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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2002
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
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 [ ]
15,768,986 shares of Common Stock, par value $.001 per share, were outstanding
as of February 14, 2003.
Page 1 of 27
TEAMSTAFF, INC. AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 2002
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Item 1. Consolidated Balance Sheets as of
December 31, 2002 (Unaudited) and
September 30, 2002 3
Consolidated Statements of
Income and Comprehensive Income for the three months
ended December 31, 2002 and 2001 (Unaudited) 5
Consolidated Statements of Cash Flows for the three months
ended December 31, 2002 and 2001 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's discussion and analysis of
financial condition and results of operations 14
Item 3. Controls and Procedures 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Recent Events 20
Item 7. Exhibits and Reports on Form 8-K 22
Signatures 24
Certification pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 25
Exhibit 99.1 27
Page 2 of 27
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(PAGE 1 OF 2)
DECEMBER 31, SEPTEMBER 30,
ASSETS 2002 2002
- ------ ------------ -------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 9,643,000 $ 12,455,000
Restricted cash 129,000 129,000
Accounts receivable, net of allowance for doubtful accounts
of $336,000 and $262,000 at December 31, 2002 and
September 30, 2002 20,503,000 24,569,000
Deferred tax asset
1,784,000 1,791,000
Other current assets 6,328,000 4,841,000
---------- ----------
Total current assets 38,387,000 43,785,000
---------- ----------
EQUIPMENT AND IMPROVEMENTS:
Equipment 3,333,000 3,321,000
Computer equipment 2,503,000 2,411,000
Leasehold improvements 391,000 358,000
---------- ----------
6,227,000 6,090,000
Less accumulated depreciation and amortization (4,485,000) (4,289,000)
---------- ----------
1,742,000 1,801,000
DEFERRED TAX ASSET 6,744,000 6,680,000
AMORTIZED INTANGIBLE ASSETS, net of accumulated
amortization of $966,000 and $822,000 at December 31, 2002 and
September 30,2002 2,772,000 2,375,000
INDEFINITE LIFE INTANGIBLE ASSETS 11,109,000 11,109,000
GOODWILL 27,167,000 27,167,000
OTHER ASSETS 1,048,000 1,049,000
---------- ----------
Total Assets $ 88,969,000 $ 93,966,000
============ ============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
Page 3 of 27
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(PAGE 2 OF 2)
DECEMBER 31, SEPTEMBER 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2002
- ------------------------------------ ------------ -------------
(unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt $ 58,000 $ 59,000
Accounts payable 4,433,000 4,252,000
Accrued payroll 14,978,000 17,034,000
Accrued expenses and other current liabilities 3,612,000 6,464,000
---------- ----------
Total current liabilities 23,081,000 27,809,000
---------- ----------
LONG-TERM DEBT, net of current portion 137,000 147,000
ACCRUED PENSION LIABILITY 1,427,000 1,271,000
---------- ----------
Total liabilities 24,645,000 29,227,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value; authorized 5,000,000 shares; 0
issued and outstanding -- --
Common Stock, $.001 par value; authorized 40,000,000 shares;
issued 16,237,142 and 16,237,142; outstanding 15,768,986
and 15,906,886 16,000 16,000
Additional paid-in capital 65,200,000 65,200,000
Accumulated retained earnings 1,398,000 1,313,000
Accumulated comprehensive losses (210,000) (142,000)
Treasury stock, 468,156 and 330,256 shares at cost (2,080,000) (1,648,000)
---------- ----------
Total shareholders' equity 64,324,000 64,739,000
---------- ----------
Total liabilities and shareholders' liabilities $ 88,969,000 $ 93,966,000
============ ============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
Page 4 of 27
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
For the three months ended
December 31,
2001
2002 As Restated
------------- -------------
REVENUES $ 158,664,000 $ 165,503,000
DIRECT EXPENSES 151,675,000 157,529,000
------------- -------------
Gross profit 6,989,000 7,974,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 6,691,000 6,870,000
DEPRECIATION AND AMORTIZATION 340,000 403,000
------------- -------------
Income (Loss) from operations (42,000) 701,000
------------- -------------
OTHER INCOME (EXPENSE):
Interest income 195,000 314,000
Interest expense (66,000) (13,000)
------------- -------------
129,000 301,000
------------- -------------
Income before income taxes 87,000 1,002,000
INCOME TAX EXPENSE (2,000) (376,000)
------------- -------------
Net income 85,000 626,000
OTHER COMPREHENSIVE EXPENSE:
Minimum pension liability adjustment, net of tax (68,000) (20,000)
------------- -------------
COMPREHENSIVE INCOME $ 17,000 $ 606,000
============= =============
EARNINGS PER SHARE - BASIC AND DILUTED $ 0.01 $ 0.04
============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC 15,790,531 16,070,353
============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND
EQUIVALENTS OUTSTANDING - DILUTED 15,793,340 16,306,506
============= =============
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
Page 5 of 27
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended
December 31,
2001
2002 As Restated
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 85,000 $ 626,000
Adjustments to reconcile net income to net
cash provided by operating activities, net of acquired businesses:
Deferred income taxes 23,000 318,000
Depreciation and amortization 340,000 403,000
Provision for doubtful accounts 74,000 134,000
Changes in operating assets and liabilities, net of acquired businesses:
Decrease in accounts receivable 3,992,000 360,000
(Increase) in other current assets (1,487,000) (219,000)
(Increase) Decrease in other assets (79,000) 315,000
(Decrease)in accounts payable, accrued payroll, accrued
expenses and other current liabilities (4,727,000) (3,584,000)
Increase in pension liability 156,000 67,000
---------- ----------
Net cash (used in) operating activities (1,623,000) (1,580,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, leasehold improvements and software (678,000) (408,000)
Acquisition of businesses, net of cash acquired -- (357,000)
---------- ----------
Net cash (used in) investing activities (678,000) (765,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on capital leases obligations (11,000) (9,000)
Net proceeds from the exercise of stock options and warrants -- 31,000
Repurchase of common shares (432,000) (330,000)
Net comprehensive expense on pension (68,000) (20,000)
---------- ----------
Net cash (used in) financing activities (511,000) (328,000)
---------- ----------
Net (decrease) in cash and cash equivalents (2,812,000) (2,673,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,455,000 13,725,000
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,643,000 $ 11,052,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 29,000 $ 13,000
============ ============
Income taxes $ 89,000 $ 378,000
============ ============
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
Page 6 of 27
TEAMSTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND BUSINESS:
TeamStaff, Inc., 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. TeamStaff has regional offices in Somerset,
New Jersey; Houston, Texas; Northampton, Massachusetts; and Clearwater and Boca
Raton, Florida and sales service centers in New York, New York; Houston, Texas;
Boca Raton and Clearwater, Florida; Woburn and Northampton, Massachusetts;
Alpharetta, Georgia; and Somerset, New Jersey.
BASIS OF PRESENTATION
The financial statements related to first quarter of fiscal year 2002 contained
in these financial statements have been restated to reflect certain adjustments
to properly account for TeamStaff's supplemental executive retirement plan. See
the discussions below at Note 5 and 8.
The consolidated financial statements included herein have been prepared by
TeamStaff, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although TeamStaff believes that the disclosures are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in TeamStaff's latest annual
report on Form 10-K. This financial information reflects, in the opinion of
management, all adjustments necessary (consisting only of normal recurring
adjustments) to present fairly the results for the interim periods. The results
of operations for such interim periods are not necessarily indicative of the
results for the full year.
The accompanying consolidated financial statements include those of TeamStaff
Inc., and its wholly owned subsidiaries. The results of operations of acquired
companies 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.
(2) SIGNIFICANT ACCOUNTING POLICIES:
RECENTLY ADOPTED ACCOUNTING STANDARDS:
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes 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. During the quarter ended December 31, 2002, SFAS No. 144 has
had no impact on TeamStaff's consolidated financial statements. On May 1, 2002,
the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 is
effective for the TeamStaff's fiscal year beginning October 1, 2002. During the
quarter ended December 31, 2002, SFAS No. 145 has had no impact on TeamStaff's
consolidated financial statements.
On July 30, 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"), that is applicable to exit or disposal activities initiated after
December 31, 2002. This standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. This standard does not
apply where SFAS 144 is applicable. TeamStaff is in the process of evaluating
what impact, if any, this standard will have on its Consolidated Financial
Statements.
Page 7 of 27
On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" ("SFAS 148"), that is applicable to financial statements issued for
fiscal years ending after December 15, 2002. In addition, interim disclosure
provisions are applicable for financial statements issued for interim periods
beginning after December 15, 2002. This standard amends SFAS 123 and provides
guidance to companies electing to voluntarily change to the fair value method of
accounting for stock-based compensation. In addition, this standard amends SFAS
123 to require more prominent and more frequent disclosures in financial
statements regarding the effects of stock-based compensation. TeamStaff will
implement the additional disclosure requirements under SFAS 148 beginning in the
second fiscal quarter commencing January 1, 2003.
EARNINGS PER SHARE:
Basic earnings per share ("Basic EPS") 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 ("Diluted
EPS") is calculated by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period adjusted to
reflect potentially dilutive securities.
In accordance with SFAS 128, the following table reconciles net income and share
amounts used to calculate the basic and diluted earnings per share:
Three Months Ended December 31,
2001
2002 As Restated
-----------------------------
Numerator:
Net income $ 85,000 $ 626,000
Denominator:
Weighted average number of common shares
outstanding- basic 15,790,531 16,070,353
Incremental shares for assumed conversions of
stock options/warrants 2,809 236,153
-----------------------------
Weighted average number of common
and equivalent shares outstanding-diluted 15,793,340 16,306,506
-----------------------------
Earnings per share-basic $ 0.01 $ 0.04
Earnings per share-diluted $ 0.01 $ 0.04
Stock options and warrants outstanding at December 31, 2002 to purchase
1,017,096 shares of common stock and at December 31, 2001 to purchase 196,723
shares of common stock were not included in the computation of diluted earnings
per share as they were antidilutive.
INCOME TAXES:
TeamStaff has recorded a $8,528,000 deferred tax asset at December 31, 2002 and
September 30, 2002. 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
basis of certain assets and liabilities, for which management believes
utilization to be more likely than not. Management believes TeamStaff'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.
PAYROLL TAXES:
TeamStaff has received notices from the IRS claiming taxes, interest and
penalties due related to payroll taxes. Management believes that these notices
are the result of misapplication of payroll tax payments between its legal
entities. If not resolved favorably, the Company may incur interest and
penalties. TeamStaff operates through 17 subsidiaries, and management believes
that the IRS has not correctly identified payments made through certain of the
different entities, therefore leading to the notices. To date, TeamStaff has
been working with the IRS to resolve these discrepancies and has had certain
interest and penalty claims abated. TeamStaff believes that after the IRS
applies all the funds correctly, any significant interest and penalties will be
abated.
Page 8 of 27
COMPREHENSIVE INCOME (LOSS):
TeamStaff has comprehensive losses resulting from its Supplemental Executive
Retirement Plan (SERP). When the Company's SERP obligations were measured at
December 31, 2002, the amount of the Projected Benefits Obligation (PBO)
exceeded the recorded SERP liability. These changes resulted in a comprehensive
loss net of tax for the first fiscal quarter 2003 of $68,000. The removal of
Donald T. Kelly from his duties as Chief Financial Officer may have caused his
benefits under the SERP to become fully vested and TeamStaff has provided for
this vesting in its pension accounting calculations. No other sources
of comprehensive gains or losses occurred.
WORKERS' COMPENSATION:
As of March 22, 2002, TeamStaff's insurance provider is Zurich American
Insurance Company (Zurich). The program is managed by Cedar Hill Insurance
Agency, Inc (Cedar Hill). This policy covers its corporate employees, the
worksite employees 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.
The Zurich program covers the period March 22, 2002 through April 1, 2003,
inclusive. The program contains a large deductible feature of $500,000 for each
claim, with no maximum liability cap. The premium for the program is paid on a
monthly basis based on estimated payroll for the year and is subject to a
year-end audit. The Zurich deductible program is collateralized by a letter of
credit inuring to the benefit of Zurich, and cash held in a trust account with a
third party. The letter of credit for $4,150,000 has been secured through Fleet
National Bank (Fleet), as part of TeamStaff's line of credit. Payments will be
made to the trust monthly based on projected claims for the year. Interest on
all assets held in the trust is credited to TeamStaff. Payments for claims and
claims expenses will be made from the trust. Payments to the trust may be
adjusted from time to time based on program experience. Claims handling services
is provided by a third party administrator assigned by Cedar Hill. Additionally,
TeamStaff has partially outsourced its underwriting and program management for
the Zurich program to Cedar Hill and The Hobbs Group, TeamStaff's workers'
compensation insurance broker. At December 31, 2002, TeamStaff has a prepaid
current asset of $3,743,000 for the premiums and the prepayments made to the
trust.
TeamStaff's primary workers' compensation insurance provider from January 22,
2001 through March 21, 2002, was Continental Assurance (CNA). This policy
covered its corporate employees, the worksite employees co-employed by TeamStaff
and its PEO clients, and the temporary employees employed by TeamStaff to
fulfill various client-staffing assignments.
The CNA policy originally covered the period from January 22, 2001 through
January 21, 2002, but was extended to March 21, 2002. It was a large deductible
program ($250,000 for each claim) with a maximum liability cap. The premium for
the policy was paid monthly based upon estimated payroll for the year and is
subject to a year-end audit by the provider. TeamStaff also maintained a
separate policy insuring a portion of the maximum deductible cap, which it may
be required to pay if claims exceed a determined number. The policy, including
the extension, insures payment of the maximum cap in excess of the first
$2,093,000, which TeamStaff pays, up to $8,663,000. Once the $8,663,000 is
exceeded, TeamStaff pays 89.5% of paid claims up to $12,133,000. If the claims
and fixed costs under the policy are less than the amounts TeamStaff paid, plus
investment returns thereon, the insurer is contractually obligated to refund the
difference to TeamStaff.
As part of the two-month extension, which was negotiated in January 2002,
TeamStaff was required to pay $495,000, which CNA asserted was owed to cover
costs for claims incurred during the policy years 1997 - 1999. As previously
disclosed, TeamStaff had received a release for those periods from CNA in
January 2001, when TeamStaff accepted CNA as its new insurance carrier.
TeamStaff has denied CNA's claim and, to date, has received $224,000 back from
the original $495,000 payment. TeamStaff believes that the remaining funds
should be returned as well. Should TeamStaff be unsuccessful in receiving a
refund of all monies paid, it will be required to absorb these claims. However,
TeamStaff has recorded a liability on its books for the estimated claims for the
two-month extension, which exceeds the $271,000 disputed amount. Accordingly,
TeamStaff plans to offset this amount from any monies owed CNA. On January 27,
2003, TeamStaff filed a complaint of unfair or deceptive acts or practices in
the business of insurance against CNA with the New Jersey Division of Insurance.
TeamStaff maintained a separate policy for certain of the business of its
subsidiary, HR2, Inc., which had provided that TeamStaff was only responsible
for the audited premium for each policy period. This policy ended on December
31, 2001. From January 1, 2002 through March 21, 2002, these employees were
covered under the CNA policy.
Page 9 of 27
TeamStaff records in direct expenses a monthly charge based upon its estimate of
the year's ultimate fully developed claims 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 TeamStaff's insurers,
internal analysis and its insurance broker. TeamStaff's internal analysis
includes a quarterly review of open claims and a review of historical claims
related to the workers' compensation programs. While management uses available
information, including nationwide loss ratios, to estimate ultimate claims,
future adjustments may be necessary based on actual claims. 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 TeamStaff's
prepayments, TeamStaff also relies on actuarial tables to estimate its ultimate
expense.
TeamStaff'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 TeamStaff's assessment of the costs
of providing workers' compensation to the client. If TeamStaff's costs for
workers' compensation for the workers' compensation policy year are greater than
the costs that are included in the client's contractual rate, TeamStaff is
unable to recover these excess charges from the clients. TeamStaff reserves the
right in its contracts to increase the workers' compensation charges on a
prospective basis only and may do so when its workers' compensation policy is
renewed or when workers' compensation rates are increased by state agencies.
As of December 31, 2002, the adequacy of the workers' compensation reserves was
determined, in management's opinion, to be reasonable. In determining our
reserves we rely in part upon information regarding loss data received from our
workers' compensation insurance carriers which may include loss data for claims
incurred during prior policy periods. As disclosed in our Form 10-K for the
fiscal year ended September 30, 2002, TeamStaff has encountered difficulties in
receiving timely reporting of claims from CNA. In the future, similar problems
from our insurance carriers may result in adjustments to our reserves. In
addition, these reserves are for claims that have not been sufficiently
developed due to their relatively young age, and such variables as timing of
payments and investment returns thereon are uncertain or unknown, actual results
may vary from current estimates. TeamStaff 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 TeamStaff's
prepayments and adjust the reserves as deemed appropriate.
(3) BUSINESS COMBINATIONS:
ACQUISITION OF CORPORATE STAFFING CONCEPTS
Effective January 2, 2002, TeamStaff acquired the accounts and related assets of
Corporate Staffing Concepts LLC, a PEO entity operating primarily in western
Massachusetts and Connecticut. The agreement provided that TeamStaff 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. Subsequent to the balance sheet date, on January 10, 2003, by
mutual agreement, the Company fully settled its earn out obligations to
Corporate Staffing Concepts LLC by agreeing to pay the sum of $250,000 in cash
and to issue 27,500 shares of the Company's Common Stock, for a total purchase
price of $603,100.
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, 2001.
First Quarter Ended December 31,
2002 2001
----------- -----------
Revenues $158,664,000 $172,003,000
Net Income $ 85,000 $ 638,000
Earnings per
share - basic and diluted 0.01 0.04
(4) DEBT:
On April 9, 2002, TeamStaff entered into a revolving loan facility with Fleet
National Bank, (Fleet). The total outstanding loan amount cannot exceed at any
one time the lesser of $7,000,000 or the sum of 85% of qualified accounts
receivable, less an amount reserved by Fleet to support direct debit processing
exposure. The annual interest rate is either the Fleet prime rate or LIBOR, at
the discretion of TeamStaff, and is currently 4.25%. The facility is
collateralized by substantially all of the assets of TeamStaff, including its
accounts receivables. The facility is subject to certain covenants including,
but not limited to, interest rate coverage of 2.0 to 1.0, total liabilities to
tangible net worth ratio of 2.0 to 1.0, and minimum working capital of
$10,000,000. As of December 31, 2002, the sole outstanding amount on the
facility represented an outstanding letter of credit in the amount of $4,150,000
which has been issued with respect to TeamStaff's workers' compensation policy,
as previously discussed.
(5) ENGAGEMENT OF NEW ACCOUNTANTS; CFO RELIEVED OF DUTIES:
At a meeting held on December 10, 2002, prior to concluding its audit for fiscal
year 2002, PricewaterhouseCoopers expressed its opinion to the Audit Committee
that there were material weaknesses in our system of internal controls,
including the adequacy, competency and reliability of operational and financial
information, information systems and finance personnel. PricewaterhouseCoopers
Page 10 of 27
further stated that information had come to its attention, that if further
investigated may materially impact the fairness or reliability of the previously
issued financial statements for fiscal year 2001 and/or the financial statements
to be issued for fiscal year 2002. PricewaterhouseCoopers also stated that due
to an accounting error in the treatment of a supplemental executive retirement
plan, a restatement and a reaudit of fiscal year 2001 would be required but it
declined the engagement for the reaudit of fiscal year 2001.
PricewaterhouseCoopers went on to advise TeamStaff that it believed it would be
essential to employ a new Chief Financial Officer and conditioned the
continuance of its audit for fiscal year 2002 on the employment of a new Chief
Financial Officer. PricewaterhouseCoopers acknowledged that in view of the
foregoing, it was likely that TeamStaff would be unable to make a timely filing
of its annual report for fiscal year 2002. In response to this advice from
PricewaterhouseCoopers, TeamStaff relieved its Chief Financial Officer, Donald
T. Kelly, of his duties, and commenced a search for a new Chief Financial
Officer. In light of the need to engage a new auditor for fiscal year 2001, the
Audit Committee determined that TeamStaff's interests were best served by
engaging new independent accountants willing to audit both fiscal 2001 and
fiscal year 2002. On December 13, 2002 the audit committee dismissed
PricewaterhouseCoopers and engaged Lazar Levine & Felix LLP to serve as
TeamStaff's independent public accountants.
In conducting the audit for fiscal year ended September 30, 2002, Lazar expanded
its testing of TeamStaff's internal controls, including information technology
controls, to include the fiscal year ended September 30, 2001. This procedure
was followed since the Arthur Anderson LLP work papers were not readily
available for review by Lazar and to investigate the concerns regarding internal
controls raised by PricewaterhouseCoopers. As a result of this expanded testing,
no material weaknesses in the systems were revealed and, based on these results,
Lazar concluded that only an audit of the restatement adjustment was required
and not a full reaudit of the fiscal year 2001 consolidated financial
statements.
(6) RECONSIDERATION OF STATUS OF CFO:
In light of the foregoing (see note 5), TeamStaff determined that the
conclusions reached by PricewaterhouseCoopers concerning TeamStaff's internal
controls and financial personnel were not supported by Lazar's independent
analysis or TeamStaff's own assessment of its financial and operational systems.
Mr. Kelly has remained an employee during this period, and as result of the
determinations made by Lazar regarding TeamStaff's internal controls and
systems, and the results of its audit and review of the issues involved with the
SERP plan and the restatement of the 2001 fiscal year, the Audit Committee and
the Board of Directors are reviewing Mr. Kelly's status and whether the Company
should reinstate Mr. Kelly or retain a new Chief Financial Officer.
Pursuant to a severance agreement with Mr. Kelly effective May 22, 2002, in the
event he is terminated by the Company for cause, he is entitled only to his
accrued compensation, which means his base salary, reimbursement of business
expenses, vacation pay and earned but unpaid bonuses to the date of termination.
"Cause" is defined to include conviction of a felony, an intentional and
continual failure to substantially perform his duties or an intentional failure
to follow or perform a lawful direction of the Board of Directors. If Kelly is
terminated for disability or death, he will be entitled to his accrued
compensation and certain other payments such as the pro rata bonus amount. The
pro rata bonus amount is defined as the amount equal to the greater of the most
recent annual bonus amount paid or the annual bonus paid or payable for the full
fiscal year ended prior to the termination, in either case pro-rated through the
date of death or disability. In the event that Mr. Kelly's employment terminates
for any other reason, the agreement provides for payment of his accrued
compensation, a pro rata bonus amount, a bonus amount allocated to the remainder
of the term of his employment agreement, his base salary through the remainder
of the term of his employment agreement, a severance payment equal to one year's
base compensation, a payment equal to the cost of health and other similar
benefits for a period of two years and costs associated with outplacement
services.
In light of the circumstances regarding the removal of Mr. Kelly from his
duties, Mr. Kelly may have reason to terminate his employment with TeamStaff for
"good reason" and exercise his rights under the severance agreement. The term
good reason includes "a change in the [e]xecutive's status, title, position or
responsibilities . . . ." Additionally, the removal of Mr. Kelly from his duties
may have caused his benefits under TeamStaff's supplemental executive retirement
plan, or SERP, to become fully vested and TeamStaff has provided for this
vesting in its pension accounting calculation. The Board of Directors has not
made a determination whether Mr. Kelly would be entitled to terminate his
employment and exercise these rights pursuant to the severance agreement
described above. In the event that Mr. Kelly exercises these rights, such
termination is deemed proper, and Mr. Kelly is eligible to receive all potential
compensation under the severance agreement and the supplemental executive
retirement plan, TeamStaff may be required to pay a sum, either directly to Mr.
Kelly, in the case of the severance agreement, or to a trust, in the case of any
payments to be made pursuant to the SERP, totaling approximately $1.1 million.
Page 11 of 27
(7) NASDAQ LISTING:
On January 16, 2003, TeamStaff received notice from the NASDAQ Stock Market that
an "E" would be appended to its symbol at the opening of business on January 21,
2003 due to the belated filing of TeamStaff's annual report on Form 10-K for
fiscal year 2002. NASDAQ further advised TeamStaff that its common stock would
be delisted from trading on the NASDAQ National Market at the opening of
business on January 27, 2003 unless TeamStaff requested a hearing before the
NASDAQ Stock Market. TeamStaff requested and was granted a hearing before a
NASDAQ panel, which was to be held on February 14, 2003. By letter dated
February 13, 2003, the NASDAQ Stock Market notified TeamStaff that it had
canceled the hearing in light of TeamStaff's filing of its annual report on Form
10-K for fiscal year 2002 on February 10, 2003, and that the "E" would be
removed from TeamStaff's symbol at the opening of business on February 18, 2003.
(8) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN:
Effective October 1, 2000, TeamStaff adopted a non-qualified, supplemental
retirement plan covering certain TeamStaff corporate officers (the "SERP").
Under the terms of the SERP, a participant receives a benefit sufficient to
provide lump sum annual payments equal to approximately one-third of the
participant's base salary on the date the participant becomes a participant.
Payment of benefits commences when the participant reaches 65 years of age. The
benefit under the SERP is subject to a seven-year vesting schedule (0%, 0%, 20%,
40%, 60%, 80%, 100%), based on the participant's original date of employment
with TeamStaff and contingent on the participant's reaching age 55; provided,
however, a participant's benefit becomes fully vested upon a change of control,
as defined in the SERP, if within two years of the change of control there is a
material change in the participant's job title or responsibilities or if the
participant's employment is terminated by TeamStaff for any reason other than
conviction for theft or embezzlement from TeamStaff. Additionally, if a
participant retires by means of total disability (as defined in the SERP), the
participant's benefit becomes fully vested and benefit payments commence as of
the disability retirement date. The SERP does not provide a death benefit.
TeamStaff's Chief Executive Officer and its former Chief Financial Officer are
the only SERP participants.
SERP participants also are provided with a split dollar life insurance policy
("Policy"), insuring the life of the participant until the participant reaches
age 65. Although the participant is the owner of the Policy, TeamStaff pays all
Policy premiums. Each participant has collaterally assigned the Policy to
TeamStaff to secure repayment of the premiums through either its cash surrender
value or the Policy proceeds. The participant's right to the Policy vests in
accordance with the same schedule as the SERP and with similar change of control
provisions. Upon the participant's 65th birthday (and in certain other
circumstances provided by the Policy agreement), TeamStaff will release the
collateral assignment of the Policy provided the participant releases TeamStaff
from all obligations it may have with respect to the participant (including
those under the SERP). However, given the uncertainty of TeamStaff's ability to
continue to maintain this Policy payment arrangement in light of certain of the
provisions of the Sarbanes-Oxley Act of 2002, TeamStaff has discontinued paying
Policy premiums on behalf of the Chief Executive Officer.
(9) TREASURY STOCK AND OPTIONS:
On July 22, 1999, the Board of Directors authorized the repurchase up to 3% of
the outstanding shares of TeamStaff's common stock. Since inception through
December 31, 2002, we have repurchased 468,156 shares at a average cost of $4.44
per share for a total cost of $2,080,000. These share repurchases are reflected
as treasury shares in these financial statements and will eventually be retired.
During the quarter ended December 31, 2002, 137,900 shares were purchased at a
cost of $432,000. On November 19, 2002, the Board of Directors authorized an
additional repurchase of up to $1,000,000 in common stock.
During the quarter ended December 31, 2002, TeamStaff granted 73,000 options at
an average price of $3.00 per share, 35,116 options expired or were cancelled
unexercised and no options were exercised. During the quarter ended December 31,
2002, no warrants were issued or exercised, and 51,714 warrants expired
unexercised.
(10) SEGMENT REPORTING:
TeamStaff operates three different lines of business: professional employer
organization (PEO), medical staffing and payroll services.
The PEO segment provides services such as payroll processing, personnel
administration, benefits administration, workers' compensation administration
and tax filing services to small business owners. Essentially, in this business
segment, TeamStaff provides services that function as the human resource
department for small to medium sized companies wherein TeamStaff becomes a
co-employer.
TeamStaff currently provides temporary and permanent medical staffing for
medical imaging professionals and nurses with hospitals, clinics and therapy
centers. Medical 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, TeamStaff provides basic payroll
services to its clients, more than 75% of which are in the construction
industry. Services provided include the preparation of payroll checks, filing of
Page 12 of 27
payroll taxes, government reports, W-2's, remote processing directly from the
clients' offices and certified payrolls.
All corporate expenses, interest expense, as well as depreciation on corporate
assets and miscellaneous charges, are reflected in a separate unit called
Corporate.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. TeamStaff evaluates the performance
of its business lines based on pre-tax income.
The following tables present the condensed financial results for the three
months ended December 31, 2002 and 2001 for each of TeamStaff's segments:
FOR THE THREE MONTHS ENDED PROFESSIONAL
DECEMBER 31, EMPLOYER MEDICAL PAYROLL
2002 SERVICES STAFFING SERVICES CORPORATE CONSOLIDATED
---- -------- -------- -------- --------- ------------
Revenues $140,208,000 $17,032,000 $1,424,000 $ 0 $158,664,000
Income/(loss) before income taxes 416,000 1,140,000 584,000 (2,053,000) 87,000
2001
AS RESTATED
-----------
Revenues $144,240,000 $19,817,000 $1,446,000 $ 0 $165,503,000
Income/(loss) before income taxes 34,000 2,503,000 721,000 (2,256,000) 1,002,000
The Company has no revenue derived from outside the United States.
Page 13 of 27
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING AND CAUTIONARY STATEMENTS
Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"1995 Reform Act"). TeamStaff, Inc. desires to avail itself of certain "safe
harbor" provisions of the 1995 Reform Act and is therefore including this
special note to enable TeamStaff to do so. Forward-looking statements included
in this report 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 management's best estimates
based upon current conditions and the most recent results of operations. These
risks include, but are not limited to, risks associated with risks undertaken in
connection with acquisitions, risks from potential workers' compensation claims
and required payments, risks from employer/employee suits such as discrimination
or wrongful termination, risks associated with payroll and employee related
taxes which may require unanticipated payments by TeamStaff, liabilities
associated with TeamStaff's status under certain federal and state employment
laws as a co-employer, effects of competition, TeamStaff's ability to implement
its internet based business and technological changes and dependence upon key
personnel. These and other risks are stated in detail in our Report on Form 10-K
for the fiscal year ended September 30, 2002 and other reports and filings made
by TeamStaff.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
TeamStaff believes the accounting policies below represent its critical
accounting policies due to the significance or estimation process involved in
each. See Note 2 of TeamStaff's 2002 annual report on Form 10-K for a detailed
discussion on the application of these and other accounting policies.
The discussion contained in this Item 2 reflects a restatement of certain
components of our financial statements related to our Supplemental Executive
Retirement Plan for the prior fiscal year ended September 30, 2002 and the prior
year fiscal quarter ended December 31, 2001. See Notes 5 and 8 in the financial
statements.
REVENUE RECOGNITION
TeamStaff 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 TeamStaff 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.
TeamStaff 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, TeamStaff's revenue, and therefore its gross margin, will
fluctuate based on its client mix.
The temporary staffing revenue is recognized as service is rendered. TeamStaff
bills its clients based on an hourly rate. The hourly rate is intended to cover
TeamStaff'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 (EITF) No. 99-19 "Reporting
Revenue Gross as a Principal versus Net as an Agent," TeamStaff recognizes all
amounts billed to its PEO and temporary staffing customers as gross revenue
because TeamStaff is at risk for the payment of its direct costs, whether or not
TeamStaff's customers pay TeamStaff on a timely basis or at all, and TeamStaff
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. TeamStaff also
recognizes as gross revenue and as unbilled receivables, on an
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accrual basis, any such amounts that 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 TeamStaff'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.
GOODWILL AND INTANGIBLE ASSETS
Beginning October 1, 2001, with the adoption of accounting standard (SFAS 142),
the Company no longer amortizes goodwill or indefinite life intangible assets,
but continues to amortize software at its expected useful life. TeamStaff will
also continue to review annually its goodwill and other intangible assets for
possible impairment or loss of value. The Company determined that no impairment
of goodwill or intangible assets existed as of the date of adoption or when it
retested goodwill and intangible assets at September 30, 2002.
TeamStaff reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. Management of the Company believes that no such events or
changes have occurred.
WORKERS' COMPENSATION
As of March 22, 2002, TeamStaff's insurance provider is Zurich American
Insurance Company (Zurich). The program is managed by Cedar Hill Insurance
Agency, Inc (Cedar Hill). This policy covers its corporate employees, the
worksite employees 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.
The Zurich program covers the period March 22, 2002 through April 1, 2003,
inclusive. The program contains a large deductible feature of $500,000 for each
claim, with no maximum liability cap. The premium for the program is paid on a
monthly basis based on estimated payroll for the year and is subject to a
year-end audit. The Zurich deductible program is collateralized by a letter of
credit inuring to the benefit of Zurich, and cash held in a trust account with a
third party. The letter of credit for $4,150,000 has been secured through Fleet
National Bank (Fleet), as part of the Company's line of credit. Payments will be
made to the trust monthly based on projected claims for the year. Interest on
all assets held in the trust is credited to TeamStaff. Payments for claims and
claims expenses will be made from the trust. Payments to the trust may be
adjusted from time to time based on program experience. Claims handling services
is provided by a third party administrator assigned by Cedar Hill. Additionally,
TeamStaff has partially outsourced its underwriting and program management for
the Zurich program to Cedar Hill and The Hobbs Group, the Company's workers'
compensation insurance broker. At December 31, 2002, the Company has a prepaid
current asset of $3,743,000 for the premiums and the prepayments made to the
trust.
TeamStaff's primary workers' compensation insurance provider from January 22,
2001 through March 21, 2002, was Continental Assurance (CNA). This policy
covered its corporate employees, the worksite employees co-employed by TeamStaff
and its PEO clients, and the temporary employees employed by TeamStaff to
fulfill various client-staffing assignments.
The CNA policy originally covered the period from January 22, 2001 through
January 21, 2002, but was extended to March 21, 2002. It was a large deductible
program ($250,000 for each claim) with a maximum liability cap. The premium for
the policy was paid monthly based upon estimated payroll for the year and is
subject to a year-end audit by the provider. TeamStaff also maintained a
separate policy insuring a portion of the maximum deductible cap, which it may
be required to pay if claims exceed a determined number. The policy, including
the extension, insures payment of the maximum cap in excess of the first
$2,093,000, which the Company pays, up to $8,663,000. Once the $8,663,000 is
exceeded, the Company pays 89.5% of paid claims up to $12,133,000. If the claims
and fixed costs under the policy are less than the amounts TeamStaff paid, plus
investment returns thereon, the insurer is contractually obligated to refund the
difference to TeamStaff.
As part of the two-month extension, which was negotiated in January 2002, the
Company was required to pay $495,000, which CNA asserted was owed to cover costs
for claims incurred during the policy years 1997 - 1999. As
15 of 27
previously disclosed, the Company had received a release for those periods from
CNA in January 2001, when the Company accepted CNA as its new insurance carrier.
The Company has denied CNA's claim and, to date, has received $224,000 back from
the original $495,000 payment. It is the Company's belief that the remaining
funds should be returned as well. Should the Company be unsuccessful in
receiving a refund of all monies paid, it will be required to absorb these
claims. However, the Company has recorded a liability on its books for the
estimated claims for the two-month extension, which exceeds the $271,000
disputed amount. Accordingly, TeamStaff plans to offset this amount from any
monies owed CNA. On January 27, 2003, the Company filed a complaint of unfair or
deceptive acts or practices in the business of insurance against CNA with the
New Jersey Division of Insurance.
TeamStaff maintained a separate policy for certain of the business of its
subsidiary, HR2, Inc., which had provided that TeamStaff was only responsible
for the audited premium for each policy period. This policy ended on December
31, 2001. From January 1, 2002 through March 21, 2002, these employees were
covered under the CNA policy.
TeamStaff records in direct expenses a monthly charge based upon its estimate of
the year's ultimate fully developed claims 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 TeamStaff's insurers,
internal analysis and its insurance broker. TeamStaff's internal analysis
includes a quarterly review of open claims and a review of historical claims
related to the workers' compensation programs. While management uses available
information, including nationwide loss ratios, to estimate ultimate claims,
future adjustments may be necessary based on actual claims. 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 TeamStaff's
prepayments, TeamStaff also relies on actuarial tables to estimate its ultimate
expense.
TeamStaff'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 TeamStaff's assessment of the costs
of providing workers' compensation to the client. If TeamStaff's costs for
workers' compensation for the workers' compensation policy year are greater than
the costs that are included in the client's contractual rate, the Company is
unable to recover these excess charges from the clients. TeamStaff reserves the
right in its contracts to increase the workers' compensation charges on a
prospective basis only and may do so when its workers' compensation policy is
renewed or when workers' compensation rates are increased by state agencies.
As of December 31, 2002, the adequacy of the workers' compensation reserves was
determined, in management's opinion, to be reasonable. In determining our
reserves we rely in part upon information regarding loss data received from our
workers' compensation insurance carriers which may include loss data for claims
incurred during prior policy periods. As disclosed in our Form 10-K for the
fiscal year ended September 30, 2002, TeamStaff has encountered difficulties in
receiving timely reporting of claims from CNA. In the future, similar problems
from our insurance carriers may result in adjustments to our reserves. In
addition, these reserves are for claims that have not been sufficiently
developed due to their relatively young age, and such variables as timing of
payments and investment returns thereon are uncertain or unknown, actual results
may vary from current estimates. TeamStaff 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 TeamStaff's
prepayments and adjust the reserves as deemed appropriate.
DEFERRED TAXES
TeamStaff accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Deferred tax assets are reflected on the balance sheet when it is
determined that it is more likely than not that the asset will be realized.
RESULTS OF OPERATIONS
The results below reflect a restatement of the statement of income and
comprehensive income for the December 31, 2001 fiscal quarter. The restatement
was required in order to properly reflect certain footnote disclosures and
adjustments regarding the Company's supplemental executive retirement plan
adopted effective as of October 1, 2000.
16 of 27
The Company's revenues for the three months ended December 31, 2002 and 2001
were $158,664,000 and $165,503,000 respectively, which represents a decrease of
$6,839,000 or 4.1% over the prior year fiscal quarter. Decreased revenues in
TeamStaff's Medical Staffing division accounted for approximately $2,800,000
less revenue while our PEO division accounted for approximately $4,000,000 less
revenue. The PEO division's reduced revenue is being affected in part by the
program, begun in the second fiscal quarter of 2002, to review the profitability
of all PEO clients and effect price increases where appropriate to meet a
targeted level of profitability. This loss in business was somewhat offset by
revenue generated by our acquisition of the assets of Corporate Staffing
Concepts in January of 2002, which generated revenue of $6,500,000 in the fiscal
quarter ended December 31, 2002. Despite this reduced revenue, the PEO
division's profitability increased from $34,000 in pre-tax income reported in
the first quarter of fiscal 2002 to $416,000 for the same quarter in fiscal
2003.
TeamStaff's Medical Staffing business, TeamStaff Rx, has on a percentage of
revenue basis, been our fastest growing business segment over the last few
years. However, in comparison to the first fiscal quarter of 2002, revenue for
this segment decreased by 14%. This decrease has partially been attributed to
our closing of the division's Houston, Texas office in April 2002. This office
was primarily involved in staffing per diem nurses in the local Houston market.
Our Medical Staffing business places temporary medical personnel in assignments
that average at least thirteen weeks compared to per diem nurses, which are
typically staffed on an hourly or daily basis. The overhead necessary to support
per diem nursing did not justify keeping this business segment in operation. In
addition, due to the increased number of temporary medical staffing companies
that have appeared over the last few years, our Medical Staffing business
segment is facing increased competition from a number of companies. While many
of these companies had traditionally concentrated in the nursing market, they
have expanded their operations into markets, such as imaging personnel staffing,
where TeamStaff Rx has concentrated, and which previously were substantially
less competitive.
Direct expenses were $151,675,000 for the three months ended December 31, 2002
and $157,529,000 for the comparable quarter last year, representing a decrease
of $5,854,000 or 3.7%. This decrease is a direct result of the lower
consolidated revenues of TeamStaff. As a percentage of revenue, direct expenses
for the three months ended December 31, 2002 and 2001 were 95.6% and 95.2%,
respectively.
Gross profits were $6,989,000 and $7,974,000 for the quarters ended December 31,
2002 and 2001, respectively, a decrease of $985,000 or 12.4%. This decrease is
attributed to the reduction in our Medical Staffing business as discussed above.
Gross profits, as a percentage of revenue, were 4.4% and 4.8 % for the quarters
ended December 31, 2002 and 2001, respectively.
Selling, general and administrative ("SG&A") expenses for the quarters ended
December 31, 2002 and 2001 were $6,691,000 and $6,870,000 respectively,
representing a decrease of $179,000 or 2.6%. Increases in the SG&A costs for our
Medical Staffing division necessitated by the increased competition, as
explained above, were more then offset in cost-cutting reductions in our PEO
division and corporate overhead.
Depreciation and amortization for the quarter ended December 31, 2002 decreased
by $63,000, compared to the same quarter last year from $403,000 to $340,000.
Interest income decreased $119,000 from $314,000 in the first quarter of fiscal
2002 to $195,000 in the first fiscal quarter of 2003. This decrease is
attributed to the reduction in late payment fees received by our Medical
Staffing division due to a more competitive pricing environment.
Interest expense increased to $66,000 in the first fiscal quarter of 2003 from
$13,000 in the first quarter of fiscal 2002 due to the amortization of deferred
financing costs associated with our line of credit with Fleet, which was
effective April 9, 2002.
Income taxes for the quarter ended December 31, 2002 were $2,000 versus $376,000
for the similar period in 2001. The lower taxes are a function of lower earnings
and tax credits that are available to TeamStaff.
Net income for the quarter ended December 31, 2002 was $85,000, or $0.01 per
fully diluted share, as compared to $626,000 or $0.04 per fully diluted share
for the quarter ended December 31, 2001. This decrease is attributed to the
performance of TeamStaff's Medical Staffing division offset by the improved
profitability of our PEO division.
LIQUIDITY AND CAPITAL RESOURCES
17 of 27
Net cash used in operating activities in the first three months of fiscal 2003
was $1,623,000 compared to $1,580,000 used in the same period of fiscal 2002.
The slight change in cash from operations compared to last year relates
primarily to timing of payments in this period versus the same period last year
in accounts payable, accrued payroll and expenses. The timing and amounts of
such payments can vary significantly based on various factors, including the day
of the week on which a month ends and the existence of holidays on or
immediately following a month end. In addition there was a decrease in accounts
receivable in this quarter due to the timing of payments received at the end of
this year plus lower receivables from our Medical Staffing division. Offsetting
this decrease was an increase in other current assets of $1,487,000, $1,404,000
of which resulted from prepayments to our workers' compensation insurance
carrier.
Cash used in investing activities of $678,000 was primarily related to costs
incurred for the licensing of the ScorPEO PEO software system of
$236,000,capitalized internally developed software of $142,000; other computer
hardware and software acquisitions of $228,000.
The cash used in financing activities of $511,000 was primarily due to spending
$432,000 in repurchasing 137,900 shares of TeamStaff stock in the first fiscal
quarter of 2003.
As of December 31, 2002, TeamStaff had cash and cash equivalents of $9,643,000
and net accounts receivable of $20,503,000.
Management of TeamStaff believes that its existing cash will be sufficient to
support cash needs for the next twelve months. The amount of available cash
includes cash held for future payroll and other related taxes payable on a
quarterly basis.
On July 22, 1999, the Board of Directors authorized the repurchase up to 3% of
the outstanding shares of TeamStaff's common stock. Since inception through
December 31, 2002, we have repurchased 468,156 shares at an average cost of
$4.44 per share for a total cost of $2,080,000. These share repurchases are
reflected as treasury shares in these financial statements and will eventually
be retired. During the quarter ended December 31, 2002, 137,900 shares were
purchased at a cost of $432,000. On November 19, 2002, the Board of Directors
authorized an additional repurchase of up to $1,000,000 in common stock.
On April 9, 2002, TeamStaff entered into a revolving loan facility with Fleet
National Bank, (Fleet). The total outstanding loan amount cannot exceed at any
one time the lesser of $7,000,000 or the sum of 85% of qualified accounts
receivable, less an amount reserved by Fleet to support direct debit processing
exposure. The annual interest rate is either the Fleet prime rate or LIBOR, at
the discretion of TeamStaff, and is currently 4.25%. The facility is
collateralized by substantially all of the assets of TeamStaff, including its
accounts receivables. The facility is subject to certain covenants including,
but not limited to, interest rate coverage of 2.0 to 1.0, total liabilities to
tangible net worth ratio of 2.0 to 1.0, and minimum working capital of
$10,000,000. As of December 31, 2002, the sole outstanding amount on the
facility represented an outstanding letter of credit in the amount of $4,150,000
which has been issued with respect to TeamStaff's workers' compensation policy,
as previously discussed.
EFFECTS OF INFLATION
Inflation and changing prices have not had a material effect on TeamStaff's net
revenues and results of operations in the last three fiscal years, as TeamStaff
has been able to modify its prices and cost structure to respond to inflation
and changing prices.
TeamStaff 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. TeamStaff has no
material interest rate risk, except with respect to our workers' compensation
programs, and is not materially subject to fluctuations in foreign exchange
rates, commodity prices or other market rates or prices from market sensitive
instruments. In connection with TeamStaff's workers' compensation programs,
prepayments of future claims are deposited into trust funds for possible future
payments of these claims in accordance with the policies. The interest income
resulting from these prepayments is for the benefit of TeamStaff, and is used to
offset workers' compensation expense. If interest rates in these periods'
decreases, TeamStaff's workers' compensation expense would increase because
TeamStaff would be entitled to less interest income on the deposited funds.
18 of 27
ITEM 3.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:
Our management, under the supervision and with the participation of our Chief
Executive Officer and Controller, conducted an evaluation of our "disclosure
controls and procedures" (as defined in the Securities Exchange Act of 1934
Rules 13a-14(c)) within 90 days of the filing date of this Quarterly Report on
Form 10-Q. Based on their evaluation, our chief executive officer and controller
have concluded that as of the Evaluation Date, our disclosure controls and
procedures are effective to ensure that all material information required to be
filed in this Quarterly Report on Form 10-Q has been made known to them.
CHANGES IN INTERNAL CONTROLS:
TeamStaff replaced Arthur Andersen, LLP with PricewaterhouseCoopers, LLP as its
independent auditors in April 2002. PricewaterhouseCoopers advised our Audit
Committee at its December 10, 2002 meeting that it believed there were material
weaknesses in TeamStaff's internal controls including, among other things, the
competency of its financial personnel. PricewaterhouseCoopers also advised that
it believed it would be essential for the Company to employ a new Chief
Financial Officer, who would need to gain sufficient familiarity with
TeamStaff's system of internal controls and financial reporting to enable such
individual to certify the fiscal year 2002 consolidated financial statements.
PricewaterhouseCoopers further conditioned the continuance of its audit on the
employment of a new Chief Financial Officer. PricewaterhouseCoopers acknowledged
that in view of the foregoing, it was likely that we would be unable to make a
timely filing of our annual report for fiscal year 2002. In response to
PricewaterhouseCoopers' concerns, among other actions, the Audit Committee
recommended that Mr. Kelly be relieved of his responsibilities as Chief
Financial Officer. The Board of Directors accepted the Audit Committee's
recommendation. TeamStaff's new auditor, Lazar Levine & Felix LLP has conducted
a review of our internal controls in connection with its audit of the fiscal
year 2002 consolidated financial statements and the restatement of fiscal year
2001. In conducting the audit for fiscal year ended September 30, 2002, Lazar
expanded its testing of TeamStaff's internal controls, including Information
Technology controls, to include the fiscal year ended September 30, 2001. This
was done since the Arthur Anderson LLP work papers were not readily available
for review by Lazar and to investigate the concerns regarding internal controls
by PricewaterhouseCoopers. As a result of its expanded testing, no material
weaknesses in the systems were found.
TeamStaff is committed to continually improving its internal controls. TeamStaff
is in the process of consolidating its multiple PEO operating systems onto one,
web-enabled system, ScorPEO, licensed by F.W. Davison. TeamStaff expects to have
this consolidation completed by the close of the third fiscal quarter of 2003.
TeamStaff also will be implementing a new financial and reporting system
licensed from Lawson that will be integrated with the ScorPEO system. TeamStaff
also expects to have its new financial and reporting system fully operational by
the close of the third fiscal quarter of 2003.
Additionally, in response to the passage of the Sarbanes-Oxley Act of 2002,
TeamStaff, among other actions, formed a Disclosure Committee comprised of
various members of our management team. The Disclosure Committee is charged
with, among other things, reviewing and developing policies and procedures to
enhance our disclosure controls and procedures as well as with reviewing our
periodic reports and other public disclosures.
Other than as described above, there have been no significant changes, including
corrective actions with regard to significant deficiencies or material
weaknesses in our internal controls or in other factors that could significantly
affect these controls subsequent to the Evaluation Date set forth above.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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
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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.
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 in payment of services were inadequate to pay for the alleged agreed
upon value of services. TeamStaff and BrightLane intend to defend themselves
vigorously in this matter and believe that they have 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 for any claims made by TeamStaff under the acquisition
agreements, subject to a $300,000 threshold. In the event that the threshold is
reached, some or all of these shares may be canceled in an amount equal to the
amount of any claim or expense in excess of the threshold. Under the terms of
the agreements between TeamStaff and BrightLane, the value of the shares held in
escrow is $8.10 per share. It is possible that an award in favor of Atomic
Fusion would result in monetary damages against TeamStaff, which could not be
recovered under the indemnification provisions because the cancellation of the
shares in escrow is the sole method of satisfying these indemnification
obligations.
As a commercial enterprise and employer and 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 the Company's financial
conditions or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders during the quarter ended December 31,
2002.
ITEM 5. OTHER INFORMATION
None
ITEM 6. RECENT EVENTS
CHANGE IN ACCOUNTANTS
TeamStaff has previously reported on Forms 8-K under the Securities and Exchange
Act of 1934 changes in its independent public accountants during the fiscal year
ended September 30, 2002, and a subsequent change on December 13, 2003, which is
part of the fiscal quarter ending December 31, 2002.
These reports on Form 8-K reflected:
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1. On April 10, 2002, The Board of Directors of TeamStaff and its Audit
Committee decided to no longer engage Arthur Andersen LLP as
TeamStaff's independent public accountants and engaged
PricewaterhouseCoopers LLP to serve as its independent public
accountants for the fiscal year ending September 30, 2002.
2. On December 13, 2002, the Audit Committee of TeamStaff dismissed
PricewaterhouseCoopers LLP as the Company's independent public
accountants and subsequently engaged Lazar Levine & Felix LLP to
serve as the Company's independent public accountants.
ENGAGEMENT OF NEW ACCOUNTANTS; CFO RELIEVED OF DUTIES
At a meeting held on December 10, 2002, prior to concluding its audit for fiscal
year 2002, PricewaterhouseCoopers expressed its opinion to the Audit Committee
that there were material weaknesses in our system of internal controls,
including the adequacy, competency and reliability of operational and financial
information, information systems and finance personnel. PricewaterhouseCoopers
further stated that information had come to its attention, that if further
investigated may materially impact the fairness or reliability of the previously
issued financial statements for fiscal year 2001 and/or the financial statements
to be issued for fiscal year 2002. PricewaterhouseCoopers also stated that due
to an accounting error in the treatment of a supplemental executive retirement
plan, a restatement and a reaudit of fiscal year 2001 would be required but it
declined the engagement for the reaudit of fiscal year 2001.
PricewaterhouseCoopers further advised TeamStaff that it believed it would be
essential to employ a new Chief Financial Officer and conditioned the
continuance of its audit for fiscal year 2002 on the employment of a new Chief
Financial Officer. PricewaterhouseCoopers acknowledged that in view of the
foregoing, it was likely that TeamStaff would be unable to make a timely filing
of its annual report for fiscal year 2002. In response to this advice from
PricewaterhouseCoopers, TeamStaff relieved its Chief Financial Officer, Donald
T. Kelly, of his duties, and commenced a search for a new Chief Financial
Officer. In light of the need to engage a new auditor for fiscal year 2001, the
Audit Committee determined that TeamStaff's interests were best served by
engaging new independent accountants willing to audit both fiscal 2001 and
fiscal year 2002. On December 13, 2002 the audit committee dismissed
PricewaterhouseCoopers and engaged Lazar Levine & Felix LLP to serve as
TeamStaff's independent public accountants.
In conducting the audit for fiscal year ended September 30, 2002, Lazar expanded
its testing of TeamStaff's internal controls, including information technology
controls, to include the fiscal year ended September 30, 2001. This procedure
was followed since the Arthur Anderson LLP work papers were not readily
available for review by Lazar and to investigate the concerns regarding internal
controls raised by PricewaterhouseCoopers. As a result of this expanded testing,
no material weaknesses in the systems were revealed and, based on these results,
Lazar concluded that only an audit of the restatement adjustment was required
and not a full reaudit of the fiscal year 2001 consolidated financial
statements.
RECONSIDERATION OF STATUS OF CFO
In light of the foregoing, TeamStaff determined that the conclusions reached by
PricewaterhouseCoopers concerning TeamStaff's internal controls and financial
personnel were not supported by Lazar's independent analysis or TeamStaff's own
assessment of its financial and operational systems. Mr. Kelly has remained an
employee during this period, and as result of the determinations made by Lazar
regarding TeamStaff's internal controls and systems, and the results of its
audit and review of the issues involved with the SERP plan and the restatement
of the 2001 fiscal year, the Audit Committee and the Board of Directors are
reviewing Mr. Kelly's status and whether the Company should reinstate Mr. Kelly
or retain a new Chief Financial Officer.
Pursuant to a severance agreement with Mr. Kelly effective May 22, 2002, in the
event he is terminated by the Company for cause, he is entitled only to his
accrued compensation, which means his base salary, reimbursement of business
expenses, vacation pay and earned but unpaid bonuses to the date of termination.
"Cause" is defined to include conviction of a felony, an intentional and
continual failure to substantially perform his duties or an intentional failure
to follow or perform a lawful direction of the Board of Directors. If Kelly is
terminated for disability or death, he will be entitled to his accrued
compensation and certain other payments such as the pro rata bonus amount. The
pro rata bonus amount is defined as the amount equal to the greater of the most
recent annual bonus amount paid or the annual bonus paid or payable for the full
fiscal year ended prior to the termination, in either case pro-rated through the
date of death or disability. In the event that Mr. Kelly's employment terminates
for any other reason, the agreement provides for payment of his accrued
compensation, a pro rata bonus amount, a bonus
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amount allocated to the remainder of the term of his employment agreement, his
base salary through the remainder of the term of his employment agreement, a
severance payment equal to one year's base compensation, a payment equal to the
cost of health and other similar benefits for a period of two years and costs
associated with outplacement services.
In light of the circumstances regarding the removal of Mr. Kelly from his
duties, Mr. Kelly may have reason to terminate his employment with TeamStaff for
"good reason" and exercise his rights under the severance agreement. The term
good reason includes "a change in the [e]xecutive's status, title, position or
responsibilities . . . ." Additionally, the removal of Mr. Kelly from his duties
may have caused his benefits under TeamStaff's supplemental executive retirement
plan, or SERP, to become fully vested and TeamStaff has provided for this
vesting in its pension accounting calculation. The Board of Directors has not
made a determination whether Mr. Kelly would be entitled to terminate his
employment and exercise these rights pursuant to the severance agreement
described above. In the event that Mr. Kelly exercises these rights, such
termination is deemed proper, and Mr. Kelly is eligible to receive all potential
compensation under the severance agreement and the supplemental executive
retirement plan, TeamStaff may be required to pay a sum, either directly to Mr.
Kelly, in the case of the severance agreement, or to a trust, in the case of any
payments to be made pursuant to the SERP, totaling approximately $1.1 million.
NASDAQ LISTING
On January 16, 2003, TeamStaff received notice from the NASDAQ Stock Market that
an "E" would be appended to its symbol at the opening of business on January 21,
2003 due to the belated filing of TeamStaff's annual report on Form 10-K for
fiscal year 2002. NASDAQ further advised TeamStaff that its common stock would
be delisted from trading on the NASDAQ National Market at the opening of
business on January 27, 2003 unless TeamStaff requested a hearing before the
NASDAQ Stock Market. TeamStaff requested and was granted a hearing before a
NASDAQ panel, which was to be held on February 14, 2003. By letter dated
February 13, 2003, the NASDAQ Stock Market notified TeamStaff that it had
canceled the hearing in light of TeamStaff's filing of its annual report on Form
10-K for fiscal year 2002 on February 10, 2003, and that the "E" would be
removed from TeamStaff's symbol at the opening of business on February 18, 2003.
SETTLEMENT OF CORPORATE STAFFING CONCEPTS EARN OUT
Effective January 2, 2002, TeamStaff acquired the accounts and related assets of
Corporate Staffing Concepts LLC, a PEO entity operating primarily in western
Massachusetts and Connecticut. The agreement provided that TeamStaff 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. Subsequent to the balance sheet date, on January 10, 2003, by
mutual agreement, the Company fully settled its earn out obligations to
Corporate Staffing Concepts LLC by agreeing to pay the sum of $250,000 in cash
and to issue 27,500 shares of the Company's Common Stock, for a total purchase
price of $603,100.
OPTIONS GRANTED
TeamStaff issued 73,000 options during the first fiscal quarter of 2003 at an
average price of $3.00 per share.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The following reports were filed during the quarter ended December 31, 2002.
Date of Report Item Reported
- -------------- -------------
November 19, 2002 Item 5 Other Events
December 13, 2002 Item 4 Change in Certifying Accountants
Item 7 Financial Statements and Exhibits
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December 20, 2002 Item 5/Item 9 Other Events and Required FD
Disclosure
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SIGNATURES
Pursuant to the requirements 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.
(Registrant)
/s/ Donald W. Kappauf
-----------------------
Donald W. Kappauf
Chief Executive Officer
/s/ Gerard A. Romano
-----------------------
Gerard A. Romano
Corporate Controller
Date: February 19, 2003
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CERTIFICATIONS
I, Donald W. Kappauf, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TeamStaff, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 19, 2003
/s/ Donald W. Kappauf
---------------------
President and Chief Executive Officer
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CERTIFICATIONS
I, Gerard A. Romano, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TeamStaff, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 19, 2003
/s/ Gerard A. Romano
--------------------
Corporate Controller
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