall level of profit from the Company's current
year workers' compensation program due to the higher losses suffered in one of
the Company's market centers.
In July, 2000, the Company made claims for indemnification against the
selling shareholders of the TeamStaff Companies, which were acquired by the
Company in January, 1999. As of January 8, 2001, these claims approximate
$1,000,000. The claims consist of various liabilities and expenses either
actually, or potentially to be, incurred based on breaches of representations
and warranties contained in the acquisition agreement. The sellers have disputed
these claims and have attempted to assert claims of their own. Under the terms
of the acquisition agreements, the sellers secured their indemnification
obligation by depositing 420,000 shares of the Company's common stock in escrow.
The Company believes that it has good and meritorious claims against the Sellers
and good and meritorious defenses to any of the sellers' claims against the
Company. However, there can be no assurance that the Company will obtain a
successful resolution of all of its claims. In the event that the Company is
obligated to pay third parties in respect of breaches for which it cannot obtain
indemnification from the former shareholders (or reimbursement of previously
paid sums) the Company's financial condition may be adversely impacted and may
have a material adverse effect on the Company's results of operations.
FISCAL YEAR 1999 AS COMPARED TO FISCAL YEAR 1998
The Company's revenues for the fiscal year ended September 30, 1999 were
$244,830,000 as compared to fiscal year 1998 of $139,435,000, which represents
an increase of $105,395,000 or 75.6%. Of this increase, $75,000,000 was due to
the acquisition of the TeamStaff Companies (the "Acquisition") with the balance
due to internal growth. PEO services accounted for 83.7% of the internal growth
with the remainder attributable to the Company's staffing business.
Direct expenses for fiscal year 1999 were $228,294,000 as compared to
$129,747,000 for fiscal year 1998 which represents an increase of $98,547,000 or
76%. This increase is associated with the increase in revenue due to the
Acquisition. As a percentage of revenue, direct expenses for the fiscal years
1999 and 1998 were 93.2% and 93.1%, respectively.
Gross profits were $16,536,000 and $9,688,000 for fiscal years 1999 and
1998, respectively. This represents an increase of $6,848,000 or 70.7%. Gross
profits, as a percentage of revenue, were 6.8% and 6.9% for fiscal years 1999
and 1998, respectively. Although a substantial portion of the Company's revenue
growth occurred
21
22
in the PEO business, which has lower gross profit margins, the gross profit as a
percentage of revenue declined only marginally because of improved performance
and increases in the Company's staffing business.
Selling, general and administrative expenses ("SG&A") for fiscal 1999
increased $4,792,000, or 64.9%. This increase is attributable to the
Acquisition. SG&A expenses as a percentage of revenue were 5.0% and 5.3% for the
fiscal years 1999 and 1998 respectively.
Depreciation and amortization increased $463,000, or 70% in fiscal 1999
primarily due to the increase in amortization of goodwill related to the
Acquisition.
Interest income increased $169,000 in fiscal 1999 versus fiscal 1998
primarily due to an increase of late fees paid in the Company's staffing
business. Also accounting for the increase in interest income is $54,000 in
interest from a note receivable which was previously not recognized due to
collectability concerns which have since been eliminated. The Company has also
increased interest income due to the investment of its increased cash reserves.
Interest expense in fiscal 1999 increased $579,000, or 104.5%, from
$554,000 in fiscal 1998 to $1,133,000 in 1999. This increase was due to an
increase in debt financing and its effective borrowing rate associated with the
Company's new financing arrangements, effective in April 1998, as well as the
additional debt associated with the Acquisition in January 1999.
Income tax expense for fiscal 1999 was $849,000 versus a tax benefit of
$1,296,000 in fiscal 1998, the later benefit related to a reduction in the
Company's valuation allowance. Included in the second quarter of fiscal 1999 is
a $400,000 net tax benefit reflecting the elimination of the remaining deferred
tax valuation allowance. Management has determined that it is more likely than
not that all the deferred tax asset will be realized in the future. Management
has considered the consistent nine quarters of profitability as well as the
current integration of the TeamStaff Companies.
Net income for fiscal 1999 was $1,776,000 versus $2,703,000 in fiscal
1998. This decrease is attributable to the recognition in fiscal 1998 of a net
tax benefit of $1,296,000. There was an increase in the Company's pre-tax income
of $1,218,000 which reflects the benefit of the Acquisition as well as the
improved performance in all of the Company's business lines.
FISCAL YEAR 1998 AS COMPARED TO FISCAL YEAR 1997
The Company's revenues for the fiscal year ended September 30, 1998
were $139,435,000 as compared to fiscal year 1997 of $122,559,000 which
represents an increase of $16,876,000 or 13.8%. This increase is due to the
efforts of the internal sales force to continually bring in new business which
accounted for all of the increase. PEO services accounted for 61% of the growth,
while the balance is attributed to the Company's staffing business.
Direct expenses for fiscal year 1998 were $129,747,000 as compared to
$113,894,000 for fiscal year 1997 which represents an increase of $15,853,000,
or 13.9%. This increase represents the corresponding higher costs associated
with higher revenues. As a percentage of revenue, direct expenses for the fiscal
year 1998 and 1997 were 93.1% and 92.9%, respectively.
Gross profits were $9,688,000 and $8,665,000 for fiscal 1998 and 1997,
respectively, for an increase of 11.8%. Gross profits, as a percentage of
revenue, were 6.9% and 7.1% for the fiscal years ended September 30, 1998 and
1997, respectively.
Selling, general and administrative costs ("SG&A") for fiscal 1998
decreased $2,917,000, or 28.3%, from $10,306,000 in fiscal 1997 to $7,389,000.
Of this decrease, $1,973,000 pertains to charges recorded in the second quarter
of fiscal 1997, $1,002,000 of which was to increase the bad debt reserve,
$300,000 to absorb miscellaneous charges, $102,000 to establish a vacation pay
accrual, $81,000 to change supplies accounting, $93,000 to establish a
22
23
reserve for severance costs and $395,000 for various other miscellaneous items.
Giving effect to these adjustments, SG&A decreased $944,000 which is
attributable to the reduction in overhead costs implemented in the fourth fiscal
quarter of 1997 as well as a reevaluation by management of the bad debt reserve
due to the payments on previously non performing accounts.
Depreciation and amortization decreased $349,000 in fiscal 1998 due to
several intangible assets that have become fully amortized in the current fiscal
year. The decrease was also attributable to the writing off of $261,000 in
intangible assets of Digital Insurance Services, Inc. which ceased operations in
the fiscal year 1997.
Interest expense for fiscal year 1998 increased $177,000 to $554,000
from $377,000 in fiscal 1997 due to an increase in debt financing and an
increase in the effective borrowing rate.
Income taxes for the fiscal year 1998 reflected a net tax benefit of
$1,296,000 primarily related to the reduction in the Company's valuation
allowance. As of September 30, 1997, the Company had established a deferred tax
valuation allowance of $2,680,000. In view of the continued earnings improvement
of the Company over the last four quarters and its current financial position
and prospects, the management determined in June of 1998 that it is more likely
than not that the majority of such valuation allowance will be realized. As of
September 30, 1998, the Company's valuation allowance approximated $400,000.
Net income for fiscal 1998 was $2,703,000 versus a net loss of
($2,832,000) in fiscal 1997. This increase is attributed to the $3.1 million in
adjustments recorded in fiscal 1997, the net tax benefit of $1,296,000 recorded
in fiscal 1998, the growth of all businesses and the overhead reductions
implemented in the fourth fiscal quarter of 1997.
LIQUIDITY AND CAPITAL RESERVES
Net cash provided by operating activities increased in fiscal 2000 by
$641,000 from $3,201,000 in fiscal 1999 to $3,842,000 in fiscal 2000. This
increase is primarily attributable to an increase in accrued expenses at year
end offset by an increase in accounts receivable, which are both attributable to
the previously mentioned acquisition and internal growth. Purchases of equipment
and leasehold improvements increased in fiscal 2000 by $237,000 primarily due to
the move to new locations of three of the Company's operations. The net cash
provided by financing activities increased in fiscal 2000 due to the financing
obtained for the acquisition of the Synadyne assets. The Company spent
$3,300,000 in cash plus the assumption of liabilities and occurrence of
acquisition costs approximating $300,000 in total. At September 30, 2000, the
Company had cash of $4,285,000, restricted cash of $375,000 and net accounts
receivable of $21,117,000.
The Company has a long-term credit facility from FINOVA Capital
Corporation totaling $12.5 million. The facility is comprised of (i) two
three-year term loans each for $2.5 million, with a five-year amortization, at
prime plus 3% (12.50% at September 30, 2000); (ii) a three-year term loan for
$4.0 million, with a five-year amortization, at prime plus 3% (12.50% at
September 30, 2000) and (iii) a $3.5 million revolving line of credit at prime
plus 1% (10.50% at September 30, 2000) secured by certain accounts receivable of
the Company. The credit facility is subject to success fees for each of the $2.5
million term loans in the amounts of $200,000, $225,000 and $250,000 due on the
anniversary dates of the loans. In addition, the $4.0 million term loan is
subject to annual success fees at the beginning of each loan year in the amount
of $500,000. On January 24 and April 27, 2000, the Company remitted success fees
in the amounts of $200,000 and $225,000 respectively.
In connection with the Synadyne acquisition, the two three-year term
loans, each for $2.5 million, have been extended to April 30, 2003 and March 1,
2003, respectively. The $4.0 million term loan consists of no principal payments
for the first six months and expires on April 30, 2003, with a balloon payment
at the end of the three years. The revolving line of credit expires on April 30,
2003.
23
24
Total outstanding debt as of November 30, 2000 and September 30, 2000
was $7,807,000 and $8,160,000 respectively.
On July 22, 1999, the Board of Directors authorized the Company to
repurchase up to 3% of the outstanding shares of the Company's common stock,
subject to the approval of the Company's lenders and any regulatory approval
required. As of June 30, 2000, the Company repurchased 35,400 shares at an
average cost of $3.84.
Management of the Company believes that its existing cash and available
borrowing capacity will be sufficient to support cash needs for the next twelve
months.
Inflation and changing prices have not had a material effect on the
Company's net revenues and results of operations in the last three fiscal years,
as the Company has been able to modify its prices and cost structure to respond
to inflation and changing prices.
ITEM 8. FINANCIAL STATEMENTS
See attached Financial Statements appearing on pages F-1 through F-19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company are as follows:
NAME AGE OFFICE
- ---- --- ------
Karl W. Dieckmann 72 Chairman of the Board of Directors
Rocco Marano 72 Director
Donald T. Kelly 51 Vice President, Chief Financial Officer
and Corporate Secretary
Senator John H. Ewing 80 Director
William J. Marino 57 Director
Donald W. Kappauf 54 President, Chief Executive Officer and Director
Charles R. Dees, Jr. 60 Director
Martin J. Delaney 57 Director
Kirk A. Scoggins 41 President-PEO Division, Director
24
25
On March 17, 1999, the Company held an Annual Meeting of its
Stockholders in Somerset, New Jersey. At this meeting the stockholders approved
a staggered Board of Directors consisting of three classes. Each class is
elected for a three-year term.
Pursuant to the agreement governing the acquisition of the TeamStaff
Companies, the former shareholders of the TeamStaff Companies were granted the
right to have Mr. Kirk Scoggins appointed as a Director of the Company. Mr.
Scoggins serves as the nominee of the former shareholders. In addition, the
Company agreed to consider a second nominee of the former shareholders. No
second nominee has been proposed.
Karl W. Dieckmann, Director of the Company since April, 1990, has been
Chairman of the Board since November, 1991. From 1980 to 1988, Mr. Dieckmann was
the Executive Vice President of Science Management Corporation and managed the
Engineering, Technology and Management Services Groups. From 1948 to 1980, Mr.
Dieckmann was employed by the Allied Signal Corporation (now Honeywell
Corporation) in various capacities including President, Semet Solvay Division;
Executive Vice President, Industrial Chemicals Division; Vice President
Technical -- Fibers Division; Group General Manager -- Fabricated Products
Division; and General Manager -- Plastics Division, as well as various positions
with the Chemicals Division.
Rocco Marano, joined the Board of Directors in July, 1999. Mr. Marano,
a prominent telecommunications executive, is the retired chairman and President
of Bellcore, Inc. a Bell Communications research and engineering entity formerly
owned by the seven Bell regional communications companies. His present
additional board affiliations include: Park Place Entertainment Corp. and
Computer Horizons Corp. He has also served as Chairman of Horizon Blue
Cross/Blue Shield of New Jersey.
Donald T. Kelly, has been Chief Financial Officer and Vice President of
Finance since he joined the Company on January 20, 1997. He was elected
Corporate Secretary in August of 1997. Mr. Kelly was Vice President and Chief
Financial Officer of Wireless Cable International and its predecessor company,
Cross Country Wireless, Inc. from 1993 to 1997. From 1987 to 1993, he was Vice
President of Finance and Administration at Potters Industries.
Senator John H. Ewing, has been a Director of the Company since April,
1990. Senator Ewing has been a State Senator for the state of New Jersey from
1978 to 1998. From 1968 to 1977, Senator Ewing was a New Jersey State
Assemblyman. From 1940 to 1968, he was employed by Abercrombie and Fitch Co.,
New York City, and eventually rose to the position of Chairman of the Board.
William J. Marino, President and Chief Executive Officer of Horizon
Blue Cross Blue Shield of New Jersey, joined the Board of Directors in October,
1995. He joined Horizon Blue Cross Blue Shield in 1992 and was named to his
present post in 1994. From 1968 to 1991, Mr. Marino held a variety of sales,
marketing and management positions with the Prudential Insurance Company of
America. He is currently Chairman of the Board of Trustees at St. Peter's
College and is Past Chairman of the Board of Trustees of the United Way of Essex
and West Hudson (NJ). He is also Past Chairman of the Board of Directors and
Executive Committee of the Regional Business Partnership, and a Trustee of the
New Jersey Network Foundation, New Jersey State Chamber of Commerce and the
Newark Museum.
Donald W. Kappauf became President and Chief Executive Officer of the
Company on December 16, 1997. Mr. Kappauf joined the Company in 1990 and has
held several senior management positions including Division President and
Executive Vice President. From 1988 to 1990, Mr. Kappauf was President of Perm
Staff/Temp Staff in Princeton, New Jersey. He was Assistant Vice President of
SMC Engineering and then President of SMC Personnel Support from 1968 to 1988.
Charles R. Dees, Jr. joined the Board of Directors in July, 1998. Mr.
Dees is a nationally known university administrator and former official of the
U. S. Department of Education. He is currently Senior Vice President for
Institutional Advancement of Fairleigh Dickinson University.
Martin J. Delaney also joined the Board of Directors in July, 1998. Mr.
Delaney is a prominent healthcare
25
26
executive presently serving as President, CEO and a director of the Long Island
Health Network in Long Island, New York.
Kirk A. Scoggins, the former President and Chairman of the TeamStaff
Companies, joined the Company with the acquisition of the TeamStaff Companies as
the President of the PEO Division and a member of the Board of Directors of the
Company. Mr. Scoggins is one of the original pioneers of the PEO industry. He
established one of Florida's first employee leasing companies based in Tampa in
1985. Mr. Scoggins is a member of the Strategic Planning Committee of the Board
and Past President of the National Association of Professional Employer
Organizations (NAPEO) and is also a founding member and Past President of the
Florida Association of Professional Employer Organizations (FAPEO). Pursuant to
the terms of the agreements governing the acquisition of the TeamStaff
Companies, Mr. Kirk Scoggins served as the nominee of the former stockholders of
such entities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Karl W. Dieckmann, John H. Ewing, Martin J. Delaney and William J.
Marino served on the Company's Compensation Committee during the last fiscal
year. There are no interlocks between the Company's Directors and Directors of
other companies.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended September 30, 2000, the Board of Directors
met on 8 occasions and acted by unanimous written consent on 8 occasions. The
Board of Directors is comprised of 8 persons and has 4 committees. Messrs.
Dieckmann, Ewing, Delaney and Marino are members of the Board's Compensation
committee. Messrs. Dieckmann, Ewing, Marano, and Dees are members of the Board's
Audit Committee. Messrs. Dieckmann, Kappauf and Marino are members of the
Board's Nominating Committee. Messrs. Marano, Dees, Delaney, Kappauf and
Scoggins are members of the Strategic Planning Committee. The Audit Committee,
the Nominating Committee, Compensation Committee and Strategic Planning
Committee of the Board of Directors met on 3, 1, 3 and 1 occasions,
respectively, during the fiscal year. No director failed to attend fewer then
75% of the Board or Committee meetings.
ITEM 11. EXECUTIVE COMPENSATION
The following provides certain summary information concerning
compensation paid or earned by the Company during the years ended September 30,
2000, 1999 and 1998 to the Company's Chief Executive Officer and each of the
executive officers of the Company who received in excess of $100,000 in
compensation during the last fiscal year.
LONG TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSTION YEAR SALARY BONUS OTHER OPTIONS/SAR'S
- -------------------------- ---- ------ ----- ----- -------------
Donald W. Kappauf, 2000 $230,126 $ 0 $17,251 57,143
Chief Executive Officer 1999 $225,154 $175,500 $14,876 14,286
1998 $173,308 $ 89,670 $16,991 57,143
Donald T. Kelly 2000 $165,500 $ 0 $12,231 14,286
Chief Financial Officer 1999 $157,115 $ 87,800 $ 6,000 14,286
1998 $145,038 $ 45,000 $ 6,000 14,286
Kirk A. Scoggins,(1) 2000 $176,561 $ 0 $ 9,600 0
President-PEO Division 1999 $139,348 $ 0 $ 6,277 28,571
26
27
George J. Eklund(2) 2000 $ 0 $ 0 $0 0
Director 1999 $100,153 $ 0 $0 0
1998 $210,000 $ 0 $0 0
Elizabeth Hoaglin 2000 $ 86,662 $ 92,050 $3600 4,286
1999 $ 67,362 $ 40,000 $3600 2,858
1998 $ 75,077 $ 20,000 $3600 0
(1) The 1999 salary includes Mr. Scoggin's compensation for the
President-PEO Division position as of January 25, 1999.
(2) Mr. Eklund's employment with the Company commenced on September 19,
1994. He assumed the position of Chief Executive Offices in March 1996.
In December 1997 due to health concerns, his position changed. Mr.
Eklund remained a Director until his resignation on January 14, 1999.
The Company provides normal and customary life and health insurance
benefits to all of its employees including executive officers. The Company has
a 401(k) plan, which is voluntary.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company are not compensated for
services in such capacity except under the Director Plan, as defined below.
Non-Employee Directors receive $1,000 per board meeting and $500.00 per
non-board meeting, related travel expenses, and $400 for each committee meeting.
The Directors' Plan also provides that directors, upon joining the Board, and
for one (1) year thereafter, will be entitled to purchase restricted stock from
the Company at a price equal to 80% of the closing bid price on the date of
purchase up to an aggregate purchase price of $50,000.
EMPLOYMENT AGREEMENT
The Company reached an agreement with Donald Kappauf on a two-year
renewal of Mr. Kappauf's employment agreement effective October 1,1999. Mr.
Kappauf will continue to serve as the Company's President and Chief Executive
Officer and will receive (i) annual compensation of $225,000 for the first year
of the agreement increasing at the discretion of the Compensation Committee; and
(ii) a bonus based on the achievement of certain performance criteria as
determined by the compensation committee. In addition, Mr. Kappauf receives
certain other benefits including insurance benefits and a car allowance.
The Company reached an agreement with Donald Kelly on a two-year
renewal of Mr. Kelly's employment agreement effective October 1, 1999. Mr. Kelly
will continue to serve as the Company's Vice President, Chief Financial Officer
and Corporate Secretary and will receive (i) annual compensation of $170,000 for
the first year of the agreement increasing at the discretion of the Compensation
Committee. and (ii) a bonus based on the achievement of certain performance
criteria as determined by the Compensation Committee. In addition, Mr. Kelly
receives certain other benefits including insurance benefits and a car
allowance.
The Company entered into a two-year agreement with Kirk Scoggins as of
January 25, 1999, the date the Company acquired the TeamStaff Companies. Mr.
Scoggins will serve as the President of the Company's Professional Employer
Organization and will receive (i) annual compensation of $175,000 for the first
year of the agreement increasing at the discretion of the Compensation
Committee. and (ii) a bonus based on the achievement of certain performance
criteria as determined by the Compensation Committee. In addition, Mr. Scoggins
receives certain other benefits including insurance benefits and a car
allowance.
27
28
OPTION/SAR GRANTS IN LAST FISCAL YEAR
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
PERCENTAGE OF
NO. OF SECURITIES TOTAL OPTIONS/
UNDERLYING GRANTED IN EXERCISE OF BASE
NAME OPTIONS GRANTED FISCAL YEAR PRICE PER SHARE EXPIRATION DATE
- ---- --------------- ----------- --------------- ---------------
Donald Kappauf 57,143 40% $3.8283 10/04/2004
Donald Kelly 14,286 10% $3.8283 10/04/2004
Elizabeth Hoaglin 4,286 3% $4.8125 01/03/2005
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth information with respect to the named
executive officers concerning exercise of stock options and SARs during the last
fiscal year and the value of unexercised options and SARs held as of the year
ended September 30, 2000.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS AS OF
ACQUIRED SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- ---- -------- -------- ------------- ----------------
Donald W. Kappauf 0 0 100,000/28,572 $0/$0
Donald T. Kelly 0 0 44,286/7,142 $0/$0
Kirk A. Scoggins 0 0 14,286/14,286 $0/$0
(1) Based upon a closing bid price of the Common Stock at $3 3/8 per share
on September 30, 2000.
STOCK OPTION PLANS
In April, 1990, the Board of Directors adopted the 1990 Employees Stock
Option Plan (the "1990 Plan") which was approved by shareholders in August,
1990. The 1990 Plan provided for the grant of options to purchase up to 285,714
shares of the Company's common stock. Under the terms of the 1990 Plan, options
granted thereunder may be designated as options which qualify for incentive
stock option treatment ("ISOs") under Section 422A of the Code, or options which
do not so qualify ("Non-ISO's").
In April 1990, the Board of Directors adopted the Non-Executive
Director Stock Option Plan (the "Director Plan") which was approved by
shareholders in August, 1991 and amended in March 1996. The Director Plan
provided for issuance of a maximum of 142,857 shares of common stock upon the
exercise of stock options arising under the Director Plan.
In April 1990, the Board of Directors adopted and in August, 1990, the
Company's shareholders approved the Senior Management Incentive Plan (the
"Management Plan") for use in connection with the issuance of stock, options and
other stock purchase rights to executive officers and other key employees and
consultants who render significant services to the Company and its subsidiaries.
A total of 1,428,571 shares of common stock were reserved
28
29
for issuance under the Management Plan.
2000 EMPLOYEE STOCK OPTION PLAN
In the last fiscal year, the Board of Directors and shareholders
approved the adoption of the 2000 Employees Stock Option Plan (the "2000 Plan")
to provide for the grant of options to purchase up to 1,714,286 shares of the
Company's common stock to all employees, including senior management. The 2000
Plan replaces the 1990 Employee Plan and Senior Management Plans, both of which
expired. Under the terms of the approved 2000 Plan, options granted thereunder
may be designated as options which qualify for incentive stock option treatment
("ISOs") under Section 422A of the Code, or options which do not so qualify
("Non-ISO's").
The 2000 Plan is administered by the Compensation Committee designated
by the Board of Directors. The Compensation Committee has the discretion to
determine the eligible employees to whom, and the times and the price at which,
options will be granted; whether such options shall be ISOs or Non-ISOs; the
periods during which each option will be exercisable; and the number of shares
subject to each option. The Committee has full authority to interpret the 2000
Plan and to establish and amend rules and regulations relating thereto.
Under the 2000 Plan, the exercise price of an option designated as an
ISO shall not be less than the fair market value of the common stock on the date
the option is granted. However, in the event an option designated as an ISO is
granted to a ten percent (10%) shareholder (as defined in the 2000 Plan), such
exercise price shall be at least 110% of such fair market value. Exercise prices
of Non-ISO options may be less than such fair market value.
The aggregate fair market value of shares subject to options granted to
a participant, which are designated as ISOs and which become exercisable in any
calendar year, shall not exceed $100,000.
The Compensation Committee may, in its sole discretion, grant bonuses
or authorize loans to or guarantee loans obtained by an optionee to enable such
optionee to pay the exercise price or any taxes that may arise in connection
with the exercise or cancellation of an option. The Compensation Committee can
also permit the payment of the exercise price in the common stock of the
Corporation held by the optionee for at least six months prior to exercise.
NON-EXECUTIVE DIRECTOR PLAN
In fiscal 2000, the Board of Directors and stockholders approved the
adoption of the 2000 Non-Executive Director Stock Option Plan (the "Director
Plan") to provide for the grant of options to non-employee directors of the
Company. Under the terms of the Director Plan, each non-executive director is
automatically granted an option to purchase 5,000 shares upon joining the Board
and each September lst, pro rata, based on the time the director has served in
such capacity during the previous year. The Directors' Plan also provides that
directors, upon joining the Board, and for one (1) year thereafter, will be
entitled to purchase restricted stock from the Company at a price equal to 80%
of the closing bid price on the date of purchase up to an aggregate purchase
price of $50,000. The Director Plan replaced the previous Director Plan which
expired in April, 2000.
Under the Director Plan, the exercise price for options granted under
the Director Plan shall be 100% of the fair market value of the common stock on
the date of grant. Until otherwise provided in the Stock Option Plan, the
exercise price of options granted under the Director Plan must be paid at the
time of exercise, either in cash, by delivery of shares of common stock of the
Company or by a combination of each. The term of each option commences on the
date it is granted and unless terminated sooner as provided in the Director
Plan, expires five (5) years from the date of grant. The Committee has no
discretion to determine which non-executive director or advisory board member
will receive options or the number of shares subject to the option, the term of
the option or the exercisability of the option. However, the Committee will make
all determinations of the interpretation of the Director Plan. Options granted
under the Director Plan are not qualified for incentive stock option treatment.
29
30
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth herein is a line graph comparing the total returns (assuming
reinvestment of dividends) of the Company's common stock, the Standard and Poor
Industrial Average, and an industry composite consisting of a group of four peer
issuers selected in good faith by the Company. The Company's common stock is
listed for trading in the NASDAQ SmallCap market and is traded under the symbol
"TSTF".
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
[COMPARISON LINE GRAPH]
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
TEAMSTAFF INC Cum $ $100 $266.67 $94.44 $47.20 $48.62 $43.67
S&P 500 Cum $ $100 $120.34 $169.01 $184.30 $235.54 $266.83
Peer Group Only Cum $ $100 $501.82 $419.42 $348.82 $191.26 $438.57
NOTES
(1) Assumes that the value of the investment in the Company's Common Stock and
each index was $100 on September 30, 1995 and that dividends were
reinvested at years ended September 30.
(2) Industry composite includes Employee Solutions, Administaff, Staff Leasing,
and Team America. The industry composite has been determined in good faith
by management to represent entities which compete with the Company in
certain of its significant business segments. Management does not believe
there are any publicly held entities which compete with all the Company's
business segments.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 8,
2001 with respect to each director, each of the named executive officers as
defined in Item 402(a)(3), and directors and executive officers of the Company
as a group, and to the persons known by the Company to be the beneficial owner
of more than five percent of any class of the Company's voting securities.
30
31
Number of Shares Percent of Company's
Name of Shareholder Presently Owned(1) Outstanding Stock
- ------------------- ------------------ -----------------
Karl W. Dieckmann(2) 91,641 1.15%
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873
Senator John H. Ewing(3) 36,607 *
76 Claremont Road
Barnardsville, NJ 07924
William J. Marino(4) 28,176 *
c/o Horizon Blue Cross
Blue Shield of New Jersey
3 Penn Plaza East
Newark, NJ 07105
Donald W. Kappauf(5)
c/o TeamStaff, Inc. 224,785 2.83%
300 Atrium Drive
Somerset, NJ 08873
Donald T. Kelly(6) 53,957 *
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873
4,740 *
Charles R. Dees, Jr. Phd(7)
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873
Rocco Marano(8) 12,971 *
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873
Martin J. Delaney(9) 35,165 *
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873
Kirk Scoggins(10) 953,409 11.99%
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873
31
32
Warren M. Cason(11) 634,473 7.98%
400 N. Ashley Drive, Suite 2300
Tampa, FL 33602
Warren M. Cason Jr.(12) 526,825 6.63%
Trustee of the Dorothy C. Cason
1997 Three Year Grantor Retained
Annuity Trust c/o Warren M. Cason
400 N. Ashley Drive, Suite 2300
Tampa, FL 33602
Dorothy Cason(13) 45,811 *
400 N. Ashley Drive, Suite 2300
Tampa, FL 33602
Melissa C. Scoggins(14) 206,149 2.59%
Trustee of the Kirk Allan Scoggins
1997 Three Year Grantor Retained Annuity Trust
All officers and directors as a group 1,441,451 18.13%
(9)persons (2,3,4,5,6,7,8,9,10)
* Less than 1 percent.
(1) Ownership consists of sole voting and investment power except as
otherwise noted.
(2) Includes options to purchase 5,714 shares of the Company's common
stock, and excludes unvested options to purchase 5,000 shares of common
stock.
(3) Includes options to purchase 5,714 shares of the Company's common
stock, and excludes unvested options to purchase 5,000 shares of common
stock.
(4) Includes options to purchase 5,714 shares of the Company's common
stock, and excludes unvested options to purchase 5,000 shares of common
stock.
(5) Includes options to purchase 114,286 shares of the Company's common
stock, and excludes unvested options to purchase 14,286 shares of
common stock.
(6) Includes options to purchase 51,429 shares of the Company's common
stock.
(7) Includes options to purchase 3,215 shares of common stock, and excludes
unvested options to purchase 5,000 shares of common stock.
(8) Includes options to purchase 2,857 shares of common stock, and excludes
unvested options to purchase 5,000 shares of common stock.
32
33
(9) Includes options to purchase 3,215 shares of common stock, and excludes
unvested options to purchase 5,000 shares of common stock.
(10) Mr. Scoggins received these shares as a former owner of the TeamStaff
Companies which were acquired by the Company on January 25, 1999. Mr.
Scoggins also joined the Company's Board of Directors on January 25,
1999. Of the 953,409 shares currently owned by Mr. Scoggins, 63,841
shares have been placed in escrow to indemnify the Company for certain
representations regarding TeamStaff Companies made by the former owners
of the TeamStaff Companies. Excludes unvested options to purchase
14,286 shares.
(11) Mr. Cason received these shares as a former owner of the TeamStaff
Companies which were acquired by the Company on January 25, 1999. Of
the 634,473 shares currently owned by Mr. Cason, 43,131 shares have
been placed in escrow to indemnify the Company for certain
representations regarding TeamStaff Companies made by the former owners
of the TeamStaff Companies.
(12) This Trust received these shares as a former owner of the TeamStaff
Companies which were acquired by the Company on January 25, 1999. Of
the 526,825 shares currently owned by this Trust, 35,816 shares have
been placed in escrow to indemnify the Company for certain
representations regarding TeamStaff Companies made by the former owners
of the TeamStaff Companies.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning employment agreements with and compensation
of the Corporation's executive officers and directors, see "Executive
Compensation". The Directors' Plan provides that directors, upon joining the
Board, and for one (1) year thereafter, will be entitled to purchase restricted
stock from the Company at a price equal to 80% of the closing bid price on the
date of purchase up to an aggregate purchase price of $50,000.
In January, 1999, the Company purchased 10 entities operating under the
tradename "The TeamStaff Companies". These entities were private companies owned
by Kirk Scoggins and Warren Cason and related trusts and affiliates. The former
shareholders of the TeamStaff Companies received approximately 2,352,381 shares
and $3,200,000 in consideration for selling the entities to the Company. Mr.
Scoggins serves as a Director of the Company and as President of the PEO
Division. See "Business" "Management Discussion and Analysis" and "Executive
Compensation"
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements and schedules of the Company are included in
Part II, Item 8 of this report beginning on page F-1 and including page
S-1.
2. All other schedules have been omitted since the required information
is not applicable or because the information required is included in
the Consolidated Financial Statements or the notes thereto.
3. Exhibit List
The exhibits designated with an asterisk (*) are filed herewith. All
other exhibits have been previously filed with the Commission and,
pursuant to 17 C.F.R. Secs. 20l.24 and 240.12b-32, are incorporated by
reference to the document referenced in brackets following the
descriptions of such exhibits.
33
34
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 -- Agreement for purchase of Temp-Staff, Inc. (Exhibit 3 to Form
8-K dated May 17, 1990).
2.2 -- Agreement for purchase of X-L Technical Corp. (Exhibit 2a to
Form 8-K dated October 31, 1990).
2.3 -- Plan and Agreement of Merger and Reorganization dated as of
October 29, 1998 among the Company, the Merger Corporations,
the TeamStaff Entities and certain individuals and trusts as
shareholders of the TeamStaff Entities (filed as Exhibit A to
Proxy Statement of Digital Solutions, Inc, dated November 12,
1998).
3.1 -- Amended and Restated Certificate of Incorporation of
Registrant (Filed as Exhibit A to Definitive Proxy Material
dated July 20, 1990).
3.1.1 -- Form of Amendment to Amended and Restated Certificate of
Incorporation (filed as Exhibit G to the Company's Proxy
Statement dated November 12, 1998 as filed with the Securities
and Exchange Commission).
3.2 -- By-Laws of Registrant (Exhibit 10.1 to Form 8-K dated March
2l, 1990)
10.2 -- Employment Agreement with Donald Kappauf (Exhibit 3 to Form
8-K dated May 17, 1990).
10.4 -- Agreement between Registrant and First Fidelity Bank, N.A.
(Exhibit 10.4 to Form 10-K for fiscal year ended September 30,
1991).
10.5 -- Agreement between Registrant and Midatlantic Banks, Inc. dated
October 11, 1991 (Exhibit 10.5 to Form 10-K for fiscal year
ended September 30, 1991).
10.6 -- Lease dated 10/15/91 for office space at 4041 Hadley Road,
South Plainfield, New Jersey (Exhibit 10.6 to Form 10-K for
fiscal year ended September 30, 1991).
10.7 -- Employment Agreement between Karl Dieckmann and the Company
dated November 1, 1991 (Exhibit 10.7 to Form 10-K for fiscal
year ended September 30, 1991).
10.8 -- Lease dated May 30, 1997 for office space at 300 Atrium,
Somerset, New Jersey (Exhibit 10.6.1 to Form 10-K for the
fiscal year ended September 30, 1997).
10.9 -- Employment agreement between George J. Eklund and the Company
dated March 12, 1996 (Exhibit 10.15.1 to Form 10-K for the
fiscal year ended September 30, 1997).
10.10 -- Amended employment agreement between George J. Eklund and the
Company dated December 16, 1997 (Exhibit 10.15.2 to Form 10-K
for the fiscal year ended September 30, 1997).
10.11 -- Employment Contract between David L. Clark and the Company
dated January 1, 1993.
10.12 -- Bridge financing between Katie and Adam Bridge Partners, L. P.
and the Company in June, 1993.
10.13 -- Sales representation agreement between Sid A. Robinson, III
and the Company dated April 14, 1993.
10.14 -- Agreement between Staff Leasing of Mississippi, Inc. and the
Company for the purchase of
34
35
business and assets dated November 4, 1993.
10.15 -- Employment agreement between George J. Eklund and the Company
dated September 19, 1994.
10.16 -- Seventh Amended Loan Agreement between Registrant and Summit
Bank and sixth amended Promissory Note (Exhibit 10.16.1 to
Form 10-K for the fiscal year ended September 30, 1997).
10.17 -- Loan and Security Agreement dated April 28, 1998 among Digital
Solutions, Inc. and FINOVA Capital Corporation (Filed as
Exhibit 10.17 to Form 10K filed January 12, 1999).
10.18 -- Secured Promissory Note in the principal amount of $2,500,000
dated April 28, 1998 in favor of FINOVA Capital Corporation
(Filed as Exhibit 10.18 to Form 10K filed January 12, 1999).
10.19 -- Stock Pledge Agreement (Security Agreement) dated April 28,
1998 between FINOVA Capital Corporation and Digital Solutions,
Inc. (Filed as Exhibit 10.19 to Form 10K filed January 12,
1999).
10.20 -- Employment Agreement between the Company and Kirk Scoggins
dated January 25, 1999 (Filed as Exhibit 10.1 to Form 8K dated
January 25, 1999).
10.21 -- Registration Rights Agreement between the Company and certain
former shareholders of the TeamStaff Companies dated as of
January 25, 1999 (Filed as Exhibit 10.2 to Form 8K dated
January 25, 1999).
10.22 -- Amended and Restated Loan and Security Agreement between the
Company and FINOVA Capital Corporation dated January 25, 1999
(Filed as Exhibit 10.3 to Form 8K dated January 25, 1999).
10.23 -- Amended and Restated Note in the principal amount of
$2,166,664 dated January 25, 1999 (Filed as Exhibit 10.4 to
Form 8K dated January 25, 1999).
10.24 -- Secured Note in the amount of $2,500,000 in favor of FINOVA
Capital Corporation dated January 25, 1999 (Filed as Exhibit
10.5 to Form 8K dated January 25, 1999).
10.25 -- Secured Note in the amount of $750,000 in favor of FINOVA
Capital Corporation dated January 25, 1999 (Filed as Exhibit
10.6 to Form 8K dated January 25, 1999).
10.26 -- Schedule to Amended and Restated Loan Agreement dated January
25, 1999 with FINOVA Capital Corporation (Filed as Exhibit
10.7 to Form 8K dated January 25, 1999).
10.27* -- Employment Agreement dated as of October 1, 1999 between the
Company and Donald Kelly.
10.28* -- Employment Agreement between the Company and Donald W. Kappauf
dated as of October 1, 1999.
10.29 -- Form of Asset Purchase Agreement dated as of April 7, 2000 by
and between TeamStaff, Inc., TeamStaff V, Inc., Outsource
International, Inc. and Synadyne I, Inc., Synadyne II, Inc.,
Synadyne III, Inc., Synadyne IV, Inc., Synadyne V, Inc.,
Guardian Employer East LLC and Guardian Employer West LLC.
(filed as Exhibit 3 to Form 8K dated April 7, 2000).
10.30 -- First Amendment to Amended and Restated Loan and Security
Agreement among TeamStaff, Inc. and its Subsidiaries as
Co-Borrowers and FINOVA Capital Corporation dated April 7,
2000. (filed as Exhibit 3 to Form 8K dated April 7, 2000).
35
36
10.31 -- Second Amended and Restated Secured Promissory Note A dated
April 7, 2000 in the principal amount of $1,541,659 payable to
FINOVA Capital Corporation. (filed as Exhibit 3 to Form 8K
dated April 7, 2000).
10.32 -- Amended and Restated Secured Promissory Note B dated April 7,
2000 in the principal amount of $1,899,996 payable to FINOVA
Capital Corporation. (filed as Exhibit 3 to Form 8K dated
April 7, 2000).
10.33 -- Secured Promissory Note C dated April 7, 2000 in the principal
amount of $4,000,000 payable to FINOVA Capital Corporation.
(filed as Exhibit 3 to Form 8K dated April 7, 2000).
21.0* -- Subsidiaries of Registrant.
23.1* -- Consent of Arthur Andersen LLP.
27.0* -- Financial Data Schedule.
(b) Reports on Form 8-K.
None
(c) Exhibits. See Item (a)(3) above.
(d) Financial Statement Schedule. See Schedule I annexed hereto.
36
37
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.
TEAMSTAFF, INC.
/s/Donald W. Kappauf
----------------------------------------
Donald W. Kappauf
President and Chief Executive Officer
Dated: January 10, 2001
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.
/s/Rocco Marano Director January 10, 2001
- ------------------------------
Rocco Marano
/s/Karl W. Dieckmann Chairman of the Board January 10, 2001
- --------------------------------
Karl W. Dieckmann
/s/John H. Ewing Director January 10, 2001
- ------------------------------------
Senator John H. Ewing
/s/William J. Marino Director January 10, 2001
- -----------------------------------
William J. Marino
/s/Charles R. Dees, Jr. Ph.D. Director January 10, 2001
- --------------------------------
Charles R. Dees, Jr. Ph.D.
/s/Martin J. Delaney Director January 10, 2001
- ----------------------------------
Martin J. Delaney
/s/Kirk A. Scoggins President-PEO January 10, 2001
- ---------------------------------
Kirk A. Scoggins Director
/s/Donald W. Kappauf President, Chief January 10, 2001
- ------------------------------- Executive Officer & Director
Donald W. Kappauf
/s/Donald T. Kelly Chief Financial Officer January 10, 2001
- ---------------------------------- & Corporate Secretary
Donald T. Kelly
37
38
TEAMSTAFF, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Report Of Independent Public Accountants F-2
Consolidated Balance Sheets As Of September 30, 2000 and 1999 F-3
Consolidated Statements Of Income For The Years Ended
September 30, 2000, 1999 and 1998 F-5
Consolidated Statements Of Shareholders' Equity For The Years Ended
September 30, 2000, 1999 and 1998 F-6
Consolidated Statements Of Cash Flows For The Years Ended
September 30, 2000, 1999 and 1998 F-7
Notes To Consolidated Financial Statements F-8
Schedule I -- Valuation And Qualifying Accounts For The Years Ended
September 30, 2000, 1999 and 1998 S-1
Schedules other than those listed above have been omitted as they are either not
required or because the related information has been included in the notes to
consolidated financial statements
F-1
39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
TeamStaff, Inc.:
We have audited the accompanying consolidated balance sheets of TeamStaff, Inc.
and subsidiaries as of September 30, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended September 30, 2000. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeamStaff, Inc. and
subsidiaries as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to the financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and regulations and is not a
required part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in our audit of the basic
consolidated 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 consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
December 29, 2000
F-2
40
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2000 AND 1999
ASSETS 2000 1999
------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $4,285,000 $1,948,000
Restricted cash 375,000 362,000
Accounts receivable, net of allowance for doubtful accounts
of $281,000 and $209,000 at September 30, 2000 and 1999 21,117,000 13,557,000
Deferred tax asset 1,566,000 1,464,000
Other current assets 955,000 552,000
---------- ----------
Total current assets 28,298,000 17,883,000
---------- ----------
EQUIPMENT AND IMPROVEMENTS:
Equipment 4,340,000 3,748,000
Leasehold improvements 209,000 100,000
---------- ----------
4,549,000 3,848,000
Less - accumulated depreciation and amortization 3,459,000 3,023,000
---------- ----------
1,090,000 825,000
DEFERRED TAX ASSET 153,000 328,000
INTANGIBLE ASSETS, net of accumulated amortization of $2,542,000
and $1,680,000 at September 30, 2000 and 1999 19,633,000 16,798,000
OTHER ASSETS 340,000 548,000
---------- ----------
$49,514,000 $36,382,000
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-3
41
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2000 AND 1999
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
------------------------------------ ---- ----
CURRENT LIABILITIES:
Current portion of long-term debt $1,938,000 $1,034,000
Accounts payable 7,062,000 2,924,000
Accrued expenses and other current liabilities 16,233,000 10,957,000
---------- ----------
Total current liabilities 25,233,000 14,915,000
LONG-TERM DEBT, net of current portion 6,222,000 4,502,000
---------- ----------
Total liabilities 31,455,000 19,417,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized 40,000,000 shares; issued 7,981,605
and 7,980,718; outstanding 7,946,205 and
7,962,418 at September 30, 2000 and 1999 8,000 8,000
Additional paid-in capital 21,297,000 21,093,000
Accumulated deficit (3,110,000) (4,061,000)
Treasury stock, 35,400 and 18,300 shares at cost as of September 30, 2000
and 1999 (136,000) (75,000)
---------- ----------
18,059,000 16,965,000
---------- ----------
$49,514,000 $36,382,000
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-4
42
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30,
2000 1999 1998
---- ---- ----
REVENUES $447,743,000 $244,830,000 $139,435,000
DIRECT EXPENSES 426,987,000 228,294,000 129,747,000
------------ ------------ ------------
Gross profit 20,756,000 16,536,000 9,688,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 17,005,000 12,181,000 7,389,000
DEPRECIATION AND AMORTIZATION 1,333,000 1,124,000 661,000
------------ ------------ ------------
Income from operations 2,418,000 3,231,000 1,638,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 584,000 492,000 323,000
Interest expense (1,601,000) (1,133,000) (554,000)
Other income/(expense) (22,000) 35,000 0
------------ ------------ ------------
(1,039,000) (606,000) (231,000)
------------ ------------ ------------
Income before income taxes 1,379,000 2,625,000 1,407,000
INCOME TAX (EXPENSE) BENEFIT (428,000) (849,000) 1,296,000
------------ ------------ ------------
Net income $951,000 $1,776,000 $2,703,000
============ ============ ============
EARNINGS PER SHARE - BASIC $0.12 $0.25 $0.49
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC 7,954,176 7,127,806 5,506,256
============ ============ ============
EARNINGS PER SHARE - DILUTED $0.12 $0.25 $0.49
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND EQUIVALENTS
OUTSTANDING - DILUTED 7,990,912 7,145,390 5,543,799
============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
43
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
Common Stock Additional Treasury Stock
----------------- Paid-In Accumulated --------------------
Shares Amount Capital Deficit Shares Amount Total
------ ------ ---------- ----------- ------ ------ -----
BALANCE, September 30, 1997 5,469,074 $5,000 $13,407,000 ($8,540,000) - $- $4,872,000
Common stock issued in connection
with financing 44,643 1,000 250,000 - - - 251,000
Common stock issued 16,807 - 49,000 - - - 49,000
Net income - - - 2,703,000 - - 2,703,000
--------- ------ ----------- ----------- ------ ------- ----------
BALANCE, September 30, 1998 5,530,524 6,000 13,706,000 (5,837,000) - - 7,875,000
Common stock sold 1,524 - 9,000 - - - 9,000
Common stock repurchased - - - - 18,300 (75,000) (75,000)
Exercise of stock options 5,714 - 16,000 - - - 16,000
Exercise of stock warrants 1,429 - 6,000 - - - 6,000
Common stock issued in
connection with acquisition 2,441,527 2,000 7,308,000 - - - 7,310,000
Non-cash compensation
expense related to warrants - - 44,000 - - - 44,000
Proceeds related to LNB
settlement, net of expenses - - 4,000 - - - 4,000
Net income - - - 1,776,000 - - 1,776,000
--------- ------ ----------- ----------- ------ ------- ----------
BALANCE, September 30, 1999 7,980,718 8,000 21,093,000 (4,061,000) 18,300 (75,000) 16,965,000
Exercise of stock options 887 - 4,000 - - - 4,000
Common stock repurchased - - - - 17,100 (61,000) (61,000)
Non-cash compensation
expense related to warrants - - 200,000 - - - 200,000
Net income - - - 951,000 - - 951,000
--------- ------ ----------- ----------- ------ ------- ----------
BALANCE, September 30, 2000 7,981,605 $8,000 $21,297,000 ($3,110,000) 35,400 ($136,000) $18,059,000
========= ====== =========== =========== ====== ========= ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
44
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30,
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $951,000 $1,776,000 $2,703,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities, net
of acquired businesses-
Deferred income taxes 73,000 600,000 (1,402,000)
Depreciation and amortization 1,333,000 1,124,000 661,000
Provision for doubtful accounts 162,000 27,000 (247,000)
Loss on disposal of equipment 24,000 0 0
Non-cash compensation expense 200,000 44,000 0
Changes in operating assets and liabilities, net of
acquired businesses-
Increase in accounts receivable (7,905,000) (4,016,000) (824,000)
(Increase) decrease in other current assets (220,000) 458,000 (289,000)
Decrease (increase) in other assets 197,000 225,000 (249,000)
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities 9,040,000 3,325,000 (1,139,000)
(Increase) decrease in restricted cash (13,000) (362,000) 738,000
---------- ---------- ----------
Net cash provided by (used in) operating
activities 3,842,000 3,201,000 (48,000)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (486,000) (249,000) (184,000)
Acquisition of businesses, net of cash acquired (3,314,000) (4,509,000) 0
---------- ---------- ----------
Net cash used in investing activities (3,800,000) (4,758,000) (184,000)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on line of credit 0 $1,015,000 $1,103,000
Proceeds from borrowings on long-term debt 4,000,000 2,500,000 2,500,000
Principal payments on long-term debt (1,055,000) (792,000) (167,000)
Payments on revolving line of credit (559,000) (663,000) (2,697,000)
Repayments on capital leases obligations (34,000) (45,000) (117,000)
Net proceeds from issuance of common stock, net of expenses 0 9,000 299,000
Net proceeds from the exercise of stock options and warrants 4,000 22,000 0
Repurchase of common shares (61,000) (75,000) 0
Proceeds from LNB settlement 0 4,000 0
---------- ---------- ----------
Net cash provided by financing activities 2,295,000 1,975,000 921,000
---------- ---------- ----------
Net increase in cash and cash equivalents 2,337,000 418,000 689,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,948,000 1,530,000 841,000
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $4,285,000 $1,948,000 $1,530,000
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $1,242,000 $790,000 $439,000
========== ========== ==========
Taxes $489,000 $374,000 $80,000
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH
TRANSACTIONS:
Borrowings under capital leases $272,000 $0 $0
========== ========== ==========
Fair value of warrants issued $200,000 $0 $0
========== ========== ==========
During 1999 the Company issued common stock valued at $7.3 million in connection
with the acquisition of the TeamStaff Companies.
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-7
45
TEAMSTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS:
TeamStaff, Inc. (the "Company"), formerly Digital Solutions, Inc.
("DSI") a New Jersey Corporation, with its subsidiaries, provides a
broad spectrum of human resource services including professional
employer services, payroll processing, human resource administration
and placement of temporary and permanent employees. The Company has
regional offices in Somerset, New Jersey; Houston and El Paso, Texas;
Woburn, Massachussetts; and Clearwater and Delray, Florida and sales
service centers in New York, New York; El Paso and Houston, Texas;
Delray and Clearwater, Florida; Woburn, Massachussetts; Atlanta,
Georgia; and Somerset, New Jersey.
Effective January 25, 1999, the Company acquired the ten entities
operating under the trade name, "The TeamStaff Companies". In
conjunction with the acquisition, the Company changed its name from
Digital Solutions, Inc., to TeamStaff, Inc.
Effective April 8, 2000, the Company acquired substantially all of the
assets of the professional employer organization division of Outsource
International, Inc. ("Outsource") which had operated under the trade
name "Synadyne".
Effective October 2, 2000, the Company acquired all the assets of the
professional employer organization ("PEO") business of HR2. This
acquisition is not significant to the accompanying consolidated
financial statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION-
The accompanying consolidated financial statements include the accounts
of TeamStaff, Inc., and its wholly-owned subsidiaries. The results of
operations of acquired companies within the period reflected have been
included in the consolidated financial statements from the date of
acquisition. All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
USE OF ESTIMATES-
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
REVENUE RECOGNITION-
The Company recognizes revenue in connection with its professional
employer organization program ("PEO") and its temporary placement
service program when the services have been provided. Revenues
represent the Company's billings to customers, with the corresponding
cost of providing those services reflected as direct expenses. Payroll
services, commissions and other fees for administrative services are
recognized as revenue as the related service is provided.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 (or "SAB 101"), "Revenue Recognition
in Financial Statements." SAB 101 summarizes certain of the SEC's views
in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company anticipates that the
adoption of SAB 101 will not have a significant impact on the
consolidated financial statements.
CONCENTRATIONS OF CREDIT RISK-
The Company's customer base consists of over 4,300 client companies,
representing approximately 54,400 employees (including payroll
services) as of September 30, 2000. The Company's client base is
broadly distributed throughout a wide variety of industries; however,
more than 70% of the customers in the payroll processing area are in
the construction industry and substantially all of TeamStaff-RX
customers are in the healthcare industry.
F-8
46
CASH EQUIVALENTS-
For purposes of the statements of cash flows, the Company considers all
liquid investments purchased with a maturity of three months or less to
be cash equivalents.
EQUIPMENT AND IMPROVEMENTS-
Equipment and improvements are stated at cost. Depreciation and
amortization are provided using the straight-line method over the
estimated useful asset lives (3 to 5 years) and the shorter of the
lease term or estimated useful life for leasehold improvements.
INTANGIBLE ASSETS-
Intangible assets consist of the following:
2000 1999
------------ -----------
Trade Name $ 4,700,000 $ 4,700,000
Goodwill 17,475,000 13,778,000
------------ -----------
22,175,000 18,478,000
Accumulated amortization (2,542,000) (1,680,000)
------------ -----------
$ 19,633,000 $16,798,000
============ ===========
Goodwill represents the excess of the cost of companies acquired over
the fair value of their net assets at the acquisition date and is being
amortized on a straight line basis over 20 to 25 years. Trade name is
being amortized on a straight line basis over 25 years. Amortization
expense charged to operations was approximately $864,000 for fiscal
year 2000, $598,000 for fiscal year 1999 and $247,000 for fiscal year
1998.
LONG-LIVED ASSETS-
The Company reviews it long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Management of the Company believes that
no such events or changes in circumstances have occurred. If such
events or changes in circumstances are present, a loss is recognized to
the extent that the carrying value of the asset is in excess of the sum
of the undiscounted cash flows expected to result from the use of the
asset and its eventual disposition.
The amount of impairment of goodwill and other intangibles would be
determined as part of the long-lived asset grouping being evaluated
utilizing undiscounted net income over the remaining life of the asset.
Where goodwill is identified with assets subject to an impairment loss,
the carrying amount of the identified goodwill would be eliminated
before making any reduction of the carrying amounts of the impaired
long-lived assets and identifiable intangibles.
WORKERS COMPENSATION-
The Company applies loss-development factors to its open years'
workers' compensation incurred losses in order to estimate
fully-developed losses.
INCOME TAXES-
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the differences between the financial statement and the tax basis of
assets and liabilities using enacted tax rates currently in effect.
F-9
47
STOCK-BASED COMPENSATION-
Stock-based compensation for employees and directors is recognized
using the intrinsic value method under APB No. 25. For disclosure
purposes, pro forma net income (loss) impacts are provided as if the
fair market value method has been applied.
EARNINGS PER SHARE-
Basic earnings per share is calculated by dividing income available to
common shareholders by the weighted average number of shares of common
stock outstanding during the period. Diluted earnings per share is
calculated by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period
adjusted to reflect potentially dilutive securities.
In accordance with SFAS 128, the following table reconciles net income
and share amounts used to calculate basic earnings per share and
diluted earnings per share:
Years Ended September 30,
2000 1999 1998
---- ---- ----
Numerator:
Net income $ 951,000 $1,776,000 $2,703,000
Denominator:
Weighted average number of common shares
outstanding - Basic 7,954,176 7,127,806 5,506,256
Incremental shares for assumed conversions
of stock options/warrants 36,736 17,584 37,543
Weighted average number of common and
equivalent shares outstanding-Diluted 7,990,912 7,145,390 5,543,799
Earnings per share - Basic and Diluted $ 0.12 $ 0.25 $ 0.49
Stock options and warrants outstanding at September 30, 2000 to
purchase 276,961 shares of common stock were not included in the
computation of Diluted EPS as they were antidilutive.
REVERSE STOCK SPLIT-
Effective June 2, 2000 the Company effected a reverse stock split at a
rate of one (1) new share for each existing 3.5 shares of TeamStaff
common stock. All common shares and per share amounts in the
accompanying financial statements have been adjusted retroactively to
effect the reverse stock split.
DERIVATIVES-
In June, 1998, the Financial Accounting Standards Board ("FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activity". SFAS No.
133, as amended by SFAS No. 137 and No. 138, establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The
Company believes that SFAS No. 133 will have no material impact on the
consolidated financial statements.
F-10
48
(3) INCOME TAXES:
At September 30, 2000, the Company has available operating loss
carryforwards of approximately $585,000 to reduce future periods' taxable
income. The carryforwards expire in various years beginning in 2004 and
extending through 2012. The Company also has tax credits available of
approximately $380,000 to reduce future taxable income that begin to
expire in 2020.
The Company has recorded a $1,719,000 and a $1,792,000 deferred tax asset
at September 30, 2000 and 1999, respectively. This represents
management's estimate of the income tax benefits to be realized upon
utilization of its net operating losses and tax credits as well as
temporary differences between the financial statement and tax bases of
certain assets and liabilities, for which management believes utilization
to be more likely than not. In fiscal 2000, the Company reduced the tax
provision by $374,000 for certain tax credits which were available to the
Company. In 1999 the Company's income tax expense was reduced by a
$400,000 net tax benefit reflecting the elimination of the remaining
deferred tax valuation allowance.
In order for the Company to realize the operating loss carryforward and
the tax credits, the Company would have to generate approximately
$1,600,000 in future taxable income. Management believes the Company's
operations can generate sufficient taxable income to realize this
deferred tax asset as a result of the past three years of profitability,
its ability to meet its operating plan as well as the resolution of past
problems which had adversely affected the Company's operations in prior
years.
An analysis of the Company's deferred tax asset is as follows-
2000 1999
---- ----
Net operating loss carryforwards and tax credits $574,000 $1,252,000
Workers' compensation reserves 530,000 205,000
Allowance for doubtful accounts 102,000 75,000
Depreciation expense 153,000 92,000
Other items, net 360,000 168,000
---------- ----------
Deferred income tax asset $1,719,000 $1,792,000
========== ==========
The components of the income tax expense (benefit) are summarized as
follows-
Years Ended September 30,
2000 1999 1998
---- ---- ----
Current expense $355,000 $249,000 $106,000
Deferred expense (benefit) 73,000 600,000 (1,402,000)
-------- -------- -----------
Total expense (benefit) $428,000 $849,000 ($1,296,000)
======== ======== ===========
The following table indicates the significant elements contributing to
the difference between the Federal statutory rates and the Company's
effective tax rate-
Years Ended September 30,
2000 1999 1998
---- ---- ----
Federal statutory rate 34% 34% 34%
State taxes, net of federal income tax benefit 8 7 5
Reversal of valuation allowance 0 (15) (134)
Tax credits (28) 0 0
Goodwill amortization 13 4 0
Other 4 2 3
-- -- ---
31% 32% (92%)
-- -- ---
(4) DEBT:
The Company has a long-term credit facility from FINOVA Capital
Corporation totaling $12.5 million. Substantially all assets of the
Company secure the credit facility. The facility is comprised of (i) two
three-year term loans each for $2.5 million, with a five-year
amortization, at prime plus 3% (12.50% at September 30, 2000); (ii) a
three-year term loan for $4.0 million, with a five-year amortization, at
prime plus 3% (12.50% at September 30, 2000) and (iii) a $3.5 million
revolving line of credit at
F-11
49
prime plus 1% (10.50% at September 30, 2000) secured by certain accounts
receivable of the Company. The credit facility is subject to success fees
for each of the $2.5 million term loans in the amounts of $200,000,
$225,000 and $250,000 due on the anniversary dates of the loan. In
addition the $4.0 million term loan is subject to annual success fees at
the beginning of each loan year in the amount of $500,000. The credit
facility is subject to certain covenants including, but not limited to, a
debt to net worth ratio, a minimum net worth and a minimum debt service
coverage ratio, as defined. On January 24 and April 27, 2000 the Company
remitted success fees in the amount of $200,000 and $225,000
respectively.
In connection with the Synadyne acquisition, the two three-year term
loans, each for $2.5 million, have been extended to April 30, 2003 and
March 1, 2003. The $4.0 million term loan consists of no principal
payments for the first six months and expires on April 30, 2003, with a
balloon payment at the end of the three years (See Note 5). The revolving
line of credit matures on April 30, 2003.
Long-term debt at September 30, 2000 and 1999 consists of the following-
2000 1999
---- ----
Revolving line of credit $899,000 $1,455,000
Term loans 6,983,000 4,041,000
Capital leases 278,000 40,000
---------- ----------
8,160,000 5,536,000
Less - Current portion (1,938,000) (1,034,000)
---------- ----------
$6,222,000 $4,502,000
========== ==========
Maturities of long-term debt as of September 30, 2000 are as follows-
Year Ending
September 30,
2001 $1,938,000
2002 2,040,000
2003 4,036,000
2004 53,000
2005 93,000
----------
$8,160,000
==========
(5) BUSINESS COMBINATIONS:
ACQUISITION OF SYNADYNE
On April 8, 2000 TeamStaff, Inc. acquired substantially all of the
assets of the professional employer organization ("PEO") division of
Outsource International, Inc. ("Outsource") which had operated under
the tradename "Synadyne". TeamStaff acquired the tradename "Synadyne"
as part of the transaction, as well as all of the customer contracts of
the PEO business. Under the terms of the purchase agreement, TeamStaff
paid an aggregate purchase price of $3,500,000, which included the
assumption of approximately $200,000 in liabilities. The Company also
incurred approximately $100,000 for acquisition related expenses. The
acquisition has been accounted for under the purchase method and the
results of operations of Synadyne have been included in the
consolidated financial statements since the date of acquisition. The
purchase price has been allocated based on the estimated fair value of
assets and liabilities at the date of the acquisition. The application
of the purchase method of accounting resulted in approximately
$3,700,000 in excess purchase price over net tangible assets acquired.
The excess of the purchase price over the net tangible assets acquired
has been allocated to goodwill which is being amortized over 25 years.
The agreement also provides for an additional potential payment in one
year of up to $1,250,000 provided that the former clients have at least
9,500 worksite employees as of March 31, 2001. In the event there are
less than 9,500 employees, the amount of the earnout will be reduced by
a pre-determined formula. As of September 30, 2000 the number of
worksite employees was approximately 8,000, which is subject to audit
by Outsource. Based upon the 8,000 worksite employees the earnout would
be reduced by approximately $750,000. Any subsequent payment would be
recorded when and if made.
ACQUISITION OF TEAMSTAFF COMPANIES
On January 25, 1999 TeamStaff, Inc., completed the acquisition of 10
entities operating as the TeamStaff Companies through the issuance of
2,352,381 shares of common stock and $3.2 million in cash in exchange
for all capital stock of the TeamStaff Companies and for the repayment
of debt. The Company also incurred $1.3 million for certain legal,
accounting and
F-12
50
investment banking expenses, which included 89,146 shares of common
stock which were granted to the investment banker. The acquisition has
been accounted for under the purchase method and the results of
operations of the acquired companies have been included in the
statements of income since the date of the acquisition. The purchase
price has been allocated based on the estimated fair value at the date
of the acquisition. The application of the purchase method of
accounting resulted in approximately $13.3 million in excess purchase
price over net tangible assets acquired. The excess of the purchase
price over the net tangible assets acquired has been allocated to trade
name ($4.7 million) and goodwill ($8.6 million) which are being
amortized over 25 years.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the acquired
companies as if the acquisitions had occurred October 1, 1998.
Fiscal Years Ended September 30,
--------------------------------
2000 1999
---- ----
Net Sales $554,325,000 $519,248,000
Operating Income 2,423,000 3,383,000
Net Income 531,000 1,299,000
Earnings per share - basic 0.07 0.16
Earnings per share - diluted 0.07 0.16
(6) ACCRUED EXPENSES AND
OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities at September 30, 2000 and
1999 consist of the following-
2000 1999
---- ----
Payroll and payroll taxes $11,736,000 $ 8,626,000
Worker's compensation insurance 1,997,000 1,006,000
Other 2,500,000 1,325,000
----------- -----------
$16,233,000 $10,957,000
=========== ===========
(7) COMMITMENTS AND CONTINGENCIES:
LEASES-
Minimum payments under noncancellable lease obligations at September
30, 2000 are as follows-
Year Ending
September 30,
2001 $1,128,145
2002 1,084,145
2003 1,052,828
2004 1,066,535
2005 895,150
Thereafter 640,248
----------
$5,867,051
==========
Rent expense under all operating leases was $988,000 in 2000, $794,000
in 1999 and $630,000 in 1998.
F-13
51
WORKERS' COMPENSATION POLICY-
In September 1998, the Company negotiated and settled with Liberty
Mutual Insurance Company for its liability on all workers' compensation
claims incurred during the three year period 1995, 1996 and 1997. In
return for terminating all future exposure under the Liberty Mutual
workers' compensation policy, the Company agreed to make a one-time
payment of approximately $919,000. The settlement was funded by
allocating $738,000 of the Company's restricted cash, which had been
used to collateralize a portion of the letter of credit to Liberty
Mutual and by internal funds of $181,000.
On April 1, 1997, the Company entered into a workers' compensation
policy under the terms of which the Company is required to fund the
anticipated loss reserves on a current basis. On April 1, 1999, the
Company terminated its program with the insurance carrier and
consolidated its workers' compensation program under a new carrier who
had been the carrier for the TeamStaff Companies.
LEGAL PROCEEDINGS-
The Company's subsidiary, DSI Staff Connxions-Southwest, Inc., was the
defendant in a lawsuit (Frederico Farias v. Thomson Consumer
Electronics and DSI Staff Connxions-Southwest, Inc.; 327th Judicial
District Case No. 96-3036; District Court of El Paso County, Texas)
whereby a former leased employee of a client obtained a judgment
against the Company during August, 1998 in the amount of $315,000
including interest. The judgment includes approximately $95,000 in
compensatory damages, $200,000 in punitive damages and $20,000 in
pre-trial interest. The Company posted a bond for the full amount of
the judgment plus accrued interest and appealed the judgement. On May
31, 2000 the Company was notified that it lost its initial appeal. The
Company filed another appeal to the Texas Supreme Court. In November,
2000 the parties settled this case resulting in the payment of $230,000
by the Company which has been accrued for as of September 30, 2000.
One of the Company's subsidiaries (TeamStaff V. Inc., formerly named
Employer Support Services Inc.) which was acquired in January 1999 is
party to a litigation entitled Georgia Department of Insurance v. Peach
State Pies et al (Superior Court, Fulton County, GA Case No. E-37623).
The litigation involves the receivership proceedings related to the
United States Employer Consumer Group Self-Insurance Fund of Georgia
("USEC") of which TeamStaff V was a member. To date TeamStaff V has
paid approximately $113,000 to the receivership fund. There can be no
estimate of whether the receiver will request that former members of
the USEC fund contribute more to the fund. Under the terms of the
acquisition agreements governing the acquisition of the TeamStaff
companies in January 1999, the former shareholders agreed to indemnify
the Company against certain claims, including proceedings related to
the Georgia USEC fund. Although the Company seeks to obtain
indemnification for payments made after the acquisition (approximately
$75,000 to date), there can be no assurance that it will be able to
collect all or any portion of the payments.
In July, 2000, the Company made claims for indemnification against the
selling shareholders of the TeamStaff Companies, which were acquired by
the Company in January, 1999. As of January 8, 2001, these claims
approximate $1,000,000. The claims consist of various liabilities and
expenses either actually, or potentially to be, incurred based on
breaches of representations and warranties contained in the acquisition
agreement. The sellers have disputed these claims and have attempted to
assert claims of their own. Under the terms of the acquisition
agreements, the sellers secured their indemnification obligation by
depositing 420,000 shares of the Company's common stock in escrow. The
Company believes that it has good and meritorious claims against the
sellers and good and meritorious defenses to any of the sellers' claims
against the Company. However, there can be no assurance that the
Company will obtain a successful resolution of all of its claims. In
the event that the Company is obligated to pay third parties in respect
of breaches for which it cannot obtain indemnification from the former
shareholders (or reimbursement of previously paid sums) the Company's
consolidated financial condition may be adversely impacted and may have
a material adverse effect on the Company's consolidated results of
operations.
At September 30, 2000 the Company is involved in various other legal
proceedings incurred in the normal course of business. In the opinion
of management, after consultation with its counsel, none of these
proceedings would have a material effect, if adversely decided, on the
consolidated financial position or results of operations of the
Company.
(8) SHAREHOLDERS' EQUITY:
During 2000 and 1999, the Company repurchased 17,100 and 18,300
shares of its common stock for $61,000 and $75,000 respectively.
F-14
52
STOCK WARRANTS-
The following is a summary of the outstanding warrants to purchase the
Company's common stock at September 30, 2000 as a result of various
debt and equity offerings that have occurred since the Company's
inception:
Number of Shares of
Exercise Period Exercise Period Exercise Price Per Common Stock
From To Common Share Reserved
October 1991 October 2001 2.63 28,571
October 1995 October 2000 7.88 7,144
December 1995 December 2000 5.47 1,429
June 1996 June 2001 9.45 60,564
February 1998 February 2003 7.20 7,143
January 1999 January 2004 5.25 21,429
November 1999 November 2002 4.15 100,000
-------
226,280
=======
During the fiscal year ended September 30, 2000, the Company granted
100,000 additional warrants and 2,257 warrants expired, unexercised.
For warrants issued to third parties for services, the Company utilizes
the Black-Scholes option pricing model to determine fair value and
compensation expense. The fair value of current year grants was
determined to be $200,000 which has been included in selling, general
and administrative expenses in the accompanying statement of income for
the year ended September 30, 2000.
STOCK OPTION PLANS -
The 1990 Employees Stock Option Plan (the "1990 Plan") provided for the
grant of options to purchase up to 285,714 shares of the Company's
common stock. Under the terms of the 1990 Plan, options granted
thereunder may be designated as options which qualify for incentive
stock option treatment ("ISOs") under Section 422A of the Code, or
options which do not so qualify ("Non-ISO's").
The 1990 Non-Executive Director Stock Option Plan (the "Director Plan")
provided for issuance of a maximum of 142,857 shares of common stock
upon the exercise of stock options arising under the Director Plan.
The 1990 Senior Management Incentive Plan (the "Management Plan")
provided for the issuance of stock, options and other stock purchase
rights to executive officers and other key employees and consultants
who render significant services to the Company and its subsidiaries. A
total of 1,428,571 shares of common stock were reserved for issuance
under the Management Plan.
2000 EMPLOYEE STOCK OPTION PLAN
During 2000, the Board of Directors and shareholders approved the
adoption of the 2000 Employees Stock Option Plan (the "2000 Plan") to
provide for the grant of options to purchase up to 1,714,286 shares of
the Company's common stock to all employees, including senior
management. The 2000 Plan replaces the 1990 Employee Plan and Senior
Management Plans, both of which expired. Under the terms of the 2000
Plan, options granted thereunder may be designated as options which
qualify for incentive stock option treatment ("ISOs") under Section
422A of the Code, or options which do not so qualify ("Non-ISO's").
The 2000 Plan is administered by the Compensation Committee designated
by the Board of Directors. The Compensation Committee has the
discretion to determine the eligible employees to whom, and the times
and the price at which, options will be granted; whether such options
shall be ISOs or Non-ISOs; the periods during which each option will be
exercisable; and the number of shares subject to each option. The
Committee has full authority to interpret the 2000 Plan and to
establish and amend rules and regulations relating thereto.
Under the 2000 Plan, the exercise price of an option designated as an
ISO shall not be less than the fair market value of the common stock on
the date the option is granted. However, in the event an option
designated as an ISO is granted to a ten percent (10%) shareholder, as
defined, such exercise price shall be at least 110% of such fair market
value. Exercise prices of Non-ISO options may be less than such fair
market value.
F-15
53
The aggregate fair market value of shares subject to options granted to
a participant, which are designated as ISOs and which become
exercisable in any calendar year, shall not exceed $100,000.
The Compensation Committee may, in its sole discretion, grant bonuses
or authorize loans to or guarantee loans obtained by an optionee to
enable such optionee to pay the exercise price or any taxes that may
arise in connection with the exercise or cancellation of an option. The
Compensation Committee can also permit the payment of the exercise
price in the common stock of the Corporation held by the optionee for
at least six months prior to exercise.
NON-EXECUTIVE DIRECTOR PLAN
In fiscal 2000, the Board of Directors and stockholders approved the
adoption of the 2000 Non-Executive Director Stock Option Plan (the
"Director Plan") to provide for the grant of options to non-employee
directors of the Company. Under the terms of the Director Plan, each
non-executive director is automatically granted an option to purchase
5,000 shares upon joining the Board and each September lst, pro rata,
based on the time the director has served in such capacity during the
previous year. The Directors' Plan also provides that directors, upon
joining the Board, and for one (1) year thereafter, will be entitled to
purchase restricted stock from the Company at a price equal to 80% of
the closing bid price on the date of purchase up to an aggregate
purchase price of $50,000. The Director Plan replaced the previous
Director Plan which expired in April, 2000.
Under the Director Plan, the exercise price for options granted under
the Director Plan shall be 100% of the fair market value of the common
stock on the date of grant. Until otherwise provided, the exercise
price of options granted under the Director Plan must be paid at the
time of exercise, either in cash, by delivery of shares of common stock
of the Company or by a combination of each. The term of each option
commences on the date it is granted and unless terminated sooner as
provided in the Director Plan, expires five (5) years from the date of
grant. The Compensation Committee has no discretion to determine which
non-executive director will receive options or the number of shares
subject to the option, the term of the option or the exercisability of
the option. However, the Committee will make all determinations of the
interpretation of the Director Plan. Options granted under the Director
Plan are not qualified for incentive stock option treatment.
The following tables summarize the activity in the Company's stock
option plans for the years ended September 30, 2000, 1999 and 1998:
NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE
OF SHARE EXERCISE PRICE FAIR VALUE
-------- -------------- ----------
Options outstanding, September 30, 1997 241,250 $9.52
Granted 74,286 6.83 $3.68
Cancelled (28,071) 9.77
------- ----
Options outstanding, September 30, 1998 287,465 8.82
Granted 116,857 3.85 $2.10
Exercised (5,715) 2.84
Cancelled (143,893) 10.82
-------- -----
Options outstanding, September 30, 1999 254,714 5.57
Granted 144,543 4.44 $2.49
Exercised (887) 4.51
Cancelled (46,829) 6.36
------- ----
Options outstanding, September 30, 2000 351,541 $5.00
------- -----
As of September 30, 2000 and 1999, 211,973 and 134,429 options,
respectively, were exercisable.
WEIGHTED WEIGHTED WEIGHTED
RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 9/30/00 LIFE PRICE AT 9/30/00 PRICE
------ ---------- ---- ----- ---------- -----
$2.63 - 3.83 170,005 4.0 $3.63 75,859 $ 3.68
$4.05 - 5.91 59,251 3.5 $4.48 42,400 $ 4.39
$6.34 - 9.45 118,000 2.8 $6.81 89,429 $ 6.79
$13.65 - 19.92 4,285 .9 $15.53 4,285 $15.53
F-16
54
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which was
effective October 1, 1996, the fair value of option grants is estimated
on the date of grant using the Black-Scholes option-pricing model for
proforma footnote purposes with the following assumptions; dividend
yield of 0%, risk-free interest rate of 5.73% and expected option life
of 4 years. Expected volatility was assumed to be 69%, 68% and 64% in
2000, 1999 and 1998, respectively.
As permitted by SFAS 123, the Company has chosen to continue to account
for its employee stock-based compensation at their intrinsic value in
accordance with Accounting Principle Board Opinion No. 25. Accordingly
no compensation expense has been recognized for its stock option
compensation plans. Had the fair value method of accounting been
applied to the Company's stock option plans, the tax-effected impact
would be as follows:
(Thousands of dollars except per share amounts) 2000 1999 1998
- ----------------------------------------------- ---- ---- ----
Net income as reported $ 951 $ 1,776 $ 2,703
Estimated fair value of option grants, net of tax (206) (153) (82)
------- ------- -------
Net income adjusted $ 745 $ 1,623 $ 2,621
------- ------- -------
Adjusted earnings per share - Basic $ 0.09 $ 0.23 $ 0.48
======= ======= =======
Adjusted earnings per share - Diluted $ 0.09 $ 0.23 $ 0.47
======= ======= =======
(9) SEGMENT REPORTING:
During fiscal 1999, the Company adopted the provisions of the Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information: ("SFAS No. 131"). SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures about products, geographic information and major customers.
The Company operates three different lines of business: Professional Employer
Organization (PEO), temporary staffing and payroll services. Each business is
managed by individual executives.
The PEO segment provides services such as payroll processing, personnel and
administration, benefits administration, workers' compensation administration,
and tax filing services to small business owners. Essentially, in this business
segment, the Company provides services that function as the human resource
department for small to medium sized companies wherein the Company becomes a
co-employer.
The Company provides two forms of temporary staffing: one for technical
employees such as engineers, information systems specialists and project
managers and another for medical specialists, such as radiologic technologists,
diagnostic sonographers, cardiovascular technologists, radiation therapists and
other medical professionals with hospitals, clinics and therapy centers.
Temporary staffing enables clients to attain management and productivity goals
by matching highly trained professionals and technical personnel to specific
project requirements.
Through its payroll services business segment, the Company provides basic
payroll services to its clients, 70% of whom are in the construction industry.
Services provided include the preparation of payroll checks, filing of taxes,
government reports, W-2's, remote processing directly to the client's offices
and certified payrolls.
Corporate is a separate unit which reflects all corporate expenses, amortization
of recently acquired goodwill, interest expense on all debt as well as
depreciation on corporate assets and miscellaneous charges.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates the
performance of its business lines based on pre-tax income.
F-17
55
The following table represents the financial results for each of the Company's
segments:
Professional
Employer Temporary Payroll
Services Staffing Services Corporate Consolidated
-------- -------- -------- --------- ------------
2000
Revenues $ 392,760,000 $ 51,225,000 $ 3,758,000 $-- $447,743,000
Depreciation and amortization 249,000 233,000 124,000 727,000 1,333,000
Income/(loss) from operations 153,000 5,473,000 1,402,000 (4,609,000) 2,419,000
Interest income -- 473,000 -- 111,000 584,000
Interest expense -- -- -- (1,601,000) (1,601,000)
Other expense (22,000) -- -- -- (22,000)
Income/(loss) before income taxes 131,000 5,946,000 1,401,000 (6,099,000) 1,379,000
Capital spending 147,000 232,000 -- 107,000 486,000
Total assets 16,683,000 11,676,000 660,500 20,494,500 49,514,000
1999
Revenues $ 204,797,000 $ 36,421,500 $ 3,611,500 $-- $244,830,000
Depreciation and amortization 265,000 208,000 122,000 529,000 1,124,000
Income/(loss) from operations 2,641,000 3,324,000 1,477,500 (4,211,500) 3,231,000
Interest income 77,000 350,000 -- 65,000 492,000
Interest expense -- -- -- (1,133,000) (1,133,000)
Other income 35,000 -- -- 35,000
Income/(loss) before income taxes 2,753,000 3,674,000 1,477,500 (5,279,500) 2,625,000
Capital spending 10,000 72,000 2,000 165,000 249,000
Total assets 11,371,000 6,651,000 660,500 17,699,500 36,382,000
1998
Revenues $ 104,193,000 $ 31,706,000 $ 3,536,000 $-- $ 139,435,000
Depreciation and amortization 165,000 184,000 121,000 191,000 661,000
Income/(loss) from operations 1,338,500 2,011,000 1,444,500 (3,156,000) 1,638,000
Interest income 35,000 240,000 -- 48,000 323,000
Interest expense -- -- -- (554,000) (554,000)
Income/(loss) before income taxes 1,373,500 2,251,000 1,444,500 (3,662,000) 1,407,000
Capital spending -- 87,000 19,000 78,000 184,000
Total assets 4,500,000 4,559,000 598,000 6,991,000 16,648,000
The Company has no revenue derived outside of the United States.
F-18
56
(10) QUARTERLY FINANCIAL DATA (UNAUDITED):
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal 2000
Net revenues $ 82,222,000 $ 79,602,000 $137,316,000 $148,603,000
Gross profit 4,884,000 4,497,000 5,625,000 5,750,000
Net income 428,000 198,000 310,000 15,000
Earnings per share
Basic $ 0.05 $ 0.02 $ 0.04 $--
Diluted $ 0.05 $ 0.02 $ 0.04 $--
Fiscal 1999
Net revenues $ 39,699,000 $ 55,248,000 $ 70,747,000 $ 79,136,000
Gross profit 2,994,000 3,610,000 4,776,000 5,156,000
Net income 335,000 527,000 489,000 425,000
Earnings per share
Basic $ .06 $ .07 $ .06 $ .05
Diluted $ .06 $ .07 $ .06 $ .05
F-19
57
SCHEDULE I
TEAMSTAFF, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(c) Additions
Charged to
(b) Balance at (reversed (d)
Beginning of from) Costs Deductions - (e) Balance
(a) Description Year and Expenses Net Write-Offs at End of Year
Allowance for doubtful
accounts, year ended-
September 30, 2000 $209,000 $162,000 ($90,000) $281,000
======== ======== ======== ========
September 30, 1999 $284,000 $27,000 ($102,000) $209,000
======== ======== ======== ========
September 30, 1998 $862,000 ($247,000) ($331,000) $284,000
======== ======== ======== ========
S-1