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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, 2001
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]
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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 8, 2002 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 $60,344,000 based upon the
average bid and asked price for such Common Stock on said date as reported by
Nasdaq National Market. On such date, there were 16,252,444 shares issued and
outstanding of Common Stock of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
[Cover Page 2 of 2 Pages]
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PART I
ITEM 1. BUSINESS
INTRODUCTION
TeamStaff, Inc. (referred to as the "Company"), 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") services to a wide variety of industries in 50 states.
TeamStaff's wholly-owned subsidiaries include TeamStaff Solutions, Inc., DSI
Staff ConnXions-Northeast Inc., DSI Staff ConnXions-Southwest Inc., 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., HR2, Inc., and BrightLane.com, Inc.
("BrightLane") (collectively referred to, with TeamStaff, as the "Company").
The Company currently provides five 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 human resource services, such as
payroll processing and tax filing; (3) contract staffing, or the placement of
temporary and permanent employees; (4) temporary staffing for medical
profession; and (5) voucher processing services. TeamStaff currently furnishes
PEO employees, payroll and contract staffing services to over 3,700 client
organizations with approximately 21,000 worksite employees, 750 staffing
employees and processing for approximately 33,000 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. BrightLane, a recently acquired business unit, provides
an online business center and technology group providing Internet-based
solutions for growing businesses. The Company has six regional offices located
in Somerset, New Jersey; Houston, Texas; Woburn, Massachusetts; Alpharetta,
Georgia; and Delray and Clearwater, Florida and seven sales service centers in
New York, New York; Houston, Texas; Delray and Clearwater, Florida; Woburn,
Massachusetts; Alpharetta, Georgia; and Somerset, New Jersey.
Recognizing the desire by many small businesses to be relieved of 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 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.
Management has determined to emphasize the Company's future growth in
the PEO and outsourcing industry. The Company's expansion program focuses 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. While
TeamStaff continues to sell stand-alone employer services, such as payroll and
tax filing, it emphasizes 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
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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
BRIGHTLANE ACQUISITION
Effective August 31, 2001, the Company acquired BrightLane, an Online
Business Center (OBC) and technology group providing Internet-based solutions
for growing businesses. Developed technology focused on increasing buying power
and reducing transaction costs. This technology is now being refocused to drive
a new venture for the Company called TeamStaff ConnXions. TeamStaff ConnXions
will be a conduit to both the clients and employees of the Company offering a
variety of services through strategic partners such as web page developers, a
full line of insurance and benefit products and procurement services. BrightLane
integrates these services through proprietary unified login and hub technology
that offers businesses security. BrightLane is also spearheading the technology
efforts of the Company, most specifically in terms of the implementation of the
Lawson software package the Company has licensed.
Other than payments for fractional shares, the shareholders of
BrightLane receive an aggregate of 8,066,522 shares of TeamStaff's Common Stock
in exchange for their BrightLane Common Stock, Series A Preferred, Series B
Preferred and Series C Preferred stock. The exchange ratios (rounded) and
aggregate shares for the classes of BrightLane capital stock were as follows:
Title of BrightLane Aggregate
Capital Stock Exchange Ratio TeamStaff Shares
------------------- -------------- ----------------
Common Stock (less fractional shares) 0.2314549 1,601,622
Series A Preferred Stock 22.7740000 874,295
Series B Preferred Stock 1.9410000 3,334,117
Series C Preferred Stock 4.2050000 2,256,488
---------
TOTAL (less fractional shares) 8,066,522
As a result of issuance to the BrightLane shareholders in the
transaction, the former BrightLane shareholders received 8,066,522 shares and,
assuming all such shares are issued as of January 8, 2001, TeamStaff has
approximately 16,200,000 shares outstanding.
In connection with the transaction, persons holding BrightLane options
to acquire approximately 2,078,000 BrightLane shares (the equivalent of
approximately 481,000 TeamStaff shares ) exercised their options. TeamStaff made
recourse loans of approximately $1,025,000 principal amount to the holders of
these options to assist them in payment of tax obligations incurred with
exercise of the options. The loans are repayable upon the earlier of (i) sale of
the TeamStaff shares or (ii) three years.
First Union Corporation, through an affiliate, held all of the
BrightLane Series B Preferred stock, and therefore owns 3,334,117 shares of
TeamStaff's Common Stock (approximately 20% of the outstanding TeamStaff
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Common Stock). In addition, Nationwide Financial Services, Inc. held all of the
BrightLane Series C Preferred stock, and therefore owns 2,256,488 shares of
TeamStaff's Common Stock (approximately 14% of the outstanding TeamStaff Common
Stock).
Under the terms governing the transaction, certain option holders were
restricted from selling TeamStaff shares acquired from the exercise of their
BrightLane options for a period of up to two years. T. Stephen Johnson and his
spouse, Mary Johnson, also a former director of BrightLane, were the only option
holders who exercised their options and who were subject to these lockup
provisions. Due to the significant rise in the Company's stock price at the time
of the acquisition and the significant increase in the amount of the tax loans
to be made to T. Stephen Johnson and Mary Johnson, the Board of Directors of
TeamStaff concluded it would be more appropriate to allow Mr. and Mrs. Johnson
to sell a portion of their TeamStaff shares to cover their tax liability rather
than carry a large loan receivable on the Company's financial statements. The
Board therefore agreed to allow the sale of up to 40% of Mr. and Mrs. Johnson's
option shares (approximately 56,230 TeamStaff shares) as an exempt transaction
under SEC Rule 16(b)(3). The Company has been advised that these shares were
sold in September 2001.
In connection with the BrightLane acquisition, TeamStaff repaid
approximately $8,289,000 of total outstanding debt (including interest and
related financing fees) owed to FINOVA Capital Corporation. Of this amount,
approximately $3,800,000 was paid in April 2001 and the remaining $4,489,000 was
paid in September 2001.
OTHER ACQUISITION ACTIVITY
Effective December 14, 2001, TeamStaff executed an agreement to acquire
accounts and related assets of Corporate Staffing Concepts LLC., a PEO entity
operating primarily in western Massachusetts and Connecticut. The agreement
provided that TeamStaff would acquire the PEO related accounts of Corporate
Staffing Concepts for $275,000 paid at closing, and stock, which would be paid
in connection with an earn out in one year, based upon the number of worksite
employees remaining from the accounts being acquired. Closing of the transaction
occurred effective January 1, 2002.
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 coverage, 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
5
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.
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
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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, TeamStaff Rx, Inc. and TeamStaff Solutions, Inc., which have, in
the aggregate, more than 30 years of experience in placing temporary and
permanent employees with specialized skills and talents with regional, national
and international employers. Temporary staffing enables clients to attain
management and productivity goals by matching highly trained professional and
technical personnel to specific project requirements.
TeamStaff focuses its temporary staffing services in two specific
markets where it places employees on a temporary long-term assignment or on a
permanent basis: (1) radiological technologist, diagnostic sonographers,
cardiovascular technologists, radiation therapists, registered nurses and other
medical professionals with hospitals, clinics and therapy centers throughout the
United 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 provides technical and professional medical employees to
clients on a temporary and permanent basis through its TeamStaff Rx subsidiary.
TeamStaff Rx's clients are dependent on temporary staffing to supplement various
internal departments for staffing shortages due to vacations, medical leaves and
other causes. TeamStaff Rx fills its clients needs by providing qualified
medical personnel on a weekly, monthly, quarterly or longer basis, depending
upon a client's particular staffing objectives. TeamStaff Rx also provides
targeted recruiting and placement for clients for permanent employees.
Additionally, if an employee placed on temporary assignment ultimately is hired
by the client on a permanent basis, TeamStaff Rx receives a recruitment fee from
that client.
The current unprecedented shortage in the availability of qualified
technical and professional medical personnel has, in management's opinion,
created a market opportunity for TeamStaff Rx. The Company believes that
TeamStaff Rx is in a pivotal position to increase its market share based on its
reputation and experience in the medical staffing industry.
The Company provides various technical employees through its TeamStaff
Solutions, Inc. ("TeamStaff Solutions") subsidiary. Like TeamStaff Rx, TeamStaff
Solutions meets clients' needs by providing qualified technical staff, such as
engineers and project managers, on short- or long-term project-specific
assignments or to meet staffing shortages. TeamStaff Solutions also provides
clients with targeted recruitment and placement services for permanent
employees. Should a temporary employee be hired by the client directly,
TeamStaff Solutions also receives a recruitment fee from the client.
The Company has developed a disbursement administration program that
provides voucher processing and payment assistance to various governmental and
other organizations in the metropolitan New York area. This program is provided
through the Company's TeamStaff Solutions subsidiary.
Voucher processing and payment is different from the Company's ordinary
human resource outsourcing services in that, as part of this program, payments
are not being made to individuals who are or may be classified as
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the Company's employees or who might otherwise be classified as the client's
employees. Rather, the Company makes, on behalf of its client, payments to
individuals or entities for services rendered to the client upon submission to
the client or the Company of a "voucher" for services rendered. Ordinarily,
these payments would be made by a client internally through its accounts payable
or a similar department. However, the volume, frequency and complexity of these
disbursements frequently drive a client to outsource disbursement management.
The Company has utilized its experience in high-volume payroll
processing and payment management to develop its disbursement administration
program. The Company can make voucher payments on any time schedule selected by
the client and can provide customized management reports tailored to meet the
client's specific needs and objectives. Currently, the Company processes
approximately 3,500 disbursements per week as part of multi-year disbursement
management contracts. The Company believes that its market position will
increase as it gains more experience in voucher payment processing and
management and as the demand for these services grows.
The Company's temporary staffing services provide clients the ability
to "rightsize"; that is, to expand or reduce their workforces 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's temporary staffing services also
allow a client to avoid administrative responsibility for payroll, payroll
taxes, workers' compensation, unemployment and medical benefits for these
interim employees.
Management believes that its temporary staffing services provide a
client with an increased pool of qualified personnel, since the Company's
temporary staffing employees have access to a wide array of benefits, such as
paid time off, health and life insurance, Section 125 premium conversion plans,
and 401(k) retirement savings plans. These benefits provide temporary employees
with the motivation of permanent workers without additional benefit and
administrative costs to the client.
ACQUISITION STRATEGY
TeamStaff has previously announced a corporate policy to expand in the
past through strategic acquisitions of similar businesses. A key component of
TeamStaff's growth strategy has been, and will continue to be, the acquisition
of compatible businesses to expand its operations and customer base. These
acquisitions may be acquisitions of stock or asset transactions related to our
businesses. Currently, the human resource service industry includes numerous
small companies seeking to develop services, operations and customer base
similar to those developed by TeamStaff. TeamStaff has acquired companies in the
human resource industry in the past. However, with the business and strategy of
TeamStaff further developed, acquisitions in the future will be concentrated in
the outsourcing business. TeamStaff believes that with a limited number of key
acquisitions of regional PEO companies, who possess a strong customer base and
regional reputation, TeamStaff 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 TeamStaff. In addition, as the market and industry
evolves, TeamStaff may also consider non-PEO entities for strategic acquisitions
or mergers, in an effort to expand both service and the client base. TeamStaff
management evaluates acquisition candidates by analyzing the target company's
management, operations and customer base, which must complement or expand
TeamStaff's operations and financial stability, including our profitability and
cash flow. Our long-term plan is to expand sales and income potential by
achieving economies of scale as we expand and regionalize our revenue base.
There can be no assurance, however, that TeamStaff will be able to successfully
identify, acquire and integrate new companies into our operations.
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CUSTOMERS
The Company's customer base consists of over 3,700 client companies,
representing approximately 54,400 employees (including client employees who
receive payroll services and are not considered co-employees of the Company) as
of September 30, 2001. 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 currently include New Jersey, New York, Texas, Florida,
Georgia, and Massachusetts. Our sales and marketing personnel travel throughout
the United States in an effort to expand our business.
Sales personnel offer 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 and First Union Corporation, a leading financial services
company, have signed, effective August 31, 2001, an agreement to market the
Company's professional employer services to First Union's small business
customers. The agreement calls for a multi-year relationship in which the
Company will be a authorized marketer of professional employer services to First
Union's business banking customers. This agreement presents the Company with a
significant opportunity to market our services to First Union's extensive
customer base of small businesses. At the same time it presents First Union an
opportunity to offer a comprehensive outsourced human resource package to its
clients.
The Company and Capital One, a leading financial services company, have
formed an alliance to co-market TeamStaff's professional employer services. The
agreement calls for a multi-year relationship in which TeamStaff will be the
exclusive authorized marketer of professional employer services to Capital One's
small business cardholders. As a result of this agreement, TeamStaff has a
world-class leader in the marketing of credit cards actively promoting TeamStaff
services to Capital One's small business customer base.
The Company has licensed Lawson software to implement an Internet-based
sophisticated human resource management system during fiscal year 2002.
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 2,000 companies, most of
which serve a single market or
9
region. The Company believes that there are several PEOs with annual revenue
exceeding $500 million, three of which are publicly traded companies. The
largest PEO, in terms of revenue, is Administaff, Inc., with revenue in excess
of $4 billion. While there are several other large PEOs among the approximately
2,000 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, are and will remain 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.
The temporary staffing industry consists of thousands of other
companies. Some of the companies are in the medical staffing arena, but few
compete directly with the Company's medical imaging group. The primary
competitors are CompHealth and Aureous.
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 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 that 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 in its PEO operations. 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 are 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.
10
FEDERAL AND STATE 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 statutes, 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 may 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.
11
While many states do not explicitly regulate PEOs, approximately 21
states have passed laws that have licensing, registration or certificate
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. TeamStaff and/or a TeamStaff
subsidiary is currently licensed, registered or certified in Arkansas, Colorado,
Florida, Illinois, Kentucky, Louisiana, Maine, Massachusetts, New Hampshire, New
Mexico, Rhode Island, South Carolina, Tennessee, Texas, Vermont and Virginia.
EMPLOYEES
As of December 31, 2001, the Company employed 286 employees, both
full-time and part-time, including executive officers, an increase from 263
during the previous fiscal year. The Company also employs approximately 21,000
worksite employees (excludes payroll services employees) and 750 temporary
employees on client assignments. The Company believes its relationship with its
employees is satisfactory. None of the Company's corporate office and sales
employees are covered by a collective bargaining agreement.
12
RISK FACTORS
You should carefully consider the risks described below with respect to
our operations, businesses and financial condition. The risks and uncertainties
described below are not the only ones facing us. Other risks and uncertainties
that we have not predicted or assessed may also adversely affect us. 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.
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.
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 our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in us, 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 our securities could decline and you may lose all or part of your
investment.
WE MAY ACQUIRE ADDITIONAL COMPANIES WHICH MAY RESULT IN ADVERSE EFFECTS ON OUR
EARNINGS.
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 be dilutive to our
earnings. In the event that we consummate an acquisition or obtain additional
capital through the sale of debt or equity to finance an acquisition, our
shareholders may experience dilution in their shareholders' equity.
OUR FINANCIAL CONDITION MAY BE AFFECTED BY INCREASES IN HEALTH CARE AND WORKERS'
COMPENSATION INSURANCE COSTS.
13
Health care 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.
OUR FINANCIAL CONDITION MAY BE AFFECTED BY RISKS ASSOCIATED WITH THE HEALTH AND
WORKERS' COMPENSATION CLAIMS EXPERIENCE OF OUR CLIENTS.
Although we utilize only fully-insured plans of health care and incur
no direct risk of loss under those plans, the premiums that we pay for health
care insurance are directly affected by the claims experience of our clients. If
the experience of the clients is unfavorable, the premiums that are payable by
us will increase. We may not be able to pass such increases onto our clients,
which may reduce our profit margin. Increasing health care premiums could also
place us at a disadvantage in competing for new clients. In addition, periodic
reassessments of workers' compensation claims of prior periods may require an
increase or decrease to our reserves, and therefore may also affect our present
and future financial condition.
OUR FINANCIAL CONDITION MAY BE AFFECTED BY INCREASES IN HEALTH INSURANCE
PREMIUMS, UNEMPLOYMENT TAXES AND WORKERS' COMPENSATION RATES.
Health insurance premiums, state unemployment taxes and workers'
compensation rates are in part determined by our claims experience and comprise
a significant portion of our direct costs. If we experience a large increase in
claim activity, our unemployment taxes, health insurance premiums or workers'
compensation insurance rates could increase. Although we employ internal risk
management procedures in an attempt to manage our claims incidence, estimate
claims expenses and structure our benefits contracts to provide as much cost
stability as possible, we may not be able to prevent increases in claim
activity, accurately estimate our claims expenses or pass the cost of such
increases on to our clients. Since our ability to incorporate such increases
into service fees to our clients is constrained by contractual arrangements with
clients, a delay could result before such increases could be reflected in
service fees. As a result, such increases could have a material adverse effect
on our financial condition or results of operations.
SIGNIFICANT GROWTH THROUGH ACQUISITIONS MAY ADVERSELY AFFECT OUR MANAGEMENT AND
OPERATING SYSTEMS.
We completed three significant acquisitions during the past three
calendar 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, and hire and train new employees while managing our current operations
and employees. Historically, our cash flow from operations has been insufficient
to expand operations and sufficient capital may not be available in the future.
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 service business' total
customers. Accordingly, if there is a slowdown in construction activities, it
will affect our revenues and profitability. Management believes its reliance on
the construction business will continue to decline as its customer base expands
and becomes more diversified.
OUR BUSINESS MAY BE ADVERSELY AFFECTED DUE TO ECONOMIC CONDITIONS IN SPECIFIC
GEOGRAPHIC MARKETS.
14
While we have offices located in seven markets in five different
states, the majority of our revenues are derived through our Florida and Texas
operations. While we believe that our market diversification will eventually
lessen this risk in addition to generating significant revenue growth, we may
not be able to duplicate in other markets the revenue growth and operating
results experienced in our Florida and Texas markets.
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 its activities which may also
have a material adverse effect on our business, financial condition, results of
operations and liquidity.
IF GOVERNMENT REGULATIONS REGARDING PEOS ARE IMPLEMENTED, OR IF CURRENT
REGULATIONS ARE CHANGED, OUR BUSINESS COULD BE HARMED.
Because many of the laws related to the employment relationship were
enacted prior to the development of professional employer organizations and
other staffing businesses, many of these laws do not specifically address the
obligations and responsibilities of non-traditional employers. Our operations
are affected by numerous federal, state and local laws and regulations relating
to labor, tax, insurance and employment matters. By entering into an employment
relationship with employees who work at client locations, we assume obligations
and responsibilities of an employer under these laws. 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 provided
by our company and other alternative employers. The unfavorable resolution of
these unsettled issues could have a material adverse effect on results of
operations and financial condition. While many states do not explicitly regulate
PEOs, approximately one-third of the states have enacted laws that have
licensing or registration requirements for PEOs, and several additional states
are considering such laws. Such laws vary from state to state but generally
provide for the monitoring of the fiscal responsibility of PEOs and specify the
employer responsibilities assumed by PEOS. There can be no assurance that we
will be able to comply with any such regulations which may be imposed upon us in
the future, and our inability to comply with any such regulations could have a
material adverse effect on our results of operations and financial condition. In
addition, there can be no assurance that existing laws and regulations which are
not currently applicable to us will not be interpreted more broadly in the
future to apply to our existing activities or that new laws and regulations will
not be enacted with respect to our activities. Either of these changes could
have a material adverse effect on our business, financial condition, results of
operations and liquidity.
WE MAY NOT BE ABLE TO OBTAIN ALL OF THE LICENSES AND CERTIFICATIONS THAT WE NEED
TO OPERATE.
State authorities extensively regulate the PEO industry and some states
require us to satisfy operating, licensing or certification 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 to 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.
15
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 financial
condition.
IF WE LOSE OUR QUALIFIED STATUS FOR CERTAIN TAX PURPOSES, OUR BUSINESS WOULD BE
ADVERSELY AFFECTED.
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 in the 401(k) plan would become taxable immediately,
we would lose our 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 ARE LIABLE FOR THE COSTS OF WORKSITE EMPLOYEE PAYROLL AND BENEFITS AND BEAR
THE RISK IF SUCH COSTS EXCEED THE FEES PAYABLE TO US BY OUR CLIENTS.
Under our standard client service agreement, we become a co-employer of
worksite employees and assume the obligations to pay the salaries, wages and
related benefit costs and payroll taxes of such worksite employees. We assume
these obligations as a principal, not merely as an agent of the client company.
If a client company does not pay us or if the costs of benefits provided to
worksite employees exceeds the fees paid by a client company, our ultimate
liability for worksite employee payroll and benefits costs could have a material
adverse effect on our financial condition or results of operations. Our
obligations include responsibility for
- - payment of the salaries and wages for work performed by worksite
employees, regardless of whether the client company makes timely
payment to us of the associated service fee; and
periodic reassessments of workers' compensation claims of prior periods
may require an increase or decrease to our reserves, and therefore may
also affect our present and future financial conditions; and
- - providing benefits to worksite employees even if the costs we incur to
provide those benefits exceed the fees paid by the client company.
WE BEAR THE RISK OF NONPAYMENT FROM OUR CLIENTS AND THE POSSIBLE EFFECTS OF
BANKRUPTCY FILINGS BY CLIENTS.
16
To the extent that any client experiences financial difficulty, or is
otherwise unable to meet its obligations as they become due, our financial
condition and results of operations could be adversely affected. For work
performed prior to the termination of a client agreement, we may be obligated,
as an employer, to pay the gross salaries and wages of the client's worksite
employees and the related employment taxes and workers' compensation costs,
whether or not our client pays us on a timely basis, or at all. We have in the
past incurred bad debt expense in connection with our contract staffing
business. In addition, we have a nominal number of clients who fail to make
timely payment prior to delivery of the payroll. A significant increase in our
uncollected account receivables may have a material adverse effect on our
earnings and financial condition.
To the extent that TeamStaff extends credit to its clients under its
client service agreements or is liable for employee payroll and related expenses
and the client files for protection under the bankruptcy laws, TeamStaff may be
unable to collect the funds owed to it from the client. As a result, TeamStaff
may be required to pay payroll and related expenses without reimbursement. In
addition, although TeamStaff believes that its client service agreements should
be terminable by it once a client enters bankruptcy, there is a risk that a
bankruptcy court may not agree and would require TeamStaff to continue to
perform services for such client, thereby increasing the risk that TeamStaff
would be unable to collect funds from the client. Therefore, the filing for
bankruptcy by a significant client, or a number of clients, may have a material
adverse effect upon TeamStaff's financial condition.
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 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 we are 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 BE LIABLE FOR THE ACTIONS OF WORKSITE EMPLOYEES OR CLIENTS AND OUR
INSURANCE POLICIES MAY NOT BE SUFFICIENT TO COVER SUCH LIABILITIES.
Our client agreement establishes a contractual division of
responsibilities between our company and each client for various human resource
matters, including compliance with and liability under various governmental laws
and regulations. However, we may be subject to liability for violations of these
or other laws despite these contractual provisions, even if we do not
participate in such violations. Although such client agreements generally
provide that the client indemnify us for any liability attributable to the
client's failure to comply with its contractual obligations and to the
requirements imposed by law, we may not be able to collect on such a contractual
indemnification claim, and thus may be responsible for satisfying such
liabilities. In addition, worksite employees may be deemed to be our agents,
subjecting us to liability for the actions of such worksite employees. As an
employer, we, from time to time, may be subject in the ordinary course of our
business to a wide variety of employment-related claims such as claims for
injuries, wrongful death, harassment, discrimination, wage and hours violations
and other matters. Although we carry $3 million of general liability insurance,
with a $10,000 deductible,
17
and carry employment practices liability insurance in the amount of $1 million
per claim, with a $10,000 deductible, there can be no assurance that any such
insurance we carry will be sufficient to cover any judgments, settlements or
costs relating to any present or future claims, suits or complaints. There also
can be no assurance that sufficient insurance will be available to us in the
future and, if available, on satisfactory terms. 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, then our business and financial
condition could be materially adversely affected.
OUR CLIENTS MAY BE HELD LIABLE FOR EMPLOYMENT TAXES, WHICH COULD DISCOURAGE SOME
COMPANIES FROM TRANSACTING BUSINESS WITH US.
Pursuant to the client service agreement, we assume sole responsibility
and liability for the payment of federal employment taxes imposed under the
Internal Revenue Code with respect to wages and salaries paid to our worksite
employees. While the client service agreement provides that we have the sole
legal responsibility for making these tax contributions, the Internal Revenue
Service or applicable state taxing authority could conclude that such liability
cannot be completely transferred to us. Accordingly, in the event that we fail
to meet our tax withholding and payment obligations, the client company may be
held jointly and severally liable therefore. There are essentially three types
of federal employment tax obligations:
- - income tax withholding requirements;
- - obligations under the Federal Income Contribution Act; and
- - obligations under the Federal Unemployment Tax Act.
While this interpretive issue has not, to our knowledge, discouraged clients
from enrolling with us, it is possible that a definitive adverse resolution of
this issue would not do so in the future.
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 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.
IF WE ARE NOT ABLE TO RENEW ALL OF THE INSURANCE PLANS WHICH COVER WORKSITE
EMPLOYEES, OUR BUSINESS WOULD BE ADVERSELY IMPACTED.
The maintenance of health and workers' compensation insurance plans
that cover worksite employees is a significant part of our business. If we are
unable to secure such renewal contracts, our business would be adversely
affected. The current health and workers' compensation contracts are provided by
vendors with whom we have an established relationship, and on terms that we
believe to be favorable. While we believe that renewal contracts could be
secured on competitive terms without causing significant disruption to our
business, there can be no assurance in this regard.
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 each of 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 tax services are Automatic Data Processing, Inc.,
Ceridian Corp. and Paychex, Inc., and with respect to employee placement
(including temporary placements and
18
employee leasing), Butler Arde, Tech Aid, Inc., Aureous, Comp Health, Gevity HR
and Administaff, Inc. These companies have greater financial and marketing
resources than us. 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.
OUR CLIENT AGREEMENTS ARE TERMINABLE AND IF A SIGNIFICANT NUMBER OF CLIENTS DO
NOT RENEW THEIR CONTRACTS, OUR BUSINESS MAY SUFFER.
Our standard client agreement provides for successive one-year terms,
subject to termination by us or by the client upon 60 days' prior written
notice. A significant number of terminations by clients could have a material
adverse effect on our financial condition, results of operations and liquidity.
IF WE ARE UNABLE TO RENEW OR REPLACE CLIENT COMPANIES, OUR FINANCIAL CONDITION
AND RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED.
Our standard client service agreement is subject to non-renewal on 30
days notice by either us or the client. Accordingly, the short-term nature of
the client service agreement makes us vulnerable to potential cancellations by
existing clients, which could materially and adversely affect our financial
condition and results of operations. In addition, our results of operations are
dependent in part upon our ability to retain or replace our client companies
upon the termination or cancellation of the client service agreement. Clients
may determine to cancel their relationship with us for numerous reasons,
including economic factors. It is possible that the number of contract
cancellations will increase in the future.
SINCE WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK, YOU CANNOT EXPECT DIVIDEND
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. Future potential lenders may 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.
19
Of the 16,252,444 issued and outstanding shares (assuming surrender of
all shares held by former BrightLane shareholders and the issuance of the
8,066,522 shares as contemplated in the transaction) of our common stock as of
January 8, 2002, approximately 6,109,100 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 our 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 our company or sale by an affiliate of our company,
may sell in brokerage transactions an amount equal to 1% of our outstanding
common stock every three months. A person who is a "non-affiliate" of our
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. During fiscal 2001, we registered 2,570,000 shares on behalf of selling
stockholders and have outstanding approximately 577,821 previously registered
shares under our stock option plans. In addition, on January 4, 2002, our
registration statement to provide for the resale of 6,194,511 shares was
declared effective by the SEC. The sale of any of these shares may depress the
trading price of 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. In addition, we may determine to issue preferred stock
in connection with capital raising efforts.
ANTI-TAKEOVER PROVISIONS IN OUR ARTICLES OF INCORPORATION MAKE A CHANGE IN
CONTROL OF OUR COMPANY MORE DIFFICULT.
The provisions of our articles of incorporation and the New Jersey
Business Corporation Act, together or separately, could discourage potential
acquisition proposals, delay or prevent a change in control and limit the price
that certain investors might be willing to pay in the future for our common
stock. Among other things, these provisions:
require certain supermajority votes;
establish certain advance notice procedures for nomination of
candidates for election as directors and for shareholders' proposals to
be considered at shareholders' meetings; and
divide the board of directors into three classes of directors serving
staggered three-year terms.
Pursuant to our articles of incorporation, the board of directors has
authority to issue up to 5,000,000 preferred shares without further shareholder
approval. Such preferred shares could have dividend, liquidation, conversion,
voting and other rights and privileges that are superior or senior to our common
stock. Issuance of preferred shares could result in the dilution of the voting
power of our common stock, adversely affecting holders of our common stock in
the event of its liquidation or delay, and defer or prevent a change in control.
In certain circumstances, such issuance could have the effect of decreasing the
market price of our common stock. In addition, the New Jersey Business
Corporation Act contains provisions that, under certain conditions, prohibit
business
20
combinations with 10% shareholders and any New Jersey corporation for a period
of five years from the time of acquisition of shares by the 10% shareholder. The
New Jersey Business Corporation Act also contains provisions that restrict
certain business combinations and other transactions between a New Jersey
corporation and 10% shareholders.
ITEM 2. PROPERTIES
OPERATION AND FACILITIES
The Company currently has processing centers in Somerset, New Jersey;
Houston, Texas; Woburn, Massachusetts; and Clearwater and Delray, Florida. The
Company also has sales service centers that are located in New York, New York;
Somerset, New Jersey; Clearwater and Delray Florida; Alpharetta, Georgia;
Houston, 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 may also
acquire compatible businesses strategically situated in new areas. The Company
intends to continue its national expansion efforts in fiscal years 2002-2003,
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; and
Woburn Massachusetts. The facilities provide sufficient capacity to meet demands
for the foreseeable future. In the fiscal year ended September 30, 2001, the
Company's total lease expenses were $1,233,000.
Although TeamStaff's offices are equipped with various software and
computer systems, the Company is currently evaluating all systems including
hardware and will upgrade accordingly. The Lawson software implementation is
expected to be complete for all PEO offices within two fiscal years. 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".
The following is summary information on the Company's facilities:
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET DATE TERMS
- -------- ----------- ---- -----
2 Northpoint Drive. 4,610 7/01/02 $ 7,757 per month
Suite 760
Houston, TX
1901 Ulmerton Road 19,361 5/31/05 $ 36,234 per month
Suite 800
Clearwater, FL
4050 Rio Bravo, Suite 151 3,126 3/31/02 $ 4,299 per month
El Paso, TX
Corporate Headquarters 15,244 9/30/07 $ 27,686 per month
21
300 Atrium Drive
Somerset, NJ
245 Fifth Avenue, Suite 701 3,560 7/31/06 $ 12,488 per month
New York, NY
Suite 108 10,379 8/31/05 $ 19,906 per month
1690 South Congress Ave.
Delray Beach, FL
800 West Cummings Park 1,900 9/14/05 $ 4,533 per month
Suite 1500
Woburn, MA
31W775 North Ave. 159 2/28/02 $ 231 per month
W. Chicago, IL
3650 Mansell Rd. 6,753 11/15/04 $ 22,623 per month
Suite 200
Alpharetta, GA
ITEM 3. LEGAL PROCEEDINGS
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. The amount is accrued for in the
accompanying balance sheet as of September 30, 2001.
In July 2000, TeamStaff made claims for indemnification against the
selling shareholders of the TeamStaff Companies (the Sellers), which were
acquired by the Company in January 1999. The claims consisted of various
potential liabilities and expenses incurred based on breaches of representations
and warranties contained in the acquisition agreement. The Sellers disputed
these claims and attempted to assert claims of their own. On January 12, 2001,
the Company entered into a settlement agreement with the sellers. Under the
settlement agreement, the sellers agreed to be liable and responsible for
certain potential liabilities estimated at approximately $540,000 and agreed
that 55,000 shares of TeamStaff common stock, which had been held in escrow
since the acquisition, were to be cancelled and TeamStaff agreed to release
29,915 escrow shares to the sellers. TeamStaff retains 75,000 shares in escrow
to provide security for the seller's obligations. Each party agreed to release
each other from all other claims under the acquisition agreements. No third
parties have contacted TeamStaff seeking payment in the last fiscal year for
these potential liabilities. In the event that TeamStaff incurs liability to
third parties with respect to the claims, TeamStaff would declare an event of
default under the settlement agreement and seek collection from the former
owners.
TeamStaff has received notice of a suit brought by certain persons who
allege violations of the Title VII of the Civil Rights act of 1964 (Equal
Employment Opportunity claims) and other employment related claims. The suit is
entitled Deotha Woodbury, Gary Chance et all v. The City of New York (Department
of Housing Preservation), Local 32B-32J Service Employees International Union,
Alan Haves, Comptroller of the City of New York, Digital Solutions of New York,
Inc. et al (United States District Court, SDNY Case No. 00-CV-1345). Plaintiffs
allege violations resulting from their employment by the City of New York, for
which TeamStaff's former subsidiary, Digital Solutions of New York, served as
payroll processor as agent for the City of New York. TeamStaff believes it
22
has various meritorious defenses, including res judicata, statute of limitations
and other defenses. In addition, TeamStaff intends to seek indemnification from
the City of New York under its contract with the City of New York for any
damages which might be assessed. TeamStaff, Inc. has not been named as a
defendant in the action.
The Company's subsidiary, BrightLane is party to a suit brought by one
of its former shareholders (Atomic Fusion, Inc. v. BrightLane.com, Inc. Civil
Action No ONS02246OE, Fulton County State Court, Georgia). The plaintiff seeks
damages for alleged unpaid contractual services provided to BrightLane, alleging
that the shares (both in number and value) of BrightLane stock provided to the
plaintiff's in payment of services were inadequate to pay for the alleged agreed
upon value of services. The Company intends to defend itself vigorously in this
matter and believes that it has meritorious and valid defenses to plaintiff's
claims. In addition, the former shareholders of BrightLane have placed
approximately 158,000 shares in escrow to provide indemnification to TeamStaff.
In the event that Atomic Fusion is successful in its claims, some or all of the
Shares may be canceled in an amount equal to the amount of any successful claim
by Atomic Fusion.
In connection with its businesses as a professional employer
organization, payroll services and staff leasing, TeamStaff is engaged in
litigation from time to time during the ordinary course of business in
connection with employee suits, workers' compensation and other matters.
Generally, TeamStaff is entitled to indemnification or repayment from its
client's employers for claims brought by worksite employees related to their
employment. However, there can be no assurance that the client employer will
have funds or insurance in amounts to cover any damages or awards, and as
co-employer, TeamStaff may be subject to liability.
TeamStaff is engaged in no other litigation, the effect of
which would be anticipated to have a material adverse impact on TeamStaff's
financial conditions or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
TeamStaff, Inc. ("Teamstaff or the "Company") held its Annual Meeting
of Shareholders on Wednesday August 29, 2001. As set forth in the Proxy
Statement dated as of August 7, 2001, shareholders were requested to vote upon
and approve the election of directors and the proposed acquisition of
BrightLane.
On the record date of July 31, 2001, there were 8,079,553 shares
outstanding.
1. Election of Directors
Shareholders approved the election of the following Class 2 Directors:
Votes Cast % Cast Withhold %
Nominees For For Authority to Vote Withheld
- -------- --- --- ----------------- --------
John H. Ewing 6,716,799 96% 261,064 4%
Rocco J. Marano 6,716,799 96% 261,064 4%
Charles R. Dees, Jr 6,716,799 96% 261,064 4%
In accordance with the Agreement and Plan of Merger dated as of March
6, 2001 among TeamStaff, Inc., BrightLane.com, Inc. and TeamSub, Inc., and as
described in the Proxy Statement, following consummation of the transaction with
BrightLane, the foregoing persons resigned from the Board of Directors effective
September 4, 2001 and the Board was reconstituted as follows:
23
Name Director Class Term Expires
- ---- -------------- ------------
Donald MacLeod Class 3 2002
Martin Delaney Class 3 2002
T. Stephen Johnson Class 1 2003
William Marino Class 1 2003
Susan Wolken Class 1 2003
Karl Dieckmann Class 2 2004
Donald Kappauf Class 2 2004
David Carroll Class 2 2004
2. Proposal to Approve BrightLane Transaction
Shareholders were requested to approve and adopt the issuance of up to
8,216,522 shares of Common Stock, and related transactions, as contemplated in
the Agreement and Plan of Merger, dated as of March 6, 2001, as amended, by and
among TeamStaff, Inc., BrightLane.com, Inc. and TeamSub, Inc. The proposal was
approved by the following votes:
Votes Cast Votes Cast Withheld
For Adoption Against Adoption Authority
of Proposal of Proposal Abstained to Vote
- ------------ ---------------- --------- ---------
4,495,361 36,823 25,575 1,907,905
Of the shares entitled to vote and voting at the meeting (either by proxy or in
person), approximately 69% voted in favor of the proposal related to the
BrightLane transaction and approximately 29% withheld authority to vote.
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 National 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 reflected in this report in the accompanying financial statements have
been adjusted retroactively to effect the reverse stock split. The Company
started trading on the National Market in June, 2001. Prior to such date, the
Company was trading on the SmallCap market system.
B. MARKET INFORMATION
The range of high and low bid prices for the Company's Common Stock for
the periods indicated below are:
24
COMMON STOCK
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
2nd Quarter 6 3/16 4 1/2
3rd Quarter 8 11/16 4 19/32
4th Quarter 10 11/32 5 3/4
FISCAL YEAR 2002 HIGH LOW
---------------- ---- ---
1st Quarter 7 23/64 5 31/63
The above quotations, reported by Nasdaq represent prices between
dealers and do not include retail mark-ups, markdowns or commissions. Such
quotations do not necessarily represent actual transactions. On January 8, 2002,
the Company's Common Stock had a closing price of $5.98 per share.
C. DIVIDENDS
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
Effective August 31, 2001, TeamStaff acquired all of the capital stock
of BrightLane. See Item 4. As contemplated under the agreements governing the
transaction, TeamStaff agreed to issue 8,216,522 shares of its Common Stock in
exchange for all of the outstanding capital stock of BrightLane. The issuance of
8,216,522 shares includes the issuance of 158,000 shares into escrow to provide
for potential payments to the BrightLane shareholders and is before deduction
for fractional shares which were paid in cash. As of January 8, 2001, not all of
the BrightLane shareholders had submitted their BrightLane capital stock for
exchange.
As of January 10, 2002, there were 16,252,444 shares outstanding held
of record by 320 persons. The Company believes it has approximately 2,950
beneficial owners of its common stock.
25
ITEM 6. SELECTED FINANCIAL DATA
2001(3) 2000(2) 1999(1) 1998 1997
------- ------- ------- ---- ----
Revenues $ 649,727,000 $ 447,743,000 $ 244,830,000 $ 139,435,000 $ 122,559,000
Direct Expenses 621,630,000 426,987,000 228,294,000 129,747,000 113,894,000
Gross Profit 28,097,000 20,756,000 16,536,000 9,688,000 8,665,000
Selling, General & Administrative
Expenses (includes Depreciation and
Amortization) 24,688,000 18,338,000 13,305,000 8,050,000 11,316,000
Income (Loss) From Operations 3,409,000 2,418,000 3,231,000 1,638,000 (2,651,000)
Income (Loss) Before Extraordinary Item 1,778,000 951,000 1,776,000 2,703,000 (2,832,000)
Extraordinary Item Net of Tax (354,000) -- -- -- --
Net Income (Loss) $ 1,424,000 $ 951,000 $ 1,776,000 $ 2,703,000 $ (2,832,000)
Earnings (Loss) per share - Basic &
Diluted:
Income (Loss) before
extraordinary item $ .20 $ .12 $ .25 $ .49 $ (.52)
Extraordinary item (.04) -- -- -- --
Net Income (Loss) $ .16 $ .12 $ .25 $ .49 $ (.52)
============= ============= ============= ============= =============
Weighted average shares
outstanding:
Basic 8,693,243 7,954,176 7,127,806 5,506,256 5,448,671
Diluted 8,907,282 7,990,912 7,145,390 5,543,799 5,448,671
BALANCE SHEET DATA:
Assets $ 91,096,000 $ 49,514,000 $ 36,382,000 $ 16,648,000 $ 14,163,000
Liabilities 29,814,000 31,455,000 19,417,000 8,774,000 9,291,000
Long-Term Debt 193,000 6,222,000 4,502,000 2,981,000 89,000
Working Capital (Deficiency) 12,639,000 3,065,000 2,968,000 3,319,000 (1,401,000)
Shareholders' Equity $ 61,282,000 $ 18,059,000 $ 16,965,000 $ 7,874,000 $ 4,872,000
(1) On January 25, 1999, we 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.
(2) On April 8, 2000, we acquired the assets of the Synadyne division of
Outsource International, Inc. for $3,500,000.
(3) On August 31, 2001, we acquired BrightLane. through the issuance of
approximately 8,066,522 shares of TeamStaff, Inc. common stock for all
capital stock of BrightLane.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Company operates three different lines of business from which it
derives substantially all of its revenue: professional employer organization
(PEO), temporary staffing and payroll services.
PEO revenue is recognized as service is rendered. The PEO revenue consists
of charges by the Company for the wages and employer payroll taxes of the
worksite employees, the administrative service fee, workers' compensation
charges, and the health and retirement benefits provided to the worksite
employees. These charges are invoiced to the client at the time of each periodic
payroll. The Company negotiates the pricing for its various services on a
client-by-client basis based on factors such as market conditions, client needs
and services requested, the client's workers' compensation experience, the type
of client business and the required resources to service the account, among
other factors. Because the pricing is negotiated separately with each client and
vary according to circumstances, the Company's revenue, and therefore its gross
margin, will fluctuate based on the Company's client mix.
The temporary staffing revenue is recognized as service is rendered. The
Company bills its clients based on an hourly rate. The hourly rate is intended
to cover the Company's direct labor costs of the temporary employees, plus an
estimate to cover overhead expenses and a profit margin. Additionally included
in revenue related to temporary staffing are commissions from permanent
placements. Commissions from permanent placements result from the successful
placement of a temporary employee to a customer's workforce as a permanent
employee.
The payroll services revenue is recognized as service is rendered and
consists primarily of administrative service fees charged to clients for the
processing of paychecks as well as preparing quarterly and annual payroll
related reports.
In accordance with Emerging Issues Task Force Issue No. 99-19 "Reporting
Revenue Gross as a Principal versus Net as an Agent," the Company recognizes all
amounts billed to its PEO and temporary staffing customers as gross revenue
because the Company is at risk for the payment of its direct costs, whether or
not the Company's customers pay the Company on a timely basis or at all, and the
Company assumes a significant amount of other risks and liabilities as a
co-employer of its worksite employees, and employer of its temporary employees,
and therefore, is deemed to be a principal in regard to these services. The
Company also recognizes as gross revenue and as unbilled receivables, on a
accrual basis, any such amounts which relate to services performed by worksite
and temporary employees which have not yet been billed to the customer as of the
end of the accounting period.
Direct costs of services are reflected in the Company's Statement of
Income as "direct expenses" and are reflective of the type of revenue being
generated. PEO direct costs of revenue include wages paid to worksite employees,
employment related taxes, costs of health and welfare benefit plans and workers'
compensation insurance costs. Direct costs of the temporary staffing business
include wages, employment related taxes and reimbursable expenses. Payroll
services' direct costs includes salaries and supplies associated with the
processing of the payroll service.
TeamStaff maintains three workers' compensation policies which cover its
corporate employees, the worksite employee co-employed by TeamStaff and its PEO
clients, and the temporary employees employed by TeamStaff to fulfill various
client staffing assignments. TeamStaff does not provide workers' compensation to
non-employees of the company. TeamStaff's primary workers' compensation
insurance provider is C N A (Continental Assurance) which provides coverage for
substantially all of TeamStaff's worksite, temporary and corporate employees.
The CNA policy covers the period from January 22, 2001, through January
21, 2002, and is a large deductible program ($250,000 for each claim) with a
maximum liability cap. The premium for this policy is paid on a monthly
27
basis based upon estimated payroll for the year and is subject to a year-end
audit by the provider. TeamStaff also maintains a separate policy insuring a
portion of the maximum cap which it may be required to pay. The policy insures
payment of the maximum cap in excess of the first $1,800,000, which the Company
pays, up to $7,425,000 and is funded monthly. Once the $7,425,000 is exceeded
then the Company pays 89.5% of paid claims up to $10,400,000. If the losses and
fixed cost under the policy are less than the amounts TeamStaff paid, plus
investment returns thereon, the insurer will refund the difference to TeamStaff.
The amount of claims incurred in any policy year may vary, and in a year with
significantly fewer claims than estimated, the amount of repayment from this
account may be significant. The Company records in direct expenses a monthly
charge based upon its estimate of the year's ultimate fully developed losses
plus the fixed costs charged by the insurance carrier to support the program.
This estimate is established each quarter based in part upon information
provided by the Company's insurers, internal analysis and its insurance broker.
The Company's internal analysis includes quarterly review of open claims and
review of historical claims and losses related to the workers' compensation
programs. While management uses available information, including nationwide loss
ratios, to estimate ultimate losses, future adjustments may be necessary based
on actual losses. Since the recorded ultimate expense is based upon a ten-year
projection of actual claims payment and the timing of these payments, as well as
the interest earned on the Company's prepayments, the Company relies on
actuarial tables to estimate its ultimate expense.
As of September 30, 2001, the adequacy of the workers' compensation
reserves were determined, in managements opinion, to be reasonable. However,
since these reserves are for losses that have not been sufficiently developed
due to the relatively young age of these claims, and such variables as timing of
payments and investment returns thereon are uncertain or unknown, actual results
may vary from current estimates. The Company will continue to monitor the
development of these reserves, the actual payments made against the claims
incurred, the timing of these payments, the interest accumulated in the
Company's prepayments and adjust the reserves as deemed appropriate.
TeamStaff maintains a separate policy for certain business of its
subsidiary, HR2, which currently provides that TeamStaff is only responsible for
the audited premium for each policy period. The Company had a third policy for
its El Paso PEO based business. This policy was terminated when the El Paso
business was sold in September 2001. The Company remains obligated for each
claim incurred up to a deductible of $10,000 for this policy.
The Company's clients are billed at fixed rates which are determined when
the contract is negotiated with the client. The fixed rates include charges for
workers' compensation which are based upon the Company's assessment of the
costs of providing workers' compensation to the client. If the Company's costs
for workers' compensation are greater than the costs which are included in the
client's contractual rate, the Company is unable to recover these excess
charges from the clients. The Company reserves the right in its contracts to
increase the workers' compensation charges on a prospective basis only.
Effective August 31, 2001, the Company acquired BrightLane.com, Inc, an
Online Business Center and technology group providing Internet-based solutions
for growing businesses. Developed technology had focused on increasing buying
power and reducing transaction costs for growing businesses. This technology is
now refocused to drive a new venture for the company called TeamStaff ConnXions.
TeamStaff ConnXions will be a conduit to both the clients and employees of
TeamStaff offering a variety of services through strategic partners such as web
page developers, a full line of insurance and benefit products and procurement
services. BrightLane integrates these services through proprietary unified login
and hub technology that offers businesses security. BrightLane is also
spearheading the technology efforts of the Company in total, most specifically
in terms of the implementation of the licensed Lawson software package.
Under the terms of the purchase agreement, the Company acquired all the
stock of BrightLane.com through the issuance of 8,066,522 shares of TeamStaff
stock, valued at approximately $41,900,000. The Company also incurred $1,804,000
of certain legal, accounting and investment banking expenses, resulting in a
total purchase price of $43,704,000. The acquisition has been accounted for
under the purchase method and the results of operations of the acquired company
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 as stated below:
Cash acquired 12,031,000
Deferred tax asset 7,400,000
Investment in TeamStaff preferred stock 3,500,000
Other assets acquired 1,538,000
First Union relationship 6,900,000
Tradename 10,000
Goodwill 12,325,000
-----------
Total $43,704,000
===========
28
In connection with the transaction, persons holding BrightLane options to
acquire approximately 2,078,000 BrightLane shares (the equivalent of
approximately 481,000 TeamStaff shares) exercised their options. TeamStaff made
recourse loans of approximately $1,025,000 principal amount to the holders of
these options to assist them in payment of tax obligations incurred with
exercise of the options. The loans are repayable upon the earlier of (i) sale of
the TeamStaff shares or (ii) three years.
Effective October 2, 2000, the Company acquired 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 for a total purchase price of $400,000. HR2, Inc. is a
professional employer organization that operates primarily in Massachusetts,
Rhode Island, and New Hampshire. The acquisition of HR2 Inc. was not material to
the Company's consolidated financial statements.
FISCAL YEAR 2001 AS COMPARED TO FISCAL YEAR 2000
Our revenues for the fiscal year ended September 2001 were $649,727,000 as
compared to fiscal year 2000 of $447,743,000, which represents an increase of
$201,984,000 or 45.1%. Driving this growth was the performance of the Company's
"TeamStaff SB" division (formerly operated as the "Synadyne" division) and its
HR2 subsidiary that were acquired in April and October 2000, respectively, and
therefore not fully included in last year's figures. These two acquisitions
accounted for $111,932,000 and $37,206,000 of the revenue growth for the year.
Internal growth accounted for the remaining $52,846,000 increase in revenue,
representing an increase of 11.8% over fiscal 2000. Our TeamStaff Rx division
accounted for $22,000,000 of this growth increase and again experienced a strong
year.
Direct expenses for fiscal 2001 were $621,630,000 as compared to
$426,987,000 for fiscal 2000, which represents an increase of $194,643,000 or
45.6%, in line with our revenue growth. As a percentage of revenue, direct
expenses for the fiscal years 2001 and 2000 were 95.7% and 95.4% respectively.
Gross profits were $28,097,000 and $20,756,000 for fiscal years 2001 and
2000, respectively, representing an increase of $7,341,000 or 35.4%. Gross
profits, as a percentage of revenue, were 4.3% and 4.6% for the fiscal years
2001 and 2000, respectively. Workers' compensation profit increased slightly
over last year, despite recording a $582,000 charge in this year's third fiscal
quarter to increase the Company's loss reserves to the maximum liability for the
policy periods ending July 31, 2000 and January 21, 2001. Additionally, due to
administrative challenges and difficulties associated with multiple software
platforms, the Company failed to terminate benefit coverage for worksite
employees of the PEO operations on a timely basis. This resulted in
unrecoverable benefit losses of approximately $500,000. The Company is currently
implementing new procedures and the Lawson software system to help prevent this
from occurring in the future.
Selling, general and administrative expenses ("SG&A") for fiscal 2001
increased $6,259,000, or 36.8%. This increase is attributed to the Synadyne
acquisition ($2,544,000), the HR2 acquisition ($683,000), the BrightLane
acquisition ($288,000), the $142,000 in expenses incurred in an aborted
acquisition and the $72,000 in costs incurred in our listing with the Nasdaq
National Market. After adjusting for these aforementioned increases, SG&A
increased $2,530,000, or 14.9 % over the same period last year. Of this
increase, $1,172,000 was due to the Company's Staff Rx business, which grew
revenue by $22,000,000. SG&A expenses as a percentage of revenue were 3.6% and
3.8% for the fiscal years 2001 and 2000 respectively.
Depreciation and amortization increased $91,000, or 6.8%, in fiscal 2001
primarily due to amortization of goodwill from the acquisitions of the assets of
Synadyne in April 2000 and the stock of HR2 in October 2001, offset by a
reduction in depreciation expense from assets that were fully depreciated in
fiscal 2001.
29
Interest income in fiscal 2001 increased $327,000, or 56%, due to
increased late payment fees, as well as the continuing increase in the Company's
cash flow.
Interest expense in fiscal 2001 decreased $327,000,or 20.4%, due to
retirement of the FINOVA debt in April and August 2001.
Income tax expense, before the impact of an extraordinary item, for fiscal
2001 was $1,316,000 versus $428,000 in fiscal 2000. The higher expense is
associated with the higher level of earnings. The fiscal 2001 and 2000 income
tax expenses were reduced by $218,000 and $374,000, respectively, in tax
credits that are available to us. The Company's effective tax rate for fiscals
2001 and 2000 were 42.5% and 31.0% respectively. The lower effective tax rate in
fiscal 2000 is attributed to the tax credits that made up a larger percentage of
income tax expense in fiscal 2000 then in fiscal 2001.
Income before extraordinary item was $1,778,000 versus $951,000 in fiscal
2000, representing a growth of $827,000, or 87%. The performance of the
Company's temporary staffing and Payroll business continues to drive the
earnings of the Company. Income before taxes and extraordinary item for our
temporary staffing and payroll service businesses were $8,179,000 and
$1,669,000, respectively. PEO continues to be the major growth area and one in
which the Company continues to concentrate its efforts. The loss before income
taxes for PEO, as reflected in the Segment Reporting footnote (footnote 4)
contained in our financial statements, was $721,000. Included in this loss is
the $355,000 operating loss of BrightLane (which was acquired August 31, 2001)
for September, the $200,000 in losses suffered by the Company's El Paso office
(sold in September 2001), as well as the unrecoverable benefit losses discussed
above.
The extraordinary item net of taxes, pertains to the unamortized financing
costs and fees, associated with the FINOVA loans, written off when these loans
were retired early in April and August 2001. These loans had a remaining life at
the time of payment of approximately two years (April 2003).
Net income for fiscal 2001 was $1,424,000 versus $951,000 in fiscal 2000,
representing a growth of $473,000, or 49.7%. This increase in earnings is
attributable to the reasons elaborated above.
In July 2000, TeamStaff made claims for indemnification against the
selling shareholders of the TeamStaff Companies (the sellers), which were
acquired by the Company in January 1999. The claims consisted of various
potential liabilities and expenses incurred based on breaches of representations
and warranties contained in the acquisition agreement. The Sellers disputed
these claims and attempted to assert claims of their own. On January 12, 2001,
the Company entered into a settlement agreement with the sellers. Under the
settlement agreement, the sellers agreed to be liable and responsible for
certain potential liabilities estimated at approximately $540,000 and agreed
that 55,000 shares of TeamStaff common stock, which had been held in escrow
since the acquisition, were to be cancelled and TeamStaff agreed to release
29,915 escrow shares to the sellers. TeamStaff retains 75,000 shares in escrow
to provide security for the seller's obligations. Each party agreed to release
each other from all other claims under the acquisition agreements. No third
parties have contacted TeamStaff seeking payment for these potential
liabilities. In the event that TeamStaff incurs liability to third parties with
respect to the claims, TeamStaff would declare an event of default under the
settlement agreement and seek collection from the former owners.
FISCAL YEAR 2000 AS COMPARED TO FISCAL YEAR 1999
Our 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 an increase of 20.9%
over fiscal 1999.
30
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 our market centers, we 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. We are 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 our revenue growth occurred in the PEO
business which has lower gross profit margins as a percentage of revenue
compared to the rest of our 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.
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 and was reduced by $374,000 in tax credits that are available to us.
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 our current year workers'
compensation program due to the higher losses suffered in one of our market
centers.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased in fiscal 2001 to
$3,937,000 from the $3,842,000 provided in fiscal 2000. Net cash provided by
operating activities primarily relates to net income of $1,424,000, depreciation
and amortization of $1,424,000 and an increase in accounts payable, accrued
expenses and other current liabilities of $5,275,000 offset by an increase in
accounts receivable of $4,977,000 and an increase in other assets of $1,137,000.
31
The increase in accounts receivables and accounts payable, accrued expenses and
other current liabilities relates to the growth in business in 2001. The
increase in other assets represents $1,025,000 of loans made to the former
BrightLane option holders for withholding taxes at the acquisition date.
Purchases of equipment and leasehold improvements increased in fiscal 2001 by
$103,000 as a result of the requirements to continue to support the needs of a
growing company, particularly TeamStaff SB. Acquisitions of businesses, net of
cash acquired, brought $10,283,000 in cash to the Company in fiscal 2001,
primarily from its acquisition of BrightLane in August 2001. This cash acquired
in the acquisition was used to retire all the Company's outstanding debt with
FINOVA. The net cash used in financing activities was $4.6 million during fiscal
2001 as compared to cash provided by financing activities in 2000 of $2.3
million. This reduction was primarily due to retiring the FINOVA debt facility.
Prior to the acquisition of BrightLane, the Company sold Preferred Stock to
BrightLane for $3,500,000 million in order to prepay a portion of the FINOVA
debt facility. The Preferred Stock was cancelled in connection with the
acquisition of BrightLane. At September 30, 2001, the Company had cash and cash
equivalents of $13,854,000 and net accounts receivable of $25,149,000.
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 January 8, 2001 and September 30, 2001, the Company
repurchased 138,655 and 87,311 shares at an average cost of $5.99 and $5.75,
respectively.
Management of the Company believes that its existing cash and potential
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.
Impact of Recently Issued Accounting Pronouncements
During June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations
(SFAS No. 141) and No. 142 Goodwill and Other Intangible Assets (SFAS No. 142).
SFAS No. 141 changes the accounting for business combinations, requiring that
all business combinations be accounted for using the purchase method and that
intangible assets be recognized as assets apart from goodwill if they arise from
contractual or other legal rights, or if they are separable or capable of being
separated from the acquired entity and sold, transferred, licensed, rented or
exchanged. SFAS No. 141 is effective for all business combinations initiated
after June 30, 2001. SFAS No. 142 specifies the financial accounting and
reporting for acquired goodwill and other intangible assets. Goodwill and
intangible assets that have indefinite useful lives will not be amortized but
rather will be tested at least annually for impairment. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. However, early
adoption is allowed and the Company currently intends to adopt SFAS No. 142 as
of October 1, 2001.
SFAS No. 142 requires that the useful lives of intangible assets acquired
on or before June 30, 2001 be reassessed and the remaining amortization periods
adjusted accordingly. Previously recognized intangible assets deemed to have
indefinite lives shall be tested for impairment. The Company has not fully
assessed the potential impact of the adoption of SFAS No. 142, which will be
effective for the Company as of October 1, 2001, but believes that goodwill and
the trade name recognized prior to July 1, 2001 will no longer be amortized upon
adoption of SFAS No. 142. In accordance with SFAS No. 142, goodwill, the First
Union relationship and trade name acquired after June 30, 2001 have not been
amortized in the accompanying statement of income for 2001.
In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of intangible long-lived assets and the associated asset retirement
costs and is effective for the fiscal years beginning after June 15, 2002.
Management does not expect the impact of SFAS No. 143 to be material to the
Company's consolidated financial statements.
32
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 amends SFAS No. 121, Accounting for
the impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
and establishes a single accounting model for the impairment or disposal of
long-lived assets. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. Management does not expect the impact of SFAS No. 144 to be
material to the Company's consolidated financial statements.
ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not undertake trading practices in securities or other
financial instruments and therefore does not have any material exposure to
interest rate risk, foreign currency exchange rate risk, commodity price risk or
other similar risks which might otherwise result from such practices. The
Company has no material interest rate risk and is not materially subject to
fluctuations in foreign exchange rates, commodity prices or other market rates
or prices from market sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See attached Financial Statements beginning on page F-1 attached to this
report on Form 10K
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
33
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company are as follows:
NAME AGE OFFICE
- ---- --- ------
T. Stephen Johnson 52 Chairman of the Board of Directors
Karl W. Dieckmann 73 Vice-Chairman
David Carroll 44 Director
Martin Delaney 58 Director
Donald W. Kappauf 55 President, Chief Executive Officer, Director
Donald T. Kelly 52 Vice President, Chief Financial Officer
and Corporate Secretary
Donald MacLeod 45 Director
William J. Marino 58 Director
Susan Wolken 50 Director
TeamStaff, Inc. ("Teamstaff or the "Company") held its Annual Meeting of
Shareholders on Wednesday August 29, 2001. As set forth in the Proxy Statement
dated as of August 7, 2001, shareholders were requested to vote upon and approve
the election of directors and the proposed acquisition of BrightLane.
Shareholders approved the election of the following Class 2 Directors:
John H. Ewing
Rocco J. Marano
Charles R. Dees, Jr.
In accordance with the Agreement and Plan of Merger dated as of March 6,
2001 among TeamStaff, Inc., BrightLane.com, Inc. and TeamSub, Inc., and as
described in the Proxy Statement, the foregoing persons resigned from the Board
of Directors effective September 4, 2001 and the Board was reconstituted as
follows:
Name Director Class Term Expires
- ---- -------------- ------------
Donald MacLeod Class 3 2002
Martin Delaney Class 3 2002
T. Stephen Johnson Class 1 2003
William Marino Class 1 2003
Susan Wolken Class 1 2003
34
Karl Dieckmann Class 2 2004
Donald Kappauf Class 2 2004
David Carroll Class 2 2004
T. Stephen Johnson has been Chairman of the Board of TeamStaff since
September 2001. He has served as Chairman of T. Stephen Johnson & Associates,
Inc., financial services consulting firm, and its related entities since
inception in 1986. Mr. Johnson is a long-time banking consultant and Atlanta
entrepreneur who has advised and organized dozens of community banks throughout
the Southeast. He is Chairman of the Board of Netbank, the largest and most
successful Internet-only bank, as well as Chairman and principal owner of Bank
Assets, Inc., a provider of benefit programs for directors and officers of
financial institutions. Mr. Johnson is Chairman of the Board of Directo, Inc., a
company specializing in providing financial services for unbanked individuals.
David Carroll has been a Director of the Company since September 2001 and
is currently the Executive Vice-President and Co-Head of Merger Integration at
First Union Bank. He joined First Union in 1981 and has held numerous positions
that include Chief E-Commerce and Technology Officer, President of First
Union-Florida and First Union-Georgia, Vice Chairman and General Banking Group
executive of First Union-Virginia. He is currently a Board member of
Capital.com, Consumer Finance Network, Inc., Arcot Systems, Charlotte Latin
School and Mint Museum.
Martin J. Delaney joined the Board of Directors in July 1998. Mr. Delaney
is an attorney and a prominent healthcare executive who began his hospital
management career in 1971 as an Assistant Administrator at Nassau County Medical
Center. He has been a director of a large regional Health Maintenance
Organization on Long Island, the Hospital Association of New York State, the
Greater New York Hospital Association, and chairman of the Nassau-Suffolk
Hospital Council. He has been President, CEO and a director of Winthrop
University Hospital, Winthrop South Nassau University Health Care Systems, and
the Long Island Health Network. He has a graduate degree in health care
management from The George Washington University and a law degree from St.
John's University. He has been admitted to practice in New York State and
federal courts.
Karl W. Dieckmann, a Director of the Company since April 1990, had 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.
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.
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.
Donald MacLeod has been a director of the Company since September 2001 and
is currently Executive Vice President and Managing Partner of Strategic Ventures
at First Union Bank. He has over 25 years of banking experience, 14 of which
have been with First Union. Positions he has held at First Union include Head of
Deposit products & Services, General Banking Executive of Tennessee, head of
Global Cash Management and Enterprise
35
Payments Director. Mr. MacLeod serves on the boards of Spectrum EBP, Proact
Technologies, and Aarcot in addition to TeamStaff. He has a bachelor's degree in
Business Administration from Vanderbilt University.
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.
Susan Wolken has been a director of the Company since September 2001. She
is the Senior Vice President of Product Management and Marketing at Nationwide
Financial. She began her Nationwide career as a life underwriter and held
several management positions in Individual Life and Health Operations. She has
held positions in sales, marketing, and administration. In 1989, she became the
Vice President of Human Resources, Senior Vice President of Human Resources,
Senior Vice President of Enterprise Administration, and most recently Senior
Vice President of Life Company Operations. She is a member of the Ohio Bar and
holds the CLU and ChFC designations. Ms. Wolken serves as director on various
boards including the Gladden Community House, The Ohio University-The Insurance
Institute Board of Advisors, and the Ohio University Alumni Board.
Pursuant to the terms of the agreement governing the acquisition of BrightLane,
First Union Corporation has the right to have two persons serve on the Board of
Directors. These persons are David Carroll and Donald MacLeod. Additional,
Nationwide Financial has the right to have one person serve on our Board. This
person is Susan Wolken.
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 ended
September 30, 2001. 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, 2001, the Board of Directors
met on 7 occasions and acted by written consent without a meeting on 2
occasions.
The Board of Directors has four committees: Audit, Compensation, Executive
and Nominating Committees.
For the fiscal year ended September 30, 2001, the members of the
committees, and a description of the duties of the Committees were as follows:
Audit Committee. TeamStaff's audit committee acts to:(i) review with
management the finances, financial condition and interim financial statements of
TeamStaff; (ii) review with TeamStaff's independent auditors the year-end
financial statements; and (iii) review implementation with the independent
auditors and management any action recommended by the independent auditors.
During the fiscal year ended September 30, 2001, the audit committee met on four
occasions.
The audit committee adopted a written charter governing its actions
effective June 14, 2000. For the period from October 1, 2000 through September
4, 2001, the members of the audit committee were Karl Dieckmann, John H. Ewing,
Charles R. Dees, Jr., Rocco Marano. All four of these members of TeamStaff's
audit committee were "independent" within the definition of that term as
provided by Rule 4200(a)(14) of the listing standards of the National
Association of Securities Dealers.
36
In connection with the restructuring of the Board effective September 4,
2001, the audit committees members were changed to: David A. Carroll, Martin
Delaney, William Marino and Donald MacLeod. Donald MacLeod was elected as its
Chairman. All four of these members of TeamStaff's audit committee were
"independent" within the definition of that term as provided by Rule 4200(a)(14)
of the listing standards of the National Association of Securities Dealers.
Compensation Committee. The members of the compensation committee for the
period from October 1, 2000 through September 4, 2001 were Karl W. Dieckmann,
John H. Ewing, William J. Marino and Martin J. Delaney. The compensation
committee functions include administration of TeamStaff's 2000 Employee Stock
Option Plan and Non-Executive Director Stock Option Plan and negotiation and
review of all employment agreements of executive officers of the Company. In
connection with the restructuring of the Board effective September 4, 2001, the
compensation committees members were changed to: Karl W. Dieckmann, T. Stephen
Johnson and Martin J. Delaney and T. Stephen Johnson was elected as its
chairman. During the fiscal year ended September 30, 2001, the committee met on
two occasions.
Nominating Committee. The members of the nominating committee for the
period from October 1, 2000 through September 4, 2001 were Karl W. Dieckmann,
Donald W. Kappauf and William J. Marino. The nominating committee functions
include the review of all candidates for a position on the board of directors
including existing directors for renomination and reports its findings with
recommendations to the Board. The nominating committee solicits candidates on
behalf of TeamStaff to fill any vacancy on the Board. The nominating committee
performs such other duties and assignments as directed by the Chairman or the
Board but shall have no power to add or remove a director without the approval
of the Board. In connection with the restructuring of the Board effective
September 4, 2001, the nomination committees members were changed to: Donald W.
Kappauf, William J. Marino, David Carroll and Susan A. Wolken and Donald W.
Kappauf was elected its chairman. During the fiscal year ended September 30,
2001, the committee met on one occasion.
Executive Committee. The Board of Directors created an Executive Committee
effective September 4, 2001. The members are T. Stephen Johnson, Karl W.
Dieckmann and Donald W. Kappauf and T. Stephen Johnson serves as its chairman.
This committee did not meet during the fiscal year ended September 30, 2001.
No member of the Board of Directors or any committee failed to attend or
participate fewer than 75% in meetings of the Board or committee on which such
member serves.
ITEM 11. EXECUTIVE COMPENSATION
The following provides certain summary information concerning compensation
paid or earned by the Company during the years ended September 30, 2001, 2000
and 1999 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
NAME AND ANNUAL COMPENSATION COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS/SAR'S
- ------------------ ---- ------ ----- ----- -------------
Donald W. Kappauf, 2001 $267,130 $200,000 $46,268 300,000
Chief Executive Officer 2000 $230,126 $ 0 $17,251 57,143
37
1999 $225,154 $175,500 $14,876 14,286
Donald T. Kelly 2001 $177,247 $100,000 $18,172 150,000
Chief Financial Officer 2000 $165,000 $ 0 $12,231 14,286
1999 $157,115 $ 87,800 $ 6,000 14,286
Kirk A. Scoggins (1) 2001 $ 66,550 $ 0 $ 3,618 0
President-PEO Division 2000 $176,561 $ 0 $ 9,600 0
1999 $129,348 $ 0 $ 6,277 28,571
Kenneth J. Jankowski (2) 2001 $185,616 $ 0 $19,305 0
President-PEO Division
Elizabeth Hoaglin 2001 $ 95,159 $173,885 $ 3,600 10,000
2000 $ 86,662 $ 92,050 $ 3,600 4,286
1999 $ 67,362 $ 40,000 $ 3,600 2,858
(1) No longer employed by the Company effective February 2001.
(2) No longer employed by the Company effective October 2001.
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 that 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 $1,500 per board meeting and $1,000 per
non-board meeting, related travel expenses, and $600 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 AGREEMENTS
TeamStaff entered into a new employment agreement with Mr. Donald Kappauf
effective April 2, 2001 which replaced his existing agreement which would have
expired on September 30, 2001. Mr. Kappauf will continue to serve as the
TeamStaff's President and Chief Executive Officer at his current salary of
$230,000 and will receive (i) an increase in annual compensation to $300,000
commencing on the closing of the BrightLane acquisition, and increasing yearly
thereafter 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 continues to receive certain
other benefits including insurance benefits, a car allowance and participation
in a supplemental executive retirement plan. Mr. Kappauf was also awarded
options to purchase 300,000 shares of the TeamStaff's common stock exercisable
at $4.625 per share and subject to certain vesting requirements.
TeamStaff entered into a new employment agreement with Mr. Donald Kelly
effective April 2, 2001 which replaced his existing agreement which would have
expired on September 30, 2001. Mr. Kelly will continue to serve as the
TeamStaff's Secretary and Chief Financial Officer at his current salary of
$170,000 and will receive (i) an increase in annual compensation to $200,000
commencing on the closing of the BrightLane acquisition, and increasing yearly
thereafter 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 continues to receive certain
other benefits including insurance benefits, a car allowance and participation
in a
38
supplemental executive retirement plan. Mr. Kelly was also awarded options to
purchase 150,000 shares of the TeamStaff's common stock exercisable at $4.625
per share and subject to certain vesting requirements.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
PERCENTAGE OF
NO. OF SECURITIES TOTAL OPTIONS/
UNDERLYING OPTIONS GRANTED IN EXERCISE OF BASE
NAME GRANTED FISCAL YEAR PRICE PER SHARE EXPIRATION DATE
- ---- ------- ----------- --------------- ---------------
Donald Kappauf 300,000 50% $4.6250 04/02/2006
Donald Kelly 150,000 25% $4.6250 04/02/2006
Elizabeth Hoaglin 10,000 2% $3.4688 10/02/2005
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, 2001.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS AS OF
ACQUIRED SEPTEMBER 30, 2001 SEPTEMBER 30, 2001
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- ---- -------- -------- ------------- ----------------
Donald W. Kappauf 14,128 $95,788 200,156/214,285 $972,707/$1,326,429
Donald T. Kelly 0 $ 0 94,284/107,142 $442,139/$663,209
Kirk A. Scoggins 28,571 $99,999 0/0 $0/$0
(1) Based upon a closing bid price of the Common Stock at $6.19 per share on
September 28, 2001.
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").
39
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 for issuance under the
Management Plan.
2000 EMPLOYEE STOCK OPTION PLAN
In the fiscal year 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 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 that
expired in April 2000.
40
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.
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 National market and is traded under the symbol
"TSTF".
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
SEPTEMBER 2001
[LINE GRAPH]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Teamstaff Inc Return % -64.58 -50.02 3.01 -10.20 80.07
Cum $ $100.00 $ 35.42 $ 17.70 $ 18.23 $ 16.37 $ 29.48
S & P 500 Return % 40.45 9.05 27.81 13.28 -26.63
Cum $ $100.00 $140.45 $153.15 $195.74 $221.74 $162.70
Peer Group Only Return % -16.42 -16.83 -45.17 129.31 -33.50
Cum $ $100.00 $83.58 $ 69.51 $ 38.12 $ 87.40 $ 58.12
Peer Group + TSTF Return % -20.46 -17.99 -44.14 121.14 -30.76
Cum $ $100.00 $ 79.54 $ 65.23 $ 36.44 $ 80.58 $ 55.79
NOTES
(1) Assumes that the value of the investment in the Company's Common Stock and
each index was $100 on September 30, 1996 and that dividends were
reinvested at years ended September 30.
(2) Industry composite includes Employee Solutions, Administaff, Gevity HR,
and Team Mucho Corp. The industry composite has been determined in good
faith by management to represent entities that compete with the Company in
certain of its significant business segments. Management does not believe
there are any publicly held entities that compete with all the Company's
business segments.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
41
The following table sets forth certain information as of January 10, 2002
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. At
January 8, 2002, the Company had 16,252,444 outstanding.
Number of Shares Percent of Company's
Name of Shareholder Currently Owned(1) Outstanding Stock
- ------------------- ------------------ -----------------
Karl W. Dieckmann(2) 95,209 .6%
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873
T. Stephen Johnson (3)
C/o T. Stephen Johnson & Associates, Inc. 264,011
3650 Mansell Road, Suite 200 1.6%
Alpharetta, GA 30022
William J. Marino(4) 30,118 *
c/o Horizon Blue Cross
Blue Shield of New Jersey
3 Penn Plaza East
Newark, NJ 07105
Donald W. Kappauf(5) 337,207 2.1%
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873
Donald T. Kelly(6) 94,283 .6%
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 088
David Carroll (7) 3,334,117 20.5%
C/o First Union Corporation
301 South College Street
NC 0009, Suite 4000
Charlotte, NC 28288
Donald MacLeod (8) 3,334,117 20.5%
C/o First Union Corporation
201 South Tyron Street
NC 1012
Charlotte, NC 28202
42
Susan Wolken (9) 2,256,488 13.9%
C/o Nationwide Financial
One Nationwide Plaza
Mail Stop 01-12-13
Columbus, OH 43215
Martin J. Delaney(10) 41,235 *
c/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873
First Union Private Capital (11) 3,334,117 20.5%
301 South College Street
NC 0009, Suite 4000
Charlotte, NC 28288
Nationwide Financial Services (12) 2,256,488 13.9%
One Nationwide Plaza
Mail Stop 01-12-13
Columbus, OH 43215
All officers and directors as a group 6,455,668 39.3%
(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 9,285 shares of the Company's common stock,
and excludes unvested options to purchase 5,000 shares of common stock.
(3) Includes an aggregate of 147,790 shares owned by or on behalf of certain
of the holder's family members and as to which shares the listed holder
expressly disclaims beneficial ownership. Excludes unvested options to
purchase 5,000 shares of common stock.
(4) Includes options to purchase 9,285 shares of the Company's common stock,
and excludes unvested options to purchase 5,000 shares of common stock.
(5) Includes options to purchase 214,285 shares of the Company's common stock,
and excludes unvested options to purchase 200,158 shares of common stock.
(6) Includes options to purchase 92,498 shares of the Company's common stock,
and excludes unvested options to purchase 107,143 shares of common stock.
(7) Includes shares owned by First Union Corporation and its affiliates. Named
director serves as the nominee of First Union Corporation.
(8) Includes shares owned by First Union Corporation and its affiliates. Named
director serves as the nominee of First Union Corporation.
43
(9) Includes shares owned by Nationwide Financial Services and its affiliates,
and excludes unvested options to purchase 5,000 shares of common stock.
Named director serves as the nominee of Nationwide Financial Services.
(10) Includes options to purchase 8,215 shares of the Company's common stock,
and excludes unvested options to purchase 5,000 shares of common stock.
Also includes warrants to purchase 10,000 shares of common stock.
(11) First Union private Capital, an affiliate of First Union Corporation,
obtained these shares in connection with the acquisition of BrightLane
completed as of August 31, 2001.
(12) Nationwide Financial Services obtained these shares in connection with the
acquisition of BrightLane completed as of August 31, 2001.
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.
Effective August 31,2001, TeamStaff, Inc. completed its acquisition of
BrightLane. As a result of a reverse subsidiary merger with a subsidiary of
TeamStaff, BrightLane is now a wholly-owned subsidiary of TeamStaff.
Other than payments for fractional shares, the shareholders of BrightLane
received an aggregate of 8,066,522 shares of TeamStaff's Common Stock in
exchange for their BrightLane Common Stock, Series A Preferred, Series B
Preferred and Series C Preferred stock. The exchange ratios (rounded) and
aggregate shares for the classes of BrightLane capital stock were as follows:
Title of BrightLane Aggregate
Capital Stock Exchange Ratio TeamStaff Shares
------------- -------------- ----------------
Common Stock 0.2314549 1,601,622
Series A Preferred Stock 22.7740000 874,295
Series B Preferred Stock 1.9410000 3,334,117
Series C Preferred Stock 4.2050000 2,256,488
---------
TOTAL 8,066,522
As a result of issuance to the BrightLane shareholders in the transaction,
the former BrightLane shareholders will receive 8,066,522 shares and, assuming
all such shares are issued as of December 28, 2001, TeamStaff has approximately
16,196,942 shares outstanding.
In connection with the transaction, persons holding BrightLane options to
acquire approximately 2,078,000 BrightLane shares (the equivalent of
approximately 481,000 TeamStaff shares ) exercised their options. TeamStaff
44
made recourse loans of approximately $1,025,000 principal amount to the holders
of these options to assist them in payment of tax obligations incurred with
exercise of the options. The loans are repayable upon the earlier of (i) sale of
the TeamStaff shares or (ii) three years.
First Union Corporation, through an affiliate held all of the BrightLane
Series B Preferred stock, and therefore owns 3,334,117 shares of TeamStaff's
Common Stock (approximately 20%). In addition, Nationwide Financial Services,
Inc. held all of the BrightLane Series C Preferred stock, and therefore owns
2,256,488 shares of TeamStaff's Common Stock (approximately 14%).
Under the terms governing the transaction, certain option holders were
restricted from selling TeamStaff shares acquired from the exercise of their
BrightLane options for a period of up to two years. T. Stephen Johnson and his
spouse, Mary Johnson, also a former director of BrightLane, were the only option
holders who exercised their options and who were subject to these lockup
provisions. Due to the recent significant rise in the Company's stock price and
the significant increase in the amount of the tax loans to be made to T. Stephen
Johnson and Mary Johnson, the Board of Directors of TeamStaff concluded it would
be more appropriate to allow Mr. and Mrs. Johnson to sell a portion of their
TeamStaff shares to cover their tax liability rather than carry a large loan
receivable on the Company's financial statements. The Board therefore agreed to
allow the sale of up to 40% of Mr. and Mrs. Johnson's option shares
(approximately 56,230 TeamStaff shares) as an exempt transaction under SEC Rule
16(b)(3).
Under the terms of the agreements governing the BrightLane transaction,
TeamStaff agreed to register for resale shares obtained by former BrightLane
shareholders who would be deemed "affiliates" under SEC rules and regulations.
The registration statement of which this prospectus forms a part includes
6,096,946 shares of common stock owned by these persons. Certain former
shareholders of BrightLane, who are selling security holders, including First
Union Corporation, Nationwide Financial Services and T Stephen Johnson agreed to
the terms of a "lockup" agreement whereby they have agreed that the shares of
TeamStaff obtained by them may only be sold as follows: commencing on the first
anniversary of the transaction (August 31, 2002) 50% of the acquired shares may
be sold and commencing on the second anniversary the remaining shares may be
sold. The Board of Directors has reserved the right to release all of part of
the shares from the lockup prior to its expiration.
In addition, three persons who served as directors of TeamStaff, namely
John H. Ewing, Rocco J. Marano and Charles R. Dees, Jr. agreed to step down as
directors upon consummation of the transaction with BrightLane. Effective
September 4, 2001, these persons resigned as directors. In connection with the
termination of their services, these individuals received 1,000 warrants for
each year of service on the TeamStaff Board of Directors (an aggregate of 16,000
warrants). The grant of the warrants was approved by the Board of Directors as
an exempt transaction under SEC Rule 16(b)(3).
In addition, the Board of Directors was reconstituted effective September
4, 2001 as a result of the acquisition of Brightlane. See Item 10.
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
45
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.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 -- 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).
2.2 -- 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.
2.3 -- Agreement and Plan of Merger by and among TeamStaff, Inc.,
TeamSub, Inc and BrightLane.com, Inc., dated as of March 6,
2001, as amended by Amendment No. 1 dated as of March 21, 2001
and Amendment No. 2 dated as of April 6, 2001 (filed as
Appendix A to the Proxy Statement/prospectus filed on August
7, 2001, SEC File no. 333-61730, as part of Registrant's
Registration Statement on Form S-4).
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 our Company's Proxy
Statement dated November 12, 1998 as filed with the Securities
and Exchange Commission).
3.1.2 -- Amended and Restated Certificate of Incorporation (filed as
Exhibit A to Definitive Proxy Statement dated May 1, 2000 as
filed with the Securities and Exchange Commission).
3.2 -- Amended By-Laws of Registrant adopted as of January 25,
1999 (filed as Exhibit 3.2 to the Registration Statement on
Form S-4 SEC File No. 333-61730).
3.3 -- Form of Form of Certificate of Designation of Series A
Preferred Stock (filed as Exhibit 3.1 to Form 8-K dated April
6, 2001).
3.4 -- Amended By-Laws of Registrant adopted as of May 15, 2001
(filed as Exhibit 3.4 to the Registration Statement on Form
S-4 File No. 333-61730).
3.5 -- Amended and restated by-laws of registered adoption as of
August 29, 2001 (filed as Exhibit 3,5 to the Registrants Form
S-3 filed on December 19,2001)
4.1 -- Form of the Common Stock Certificate (Exhibit 4.1 to
Registration Statement on Form S-18, File No. 33-46246-NY).
4.2 -- 2000 Employee Stock Option Plan (filed as Exhibit B to the
Proxy Statement dated as of March 8,
46
2000 with respect to the Annual meeting of Shareholders held
on April 13, 2000).
4.3 -- 2000 Non-Executive Director Stock Option Plan (filed as
Exhibit B to the Proxy Statement dated as of March 8, 2000
with respect to the Annual meeting of Shareholders held on
April 13, 2000).
10.1 -- Form of Employment Agreement between TeamStaff, Inc. and
Donald Kappauf dated as of April 2, 2001 (filed as Exhibit
10.1 to the Registrants Proxy Statement/Prospectus on form S-4
File No. 333-61730)
10.2 -- Form of Employment Agreement between TeamStaff, Inc. and
Donald Kelly dated as of April 2, 2001 (filed as Exhibit 10.2
to the Registrants Proxy Statement/Prospectus on form S-4 File
No. 333-61730)
10.3 -- Form of Employment Agreement between TeamStaff, Inc. and
Kenneth Jankowski dated as of Offsetting the improved
performance of the Company was an increase in other assets
amounting to $1,102,000. Included in this increase is the
February 16, 2000.
10.4 -- Lease dated May 30, 1997 for office space at 300 Atrium
Drive, Somerset, New Jersey (Exhibit 10.6.1 to Form 10-K for
the fiscal year ended September 30, 1997).
10.6 -- Loan and Security Agreement dated April 28, 1998 among
Digital Solutions, Inc. and FINOVA Capital Corporation (filed
as Exhibit 10.17 to Form 10-K filed January 12, 1999).
10.7 -- 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 10-K filed January
12, 1999).
10.8 -- Stock Pledge Agreement (Security Agreement) dated April 28,
1998 between FINOVA Capital Corporation and Digital Solutions,
Inc. (filed as Exhibit 10.19 to Form 10-K filed January 12,
1999).
10.9 -- Employment Agreement between our company and Kirk Scoggins
dated January 25, 1999 (filed as Exhibit 10.1 to Form 8-K
dated January 25, 1999).
10.10 -- Registration Rights Agreement between our company and
certain former shareholders of the TeamStaff Companies dated
as of January 25, 1999 (filed as Exhibit 10.2 to Form 8-K
dated January 25, 1999).
10.11 -- Amended and Restated Loan and Security Agreement between
our company and FINOVA Capital Corporation dated January 25,
1999 (filed as Exhibit 10.3 to Form 8-K dated January 25,
1999).
10.12 -- Amended and Restated Note in the principal amount of
$2,166,664 dated January 25, 1999 (filed as Exhibit 10.4 to
Form 8-K dated January 25, 1999).
10.13 -- 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 8-K dated January 25, 1999).
10.14 -- Secured Note in the amount of $750,000 in favor of FINOVA
Capital Corporation dated January 25, 1999 (field as Exhibit
10.6 to Form 8-K dated January 25, 1999).
10.15 -- Schedule to Amended and Restated Loan Agreement dated
January 25, 1999 with FINOVA
47
Capital Corporation (filed as Exhibit 10.7 to Form 8-K dated
January 25, 1999).
10.16 -- Form of Agreement between TeamStaff and Donald & Co.
Securities, Inc. (filed as Exhibit 10.27 to Form S-3/A dated
June 28, 2000).
10.17 -- First Amendment to the Amended and Restated Schedule to the
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 10.1 to Form 8-K dated April 19, 2000).
10.18 -- 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 10.2 to Form 8-K
dated April 19, 2000).
10.19 -- 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 10.3 to Form 8-K
dated April 19, 2000).
10.20 -- Secured Promissory Note C dated April 7, 2000 in the
principal amount of $4,000,000 payable to FINOVA Capital
Corporation (filed as Exhibit 10.4 to Form 8-K dated April 19,
2000).
10.21 -- Employment Agreement dated October 1, 1999 between our
company and Donald Kappauf (filed as Exhibit 10.32 to Form
S-3/A dated June 28, 2000).
10.22 -- Employment Agreement dated October 1, 1999 between our
company and Donald Kelly (filed as Exhibit 10.33 to Form S-3/A
dated June 28, 2000).
10.23 -- Form of Stock Purchase Agreement dated as of April 6, 2001
between TeamStaff, Inc. and BrightLane.com, Inc. with respect
to purchase of Series A Preferred Stock (filed as Exhibit 10.1
to Form 8-K dated April 6, 2001).
10.24 -- Form of Registration Rights Agreement dated as of April 6,
2001 between TeamStaff, Inc. and BrightLane.com, Inc. (filed
as Exhibit 10.2 to Form 8-K dated April 6, 2001).
10.25 -- Form of Marketing Agreement dated as of April 11, 2001
between First Union Corporation and TeamStaff, Inc.
10.31 -- Form of Voting Agreement provided by BrightLane
Shareholders as provided in the Agreement and Plan of Merger
by and among TeamStaff, Inc., TeamSub, Inc., and
BrightLane.com, Inc., dated as of March 6, 2001 as amended by
Amendment No. 1 dated as of March 21, 2001 and Amendment No. 2
dated as of April 6, 2001.
10.32 -- Form of Escrow Agreement between TeamStaff, Inc. and
BrightLane Shareholders with respect to the placement of
150,000 shares into escrow by the BrightLane shareholders
(filed as Appendix B to the proxy statement/prospectus filed
on August 7, 2001 SEC File No. 333.61730).
21.0* -- Subsidiaries of Registrants.
23.1* -- Consent of Arthur Andersen LLP.
(b) Reports on Form 8-K.
48
Reports on Form 8K
Date of Report Item No Financial Statements Reported
August 30, 2001 Item 2. Acquisition or Disposition None
of Assets.
Item 5. Other Events
September 7, 2001 Item 2. Acquisition or Disposition
as amended of Assets.
November 2, 2001 Item 5. Other Events 99.1 BrightLane.com, Inc. Financial
Statements as of December 31, 1999 and
2000 and the Period May 7, 1999 (date of
inception) through December 31, 1999,
for the year ended December 31, 2000 and
the period May 7, 1999 (date of
inception) through December 31, 2000,
together with Auditors' Report
(previously filed as Appendix G to the
proxy statement/prospectus filed with
the Commission on August 3, 2001
included in the Registration Statement
on Form S-4 Commission File No.
333-61730).
99.2 BrightLane.com, Inc. Unaudited
Balance Sheet as of June 30, 2001 and
Statements of Operations and Cash Flows
for the six months ended June 30, 2000
and 2001.
b. Pro Forma Financial information.
99.3 Pursuant to Item 7 of Form 8-K, the
Company has annexed hereto the Unaudited
Pro Forma financial information
including the Unaudited Pro Forma
Consolidated Balance Sheet as of June
30, 2001, the unaudited Pro Forma
Consolidated Statements of Operations
for the year and the nine
49
months ended June 30, 2001 and the notes
to the Unaudited Pro Forma Consolidated
Financial Statements.
(c) Exhibits. See Item (a)(3) above.
(d) Valuation of qualifying accounts. See Schedule I annexed to the financial
statements.
50
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 8, 2002
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/T. Stephen Johnson Chairman of the Board January 8, 2002
- ---------------------------
T. Stephen Johnson
/s/Karl W. Dieckmann Vice-Chairman of the Board January 8, 2002
- ---------------------------
Karl W. Dieckmann
/s/David Carroll Director January 8, 2002
- ---------------------------
David Carroll
/s/William J. Marino Director January 8, 2002
- ---------------------------
William J. Marino
/s/Donald MacLeod Director January 8, 2002
- ---------------------------
Donald MacLeod
/s/Martin J. Delaney Director January 8, 2002
- ---------------------------
Martin J. Delaney
/s/Susan Wolken Director January 8, 2002
- ---------------------------
Susan Wolken
/s/Donald W. Kappauf President, Chief Executive January 8, 2002
- --------------------------- Officer and Director
Donald W. Kappauf
/s/Donald T. Kelly Chief Financial Officer January 8, 2002
- --------------------------- & Corporate Secretary
Donald T. Kelly
51
TEAMSTAFF, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report Of Independent Public Accountants F-2
Consolidated Balance Sheets As Of September 30, 2001 and 2000 F-3
Consolidated Statements Of Income For The Years Ended
September 30, 2001, 2000 and 1999 F-5
Consolidated Statements Of Shareholders' Equity For The Years Ended
September 30, 2001, 2000 and 1999 F-6
Consolidated Statements Of Cash Flows For The Years Ended
September 30, 2001, 2000 and 1999 F-7
Notes To Consolidated Financial Statements F-8
Schedule I -- Valuation And Qualifying Accounts For The Years Ended
September 30, 2001, 2000 and 1999 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
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, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended September 30, 2001. 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, 2001 and 2000, and the results of their
operations and their cash flows for the three years in the period ended
September 30, 2001 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 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 31, 2001 (except for Note 11,
as to which the date
is January 1, 2002)
F-2
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2001 AND 2000
ASSETS 2001 2000
------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 13,854,000 $ 4,285,000
Restricted cash -- 375,000
Accounts receivable, net of allowance for doubtful accounts
of $549,000 and $281,000 at September 30, 2001 and 2000 25,149,000 21,117,000
Deferred tax asset 2,241,000 1,566,000
Other current assets 1,016,000 955,000
------------ ------------
Total current assets 42,260,000 28,298,000
------------ ------------
EQUIPMENT AND IMPROVEMENTS:
Equipment 3,573,000 2,977,000
Software and computer equipment 2,607,000 1,363,000
Leasehold improvements 290,000 209,000
------------ ------------
6,470,000 4,549,000
Less - accumulated depreciation and amortization 3,735,000 3,459,000
------------ ------------
2,735,000 1,090,000
DEFERRED TAX ASSET 6,984,000 153,000
INTANGIBLE ASSETS, net of accumulated amortization of $3,065,000
and $2,542,000 at September 30, 2001 and 2000 37,550,000 19,633,000
OTHER ASSETS 1,567,000 340,000
------------ ------------
$ 91,096,000 $ 49,514,000
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-3
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2001 AND 2000
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
------------------------------------ ------------ ------------
CURRENT LIABILITIES:
Current portion of long-term debt 70,000 $ 1,938,000
Accounts payable 7,072,000 6,174,000
Accrued expenses and other current liabilities 22,479,000 17,121,000
------------ ------------
Total current liabilities 29,621,000 25,233,000
LONG-TERM DEBT, net of current portion 193,000 6,222,000
------------ ------------
Total liabilities 29,814,000 31,455,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized 40,000,000 shares;
issued 16,196,942 and 7,981,605; outstanding 16,109,631
and 7,946,205, respectively 16,000 8,000
Additional paid-in capital 63,544,000 21,297,000
Accumulated deficit (1,686,000) (3,110,000)
Receivable from shareholder (90,000) --
Treasury stock, 87,311 and 35,400 shares at cost, respectively (502,000) (136,000)
------------ ------------
61,282,000 18,059,000
------------ ------------
$ 91,096,000 $ 49,514,000
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-4
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30,
------------------------------------------------
2001 2000 1999
------------ ------------ ------------
REVENUES $649,727,000 $447,743,000 $244,830,000
DIRECT EXPENSES 621,630,000 426,987,000 228,294,000
------------ ------------ ------------
Gross profit 28,097,000 20,756,000 16,536,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 23,264,000 17,005,000 12,181,000
DEPRECIATION AND AMORTIZATION 1,424,000 1,333,000 1,124,000
------------ ------------ ------------
Income from operations 3,409,000 2,418,000 3,231,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 911,000 584,000 492,000
Interest expense (1,274,000) (1,601,000) (1,133,000)
Other income (expense) 48,000 (22,000) 35,000
------------ ------------ ------------
(315,000) (1,039,000) (606,000)
------------ ------------ ------------
Income before income taxes and
extraordinary item 3,094,000 1,379,000 2,625,000
INCOME TAX EXPENSE (1,316,000) (428,000) (849,000)
------------ ------------ ------------
Income before extraordinary item 1,778,000 951,000 1,776,000
EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT
OF DEBT, NET OF TAX BENEFIT OF $256,000 (354,000) -- --
------------ ------------ ------------
Net income $ 1,424,000 $ 951,000 $ 1,776,000
============ ============ ============
EARNINGS PER SHARE - BASIC & DILUTED
Income before extraordinary item $ 0.20 $ 0.12 $ 0.25
Extraordinary item (0.04) -- --
------------ ------------ ------------
Net Income $ 0.16 $ 0.12 $ 0.25
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC 8,693,243 7,954,176 7,127,806
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND EQUIVALENTS
OUTSTANDING - DILUTED 8,907,282 7,990,912 7,145,390
============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
Common Stock Additional Receivable Treasury Stock
--------------------- Paid-In Accumulated From ----------------
Shares Amount Capital Deficit Shareholder Shares Amount Total
------------------------------------------------------------------------------------------------
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
Common stock repurchased -- -- -- -- -- 51,911 (366,000) (366,000)
Exercise of stock options 16,775 -- 16,000 -- -- -- -- 16,000
Exercise of stock warrants 73,570 -- 179,000 -- -- -- -- 179,000
Common stock issued in
connection with the
acquisition of BrightLane 8,066,522 8,000 41,892,000 -- -- -- -- 41,900,000
Common stock issued in connection
with the acquisition of HR2 89,224 -- 300,000 -- -- -- -- 300,000
Settlement of certain escrow
shares (54,996) -- (340,000) -- -- -- -- (340,000)
Stock sold to director 10,114 -- 40,000 -- -- -- -- 40,000
Receivable from shareholder in
connection with option exercise 14,128 -- 90,000 -- (90,000) -- -- --
Non-cash compensation
expense related to warrants -- -- 70,000 -- -- -- -- 70,000
Net income -- -- -- 1,424,000 -- -- -- 1,424,000
------------------------------------------------------------------------------------------------
BALANCE, September 30, 2001 16,196,942 $ 16,000 $ 63,544,000 $(1,686,000) (90,000) 87,311 $(502,000) $61,282,000
================================================================================================
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30,
----------------------------------------------
2001 2000 1999
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,424,000 $ 951,000 $ 1,776,000
Adjustments to reconcile net income to net
cash provided by operating activities,
net of acquired businesses-
Deferred income taxes 123,000 73,000 600,000
Depreciation and amortization 1,424,000 1,333,000 1,124,000
Provision for doubtful accounts 526,000 162,000 27,000
Non-cash write-off of deferred financing cost 435,000 -- --
Loss on disposal of equipment -- 24,000 --
Non-cash compensation expense related to warrants 70,000 200,000 44,000
Gain on sale of regional office (El Paso) (50,000) -- --
Changes in operating assets and liabilities,
net of acquired businesses-
Increase in accounts receivable (4,977,000) (7,905,000) (4,016,000)
(Increase) decrease in other current assets 449,000 (220,000) 458,000
(Increase) decrease in other assets (1,137,000) 197,000 225,000
Increase in accounts payable, accrued
expenses and other current liabilities 5,275,000 9,040,000 3,325,000
(Increase) decrease in restricted cash 375,000 (13,000) (362,000)
------------ ------------ ------------
Net cash provided by operating activities 3,937,000 3,842,000 3,201,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (589,000) (486,000) (249,000)
Proceeds from sale of regional office 500,000 -- --
Acquisition of businesses, net of cash acquired 10,283,000 (3,314,000) (4,509,000)
------------ ------------ ------------
Net cash provided by (used in) investing
activities 10,194,000 (3,800,000) (4,758,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on line of credit -- -- $ 1,015,000
Proceeds from borrowings on long-term debt -- 4,000,000 2,500,000
Principal payments on long-term debt (6,983,000) (1,055,000) (792,000)
Payments on revolving line of credit (899,000) (559,000) (663,000)
Net proceeds from issuance of preferred stock 3,500,000 -- --
Repayments on capital leases obligations (49,000) (34,000) (45,000)
Net proceeds from issuance of common stock, net of
expenses 40,000 -- 9,000
Net proceeds from the exercise of stock options and
warrants 195,000 4,000 22,000
Common shares repurchased (366,000) (61,000) (75,000)
Proceeds from LNB settlement -- -- 4,000
------------ ------------ ------------
Net cash (used in) provided by financing
activities (4,562,000) 2,295,000 1,975,000
------------ ------------ ------------
Net increase in cash and cash equivalents 9,569,000 2,337,000 418,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,285,000 1,948,000 1,530,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 13,854,000 $ 4,285,000 $ 1,948,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 1,892,000 $ 1,242,000 $ 790,000
============ ============ ============
Income taxes $ 797,000 $ 489,000 $ 374,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
Borrowings under capital leases $ 263,000 $ 272,000 --
Fair value of escrow shares received in settlement $ 340,000 -- --
Note receivable in connection with sale of
regional office (El Paso) $ 425,000 -- --
Retirement of preferred stock $ 3,500,000 -- --
Receivable from shareholder in connection with
option exercise $ 90,000 -- --
============ ============ ============
During 1999 the Company issued common stock valued at $7.3 million in connection
with the acquisition of the TeamStaff Companies.
During 2001 the Company issued common stock valued at $42.2 million in
connection with the acquisition of BrightLane.com and HR2.
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-7
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, Texas; Woburn, Massachusetts;
and Clearwater and Delray, Florida and sales service centers in New
York, New York; Houston, Texas; Delray and Clearwater, Florida; Woburn,
Massachusetts; Alpharetta, 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". The Company operates these assets, which were comprised
mostly of PEO contracts, as part of its TeamStaff SB division.
Effective October 2, 2000, the Company acquired all the stock of the
professional employer organization ("PEO") business of HR2. This
acquisition is not significant to the accompanying consolidated
financial statements.
Effective August 31, 2001, the Company acquired all the stock of
BrightLane.com, Inc. (BrightLane).
(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") as service is rendered. The PEO
revenue consists of charges by the Company for the wages and employer
payroll taxes of the worksite employees, the administrative service fee,
workers' compensation charges, and the health and retirement benefits
provided to the worksite employees. These charges are invoiced to the
client at the time of each periodic payroll. The Company negotiates the
pricing for its various services on a client-by-client basis based on
factors such as market conditions, client needs and services requested,
the client's workers' compensation experience, the type of client
business and the required resources to service the account, among other
factors. Because the pricing is negotiated separately with each client
and vary according to circumstances, the Company's revenue, and
therefore its gross margin, will fluctuate based on the Company's client
mix.
The temporary staffing revenue is recognized as service is rendered. The
Company bills its clients based on an hourly rate. The hourly rate is
intended to cover the Company's direct labor costs of the temporary
employees, plus an estimate to cover overhead expenses and a profit
margin. Additionally, included in revenue related to temporary staffing
are commissions from permanent
F-8
placements. Commissions from permanent placements result from the
successful placement of a temporary employee to a customer's workforce
as a permanent employee.
The payroll services revenue is recognized as service is rendered and
consists primarily of administrative service fees charged to clients for
the processing of paychecks as well as preparing quarterly and annual
payroll related reports.
In accordance with Emerging Issues Task Force (EITF) Issue No. 99-19
"Reporting Revenue Gross as a Principal versus Net as an Agent," the
Company recognizes all amounts billed to its PEO and temporary staffing
customers as gross revenue because the Company is at risk for the
payment of its direct costs, whether or not the Company's customers pay
the Company on a timely basis or at all, and the Company assumes a
significant amount of other risks and liabilities as a co-employer of
its worksite employees, and employer of its temporary employees, and
therefore, is deemed to be a principal in regard to these services. The
Company also recognizes as gross revenue and as unbilled receivables, on
a accrual basis, any such amounts which relate to services performed by
worksite and temporary employees which have not yet been billed to the
customer as of the end of the accounting period. Unbilled receivables
totaled $13,693,000 and $9,813,000 as of September 30, 2001 and 2000
respectively. All such amounts are expected to be realized in the
subsequent year.
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 adoption of SAB 101 in fiscal
2001 did not have any impact on the consolidated financial statements.
CONCENTRATIONS OF CREDIT RISK-
The Company's customer base consists of over 3,700 client companies,
representing approximately 54,400 employees (including payroll services)
as of September 30, 2001. 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. Credit, when given, is generally granted
on an unsecured basis.
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, software 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:
2001 2000
------------ ------------
Trade Name $ 4,710,000 $ 4,700,000
First Union Relationship 6,900,000 --
Goodwill 29,005,000 17,475,000
------------ ------------
40,615,000 22,175,000
Accumulated amortization (3,065,000) (2,542,000)
------------ ------------
$ 37,550,000 $ 19,633,000
============ ============
Goodwill represents the excess of the cost of companies acquired over
the fair value of their net assets at the acquisition date. Goodwill
from acquisitions prior to June 30, 2001 is being amortized on a
straight-line basis over 20 to 25 years. Goodwill from acquisitions
after June 30, 2001 is not being amortized. Trade name is being
amortized on a straight-line basis over 25 years. Amortization expense
charged to operations was approximately $948,000 for fiscal year 2001,
$864,000 for fiscal year 2000 and $598,000 for fiscal year 1999.
F-9
During June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business
Combinations (SFAS No. 141) and No. 142 Goodwill and Other Intangible
Assets (SFAS No. 142). SFAS No. 141 changes the accounting for business
combinations, requiring that all business combinations be accounted for
using the purchase method and that intangible assets be recognized as
assets apart from goodwill if they arise from contractual or other legal
rights, or if they are separable or capable of being separated from the
acquired entity and sold, transferred, licensed, rented or exchanged.
SFAS No. 141 is effective for all business combinations initiated after
June 30, 2001. SFAS No. 142 specifies the financial accounting and
reporting for acquired goodwill and other intangible assets. Goodwill
and intangible assets that have indefinite useful lives will not be
amortized but rather will be tested at least annually for impairment.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. However, early adoption is allowed and the Company currently
intends to adopt SFAS No. 142 as of October 1, 2001.
SFAS No. 142 requires that the useful lives of intangible assets
acquired on or before June 30, 2001 be reassessed and the remaining
amortization periods adjusted accordingly. Previously recognized
intangible assets deemed to have indefinite lives shall be tested for
impairment. The Company has not fully assessed the potential impact of
the adoption of SFAS No. 142, which will be effective for the Company as
of October 1, 2001, but believes that goodwill and the trade name
recognized prior to July 1, 2001 will no longer be amortized upon
adoption of SFAS No. 142. In accordance with SFAS No. 142, goodwill, the
First Union relationship and trade name acquired after June 30, 2001
have not been amortized in the accompanying statement of income for
2001.
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.
Goodwill is viewed in two separate categories: enterprise-level and
business-unit level. Enterprise goodwill results from purchase
acquisitions of businesses that have been fully integrated into the
Company's operations and no longer exist as a discrete business unit.
Business unit goodwill results from purchased business combinations
where the acquired operations have been managed as a separate business
unit and not fully absorbed into the Company. The Company reviews its
goodwill and other intangible assets for impairment when events and
circumstances indicate that such assets might be impaired. The Company
utilizes undiscounted cash flow methods to measure impairment for
Enterprise goodwill, business unit goodwill and intangible assets. An
impairment loss is recognized to the extent that the carrying amount of
the asset is in excess of the sum of the undiscounted cash flows
expected to result from the use of the asset.
In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of intangible long-lived assets and the associated asset
retirement costs and is effective for the fiscal years beginning after
June 15, 2002. Management does not expect the impact of SFAS No. 143 to
be material to the Company's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 amends SFAS No. 121,
Accounting for the impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, and establishes a single accounting model for
the impairment or disposal of long-lived assets. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. Management
does not expect the impact of SFAS No. 144 to be material to the
Company's consolidated financial statements.
WORKERS COMPENSATION-
The Company applies loss-development factors to its open years' workers'
compensation incurred losses in order to estimate fully developed
losses. For the current policy period, the Company uses several other
factors as well to include the timing of loss payments and interest
rates.
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-10
RECLASSIFICATIONS
Certain reclassifications have been made to prior years amounts to
conform to the current year presentation.
STOCK-BASED COMPENSATION-
Stock-based compensation for employees and directors is recognized using
the intrinsic value method under APB No. 25. The Company uses the fair
value method for options issued to non-employees. 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 income
before extraordinary item and share amounts used to calculate basic and
diluted earnings per share before extraordinary item:
Years Ended September 30,
2001 2000 1999
---------- ---------- ----------
Numerator:
Income before extraordinary item $1,778,000 $ 951,000 $1,776,000
---------- ---------- ----------
Denominator:
Weighted average number of common shares
outstanding - Basic 8,693,243 7,954,176 7,127,806
Incremental shares for assumed conversions
of stock options/warrants 214,039 36,736 17,584
---------- ---------- ----------
Weighted average number of common and
equivalent shares outstanding-Diluted 8,907,282 7,990,912 7,145,390
---------- ---------- ----------
Earnings per share before extraordinary item -
Basic and Diluted $ 0.20 $ 0.12 $ 0.25
========== ========== ==========
Stock options and warrants outstanding at September 30, 2001 to purchase
157,006 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 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 recognizes all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133 was effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The adoptation
of SFAS No. 133, as amended, had no impact on the Company's consolidated
financial statements as the Company does not utilize derivatives.
F-11
(3) INCOME TAXES:
At September 30, 2001, the Company has available operating loss
carryforwards of approximately $22,098,000 to reduce future periods'
taxable income. Substantially all of the operating loss carryforwards
were acquired in connection with the acquisition of BrightLane on August
31, 2001 (See Note 5). The carryforwards expire in various years
beginning in 2004 and extending through 2021. The Company also has tax
credits available of approximately $249,000 to reduce future taxable
income that begin to expire in 2020. In accordance with IRS regulations,
the utilization of operating losses acquired from BrightLane are limited
to $2.1 million per year.
The Company has recorded a $9,245,000 and a $1,719,000 deferred tax
asset at September 30, 2001 and 2000, 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 2001 and 2000, the
Company reduced the tax provision by $218,000 and $374,000 respectively
for certain tax credits which were available to the Company. In 1999,
the Company's income tax expense was reduced by a $400,000 tax benefit
reflecting the elimination of a valuation allowance.
In order for the Company to realize the operating loss carryforward and
the tax credits, the Company would have to generate approximately
$22,000,000 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 four years of profitability
and its ability to meet its operating plan.
An analysis of the Company's deferred tax asset is as follows-
2001 2000
---------- ----------
Net operating loss carryforwards and tax credits $7,764,000 $ 574,000
Workers' compensation reserves 1,122,000 530,000
Allowance for doubtful accounts 187,000 102,000
Depreciation expense 170,000 153,000
Other items, net 2,000 360,000
---------- ----------
Deferred income tax asset $9,245,000 $1,719,000
========== ==========
The components of the income tax expense (benefit) for income taxes are
summarized as follows-
Years Ended September 30,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
Current expense $1,193,000 $ 355,000 $ 249,000
Deferred expense 123,000 73,000 600,000
---------- ---------- ----------
Total expense $1,316,000 $ 428,000 $ 849,000
========== ========== ==========
The following table indicates the significant elements contributing to
the difference between the Federal statutory rate and the Company's
effective tax rate-
Years Ended September 30,
-------------------------
2001 2000 1999
---- ---- ----
Federal statutory rate 34% 34% 34%
State taxes, net of federal income tax benefit 8 8 7
Reversal of valuation allowance 0 0 (15)
Tax credits (9) (28) 0
Goodwill amortization 7 13 4
Other 3 4 2
---- ---- ----
43% 31% 32%
==== ==== ====
(4) DEBT:
The Company had a long-term credit facility from FINOVA Capital
Corporation totaling $12.5 million. Substantially all assets of the
Company secured the credit facility. The facility was comprised of (i)
two three-year term loans each for $2.5 million, with a five-year
amortization, at
F-12
prime plus 3%; (ii) a three-year term loan for $4.0 million, with a
five-year amortization, at prime plus 3% and (iii) a $3.5 million
revolving line of credit at prime plus 1% secured by certain accounts
receivable of the Company. The credit facility was 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 was subject to annual success fees
at the beginning of each loan year in the amount of $500,000. The credit
facility was 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.
In connection with the BrightLane acquisition TeamStaff repaid
approximately $8,289,000 of total outstanding debt (including interest
and related financing fees) owed to FINOVA Capital Corporation. Of this
amount approximately $3,800,000 was paid in April 2001 and the remaining
$4,489,000 was paid in September 2001. As a result, the Company wrote
off $435,000 of unamortized financing costs and paid additional fees of
$175,000. This has been recorded as an extraordinary loss on the early
extinguishment of debt of $354,000, net of tax benefit of $256,000.
Long-term debt at September 30, 2001 and 2000 consists of the following-
2001 2000
----------- -----------
Revolving line of credit $ 0 $ 899,000
Term loans 0 6,983,000
Capital leases 263,000 278,000
----------- -----------
263,000 8,160,000
Less- Current portion (70,000) (1,938,000)
----------- -----------
$ 193,000 $ 6,222,000
=========== ===========
Maturities of long-term debt as of September 30, 2001 are as follows-
Year Ending
September 30,
-------------
2002 70,000
2003 46,000
2004 53,000
2005 94,000
--------
$263,000
========
(5) BUSINESS COMBINATIONS:
ACQUISITION OF BRIGHTLANE.COM
Effective August 31, 2001, the Company acquired BrightLane.com, Inc, an
Online Business Center and technology group providing Internet-based
solutions for growing businesses. BrightLane's developed technology had
focused on increasing buying power and reducing transaction costs for
growing businesses. This technology is now refocused to drive a new
venture for the company called TeamStaff ConnXions. TeamStaff ConnXions
will be a conduit to both the clients and employees of TeamStaff
offering a variety of services through strategic partners such as web
page developers, a full line of insurance and benefit products and
procurement services. BrightLane integrates these services through
proprietary unified login and hub technology that offers businesses
security. BrightLane is also spearheading the technology efforts of the
Company in total, most specifically in terms of the implementation of
the licensed Lawson software package.
Under the terms of the purchase agreement, the Company acquired all the
stock of BrightLane.com through the issuance of 8,066,522 shares of
TeamStaff stock, valued at approximately $41,900,000. The Company also
incurred $1,804,000 of certain legal, accounting and investment banking
expenses, resulting in a total purchase price of $43,704,000. The
acquisition has been accounted for under the purchase method and the
results of operations of the acquired company 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 as stated below:
Cash acquired $12,031,000
Deferred tax asset 7,400,000
Investment in TeamStaff preferred stock 3,500,000
Other assets acquired, net 1,538,000
First Union relationship 6,900,000
Tradename 10,000
Goodwill 12,325,000
-----------
Total $43,704,000
===========
F-13
Prior to the acquisition, the Company sold to BrightLane $3.5 million of
preferred stock and used the proceeds to pay down a portion of the
FINOVA debt. The preferred stock was cancelled in connection with the
acquisition on August 31, 2001.
In connection with the transaction, persons holding BrightLane options
to acquire approximately 2,078,000 BrightLane shares (the equivalent of
approximately 481,000 TeamStaff shares ) exercised their options.
TeamStaff made recourse loans of approximately $1,025,000 principal
amount to the holders of these options to assist them in payment of tax
obligations incurred with exercise of the options. The loans are
repayable upon the earlier of (i) sale of the TeamStaff shares or (ii)
three years.
ACQUISITION OF HR2, INC.
Effective October 2, 2000, the Company acquired 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 for a total purchase price of
$400,000. HR2, Inc. is a professional employer organization that
operates primarily in Massachusetts, Rhode Island, and New Hampshire.
The acquisition of HR2 Inc. was not material to the Company's
consolidated financial statements.
ACQUISITION OF SYNADYNE ASSETS
Effective April 7, 2000 TeamStaff, Inc. entered into an Asset Purchase
Agreement to acquire substantially all of the assets of the professional
employer organization business of Outsource International, Inc.
("Outsource"), which had operated under the tradename "Synadyne".
TeamStaff acquired all of the customer contracts of the former Synadyne
business. The Company operates these assets, which were comprised mostly
of PEO contracts, through its subsidiaries as part of its TeamStaff SB
division. Under the terms of the Asset Purchase Agreement, TeamStaff
paid an aggregate purchase price of $3,500,000 which includes the
assumption of approximately $200,000 in liabilities. The company also
incurred approximately $100,000 for acquisition related expenses. The
agreement also provides for an additional potential payment of up to
$1,250,000 provided that the former clients of Outsource 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. The Company calculated that at March 31, 2001
there were 5,879 employees employed by the Company represented by the
former Synadyne business and therefore no payment is due to Outsource
under the terms of the earnout. However, based on an estimate provided
by Outsource, the earnout payment would be approximately $553,000. Under
the terms of the agreement, Outsource had a period of 90 days, (which
expired on July 19, 2001), to audit the records related to the employees
and accounts to determine the earnout. Outsource filed for protection
under Chapter 11 of the U.S. Bankruptcy Code on June 11, 2001 in the
Central District of California. The Company is unable to predict the
impact of Outsource's bankruptcy on the potential earnout. Any
subsequent payment would be accounted for as additional purchase price
and would be recorded as an increase to goodwill when and if made.
Under the original acquisition related agreements, TeamStaff had been
providing PEO services to the corporate employees of Outsource. The
parties had entered into a court-approved stipulation in the bankruptcy
action that TeamStaff would continue to provide these services.
Subsequently, the parties mutually agreed to terminate the original
service agreement effective July 2001.
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 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. In accordance with the adoption of SFAS 141 and 142 the
amortization of goodwill will cease effective October 1, 2001.
F-14
The following unaudited pro forma information presents a summary of
consolidated financial results of operations of the Company and acquired
companies as if the acquisitions had occurred October 1, 1999.
Fiscal Years Ended September 30,
--------------------------------
2001 2000
------------ ------------
Revenues $650,021,000 $554,524,000
Loss before extraordinary item $ (3,202,000) $(13,731,000)
Net loss $ (3,812,000) $(13,731,000)
Loss per share - basic and diluted $ (.35) $ (.86)
SALE OF EL PASO REGIONAL OFFICE
In September 2001, the Company sold its' regional PEO office in El Paso,
Texas. The business was sold for $925,000, $500,000 in cash at closing
and $425,000 to be paid in 17 equal monthly installments from October
2001 until February 2003. The gain on sale of this transaction was
$50,000.
As described in note 2, the Company will be required to test its
goodwill for impairment connected with any acquisition in accordance
with SFAS No. 141 and 142.
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities at September 30, 2001 and
2000 consist of the following-
2001 2000
------------ ------------
Payroll and payroll taxes $ 15,421,000 $ 11,736,000
Worker's compensation insurance 3,300,000 1,997,000
Bank Overdraft 3,237,000 2,064,000
Other 521,000 1,324,000
------------ ------------
$ 22,479,000 $ 17,121,000
============ ============
(7) COMMITMENTS AND CONTINGENCIES:
LEASES-
Minimum payments under noncancellable lease obligations at September 30,
2001 are as follows-
Year Ending
September 30,
-------------
2002 $1,234,678
2003 1,208,544
2004 1,232,003
2005 1,065,145
2006 785,131
----------
$5,525,501
==========
Rent expense under all operating leases was $1,233,000 in 2001, $988,000
in 2000 and $794,000 in 1999.
WORKERS' COMPENSATION POLICY-
TeamStaff maintains three workers' compensation policies which cover its
corporate employees, the worksite employee co-employed by TeamStaff and
its PEO clients, and the temporary employees employed by TeamStaff to
fulfill various client staffing assignments. TeamStaff does not provide
workers' compensation to non-employees of the Company. TeamStaff's
primary workers' compensation insurance provider is C N A (Continental
Assurance) which provides coverage for substantially all of TeamStaff's
worksite, temporary and corporate employees.
The C N A policy covers the period from January 22, 2001, through
January 21, 2002, and is a large deductible program ($250,000 for each
claim) with a maximum liability cap. The premium for this policy is paid
on a monthly basis based upon
F-15
estimated payroll for the year and is subject to a year-end audit by the
provider. TeamStaff also maintains a separate policy insuring a portion
of the maximum cap which it may be required to pay. The policy insures
payment of the maximum cap in excess of the first $1,800,000, which the
Company pays, up to $7,425,000 and is funded monthly. Once the
$7,425,000 is exceeded then the Company pays 89.5% of paid claims up to
$10,400,000. If the losses and fixed cost under the policy are less than
the amounts TeamStaff paid, plus investment returns thereon, the insurer
will refund the difference to TeamStaff. The amount of claims incurred
in any policy year may vary, and in a year with significantly fewer
claims than estimated, the amount of repayment from this account may be
significant. The Company records in direct expenses a monthly charge
based upon its estimate of the year's ultimate fully developed losses
plus the fixed costs charged by the insurance carrier to support the
program. This estimate is established each quarter based in part upon
information provided by the Company's insurers, internal analysis and
its insurance broker. The Company's internal analysis includes quarterly
review of open claims and review of historical claims and losses related
to the workers' compensation programs. While management uses available
information, including nationwide loss ratios, to estimate ultimate
losses, future adjustments may be necessary based on actual losses.
Since the recorded ultimate expense is based upon a ten-year projection
of actual claims payment and the timing of these payments, as well as
the interest earned on the Company's prepayments, the Company relies on
actuarial tables to estimate its ultimate expense.
As of September 30, 2001, the adequacy of the workers' compensation
reserves were determined, in managements opinion, to be reasonable.
However, since these reserves are for losses that have not been
sufficiently developed due to the relatively young age of these claims,
and such variables as timing of payments and investment returns thereon
are uncertain or unknown, actual results may vary from current
estimates. The Company will continue to monitor the development of these
reserves, the actual payments made against the claims incurred, the
timing of these payments, the interest accumulated in the Company's
prepayments and adjust the reserves as deemed appropriate.
TeamStaff maintains a separate policy for certain business of its
subsidiary, HR2, which currently provides that TeamStaff is only
responsible for the audited premium for each policy period. The third
policy, for one of the Company's PEO market profit centers, currently
obligates TeamStaff to pay its audited premium for the policy period
plus a deductible of $10,000 for each claim incurred.
The Company's clients are billed at fixed rates which are determined
when the contract is negotiated with the client. The fixed rates include
charges for workers' compensation which are based upon the Company's
assessment of the costs of providing workers' compensation to the
client. If the Company's cost for workers' compensation are greater than
the costs which are included in the client's contractual rate, the
Company is unable to recover these excess charges from the clients. The
Company reserves the right in its contracts to increase the workers'
compensation charges on a prospective basis only.
LEGAL PROCEEDINGS-
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-trial interest. In
November 2000 the parties settled this case resulting in the payment of
$230,000 by the Company. This amount was accrued for in the accompanying
balance sheet as of September 30, 2000.
In July 2000, TeamStaff made claims for indemnification against the
selling shareholders of the TeamStaff Companies, which were acquired by
the Company in January 1999. The claims consisted of various potential
liabilities and expenses incurred based on breaches of representations
and warranties contained in the acquisition agreement. The Sellers
disputed these claims and attempted to assert claims of their own. On
January 12, 2001, the Company entered into a settlement agreement with
the former owners of the TeamStaff Companies. Under the settlement
agreement, the former owners agreed to be liable and responsible for
certain potential liabilities estimated at approximately $540,000 and
agreed that approximately 55,000 shares, which had been held in escrow
since the acquisition, were to be cancelled and TeamStaff agreed to
release 29,915 escrow shares to the former owners. TeamStaff retains
75,000 shares in escrow to provide security for the former owner's
obligations. Each party agreed to release each other from all other
claims under the acquisition agreements. No third party has contacted
TeamStaff seeking payment on any of these potential liabilities. In the
event that TeamStaff incurs liability to third parties with respect to
the claims, TeamStaff would declare an event of default under the
settlement agreement and seek collection from the former owners.
TeamStaff Company's subsidiary, BrightLane.com, Inc. is party to a suit
brought by one of its former shareholders (Atomic Fusion, Inc. v.
BrightLane.com, Inc. Civil Action No ONS02246OE, Fulton County State
Court, Georgia). The plaintiff seeks damages for alleged unpaid
contractual services provided to BrightLane, alleging that the shares
(both in number and value) of BrightLane stock provided to the
plaintiff's in payment of services were inadequate to pay for the
alleged agreed upon value of services. The Company intends to defend
itself vigorously in this matter and believes that it has meritorious
and valid defenses to plaintiff's claims. In addition, the former
shareholders of BrightLane have placed approximately 158,000 shares in
escrow which may be canceled in an amount equal to the amount of any
successful claim by Atomic Fusion.
In connection with its businesses as a professional employer
organization, payroll services and staff leasing, TeamStaff is engaged
in litigation from time to time during the ordinary course of business
in connection with employee suits, workers' compensation and other
matters. Generally, TeamStaff is entitled to indemnification or
repayment from its clients employers for claims brought by worksite
employees related to their employment. However, there can be no
assurance that the client employer will have funds or insurance in
amounts to cover any damages or awards, and as co-employer, TeamStaff
may be
F-16
subject to liability.
TeamStaff is engaged in no other litigation, the effect of which would
be anticipated to have a material adverse impact on TeamStaff's
financial conditions or results of operations.
(8) SHAREHOLDERS' EQUITY:
During 2001 and 2000, the Company repurchased 51,911 and 17,100 shares
of its common stock for $366,000 and $61,000 respectively. In October of
2001, the Company purchased 51,345 shares of its common stock for
$329,000.
STOCK WARRANTS-
The following is a summary of the outstanding warrants to purchase the
Company's common stock at September 30, 2001:
Number of Shares of
Exercise Period Exercise Period Exercise Price Per Common Stock
From To Common Share Reserved
--------------- --------------- ------------------ -------------------
February 1998 February 2003 7.20 7,143
January 1999 January 2004 5.25 21,428
November 1999 November 2002 4.15 54,999
December 2000 January 2005 3.20 10,000
August 2001 August 2006 5.16 16,000
-------
109,570
=======
During the fiscal years ended September 30, 2001 and 2000, the Company
granted 26,000 and 100,000 additional warrants and 69,140 and 2,257
warrants expired, unexercised. Additionally, during 2001 73,570 warrants
were exercised for net proceeds of $179,000. 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 these grants and other stock based compensation was
determined to be $70,000, $200,000 and $44,000 and was included in
selling, general and administrative expenses in the accompanying
statements of income for the years ended September 30, 2001, 2000 and
1999.
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, subject to applicable law; the periods during which each
option
F-17
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.
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 1st, 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 that 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, 2001, 2000 and 1999:
NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE FAIR VALUE
--------------------------------------------------
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
------------------------
Granted 597,785 4.75 $2.77
Exercised (46,009) 4.56
Cancelled (28,048) 6.01
------------------------
Options outstanding, September 30, 2001 875,269 $ 4.82
------------------------
As of September 30, 2001 and 2000, 440,762 and 211,973 options,
respectively, were exercisable.
F-18
WEIGHTED WEIGHTED WEIGHTED
RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 9/30/01 LIFE PRICE AT 9/30/01 PRICE
---------------------------------------------------------------------------------
$2.27 - 4.55 258,985 2.5 $3.66 181,056 $3.70
$4.55 - 6.82 537,713 4.0 $4.92 230,284 $5.30
$6.82 - 9.10 78,571 2.3 $7.93 29,285 $7.99
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 4.59% and expected option life
of 4 years. Expected volatility was assumed to be 74%, 69% and 68% in
2001, 2000 and 1999, 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) 2001 2000 1999
------------------------------------------------------------------------------------
Net income as reported $ 1,424 $ 951 $ 1,776
Estimated fair value of option grants, net of tax (655) (206) (153)
-------------------------------
Net income adjusted $ 769 $ 745 $ 1,623
===============================
Adjusted earnings per share - Basic $ 0.09 $ 0.09 $ 0.23
===============================
Adjusted earnings per share - Diluted $ 0.09 $ 0.09 $ 0.23
===============================
During 2001, an executive of the Company exercised stock options. In
connection with that exercise, the Company issued a full recourse loan
to the employee of $90,000. This amount has been recorded as a reduction
of shareholders' equity.
(9) SEGMENT REPORTING:
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 human resource, 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 BrightLane
operations are also included in this segment due to the Company's
strategy to integrate the First Union agreement into the PEO operation.
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-19
The following table represents the financial results for each of the
Company's segments:
Professional
Employer Temporary Payroll
Services Staffing Services Corporate Consolidated
-------- -------- -------- --------- ------------
2001
Revenues $ 571,799,000 $ 73,884,000 $ 4,044,000 $ -- $ 649,727,000
Depreciation and amortization 342,000 290,000 64,000 728,000 1,424,000
Income/(loss) from operations (771,000) $ 7,796,000 $ 1,705,000 (5,321,000) 3,409,000
Interest income 100,000 669,000 -- 142,000 911,000
Interest expense (98,000) (286,000) (36,000) (854,000) (1,274,000)
Other income 48,000 -- -- -- 48,000
Income/(loss) before income taxes
and extraordinary item (721,000) 8,179,000 1,669,000 (6,033,000) 3,094,000
Capital spending 464,000 88,000 -- 37,000 589,000
Total assets 34,200,000 18,228,000 497,000 38,171,000 91,096,000
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 (4,610,000) 2,418,000
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
Included in the 2001 PEO segment information are losses from BrightLane
for the period September 1 though September 30 totaling $355,000.
The Company has no revenue derived outside of the United States.
F-20
(10) QUARTERLY FINANCIAL DATA (UNAUDITED):
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------------------
Fiscal 2001
Net Revenues $164,699,000 $158,371,000 $164,427,000 $162,230,000
Gross profit 6,991,000 6,503,000 7,112,000 7,491,000
Income before extraordinary
item 641,000 301,000 562,000 274,000
Extraordinary item net of tax -- -- (143,000) (211,000)
---------------------------------------------------------------
Net income 641,000 301,000 419,000 63,000
Earnings per share - Basic
Before extraordinary item $ 0.08 $ 0.04 $ 0.07 $ 0.03
Extraordinary item -- -- (0.02) (0.02)
---------------------------------------------------------------
Basic earnings per share $ 0.08 $ 0.04 $ 0.05 $ 0.01
Earnings per share - Diluted
Before extraordinary item $ 0.08 $ 0.04 $ 0.07 $ 0.02
Extraordinary item -- -- (0.02) (0.01)
---------------------------------------------------------------
Diluted earnings per share $ 0.08 $ 0.04 $ 0.05 $ 0.01
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 $ --
11. SUBSEQUENT EVENT
Effective January 1, 2002, the Company acquired the assets of Corporate Staffing
Concepts LLC., a PEO operating primarily in western Massachusetts and
Connecticut. The purchase price was a combination of $275,000 in cash paid at
closing plus a potential earnout payment based on client retention after one
year.
F-21
SCHEDULE I
TEAMSTAFF, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
(c) Additions
Charged to
(reversed (d)
(b) Balance from) Costs Deductions-
at Beginning and Net (e) Balance
(a) Description of Year Expenses Write-Offs at End of Year
- ------------------------ ------------ ------------ ----------- --------------
Allowance for doubtful
accounts, year ended-
September 30, 2001 $ 281,000 $ 526,000 $(258,000) $ 549,000
========= ========= ========= =========
September 30, 2000 $ 209,000 $ 162,000 $ (90,000) $ 281,000
========= ========= ========= =========
September 30, 1999 $ 284,000 $ 27,000 $(102,000) $ 209,000
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