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SECURITIES AND EXCHANGE COMMISSION DRAFT
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2001.
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OR
[ ] TRANSITION REPORT SUBJECT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ___________.
Commission File Number: 0-11380
STAFF BUILDERS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2650500
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1983 MARCUS AVENUE, LAKE SUCCESS, NY 11042
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(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 750-1600
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.01 PAR VALUE
CLASS B COMMON STOCK, $.01 PAR VALUE
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 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. ___
The aggregate market value of the voting stock (Class A and Class B Common
Stock, assuming conversion of each share of Class B Common Stock into a share of
Class A Common Stock) held by non-affiliates of the registrant based on the
closing price of such stock on May 22, 2001 was $12,997,488.
The number of shares of Class A Common Stock and Class B Common Stock
outstanding on May 22, 2001 was 23,358,494 and 273,303 shares, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Staff Builders, Inc. ("Staff Builders" or the "Company") is a Delaware
corporation which was incorporated in New York in 1978 and reincorporated in
Delaware in May 1983. Unless the context otherwise requires, all references to
the "Company" include Staff Builders, Inc. and its subsidiaries. The Company is
a national provider of medical supplemental staffing services.
The Company's medical supplemental staffing services are provided through its
wholly-owned subsidiary, ATC Healthcare Services, Inc. ("ATC"). The Company also
provided information technology staffing services through its majority owned
subsidiary, Chelsea Computer Consultants, Inc. ("Chelsea") until September 17,
1999, when it sold its entire interest in Chelsea.
On September 17, 1999, prior to the spin-off of Tender Loving Care Health Care
Services, Inc. ("TLCS"), the Company sold its entire interest in Chelsea for
total consideration of $17.5 million. The $17.5 million of cash received was
used to pay off approximately $8.4 million of borrowings under the Company's
acquisition line of credit, approximately $4 million of borrowings under the
Company's revolving line of credit and $500 thousand paid to a former principal
of Chelsea. The remaining $4.6 million of cash was used to pay down the TLCS
revolving line of credit. The Company's interest in Chelsea was sold at a loss
of approximately $1.1 million.
SPIN-OFF TRANSACTION
On March 22, 1999, the Company's Board of Directors approved a plan to separate
its home health care business from its supplemental staffing business and to
create a separate, publicly-traded company engaged exclusively in providing home
health care services. To accomplish this separation of its businesses, the
Company's Board of Directors established a new, wholly-owned subsidiary, TLCS,
which acquired 100% of the outstanding capital stock of the Company's
subsidiaries engaged in the home health care business. The spin-off was effected
on October 20, 1999 through a pro rata distribution to the Company's
stockholders of all the shares of common stock of TLCS owned by the Company (the
"Distribution"). The Distribution was made by issuing one share of TLCS common
stock for every two shares of the Company's common stock outstanding on October
12, 1999 (the "Record Date"). Based upon the 23,619,388 shares of the Company's
common stock outstanding on the Record Date, 11,809,694 shares of TLCS common
stock were distributed to holders of the Company's common stock after the
spin-off. The Company's supplemental staffing business remained with the Company
after the spin-off. One of the principal benefits of the spin-off was the
creation of a separate and distinct identity for the supplemental staffing
business of the Company. This separation should allow financial analysts and
institutional investors to better understand that business. It also enhanced the
Company's ability to obtain financing outside an environment of tighter
government regulation of the home health care industry and reduced government
reimbursement for the provision of home health care services.
OPERATIONS
The Company's revenues were $120.7 million, $115.0 million and $94.7 million in
Fiscal 2001, 2000, and 1999, respectively. Revenue increased because of growth
of existing offices operated by licensees of the Company and the acquisition of
new licensees.
The Company provides supplemental staffing to health care facilities through its
network of 52 offices in 23 states, of which 38 are operated by 21 licensees and
14 are owned and operated by
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the Company. The Company offers its clients qualified health care associates in
over 60 job categories ranging from the highest level of specialty nurse
including critical care, neonatal and labor and delivery, to medical
administrative staff, including third party billers, administrative assistants,
claims processors, collection personnel and medical records clerks. The nurses
provided to clients include registered nurses, licensed practical nurses and
certified nursing assistants. Allied health staffing includes mental health
technicians, a variety of therapists (including speech, occupational and
physical), radiology technicians and phlebotomists.
Clients rely on the Company to provide a flexible labor force to meet
fluctuations in census and business and help the client acquire a specifically
needed skill. The Company's medical staffing professionals also fill in for
absent employees and enhance a client's core staff with temporary workers during
peak seasons.
Clients benefit from their relationship with the Company because of its
expertise in providing properly skilled medical staffing employees to a facility
in an increasingly tight labor market. The Company has developed a skills
checklist for clients to provide information concerning a prospective employee's
skill level. Clients also benefit from no longer having to concern themselves
with the payment of employee wages, benefits, payroll taxes, workers
compensation and unemployment insurance for staff provided by the Company
because these are processed through the Company.
The Company also operates a Travel Nurse Program whereby qualified nurses,
physical therapists and occupational therapists are recruited on behalf of the
clients who require such services on a long-term basis. These individuals are
recruited from the United States and foreign countries, including Great Britain,
Australia, South Africa and New Zealand to perform services on a long-term basis
in the United States.
The Company has contracted with a management entity for the recruitment of the
foreign nurses. The management entity must arrange for the nurses' and
therapists' immigration, licensing certifications as well as their living
accommodations while employed in the United States.
ATC has expanded its client base to include nursing homes, physician practice
management groups, managed care facilities, insurance companies, surgery
centers, community health centers and schools. By diversifying its client list,
the Company lessens the risk that regulatory or industry sector shifts in
staffing usage will materially affect the Company's staffing revenues.
Approximately 26.1% of the Company's revenues are attributable to an ATC
licensee whose majority of stock is owned by two family members of the Company's
executive officers.
During fiscal years 2001, 2000, and 1999, no single client accounted for more
than 10% of the revenues of the Company.
LICENSEE PROGRAM
The Company's licensing program is one of the principal factors differentiating
it from most of its competition. After agreeing to pay an initial license fee in
exchange for his or her own territory, the licensee is paid a royalty equal to
approximately 60% of gross profit (in general, the difference between the amount
so invoiced and the payroll and related expenses for the personnel delivering
the services). The licensee has the right to develop the territory to its
fullest potential. The licensee also handles marketing and recruiting within the
assigned territory. All locations must be approved by the Company prior to
signing a lease. Various management reports are provided to the offices to
assist them with ongoing analysis of their medical staffing operations. The
Company pays and distributes the payroll for the direct service personnel who
are all employees of the Company, administers all payroll withholdings and
payments, invoices the
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customers and receives and processes the accounts receivable. The licensees are
responsible for providing an office and paying administrative expenses including
rent, utilities, telephone and costs of administrative personnel.
For Fiscal 2001, 2000, and 1999, total staffing licensee distributions of
approximately $14.4 million, $15.8 million, and $12.3 million, respectively,
were included in the Company's general and administrative expenses.
The Company grants an initial license term of ten years. The licensee has an
option to renew for two additional five-year renewal terms, subject to the
licensee adhering to the operating procedures and conditions for renewal set
forth in the licensee agreement. When the Company converts an independently
owned staffing business into a licensee, the Company negotiates the terms of the
conversion on a transaction-by-transaction basis, depending on the size of the
business and the location.
Sales of licenses are subject to compliance with Federal and particular state
franchise laws. If the Company fails to comply with the franchise laws, rules
and regulations of the particular state relating to offers and sales of
franchises, the Company will be unable to engage in offering or selling
franchises in or from such state. To offer and sell franchises, the Federal
Trade Commission requires the Company to furnish to prospective licensees a
current franchise offering disclosure document. The Company has used a Uniform
Franchise Offering Circular ("UFOC") to satisfy this disclosure obligation. The
Company must update its UFOC annually or upon the occurrence of certain material
events. If a material event occurs, the Company must stop offering and selling
franchises until the UFOC is updated. In addition, certain states require the
Company to register or file its UFOC with such states and to provide prescribed
disclosures. The Company is required to obtain an effective registration of its
franchise disclosure document in New York State and certain other registration
states. The Company is currently able to offer new franchises in 38 states.
PERSONNEL, RECRUITING AND TRAINING
The Company employs approximately 4,000 individuals who render staffing services
and approximately 140 full time administrative and management personnel.
Approximately 65 of these administrative employees are located at the branch
offices and 75 are located at the administrative office in Lake Success, New
York.
The Company screens personnel to ensure that they meet all eligibility
standards. This screening process includes skills testing, reference checking,
professional license verification, personal interviews and a physical
examination. In addition, new employees receive an orientation on the Company's
policies and procedures prior to their initial assignment. The Company is not a
party to any collective bargaining agreement and considers its relationship with
its supplemental staffing employees to be satisfactory.
It is essential to recruit and retain a qualified staff of staffing associates
who are available to be placed on assignment as needed. Besides advertising in
the local classifieds and conducting local public relations projects, the
Company offers a variety of benefit programs to assist in recruiting high
quality medical staffing professionals. This package provides employees access
to medical, dental, life and disability insurance, a 401(k) plan, opportunities
for Continuing Education Credits (CEUs), partnerships with various vendors for
discount programs (e.g. uniforms, vacations and cruises, credit cards,
appliances and cars), recognition programs and referral bonus programs. In
addition, the Company provides its licensees a full-service human resources
department to support the offices with policies and procedures as well as the
day-to-day issues of the field staff.
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SALES AND MARKETING
The Company begins a marketing education program as soon as a licensee becomes
operational. This program details the entire sales process. The program stresses
sales techniques, account development and retention as well as basic sales
concepts and skills. Through interactive lectures, role plays and sales
scenarios, participants are immersed in the sales program.
To provide ongoing sales support, the Company furnishes licensees with a variety
of tools. A corporate representative is continuously available to help with
prospecting, customer identification and retention, sales strategies, and
developing a comprehensive office sales plan. In addition, various guides and
brochures have been developed to focus a licensee's attention to critical areas
in the sales process.
Each licensee is responsible for generating sales in his or her territory.
Licensees are taught to do this through a variety of methods in order to
diversify their sales conduits. The primary method of seeking new business is to
call on health care facilities in the local area. Cold calls and referrals are
often used to generate leads. Advertising in yellow page phone books is also
utilized. Once granted an interview, the licensee is instructed to emphasize the
highlights of the Company's services.
For corporate-owned offices, the sales and marketing is very similar to a
licensee operation, except the branch managers are more closely supervised than
the licensee operations.
INSURANCE
The Company maintains errors and omissions insurance covering medical
professional and general liability insurance providing for coverage in a maximum
amount of $1 million per claim, subject to a limitation of $3 million for all
claims in any single year.
COMPETITION
The medical staffing industry is extremely fragmented, with numerous local and
regional providers nationwide providing nurses and other staffing solutions to
hospitals and other health care providers. As HMOs and other managed care groups
expand, so too must the medical staffing companies that service those customers.
In addition, momentum for consolidation is increasing among smaller players,
often venture capital-backed, who are trying to win regional and even national
accounts. Because the temporary staffing industry is dominated generally by
large national companies that do not specialize in medical staffing, management
believes that its specialization will give it a competitive edge. In addition,
its franchise program gives each licensee an incentive to compete actively in
his or her local marketplace.
SERVICE MARKS
The Company believes that its service trademark and the ATC(R) Logo have
significant value and are important to the marketing of its supplemental
staffing services. These marks are registered with the United States Patent and
Trademark Office. The ATC(R) trademark will remain in effect through January 9,
2010 for use with nursing care services and healthcare services. These marks are
each renewable for an additional ten-year period, provided the Company continues
to use them in the ordinary course of business.
ITEM 2. PROPERTIES
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The Company's business leases its administrative facilities in Atlanta, Georgia
and Lake Success, New York. The Lake Success office lease for approximately
12,000 square feet of office space expires on November 2007 and provides for a
current annual rent of $282,840 and is subject to a 3.5% annual escalation. The
Atlanta office lease for approximately 1,800 square feet of office space expires
on March 2002 and provides for a current annual rent of approximately $39,800.
The Company does not intend to renew the Atlanta lease. The Company believes
that its administrative facilities are sufficient for its needs and that it will
be able to obtain additional space as needed.
The Company's licensees lease substantially all of their locations from
landlords unaffiliated with the Company or any of its executive officers or
directors. There are currently 52 staffing offices including 14 operated by the
Company and 38 licensee staffing offices operated by 21 licensees. One of the
supplemental staffing offices operated by the Company subleases the office space
from TLCS and one licensee office subleases the office space from the Company.
The remaining licensee offices are owned by licensees or are leased by the
licensee from third-party landlords. The Company believes that it will be able
to renew or find adequate replacement offices for all leases which are scheduled
to expire within the next twelve months at comparable costs.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in several civil actions which are routine and
incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent. Although the Company
cannot estimate the ultimate cost of its open legal matters with precision, in
the opinion of management, the outcome of pending litigation will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of Fiscal 2001.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
(A) MARKET INFORMATION
The Company has outstanding two classes of common equity securities:Class A
Common Stock and Class B Common Stock. These two classes were created by a
recapitalization of the Company's Common Stock that was completed in October
1995. The Company's Class A Common Stock is traded in the over-the-counter
market and quoted on the OTC Bulletin Board System under the symbol "SBLI."
The following table sets forth, for the indicated Fiscal periods, the high and
low sale prices for the Class A Common Stock for each quarter during the Fiscal
year ended February 29, 2000 and February 28, 2001, as reported by the
Over-the-Counter Bulletin Board. Such over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
HIGH LOW
---- ---
Fiscal Year Ended February 29, 2000
1st quarter ended May 31, 1999 $.52 $.16
2nd quarter ended August 31, 1999 .53 .13
3rd quarter ended November 30, 1999 .48 .16
4th quarter ended February 29, 2000 .41 .17
Fiscal Year Ended February 28, 2001
1st quarter ended May 31, 2000 $.61 $.25
2nd quarter ended August 31, 2000 .50 .23
3rd quarter ended November 30, 2000 .45 .23
4th quarter ended February 28, 2001 .38 .16
There is no established public trading market for the Company's Class B Common
Stock, which has ten votes per share and upon transfer is convertible
automatically into one share of Class A Common Stock, which has one vote per
share.
(B) HOLDERS
As of May 22, 2001, there were approximately 293 holders of record of Class A
Common Stock (including brokerage firms holding stock in "street name" and other
nominees) and 402 holders of record of Class B Common Stock.
(C) DIVIDENDS
Since its organization, the Company has not paid any dividends on its shares of
Class A and Class B Common Stock. Management anticipates that for the
foreseeable future all earnings will be retained for use in its business and,
accordingly, it does not intend to pay cash dividends.
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SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
CONSOLIDATED OPERATIONS DATA:
Revenues $ 120,694 $ 114,994 $ 94,694 $ 68,360 $ 42,770
Income (loss) from continuing operations (1,066) (2,683) (369) (1,252) 429
Loss from discontinued operations -- (557) (1,031) (210) --
Net income (loss) $ (1,066) $ (3,240) $ (1,400) $ (1,462) $ 429
Income (loss) per common share-basic
Income (loss) from continuing operations $ (.05) $ (.11) $ (.02) $ (.05) $ .02
Loss from discontinued operations -- (.03) (.04) (.01) --
--------- --------- --------- --------- ---------
Net income (loss) $ (.05) $ (.14) $ (.06) $ (.06) $ .02
========= ========= ========= ========= =========
Income (loss) per common share - diluted:
Income (loss) from continuing operations $ (.05) $ (.11) $ (.02) $ (.05) $ .02
Loss from discontinued operations -- (.03) (.04) (.01) --
--------- --------- --------- --------- ---------
Net income (loss) $ (.05) $ (.14) $ (.06) $ (.06) $ .02
========= ========= ========= ========= =========
Weighted average common shares outstanding:
Basic 23,632 23,623 23,162 23,939 23,668
Diluted 23,632 23,623 23,162 23,939 24,577
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 41,431 $ 39,607 $ 45,004 $ 29,581 $ 22,009
Long-term debt and other liabilities 21,059 16,049 25 16,022 9,858
Total liabilities 31,804 28,914 31,689 21,270 12,713
Stockholders' equity 9,627 10,693 13,315 8,311 9,296
Staff Builders, Inc. did not pay any cash dividends on its common stock during
any of the periods set forth in the table above. Certain prior period amounts
have been reclassified to conform with the Fiscal 2001 presentation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information, which the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere herein.
This discussion contains forward-looking statements that are subject to a number
of known and unknown risks that, in addition to general economic, competitive
and other business conditions, could cause actual results, performance and
achievements to differ materially from those described or implied in the
forward-looking statements.
The Company is subject to significant external factors which could significantly
impact its business. These factors could cause future results to differ
materially from historical trends.
Results of Operations
Years Ended February 28, 2001 ("Fiscal 2001"), February 29, 2000 ("Fiscal 2000")
and February 28, 1999 ("Fiscal 1999").
REVENUES: Total revenues increased by approximately $5.7 million or 5.0% to
$120.7 million in Fiscal 2001 from $115.0 million in Fiscal 2000. This increase
is due to growth in revenues for certain locations which had already been in
operation during Fiscal 2000 and are experiencing higher sales in Fiscal 2001.
These locations offset the loss of revenues from branch offices that have left
the network. Total revenues increased by approximately $20.3 million or 21.4% to
$115.0 million in Fiscal 2000 from $94.7 million in Fiscal 1999. This increase
is due to an increase in revenues for certain locations which had been in
operation during the entire Fiscal 1999 period but were experiencing higher
sales growth in Fiscal 2000, as well as independent agencies which had joined
the Company during Fiscal 1999 which were operating for the entire Fiscal 2000.
SERVICE COSTS: Service costs were 77.5%, 77.1% and 78.0% of total revenues in
Fiscal 2001, 2000 and 1999, respectively. Service costs represent the direct
costs of providing services to patients or clients, including wages, payroll
taxes, travel costs, insurance costs, medical supplies and the cost of
contracted services.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
increased by approximately $.8 million or 3.2% to $25.0 million in Fiscal 2001
from $24.3 million in Fiscal 2000. The increase is mainly related to the overall
growth of the business. The Company pays royalties to its licensees based upon
approximately 60% of the gross profit of the licensee office. Despite the growth
in revenues, royalty expense decreased by approximately $1.5 million or 15.2% to
$8.7 million in Fiscal 2001 from $10.2 million in Fiscal 2000. The decrease is
primarily due to the increase in corporately owned offices as well as an
increase in the number of franchises enrolled in the Company's administrative
program where certain expenses of the franchise are paid by the Company and
charged back against the franchisee's royalty.
General and administrative expenses increased by approximately $5.0 million or
25.7% to $24.3 million in Fiscal 2000 from $19.3 million in Fiscal 1999. The
increase is mainly due to growth of the business and associated royalty expense
as well as the hiring of additional personnel because of the relocation of the
Company's corporate office from Atlanta, Georgia to Lake Success, New York.
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DEPRECIATION AND AMORTIZATION: Depreciation and amortization expenses relating
to fixed assets and intangible assets increased by approximately $1,078 thousand
or 162.3% to $1,742 thousand in Fiscal 2001 from $664 thousand in Fiscal 2000.
Charges for depreciation and amortization expenses increased $89 thousand or
15.5% from $575 thousand in Fiscal 1999 to $664 thousand in Fiscal 2000. These
increases are mainly due to the purchase and placing into service of
approximately $3.6 million of computer equipment in Fiscal 2000 which was
necessary to build the computer infrastructure to handle the current and future
growth of the business.
INTEREST EXPENSE, NET: Interest expense, net was $2.3 million, $1.2 million and
$1.2 million in Fiscal 2001, 2000 and 1999, respectively. Interest expense
increased due to the level of borrowings of the Company in congruence with the
increased growth of the Company's continuing operations.
RELOCATION EXPENSES: During Fiscal 2000, the Company incurred one-time
relocation charges related to the expenses of moving its corporate offices from
Atlanta, Georgia to Lake Success, New York. These costs primarily include travel
and lodging, as well as the costs for the physical movement of the Company's
equipment and records to the New York location.
NON RECURRING SPIN-OFF AND FINANCING COSTS: During Fiscal 2000, the Company
incurred one-time spin-off costs of approximately $700 thousand related to the
spin-off of TLCS. These costs included legal fees, accounting fees, consultants
and printing costs. In addition, the Company incurred financing fees of
approximately $400 thousand which were incurred because of the restructuring of
the Company's borrowing agreement with its asset based lending institution
necessitated by the spin-off of TLCS.
PROVISION (BENEFIT) FOR INCOME TAXES: The provision (benefit) for income taxes
reflects an effective rate of 10.4%, 3.9%, and (16.0%) in Fiscal 2001, 2000, and
1999, respectively.
The provision for income taxes in Fiscal 2001 consists of state capital and
minimum taxes. The book benefit for the net operating losses generated in Fiscal
2001 was offset by recording a full valuation allowance. Such valuation
allowance was recorded because management does not believe that the utilization
of the tax benefits from operating losses, and other temporary differences are
"more likely than not" to be realized, as required by generally accepted
accounting principles (GAAP) in the United States of America.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $3.0 million in Fiscal 2001, which
consisted primarily of the decrease in accounts payable, accrued expenses, and
accrued payroll and related expenses of $2.4 million and cash used in operations
which consisted of the net loss of $1.1 million, which included non-cash items
consisting primarily of depreciation and amortization of $1.7 million and the
decrease to the allowance for doubtful accounts net of work off's, of $1.2
million.
Net cash used in investing activities was $585 thousand in Fiscal 2001, which
consisted of the purchases of fixed assets of $585 thousand.
Net cash from financing activities was $5.2 million in Fiscal 2001 which
consisted of the increase due under the Company's secured credit facility of
$5.5 million and the principal decrease in capital leases of $.3 million.
Net cash provided by operating activities was $3.0 million for Fiscal 2000,
which consisted primarily of the increase of accounts payable and accrued
expenses of $4.6 million offset by cash provided from operations which consisted
of the net loss of $(3.2) million, which included
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non-cash items consisting primarily of depreciation and amortization of $664
thousand, goodwill write-offs of $433 thousand and provision for doubtful
accounts of $651 thousand.
Net cash provided by investing activities was $4.8 million in Fiscal 2000, which
consisted of the disposition of short term assets of discontinued operations of
$4.2 million and disposition of long term assets of discontinued operations of
$3.5 million offset by $2.9 million of fixed asset purchases.
Net cash used in financing activities was $7.6 million in Fiscal 2000, which
consisted primarily of the decrease due under secured credit facility of $7.5
million.
On September 24, 1999, the Company entered into an amended and restated loan and
security agreement with a bank ("Loan Agreement") which expired on February 29,
2000. The Loan Agreement permitted the Company to borrow up to 75% of eligible
accounts receivable, up to the maximum amount of $15 million. The borrowings
under the credit facility bore interest at 2.0% over the prevailing prime
lending rate. In addition, the Company paid a monthly collateral management fee
of $3 thousand and .375% per annum of the daily unused portion of the credit
facility. The Company paid bank fees of $170 thousand in connection with the
execution of the Loan Agreement and facility fees of $131 thousand on November
30, 1999. The Company paid an additional $206 thousand of facility fees in
Fiscal 2000.
In March 2000, the Company secured a financing facility ("Facility") with a
lending institution for a $20 million revolving loan. The Facility was used to
repay borrowings under the Loan Agreement. Under the Facility, the Company was
able to borrow up to $20 million based upon having sufficient collateral
calculated at 85% of the Company's accounts receivable. Interest on the Facility
is 3% over the prevailing prime lending rate. There is also a .5% annual fee for
the unused portion of the total loan availability.
In April 2001, the Company secured a new financing facility ("New Facility")
with a new lending institution for a $25 million revolving loan. The New
Facility was used to repay borrowings under the Facility. Under the New
Facility, the Company may borrow amounts up to 85% of the Company's eligible
accounts receivable subject to a maximum of $25 million. Interest on borrowings
under the New Facility is at the annual rate of 3.4% over LIBOR. There is also a
.5% annual fee for the unused portion of the total loan availability. The
Company was required to pay a $.3 million early termination fee to the prior
lender of the Facility. The Company expects to recoup this fee in lower interest
charged by the New Facility in fiscal year ending February 2002.
The Company's working capital was $18.0 million and $13.4 million at February
28, 2001 and February 29, 2000, respectively.
Management believes that working capital generated from operations, together
with other credit facilities, will be sufficient to meet the currently
anticipated working capital and capital expenditure requirements of our
operations.
EFFECT OF INFLATION
The rate of inflation was immaterial during Fiscal 2001. In the past, the
effects of inflation on salaries and operating expenses have been offset by the
Company's ability to increase its charges for services rendered. The Company
anticipates that it will be able to continue to do so in the future. The Company
continually reviews its costs in relation to the pricing of its services.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a material effect, if any, on its financial condition or
its results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity: The Company's primary market risk exposure is
interest rate risk. The Company's exposure to market risk for changes in
interest rates relates to its debt obligations under its Facility described
above. The interest rate on drawings was the prime rate plus 3%. Under the New
Facility, the interest rate is 3.4% over LIBOR. At February 28, 2001, drawings
on the Facility were $20,636 thousand. Assuming variable rate debt at February
28, 2001, a one point change in interest rates would impact annual net interest
payments by $206.4 thousand. The Company does not use derivative financial
instruments to manage interest rate risk.
CONTINGENT OBLIGATIONS
The Company is contingently liable on obligations owed by TLCS which total
approximately $3,700,000 as of February 28, 2001. The Company is indemnified by
TLCS for any obligations arising out of these matters. As of May 2001, TLCS has
represented that it is current on its payments for these obligations.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are typically identified by the
inclusion of phrases such as "the Company anticipates", "the Company believes"
and other phrases of similar meaning. These forward looking statements are based
on the Company's current expectations. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors that may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. The potential risks and
uncertainties which would cause actual results to differ materially from the
Company's expectations are as follows:
BUSINESS CONDITIONS - The Company must continue to establish and maintain close
working relationships with physicians and physician groups, managed care
organizations, hospitals, clinics, nursing homes, social service agencies and
other health care providers. There can be no assurance that the Company will
continue to establish or maintain such relationships. The Company expects
additional competition will develop in future periods given the increasing
market demand for the type of services offered.
ATTRACTION AND RETENTION OF LICENSEES AND EMPLOYEES - Maintaining quality
licensees, managers and branch administrators will play a significant part in
the future success of the Company. The Company's professional nurses and other
health care personnel are also key to the continued provision of quality care to
the Company's patients. The possible inability to attract and retain qualified
licensees, skilled management and sufficient numbers of credentialed health care
professional and para-professionals and information technology personnel could
adversely affect the Company's operations and quality of service. Also, because
the travel nurse program is dependent upon the attraction of skilled nurses from
overseas, such program could be adversely affected by immigration restrictions
limiting the number of such skilled personnel who may enter and remain in the
United States.
12
13
SATISFACTORY FINANCING - The Company entered into the New Facility on April 6,
2001. Management cannot provide assurance that the Company will remain in
compliance with the covenants of the new financing agreement. If the Company
does not remain in compliance with the covenants, the bank could immediately
call the amounts due under the New Facility. If this were to happen, the Company
would have to seek alternative financing, which may not be available on
acceptable terms to the Company. The line of credit available to the Company is
$25 million. Management cannot provide assurance that the available line of
credit will be sufficient on a going forward basis to provide sufficient funds
to operate the business.
13
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STAFF BUILDERS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT 15
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
February 28, 2001 and February 29, 2000 16
Consolidated Statements of Operations
for the Years ended February 28, 2001,
February 29, 2000 and February 28, 1999 17
Consolidated Statements of Stockholders' Equity
for the Years ended February 28, 2001,
February 29, 2000 and February 28, 1999 18
Consolidated Statements of Cash Flows
for the Years ended February 28, 2001,
February 29, 2000 and February 28, 1999 19
Notes to Consolidated Financial Statements 20
FINANCIAL STATEMENT SCHEDULE FOR THE YEARS ENDED
FEBRUARY 28, 2001, FEBRUARY 29, 2000
AND FEBRUARY 28, 1999
II - Valuation and Qualifying Accounts 35
All other schedules were omitted because they are not required, not applicable
or the information is otherwise shown in the financial statements or the notes
thereto.
14
15
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of Staff Builders, Inc.:
We have audited the accompanying consolidated balance sheets of Staff Builders,
Inc. and subsidiaries (the "Company") as of February 28, 2001 and February 29,
2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
28, 2001. Our audits also included the financial statement schedule listed in
the Table of Contents. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Staff Builders, Inc. and
subsidiaries at February 28, 2001 and February 29, 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended February 28, 2001 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
Jericho, New York
May 17, 2001
15
16
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
FEBRUARY 28, FEBRUARY 29,
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,013 $ 394
Accounts receivable, net of allowance
for doubtful accounts of $1,344
and $2,528, respectively 26,569 25,653
Prepaid expenses and other current assets 197 194
---------- ----------
Total current assets 28,779 26,241
FIXED ASSETS, net 4,291 4,892
GOODWILL AND OTHER INTANGIBLE ASSETS, net 7,545 8,246
OTHER ASSETS 816 228
---------- ----------
TOTAL $ 41,431 $ 39,607
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,048 $ 2,201
Accrued expenses 4,461 7,040
Accrued payroll and payroll related expenses 4,631 3,341
Current portion of long-term debt 605 283
---------- ----------
Total current liabilities 10,745 12,865
LONG-TERM DEBT 315 875
DUE UNDER SECURED CREDIT FACILITY 20,636 15,149
OTHER LIABILITIES 108 25
---------- ----------
TOTAL LIABILITIES 31,804 28,914
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Common stock -
Class A Common Stock - $.01 par value;
50,000,000 shares authorized; 23,357,782 and
23,331,252 issued and outstanding at February 28, 2001
and February 29, 2000, respectively 233 233
Class B Common Stock - $.01 par value;
1,554,936 shares authorized; 274,015 and
300,545 issued and outstanding at February 28, 2001
and February 29, 2000, respectively 3 3
Additional paid-in-capital 13,522 13,522
Accumulated deficit (4,131) (3,065)
---------- ----------
Total stockholders' equity 9,627 10,693
---------- ----------
TOTAL $ 41,431 $ 39,607
========== ==========
See notes to consolidated financial statements
16
17
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended
February 28, February 29, February 28,
2001 2000 1999
------------ ------------ ------------
CONTINUING OPERATIONS:
REVENUES:
Service revenues $ 120,657 $ 114,994 $ 94,505
Sales of licensees and fees, net 37 -- 189
---------- ---------- ----------
Total revenues 120,694 114,994 94,694
---------- ---------- ----------
COSTS AND EXPENSES:
Service costs 93,559 88,673 73,902
General and administrative expenses 25,038 24,261 19,301
Relocation expenses -- 270 --
---------- ---------- ----------
Total operating expenses 118,597 113,204 93,203
---------- ---------- ----------
INCOME BEFORE INTEREST, DEPRECIATION, AMORTIZATION AND
INCOME TAXES 2,097 1,790 1,491
INTEREST AND OTHER EXPENSES (INCOME):
Interest expense, net 2,257 1,201 1,207
Depreciation and amortization 1,742 664 575
Other (income) expense, net (936) 1,364 148
Non recurring spin-off and financing costs -- 1,144 --
---------- ---------- ----------
Total interest and other expenses 3,063 4,373 1,930
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (966) (2,583) (439)
PROVISION (BENEFIT) FOR INCOME TAXES 100 100 (70)
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS (1,066) (2,683) (369)
---------- ---------- ----------
Income (loss) from discontinued operations
(net of income taxes of $284 and $293 for the
years ended February 29, 2000 and February 28, 1999,
respectively) -- 580 (1,031)
Loss on sale of discontinued operations -- (1,137) --
---------- ---------- ----------
LOSS FROM DISCONTINUED OPERATIONS -- (557) (1,031)
---------- ---------- ----------
NET LOSS $ (1,066) $ (3,240) $ (1,400)
========== ========== ==========
LOSS PER COMMON SHARE - BASIC:
Loss from continuing operations $ (.05) $ (.11) $ (.02)
Loss from discontinued operations -- (.03) (.04)
---------- ---------- ----------
Net loss $ (.05) $ (.14) $ (.06)
========== ========== ==========
LOSS PER COMMON SHARE - DILUTED:
Loss from continuing operations $ (.05) $ (.11) $ (.02)
Loss from discontinued operations -- (.03) (.04)
---------- ---------- ----------
Net loss $ (.05) $ (.14) $ (.06)
========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic 23,632 23,623 23,162
========== ========== ==========
Diluted 23,632 23,623 23,162
========== ========== ==========
See notes to consolidated financial statements
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18
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
RETAINED
COMMON STOCK PREFERRED ADDITIONAL EARNINGS
---------------------- STOCK PAID-IN (ACCUMULATED
SHARES AMOUNT CLASS A CAPITAL DEFICIT) TOTAL
----------- ------- --------- ---------- ------------- --------
Balances, March 1, 1998 24,065,603 $240 $1 $6,154 $1,575 $7,970
Contribution of Chelsea by TLCS 8,597 8,597
Additional common stock issued in
connection with a 1987 acquisition 26,935 --
Exercise of stock options 20,000 --
Purchase and retirement of common
stock (5,088,060) (50) (50)
Conversion of preferred stock into
common stock 4,269,820 43 (1) 42
Common stock issued - employee stock
purchase plan 325,082 3 3
Net effect of liabilities transferred
from TLCS (1,847) (1,847)
Net loss (1,400) (1,400)
----------- ------- -------- ---------- ------------- --------
Balances, February 28, 1999 23,619,380 236 -- 12,904 175 13,315
Common stock issued 12,417 --
Forgiveness of debt by TLCS 618 618
Net loss (3,240) (3,240)
----------- ------- -------- ---------- ------------- --------
Balances, February 29, 2000 23,631,797 236 -- 13,522 (3,065) 10,693
Net loss (1,066) (1,066)
----------- ------- -------- ---------- ------------- --------
Balances, February 28, 2001 23,631,797 $236 $-- $13,522 $(4,131) $9,627
=========== ======= ======== ========== ============= ========
See notes to consolidated financial statements
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STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2001 2000 1999
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,066) $ (3,240) $ (1,400)
Adjustments to reconcile net loss to net cash provided by (used in)
operations:
Depreciation and amortization 1,742 664 575
Write-off of goodwill and other intangibles 190 433 --
Provision for doubtful accounts, net of write-offs (1,184) 651 1,612
Deferred income taxes -- -- (439)
Goodwill from acquisitions -- -- (812)
Change in operating assets and liabilities:
Accounts receivable 268 (34) (9,900)
Prepaid expenses and other current assets (3) (10) (31)
Other assets (588) (96) (12)
Accounts payable, accrued expenses and
accrued payroll and related expenses (2,442) 4,649 2,827
Other liabilities 83 -- --
-------- -------- --------
Net cash (used in) provided by operating activities (3,000) 3,017 (7,580)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (585) (2,902) (1,219)
Net short term assets of discontinued operations -- (5,497) 5,497
Net long term assets of discontinued operations -- 13,184 (13,184)
Acquisitions, net of cash acquired -- -- (225)
Contribution of Chelsea by TLCS -- -- 8,594
-------- -------- --------
Net cash (used in) provided by investing activities (585) 4,785 (537)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (reduction) in bank debt -- (43) (519)
Principal increases (decreases) of capital leases (283) (109) --
Increase (decrease) in due under secured credit facility 5,487 (7,453) 7,941
-------- -------- --------
Net cash provided by (used in) financing activities 5,204 (7,605) 7,422
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,619 197 (695)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 394 197 892
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,013 $ 394 $ 197
======== ======== ========
SUPPLEMENTAL DATA:
Cash paid for:
Interest $ 2,401 $ 1,896 $ 1,282
======== ======== ========
Income taxes $ 26 $ -- $ --
======== ======== ========
Fixed assets purchased through capital leases $ 45 $ 1,267 $ --
======== ======== ========
See notes to consolidated financial statements
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20
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2001 ("FISCAL 2001"),FEBRUARY 29, 2000 ("FISCAL 2000"),
AND FEBRUARY 28, 1999 ("FISCAL 1999") (DOLLARS IN THOUSANDS, EXCEPT WHERE
INDICATED OTHERWISE AND, FOR PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Staff Builders, Inc. and subsidiaries, including ATC
Healthcare Services, Inc. and ATC Staffing Services, Inc, (the "Company") is a
provider of supplemental staffing to health care facilities. The Company offers
a skills list of qualified health care associates in over 60 job categories
ranging from the highest level of specialty nurse including critical care,
neonatal and labor and delivery, to medical administrative staff, including
third party billers, administrative assistants, claims processors, collection
personnel and medical records clerks. The nurses provided to clients include
registered nurses, licensed practical nurses and certified nursing assistants.
Allied health staffing includes mental health technicians, a variety of
therapists (including speech, occupational and physical), radiology technicians
and phlebotomists.
SPIN-OFF TRANSACTION AND FINANCIAL STATEMENTS - The Company separated its home
health care business from its existing staffing business during October 1999. To
accomplish this separation of its businesses, the Company's Board of Directors
established a new, wholly-owned subsidiary Tender Loving Care Health Care
Services, Inc ("TLCS"), which acquired 100% of the outstanding capital stock of
the Company's subsidiaries engaged in the home health care business. The
spin-off was effected through pro rata distribution to the Company's
stockholders of all the shares of common stock of TLCS owned by the Company (the
"Distribution"). The Distribution was made by issuing one share of TLCS common
stock for every two shares of the Company's Class A and Class B common stock
outstanding on October 12, 1999 (the "Record Date"). Based upon the 23,619,388
shares of the Company's common stock which was outstanding on the Record Date,
11,809,694 shares of TLCS common stock were distributed to holders of the
Company's Class A and Class B common stock on or about October 20, 1999. The
staffing business remained with the Company.
On October 13, 1999, the Company received notice from the Securities and
Exchange Commission that its Registration Statement on Form 10 was cleared from
further comments. Further, on October 20, 1999, the Company received consent
from its current lending institution to complete the spin-off transaction.
Because TLCS owned a majority of the operations, employees and assets of the
historical business of the Company, the Distribution was treated as a "reverse
spin-off" for financial reporting purposes under generally accepted accounting
principles. The financial position and results of operations include only the
supplemental staffing business owned by the Company and its majority owned
subsidiary, Chelsea Computer Consultants, Inc. ("Chelsea") through September 17,
1999 (the date Chelsea was sold), all on a historical cost basis.
On September 17, 1999, prior to the spin-off of TLCS, the Company sold its
entire interest in Chelsea for total consideration of $17.5 million. The cash
received of $17.5 million was used to pay off approximately $8.4 million of
borrowings under the Company's acquisition line of credit, approximately $4
million of borrowings under the Company's revolving line of credit and $500
thousand paid to a former principal of Chelsea. The remaining $4.6 million of
cash was used to pay down TLCS's revolving line of credit. The Company's
interest in Chelsea was sold at a loss of $1.1 million.
20
21
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company for its fiscal year ending the last day in February and the Company's
wholly owned subsidiaries. All material intercompany accounts and transactions
have been eliminated.
A substantial portion of the Company's service revenues are derived under a
unique form of franchising under which independent companies or contractors
represent the Company within a designated territory. These licensees assign
Company personnel including registered nurses and therapists to service the
Company's clients using the Company's trade names and service marks. The Company
pays and distributes the payroll for the direct service personnel who are all
employees of the Company, administers all payroll withholdings and payments,
bills the customers and receives and processes the accounts receivable. The
licensees are responsible for providing an office and paying related expenses
for administration including rent, utilities and costs for administrative
personnel. The revenues and related direct costs are included in the Company's
consolidated service revenues and operating costs.
The Company pays a monthly distribution or commission to its domestic licensees
based on a defined formula of gross profit generated. Generally, the Company
pays the licensees 60% of the gross profit attributable to such licensee. There
is no payment to the licensees based solely on revenues. For Fiscal 2001, 2000
and 1999, total distributions or commissions paid to licensees of approximately
$14,400, $15,800 and $12,300, were included in the general and administrative
expenses, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses as
well as the disclosure of contingent assets and liabilities in the financial
statements. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include certificates of deposit and commercial paper
purchased with original maturities of less than three months.
FIXED ASSETS
Fixed assets, consisting of equipment (primarily computer hardware and
software), furniture and fixtures, and leasehold improvements, are stated at
cost and depreciated from the date placed into service over the estimated useful
lives of the assets using the straight-line method. The estimated useful lives
of the related assets are generally five to seven years.
GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of the purchase price and related acquisition costs over the fair
market value of the net assets of the businesses acquired is amortized on a
straight-line basis over periods ranging from five to twenty years. Intangible
assets include customer lists, which are being amortized over five years on a
straight-line basis.
The Company continually reviews long-lived assets for impairment and, if
impaired, remeasures the assets at fair value, whenever events or changes in
business circumstances indicate that the carrying value of such assets may not
be recoverable. Indicators which reflect the existence of
21
22
impairment to the carrying value of goodwill include cash flow deficits, a
decrease in historic and anticipated revenue and operating results and a
decrease in the fair value of some or all assets. Where negative indicators were
present, the carrying value of goodwill and other long-lived assets were
reviewed to determine if the assets will be recoverable, based on undiscounted
estimated cash flows. During Fiscal 2001, the Company wrote off $190 of goodwill
relating to a prior acquisition and had written off $433 and $0 in fiscal 2000
and 1999, respectively.
REVENUE RECOGNITION
The Company recognizes revenue on the accrual basis as the related services are
provided to customers and when the customer is obligated to pay for such
completed services. Revenues are recorded net of contractual or other allowances
to which customers are entitled. Employees assigned to particular customers may
be changed at the customer's request or at the Company's initiation. In
addition, for financial reporting purposes, a provision for uncollectible and
doubtful accounts is provided for amounts billed to customers which may
ultimately be uncollectible due to billing errors, documentation disputes or the
customer's inability to pay.
Revenues generated from the sales of licensees and initial licensee fees are
recognized upon signing of the licensee agreement, if collectibility of such
amounts is reasonably assured, since the Company has performed substantially all
of its obligations under its licensee agreements by such date. In circumstances
where a reasonable basis does not exist for estimating collectibility of the
proceeds of the sales of licensees and initial license fees, such amounts are
deferred and recognized as collections are made, utilizing the cost recovery
method (see Note 2), or until such time that collectibility is reasonably
assured.
INCOME TAXES
Deferred income taxes result from timing differences between financial and
income tax reporting which primarily include the deductibility of certain
expenses in different periods for financial reporting and income tax purposes. A
full valuation allowance is provided against net deferred tax assets unless, in
management's judgment, it is more likely than not that such deferred tax asset
will be realized.
EARNINGS (LOSS) PER SHARE
The basic net earnings (loss) per share is computed using weighted average
number of common shares outstanding for the applicable period. The diluted
earnings (loss) per share is computed using the weighted average number of
common shares plus common equivalent shares outstanding, except if the effect on
the per share amounts of including equivalents would be anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, notes receivable from
licensees, due under secured credit facility, long-term debt and other
liabilities related to acquisitions approximate fair value.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years financial statement
amounts to conform to the current years presentation.
22
23
NEW ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a material effect, if any, on it's financial condition or
its results of operations.
2. LICENSEE OPERATIONS
Notes receivable from licensees generally bear interest at the prevailing prime
lending rate plus three percent and are generally payable over a term of ten
years. The balance of these notes receivable at February 28, 2001 and February
29, 2000 amounted to $146 and $54, net of deferred income reflected as a
valuation reserve for financial reporting purposes of $405 and $379,
respectively. The net balances of these notes are included in Other Assets.
Sales of licenses and fees, net reflect $37, $0 and $189 of initial license fees
for Fiscal 2001, 2000 and 1999, respectively. The Company has performed
substantially all of its obligations as required under the terms of its licensee
agreements. Interest income on licensee notes receivable is netted against
interest expense.
On September 6, 1996, the Company acquired All Care Nursing Services, Inc. ("All
Care"). All Care is currently being operated as a franchise. A majority of the
stock of this franchise is held by two family members of an executive officer of
the Company.
3. DISCONTINUED OPERATIONS
Discontinued operations represent Chelsea, an information technology staffing
company, which was originally purchased by the Company on October 30, 1997 and
was sold on September 17, 1999. Substantially all of the revenues and expenses
related to the discontinued operations have been historically segregated on a
specifically identified basis.
The net revenues from Chelsea are included in the statements of operations as
"Income (loss) from discontinued operations" and are summarized as follows:
February 28/29
-------------------
2000 1999
---- ----
(a)
Net revenues $18,399 $31,331
(a) The net revenues of the discontinued operations reflects the period
March 1, 1999 through September 17, 1999, the date of sale.
4. ACQUISITIONS
On September 1, 1997, the Company acquired the assets of Nursing Management
Services (USA), Inc. ("NMS"), an affiliate of a U.K.-based company. NMS provides
nursing professionals for long-term assignment, away from the professional's
domicile, often referred to as "travel nurses." This transaction was accounted
for as a purchase for aggregate consideration of $2.7 million, including cash
paid of $1.6 million and an estimated liability for an increase to the purchase
price of $1.1 million, based upon the attainment of certain gross margin levels.
During Fiscal 1999, the Company increased the estimated liability by $462 to
$1.6 million, of which $580 was paid during Fiscal 1999. The balance of $1.0
million at February 28, 1999 was included in accrued expenses (see note 7).
During Fiscal 2000, the Company paid $316 towards this liability, recorded a
reduction to goodwill in the amount of $433, and based upon the gross margin
levels attained by NMS the Company reduced the remaining liability by $158. The
remaining balance of the liability recorded in accrued expenses at February 28,
2000 was $113.
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24
During Fiscal 2001 the remaining liability of $113 was written off. The Company
made no significant acquisitions in Fiscal 2001 and 2000.
5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
February 28, February 29,
--------------------------------------- --------------------------------------
2001 2000
--------------------------------------- --------------------------------------
Gross Accumulated Gross Accumulated
Cost Amortization Net Cost Amortization Net
------- ------------ ------ ------- ------------ ------
Intangible assets: $10,082 $2,537 $7,545 $10,271 $2,025 $8,246
======= ====== ====== ======= ====== ======
6. FIXED ASSETS
Fixed assets consist of the following:
FEBRUARY 28, FEBRUARY 29,
------------ ------------
2001 2000
------------ ------------
Computer equipment and software $ 6,398 $ 5,786
Office equipment, furniture and fixtures 429 371
Leasehold improvements 57 44
------------ ------------
Total, at cost 6,884 6,201
Less accumulated depreciation
and amortization 2,593 1,309
------------ ------------
Fixed assets, net $ 4,291 $ 4,892
============ ============
Computer equipment and software includes $3.8 million for computer equipment and
year 2000 compliant software. $933 (with a net carrying value of $613) of such
equipment is pursuant to a 30-month lease agreement which requires payments
through June 2002 (see note 10). $379 (with a net carrying value of $307) of
such equipment is pursuant to a 24-month lease agreement which requires payments
through July 2002 (see note 10). The combined cost of these systems will be
amortized over the useful life of the software from the dates placed into
service.
7. ACCRUED EXPENSES
Accrued expenses include $2.2 million and $2.6 million at February 28, 2001 and
February 29, 2000, respectively, of accrued distributions payable to licensees.
8. ACCRUED PAYROLL AND PAYROLL RELATED EXPENSES
Accrued payroll and payroll related expenses consist of the following:
FEBRUARY 28, FEBRUARY 29,
------------ ------------
2001 2000
------------ ------------
Accrued payroll $ 2,518 $ 1,571
Accrued payroll taxes 2,086 1,725
Other 27 45
------------ ------------
Total $ 4,631 $ 3,341
============ ============
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9. BANK FINANCING ARRANGEMENTS
The Company historically relied on borrowings from TLCS to meet its financing
needs. The Company and TLCS were co-obligors to a secured credit facility with a
bank, which consisted of a revolving line of credit, an acquisition line of
credit and a standby letter of credit facility with an aggregate limit of $40
million. For fiscal 1999, the total borrowings under the secured credit facility
were recorded in the TLCS financial statements while the funds which TLCS
provided to the Company were recorded in due under secured credit facility in
the accompanying consolidated balance sheets. Amounts borrowed under the secured
credit facility were collateralized by the stock of TLCS, the Company and its
subsidiaries, and by liens on accounts receivable and substantially all other
assets of TLCS, the Company and its subsidiaries.
On September 24, 1999, the Company entered into a loan agreement with the bank,
pursuant to which the Company obtained a credit amount of $17.0 million bearing
an interest rate of the prime rate plus two-percent. The amount of the credit
facility was reduced to $15.0 million contemporaneous with the spin-off of TLCS
(see note 1). The revolving maturity date of this facility, February 29, 2000,
was extended on said date, to April 28, 2000, though an amendment of the
agreement. In addition, the amount was increased to $16.5 million, which
included a $500 thousand special advance rate. The amounts borrowed under the
loan agreement were collateralized by liens on accounts receivable and
substantially all other assets of the Company. In conjunction with the issuance
of the amendment, the bank agreed to temporarily forbear from exercising their
rights and remedies with respect to certain events of default allowing the bank
to accelerate the amounts due. The balance outstanding on the agreement at
February 29, 2000 was $15,149.
On March 29, 2000 the Company entered into a facility ("Facility") for a $20
million loan, whereby a portion of the proceeds were used to repay the loan
agreement provided to the Company on February 29, 2000. The term of the facility
is for three years, with interest bearing a rate of prime plus three-percent.
The facility is collateralized by a first priority lien on all of the Company's
assets. The balance outstanding on the agreement at February 28, 2001 was
$20,636.
In April 2001, the Company secured a new financing facility ("New Facility")
with a new lending institution for a $25 million revolving loan. The New
Facility was used to repay borrowings under the Facility. Under the New
Facility, the Company may borrow amounts up to 85% of the Company's eligible
accounts receivable subject to a maximum of $25 million. Interest on borrowings
under the New Facility is at the annual rate of 3.4% over LIBOR and is for a
three year term. The Company will record an extraordinary charge of
approximately $850 in the first quarter of the fiscal year ending February 2002
as a result of the write off of previously deferred costs and an early
prepayment fee associated with the Facility.
10. LONG-TERM DEBT
Long-term debt consists of the following:
FEBRUARY 28, FEBRUARY 29,
----------- ------------
2001 2000
----------- ------------
Obligations under capital leases $ 920 $ 1,158
Less current portion 605 283
----------- ------------
Long-term debt $ 315 $ 875
=========== ============
25
26
OBLIGATIONS
UNDER CAPITAL
YEARS ENDING FEBRUARY 28, LEASES
- ------------------------ ----------
2002 $ 605
2003 315
----------
Total $ 920
==========
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
YEARS ENDED
----------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2001 2000 1999
------------ ------------ ------------
Current:
Federal $ -- $ -- $ 366
State 100 100 120
Deferred -- -- (556)
----- ----- -----
Total $ 100 $ 100 $ (70)
===== ===== =====
Historically, the Company filed a consolidated Federal income tax return
including TLCS. TLCS funded the payments of all income taxes and charged the
Company through the intercompany account. Because of the substantial
uncertainties associated with the Company's ability to realize a deferred tax
benefit due to its financial condition, the Company has provided a valuation
allowance at February 28, 2001 and February 29, 2000 for the full amount of its
deferred tax assets. As of February 28, 2001, the Company has a Federal net
operating loss of approximately $4,460 which if unused will expire in 2020 and
2021. The deferred tax assets at February 28, 2001 and February 29, 2000 are
comprised of the following:
FEBRUARY 28, FEBRUARY 29,
2001 2000
------------ ------------
Current:
Allowance for doubtful
accounts receivable $ 546 $ 1,026
Accruals not currently
Deductible 430 842
--------- ---------
976 1,868
Valuation allowance (976) (1,868)
--------- ---------
Current -- --
--------- ---------
Non-Current:
Revenue recognition 28 25
NOL carryforward 1,519 224
Depreciation and amortization 453 1,049
--------- ---------
2,000 1,298
Valuation allowance (2,006) (1,298)
--------- ---------
Non-current -- --
--------- ---------
Total $ -- $ --
========= =========
26
27
The following is a reconciliation of the effective income tax rate to the
Federal statutory rate:
YEARS ENDED
----------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2001 2000 1999
------------ ------------ ------------
Federal statutory rate (34.0)% (34.0)% (34.0)%
State and local income taxes, net
of federal income tax benefit 12.6 (5.5) 5.8
Goodwill amortization 10.8 0.7 --
Non-deductible spin-off costs -- 9.7 --
Valuation allowance for deferred
income tax assets 20.2 33.0 12.2
Other .8
-------- -------- --------
Effective rate 10.4% 3.9% (16.0)%
======== ======== ========
12. COMMITMENTS AND CONTINGENCIES
a. Lease Commitments:
Approximate minimum annual rental commitments for the remaining terms of the
Company's noncancellable operating leases relating to office space and equipment
rentals are as follows:
YEARS ENDING
FEBRUARY 29/28 TOTAL
-------------- -------
2002 510
2003 456
2004 447
2005 395
2006 369
Thereafter 621
------
Total $2,798
======
Certain leases require additional payments based upon property tax and
maintenance expense escalations.
Aggregate rental expense for Fiscal 2001, 2000 and 1999 approximated $873, $437
and $245, respectively.
b. Employment Agreements:
In October 1999, the Company amended employment agreements with two of its
Officers and Directors, under which they receive annual base salaries of $295
and $367. Their employment agreements are automatically extended at the end of
each year and are terminable by the Company upon five years notice.
27
28
In April 1999, the Company signed a three year employment agreement with another
Officer, under which he receives an annual base salary of $200 which increases
by $10 per annum. He is also eligible for an annual bonus equal to 5% of the
incremental pre-tax profit greater than 3% of the Company's net income before
taxes.
In August 2000, the Company signed a two year employment agreement with another
Officer of the Company, under which he receives an annual base salary of $150
which increases by $10 per annum.
If a "change of control" were to occur prior to the next anniversary date of the
respective employment agreements and their employment relationships were to
terminate, the Officers and Directors, whose amendments were signed in October
1999, would receive from the Company lump sum severance payments of $883 and
$1,098. Of the Officers whose agreements were signed in April 1999 and August
2000, one officer would receive weekly payments of $4 for one year and the other
Officer would receive weekly payments of $3 for six months. The term "change of
control" as used in the employment agreements with the Company's executive
officers refers to an event in which a person, corporation, partnership,
association or entity (i) acquires a majority of the Company's outstanding
voting securities, (ii) acquires securities of the Company bearing a majority of
voting power with respect to election of directors of the Company, or (iii)
acquires all or substantially all of the Company's assets.
c. Contingent Obligations:
The Company is contingently liable on obligations owed by TLCS which total
approximately $3,700 as of February 28, 2001. The Company is indemnified by TLCS
for any obligations arising out of these matters. As of May 2001, TLCS has
represented that it is current on its payments for these obligations.
d. Litigation
The Company is a defendant in several civil actions which are routine and
incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent. Although the Company
cannot estimate the ultimate cost of its open legal matters with precision, in
the opinion of management, the outcome of pending litigation will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
13. STOCKHOLDERS' EQUITY
COMMON STOCK - RECAPITALIZATION AND VOTING RIGHTS
During Fiscal 1996, the shareholders approved a plan of recapitalization by
which the existing Common Stock, $.01 par value, was reclassified and converted
into either Class A Common Stock, $.01 par value per share, or Class B Common
Stock, $.01 par value per share. Prior to the recapitalization, shares of Common
Stock that were held by the beneficial owner for at least 48 consecutive months
were considered long-term shares, and were entitled to ten votes for each share
of stock. Pursuant to the recapitalization, long-term shares were converted into
Class B Common Stock and short-term shares (beneficially owned for less than 48
months) were converted into Class A Common Stock. As a result of the
recapitalization, 1,554,936 shares of Class B Common Stock were issued.
A holder of Class B Common Stock is entitled to ten votes for each share and
each share is convertible into one share of Class A Common Stock (and will
automatically convert into one share of Class A Common Stock upon transfer
subject to certain limited exceptions). Except as
28
29
otherwise required by the Delaware General Corporation Law, all shares of common
stock vote as a single class on all matters submitted to a vote by the
stockholders.
The recapitalization included all outstanding options and warrants to purchase
shares of common stock which were converted automatically into options and
warrants to purchase an equal number of shares of Class A Common Stock.
STOCK OPTIONS
The Company has adopted the disclosure provisions of the SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation expense
has been recognized for the stock option plans. Had the Company recorded
compensation expense for the stock options based on the fair value at the grant
date for awards in Fiscal years ended 2001, 2000 and 1999 consistent with the
provisions of SFAS 123, the Company's net loss and net loss per share would have
reflected the following pro forma amounts:
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2001 2000 1999
----------- ----------- ------------
Net loss-as reported $(1,066) $(3,240) $(1,400)
Net loss-pro forma (1,076) (3,316) (3,490)
Basic loss per share as reported (.05) (.14) (.06)
Basic loss per share pro forma (.05) (.14) (.13)
Diluted loss per share as reported (.05) (.14) (.06)
Diluted loss per share pro forma (.05) (.14) (.13)
Because the SFAS 123 method of accounting has not been applied to options
granted prior to March 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in Fiscal years 2001, 2000 and 1999, respectively,
expected volatility of 105%, 146% and 142%; risk-free interest rate averaging
5.1%, 6.0% and 5.5%; and expected lives of 10 years for all.
During the year ended February 28, 1994 ("Fiscal 1994"), the Company adopted a
stock option plan (the "1993 Stock Option Plan") under which an aggregate of one
million shares of common stock options has been granted. The 1993 Stock Option
Plan may be incentive stock options ("ISO's") or non-qualified options
("NQSO's"). The 1993 Stock Option Plan replaces the 1986 Non-Qualified Plan
("1986 NQSO Plan") and the 1983 Incentive Stock Option Plan ("1983 ISO Plan")
which terminated in 1993 except as options then outstanding. Employees,
officers, directors and consultants are eligible to participate in the 1993
Stock Option Plan. Options are granted at not less than the fair market value of
the Common Stock at the date of grant.
A total of 2,227,750 stock options were granted under the 1993 Stock Option
Plan, at prices ranging from $.50 to $3.87, of which 809,000 remain outstanding
at February 28, 2001. Effective December 1, 1998, 914,750 of these options
issued to certain employees under the 1993 Stock Option Plan were rescinded and
the same number of new options at an option price of $.50 were reissued to these
employees.
During Fiscal 1999, the Company adopted a stock option plan (the "1998 Stock
Option Plan") under which an aggregate of two million shares of common stock are
reserved for issuance upon exercise of options thereunder. Options granted under
the 1998 Stock Option Plan may be ISO's
29
30
or NQSO's. Employees, officers, directors and consultants are eligible to
participate in the 1998 Stock Option Plan. Directors of the Company are not
eligible to receive options under the 1998 Stock Option Plan. Options are
granted at not less than fair market value of the Common Stock at the date of
grant.
During Fiscal 2001 the Company adopted a stock option plan (the "2000 Stock
Option Plan") which provides for the issuance of up to 3,000,000 shares of its
common stock. Both key employees and non-employee directors except for members
of the compensation committee are eligible to participate in the 2000 Stock
Option Plan. No options have been granted under this plan.
A total of 1,217,083 stock options were granted under the 1998 Stock Option
Plan, at prices ranging from $.25 to $.50, of which 627,833 remain outstanding
at February 28, 2001. Effective December 1, 1998, 117,550 options issued to
certain employees under the 1983 ISO Plan and 31,250 options issued to certain
employees under the 1986 NQSO Plan were rescinded and 148,800 Options at an
option price of $.50 were issued to these employees under the 1998 Stock Option
Plan.
A summary of activity under the 1998 Stock Option Plan, the 1993 Stock Option
Plan, the 1986 NQSO Plan and the 1983 ISO Plan is as follows:
OPTIONS FOR
SHARES PRICE PER SHARE
----------- ---------------
Options outstanding at March 1, 1998 2,489,280 $1.63 to $6.13
Granted 1,880,333 $ .50 to $2.06
Exercised (20,000) $1.75
Terminated (1,474,840) $1.75 to $6.13
----------
Options outstanding at February 28, 1999 2,874,773 $ .50 to $3.00
Granted 215,000 $ .25 to $ .47
Exercised --
Terminated (707,500) $ .50 to $3.00
----------
Options outstanding at February 29, 2000 2,382,273 $ .25 to $2.06
Granted 41,500 $ .23 to $ .28
Exercised --
Terminated (786,940) $ .41 to $1.75
----------
Options outstanding at February 28, 2001 1,636,833 $ .25 to $2.06
==========
Included in the outstanding options are 963,917 ISO's and 533,333 NQSO's which
were exercisable at February 28, 2001. The remaining options to purchase 139,583
shares granted under the 1998 Stock Option Plan become exercisable at various
dates through November 2002.
The following tables summarize information about stock options outstanding at
February 28, 2001:
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED
RANGE OF EXERCISE NUMBER CONTRACTUAL LIFE AVERAGE EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE
- ------------------------------ ----------- ---------------- ----------------
$ .25 to $ .49 236,500 8.7 $ .34
$ .50 to $1.50 1,200,333 7.8 .50
$1.51 to $2.06 200,000 .3 2.06
----------- ----------- -----------
1,636,833 7.0 $ .67
=========== =========== ===========
30
31
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED
RANGE OF EXERCISE NUMBER CONTRACTUAL LIFE AVERAGE EXERCISE
PRICES EXERCISABLE (IN YEARS) PRICE
- ------------------------------ ----------- ---------------- ----------------
$ .25 to $. 49 154,917 8.6 $ .35
$ .50 to $1.50 1,142,333 7.8 .50
$1.51 to $2.06 200,000 .3 2.06
----------- ----------- -----------
1,497,250 6.9 $ .69
=========== =========== ===========
During the year ended February 28, 1995, the Company adopted a stock option plan
(the "1994 Performance-Based Stock Option Plan") which provides for the issuance
of up to 3,400,000 shares of its common stock. Executive Officers for the
Company and its wholly-owned subsidiaries are eligible for grants.
Performance-based stock options are granted for periods of up to ten year and
the exercise price is equal to the average of the closing price of the common
stock for the twenty consecutive trading days prior to the date on which the
option is granted. Vesting of performance based options is during the first four
years after the date of grant, and is dependent upon increases in the market
price of the common stock.
Since inception a total of 7,712,563 stock options were granted under the 1994
Performance-Based Stock Option Plan, at option prices ranging from $.53 to
$3.14, of which 3,211,849 remain outstanding at February 28, 2001. Effective
December 1, 1998, 3,150,714 options granted to certain employees under the plan
were rescinded and new options at option prices ranging from $.53 to $.59 were
granted to these employees. Options rescinded become re-eligible for grant. All
options are outstanding as of February 28, 2001 and will become exercisable on
or before December 1, 2004.
A summary of activity under the 1994 Performance-Based Stock Option Plan is as
follows:
OPTIONS FOR
SHARES PRICE PER SHARE
----------- ---------------
Options outstanding at March 1, 1998 3,280,714 $1.81 to $3.14
Granted 4,381,849 $ .53 to $2.16
Exercised -- --
Terminated (4,265,714) $1.81 to $3.14
----------
Options outstanding at February 28, 1999 3,396,849 $ .53 to $3.14
Granted --
Exercised --
Terminated (145,000) $ .53 to $3.14
----------
Options outstanding at February 29, 2000 3,251,849 $ .53 to $ .59
Granted --
Exercised --
Terminated (40,000) $ .53 to $3.14
----------
Options outstanding at February 28, 2001 3,211,849 $ .53 to $ .59
==========
31
32
The following tables summarize information about stock options issued under the
1994 Performance-Based Stock Option Plan outstanding at February 28, 2001:
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED
RANGE OF EXERCISE NUMBER CONTRACTUAL LIFE AVERAGE EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE
- ------------------------------ ----------- ---------------- ----------------
$.53 to $.59 3,211,849 7.8 $.58
OPTIONS EXERCISABLE
-----------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED
RANGE OF EXERCISE NUMBER CONTRACTUAL LIFE AVERAGE EXERCISE
PRICES EXERCISABLE (IN YEARS) PRICE
- ------------------------------ ----------- ---------------- ----------------
$.53 to $.59 0 7.8 $.58
During Fiscal 1994, the Company adopted an employee stock purchase plan (the
"1993 Employee Stock Purchase Plan") which provided for the issuance of up to
one million shares of its common stock. The purchase price of the shares is the
lesser of 90 percent of the fair market value at the enrollment date, as defined
in the plan, or the exercise date. All one million shares have been issued and
the 1993 Employee Stock Purchase Plan has been terminated.
During Fiscal 1999, the Company adopted an employee stock purchase plan (the
"1998 Stock Purchase Plan") which provides for the issuance of up to one million
shares of its common stock. This plan replaces the 1993 Employee Stock Purchase
Plan. The purchase price of the shares is the lesser of 90 percent of the fair
market value at the enrollment date, as defined, or the exercise date. Since
inception of this plan, a total of 96,634 shares were issued. The 1998 Employee
Stock Purchase Plan has been indefinitely suspended and no further shares will
be issued during the suspension.
PREFERRED STOCK, CLASS A
During Fiscal 1999, the holders of all issued and outstanding shares of Class A
Preferred (the "Preferred Stock") exchanged their Preferred Stock for 4,269,820
shares of Class A Common Stock. There are currently no outstanding shares of
Preferred Stock.
32
33
COMMON SHARES RESERVED
The following represents shares of Class A Common Stock reserved and available
for issuance, at February 28, 2001, for options granted, and outstanding
warrants and employee stock purchase:
AVAILABLE
RESERVED FOR ISSUANCE
--------- ------------
1994 Performance-Based Stock Option Plan 3,211,849 188,151
1998, 1993 and 1986 Stock Option Plans 1,636,833 1,487,917
1998 Employee Stock Purchase Plan -- 903,366
2000 Stock Option Plan 3,000,000 3,000,000
--------- ---------
Total 7,848,682 5,579,434
========= =========
14. EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of the basic and diluted earnings
(loss) per share:
YEARS ENDED
--------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 29,
2001 2000 1999
------------ ------------ ------------
Numerator:
Net loss $ (1,066) $ (3,240) $ (1,400)
=========== =========== ===========
Denominator:
Share reconciliation:
Shares used for basic earnings
loss per share 23,632 23,623 23,162
Effect of dilutive items:
Stock options -- -- --
Other -- -- --
----------- ----------- -----------
Shares used for dilutive earnings
(loss) per share 23,632 23,623 23,162
=========== =========== ===========
Earnings (loss) per share:
Basic $ (.05) $ (.14) $ (.06)
=========== =========== ===========
Diluted $ (.05) $ (.14) $ (.06)
=========== =========== ===========
33
34
15. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for Fiscal 2001 and 2000 are as
follows (in thousand, except per share data):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
Fiscal 2001
Total revenues $ 28,091 $ 29,484 $ 30,232 $ 32,887
---------- ---------- ---------- ----------
Income (loss) from continuing operations (987) (246) 35 132
---------- ---------- ---------- ----------
Net income (loss) (987) (246) 35 132
---------- ---------- ---------- ----------
Net income (loss) per common share-basic:
Income (loss) from continuing operations (.04) (.01) .00 .01
---------- ---------- ---------- ----------
Net income (loss) (.04) (.01) .00 .01
---------- ---------- ---------- ----------
Net income (loss) per common share-diluted:
Income (loss) from continuing operations (.04) (.01) .00 .01
---------- ---------- ---------- ----------
Net income (loss) (.04) (.01) .00 .01
---------- ---------- ---------- ----------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
Fiscal 2000
Total revenues $ 29,240 $ 29,298 $ 27,878 $ 28,578
---------- ---------- ---------- ----------
Income (loss) from continuing operations 895 944 (4,417)(a) (105)
Loss from discontinued operations (1) (184) 302 (675)(b) --
---------- ---------- ---------- ----------
Net income (loss) 711 1,246 (5,092) (105)
---------- ---------- ---------- ----------
Net income (loss) per common share-basic:
Income (loss) from continuing operations $ .04 $ .04 $ (.19) (.00)
Loss from discontinued operations (.01) .01 (.03) --
---------- ---------- ---------- ----------
Net income (loss) $ .03 $ .05 $ (.22) (.00)
---------- ---------- ---------- ----------
Net income (loss) per common share-diluted:
Income (loss) from continuing operations $ .04 $ .04 $ (.19) (.00)
Income (loss) from discontinued operations (.01) .01 (.03) --
---------- ---------- ---------- ----------
Net loss $ .03 $ .05 $ (.22) (.00)
---------- ---------- ---------- ----------
(1) The results of operations of the discontinued operations reflect the
period from March 1, 1999 through September 17, 1999.
(a) During the third quarter of Fiscal 2000, the Company recorded an sales
adjustment allowance of $1.0 million which was recorded as a reduction
of revenues, a bad debt allowance of $1.0 million with was recorded as
general and administrative expense and $1.1 million of non-recurring
spin-off and financing costs which was recorded as a separate line item
on the consolidated statement of operations.
(b) During the third quarter of Fiscal 2000, the Company had sold its
Chelsea operation at a loss of $1,137.
34
35
SCHEDULE II
STAFF BUILDERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
YEARS ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2001 2000 1999
------------- ------------ ------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance, beginning of period $ 2,528 $ 1,877 $ 265
Charged to costs and expenses 849 3,234 2,733
Deductions (2,033) (2,583) (1,121)
--------- --------- ----------
Balance, end of period $ 1,344 $ 2,528 $ 1,877
========= ========= ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no such changes or disagreements.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10, 11, 12 and 13 is included in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders, which will be
filed pursuant to Regulation 14A within 120 days after the close of the fiscal
year for which this Report is filed, and which information is incorporated
herein by reference.
35
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements, including the supporting schedules, filed as part of
the report, are listed in the Table of Contents to the Consolidated Financial
Statements.
(B) REPORTS ON 8-K
No reports on Form 8-K were filed by the Registrant for the quarter ended
February 28, 2001.
(C) EXHIBITS
36
37
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Restated Certificate of Incorporation of the Company, filed July 11,
1998(A)
3.2 Certificate of Amendment to the Restated Certificate of Incorporation
of the Company, filed August 22, 1991.(B)
3.3 Certificate of Amendment to the Restated Certificate of Incorporation
of the Company, filed September 3, 1992.(A)
3.4 Certificate of Retirement of Stock of the Company, filed February 28,
1994.
3.5 Certificate of Retirement of Stock of the Company, filed June 3,
1994.(A)
3.6 Certificate of Designation, Rights and Preferences of the Class A
Preferred Stock of the Company, filed June 6, 1994.(A)
3.7 Certificate of Amendment of Restated Certificate of Incorporation of
the Company, filed August 23, 1994.(A)
3.8 Certificate of Amendment of Restated Certificate of Incorporation of
the Company, filed October 26, 1995.(C)
3.9 Certificate of Amendment of Restated Certificate of Incorporation of
the Company, filed December 19, 1995.(D)
3.10 Certificate of Amendment of Restated Certificate of Incorporation of
the Company, filed December 19, 1995(D)
3.11 Amended and Restated By-Laws of the Company.(A)
4.1 Specimen Class A Common Stock Certificate.(E)
4.2 Specimen Class B Common Stock Certificate.(F)
10.8 1986 Non-Qualified Stock Option Plan of the Company.(I)
10.9 First Amendment to the 1986 Non-Qualified Stock Option Plan, effective
as of May 11, 1990.(A)
10.10 Amendment to the 1986 Non-Qualified Stock Option Plan, dated as of
October 27, 1995.(J)
10.11 Resolutions of the Company's Board of Directors amending the 1983
Incentive Stock Option Plan and the 1986 Non-Qualified Stock Option
Plan, dated as of June 3, 1991.(A)
10.12 1993 Stock Option Plan of the Company.(A)
- ----------
See Notes to Exhibits
37
38
EXHIBIT NO. DESCRIPTION
10.13 1998 Stock Option Plan of the Company (incorporated by reference to
Exhibit C to the Company's Proxy Statement dated August 27, 1998, filed
with the Commission on August 27, 1998).
10.14 Amended and Restated 1993 Employee Stock Purchase Plan of the
Company(K)
10.15 1998 Employee Stock Purchase Plan of the Company (incorporated by
reference to Exhibit D to the Company's Proxy Statement dated August
27, 1998, filed with the Commission on August 27, 1998).
10.18 1994 Performance-Based Stock Option Plan of the Company (incorporated
by reference to Exhibit B to the Company's Proxy Statement, dated July
18, 1994, filed with the Commission on July 27, 1994).
10.19 Stock Option Agreement, dated as of March 28, 1990, under the Company's
1986 Non-Qualified Stock Option Plan between the Company and Stephen
Savitsky.(A)
10.20 Stock Option Agreement, dated as of June 17, 1991, under the Company's
1986 Non-Qualified Stock Option Plan between the Company and Stephen
Savitsky.(A)
10.21 Stock Option Agreement, dated December 1, 1998, under the Company's
1993 Stock Option Plan between the Company and Stephen Savitsky.(L)
10.22 Stock Option Agreement, dated December 1, 1998, under the Company's
1994 Performance-Based Stock Option Plan between the Company and
Stephen Savitsky.(A)
10.23 Stock Option Agreement, dated as of March 28, 1990, under the Company's
1986 Non-Qualified Stock Option Plan between the Company and David
Savitsky.(A)
10.24 Stock Option Agreement, dated as of June 17, 1991, under the Company's
1986 Non-Qualified Stock Option Plan between the Company and David
Savitsky.(A)
10.25 Stock Option Agreement, dated December 1, 1998, under the Company's
1993 Stock Option Plan between the Company and David Savitsky.(L)
10.26 Stock Option Agreement, dated December 1, 1998, under the Company's
1994 Performance-Based Stock Option Plan between the Company and David
Savitsky.(L)
10.27 Stock Option Agreement, dated December 1, 1998, under the Company's
1993 Stock Option Plan, between the Company and Edward Teixeira.(L)
10.29 Stock Option Agreement, dated December 1, 1998, under the Company's
1994 Performance-Based Stock Option Plan, between the Company and
Edward Teixeira.(L)
- ----------
See Notes to Exhibits
38
39
EXHIBIT NO. DESCRIPTION
10.30 Stock Option Agreement, dated December 1, 1998, under the Company's
1998 Stock Option Plan, between the Company and Edward Teixeira.(L)
10.31 Stock Option Agreement, dated December 1, 1998, under the Company's
1994 Performance-Based Stock Option Plan, between the Company and Dale
Clift.(L)
10.32 Stock Option Agreement, dated December 1, 1998, under the Company's
1994 Performance-Based Stock Option Plan, between the Company and Dale
Clift.(L)
10.33 Stock Option Agreement, dated December 1, 1998, under the Company's
1998 Stock Option Plan, between the Company and Dale R. Clift.
10.39 Employment Agreement, dated as of June 1, 1987, between the Company and
Stephen Savitsky.(A)
10.40 Amendment, dated as of October 31, 1991, to the Employment Agreement
between the Company and Stephen Savitsky.(A)
10.41 Amendment, dated as of December 7, 1992, to the Employment Agreement
between the Company and Stephen Savitsky.(A)
10.42 Employment Agreement, dated as of June 1, 1987, between the Company and
David Savitsky.(A)
10.43 Amendment, dated as of October 31, 1991, to the Employment Agreement
between the Company and David Savitsky.(A)
10.44 Amendment, dated as of January 3, 1992, to the Employment Agreement
between the Company and David Savitsky.(A)
10.45 Amendment, dated as of December 7, 1992, to the Employment Agreement
between the Company and David Savitsky.(A)
10.47 Employment Agreement, dated as of February 9, 1998, between the Company
and Dale R. Clift.(G)
10.48 First Amendment to Employment Agreement, dated as of December 1, 1998,
to the Employment Agreement between the Company and Dale R. Clift.(L)
10.54 Amended and Restated Loan and Security Agreement, dated as of January
8, 1997, between the Company, its subsidiaries and Mellon Bank, N.A.(N)
10.55 First Amendment to Amended and Restated Loan and Security Agreement
dated as of April 27, 1998, between the Company, its subsidiaries and
Mellon Bank, N.A.(G)
10.56 Master Lease Agreement dated as of December 4, 1996, between the
Company and Chase Equipment Leasing, Inc.(N)
- ----------
See Notes to Exhibits
39
40
EXHIBIT NO. DESCRIPTION
10.57 Premium Finance Agreement, Disclosure Statement and Security Agreement
dated as of December 26, 1996, between the Company and A.I. Credit
Corp.(N)
10.58 Agreement of Lease, dated as of October 1, 1993, between Triad III
Associates and the Company.(A)
10.59 First Lease Amendment, dated October 25, 1998, between Matterhorn USA,
Inc. and the Company.
10.60 Supplemental Agreement dated as of January 21, 1994, between General
Electric Capital Corporation, Triad III Associates and the Company(A)
10.61 Agreement of Lease, dated as of June 19, 1995, between Triad III
Associates and the Company.(D)
10.62 Agreement of Lease, dated as of February 12, 1996, between Triad III
Associates and the Company.(D)
10.63 License Agreement, dated as of April 23, 1996, between Matterhorn One,
Ltd. and the Company(N)
10.64 License Agreement, dated as of January 3, 1997, between Matterhorn USA,
Inc. and the Company(N)
10.65 License Agreement, dated as of January 16, 1997, between Matterhorn
USA, Inc. and the Company.(N)
10.66 License Agreement, dated as of December 16, 1998, between Matterhorn
USA, Inc. and the Company.
10.71 Asset Purchase and Sale Agreement, dated as of September 6, 1996, by
and among ATC Healthcare Services, Inc. and the Company and William
Halperin and All Care Nursing Service, Inc.(Q)
10.73 Stock Purchase Agreement by and among the Company and Raymond T.
Sheerin, Michael Altman, Stephen Fleischner and Chelsea Computer
Consultants, Inc., dated September 24, 1996.(M)
10.74 Amendment No. 1 to Stock Purchase Agreement by and among the Company
and Raymond T. Sheerin, Michael Altman, Stephen Fleischner and Chelsea
Computer Consultants, Inc., dated September 24, 1996(M)
10.75 Shareholders Agreement between Raymond T. Sheerin and Michael Altman
and Stephen Fleischner and the Company and Chelsea Computer
Consultants, Inc., dated September 24, 1996.(M)
10.76 Amendment No. 1 to Shareholders Agreement among Chelsea Computer
Consultants, Inc., Raymond T. Sheerin, Michael Altman and the Company,
dated October 30, 1997(M)
- ----------
See Notes to Exhibits
40
41
EXHIBIT NO. DESCRIPTION
10.77 Indemnification Agreement, dated as of September 1, 1987, between the
Company and Stephen Savitsky.(A)
10.78 Indemnification Agreement, dated as of September 1, 1987, between the
Company and David Savitsky.(A)
10.79 Indemnification Agreement, dated as of September 1, 1987, between the
Company and Bernard J. Firestone.(A)
10.80 Indemnification Agreement, dated as of September 1, 1987, between the
Company and Jonathan Halpert.(A)
10.81 Indemnification Agreement, dated as of May 2, 1995, between the Company
and Donald Meyers.(N)
10.82 Indemnification Agreement, dated as of May 2, 1995, between the Company
and Edward Teixeira.(A)
10.84 Form of Medical Staffing Services Franchise Agreement(D)
10.85 Forbearance and Acknowledgement Agreement, dated as of February 22,
2000, between TLCS, the Company and Chase Equipment Leasing, Inc.
10.86 Stipulation and Settlement, dated January 14, 2000, between certain
TLCS, ATC and Banc One Leasing Corporation.
10.89 Confession of Judgment, dated January 27, 2000, granted by a subsidiary
of the Company, to Roger Jack Pleasant.First Lease Amendment, dated
October 28, 1998, between Matterhorn USA, Inc. and the Company.(B)
10.91 Forbearance and Acknowledgement Agreement, dated as of February 22,
2000, between TLCS's subsidiaries, the Company and Chase Equipment
Leasing, Inc. Agreement and Release, dated February 28, 1997, between
Larry Campbell and the Company.(C)
10.92 Distribution agreement, dated as of October 20, 1999, between the
Company and TLCS.(S)
10.93 Tax Allocation agreement dated as of October 20, 1999, between the
Company and TLCS.(S)
10.94 Transitional Services agreement, dated as of October 20, 1999, between
the Company and TLCS.(S)
10.95 Trademark License agreement, dated as of October 20, 1999, between the
Company and TLCS.(S)
10.96 Sublease, dated as of October 20, 1999, between the Company and
TLCS.(S)
- ----------
See Notes to Exhibits
41
42
EXHIBIT NO. DESCRIPTION
10.97 Employee Benefits agreement, dated as of October 20, 1999, between the
Company and TLCS.(S)
10.98 Amendment, dated as of October 20, 1999, to the Employment agreement
between the Company and Stephen Savitsky.(T)
10.99 Amendment, dated as of October 20, 1999, to the Employment agreement
between the Company and David Savitsky.(T)
10.100 Amendment, dated as of October 20, 1999, to the Employment agreement
between the Company and Dale R. Clift.(T)
10.105 Second Amendment to ATC Revolving Credit Loan and Security Agreement,
dated October 20, 1999 between the Company and Mellon Bank, N.A.(T)
10.106 Master Lease dated November 18, 1999 between the Company and Technology
Integration Financial Services.(U)
10.107 Loan and Security Agreement between the Company and Copelco/American
Healthfund Inc. dated March 29, 2000.(U)
10.108 Loan and Security Agreement First Amendment between the Company and
Healthcare Business Credit Corporation (formerly known as
Copelco/American Healthfund Inc.) dated July 31, 2000.(V)
10.109 Employment agreement dated August 1, 2000 between the Company and Alan
Levy(V)
10.110 Equipment lease agreements with Technology Integration Financial
Services, Inc.(V)
10.111 Loan and Security Agreement dated April 6, 2001 between the Company and
HFG Healthco-4 LLC**
10.112 Receivables Purchase and Transfer Agreement dated April 6, 2001 between
the Company and HFG Healthco-4 LLC**
21. Subsidiaries of the Company.*
24. Powers of Attorney.*
27. Financial Data Schedule.*
- ----------
See Notes to Exhibits
42
43
NOTES TO EXHIBITS
(A) Incorporated by reference to the Company's exhibit booklet to its Form
10-K for the Fiscal year ended February 28, 1995 (File No. 0-11380),
filed with the Commission on May 5, 1995.
(B) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 33-43728), dated January 29, 1992.
(C) Incorporated by reference to the Company's Form 8-K filed with the
Commission on October 31, 1995.
(D) Incorporated by reference to the Company's exhibit booklet to it Form
10-K for the Fiscal year ended February 28, 1996 (file No. 0-11380),
filed with the Commission on May 13, 1996.
(E) Incorporated by reference to the Company's Form 8-A filed with the
Commission on October 24, 1995.
(F) Incorporated by reference to the Company's Form 8-A filed with the
Commission on October 24, 1995.
(G) Incorporated by reference to the Company's exhibit booklet to its Form
10-K for the Fiscal year ended February 28, 1998 (File No. 0-11380),
filed with the Commission on May 28, 1998.
(H) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 33-63941), filed with the Commission On November 2,
1995.
(I) Incorporated by reference to the Company's Registration Statement on
Form S-4, as amended (File No. 33-9261), dated April 9, 1987.
(J) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 33-63939), filed with the Commission on November 2,
1995.
(K) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 3371974), filed with the Commission on November 19,
1993.
(L) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1997 (File No. 0-11380), filed with the
Commission on January 19, 1999.
(M) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1997 (File No. 0-11380), field with the
Commission on January 14, 1998.
(N) Incorporated by reference to the Company's exhibit booklet to its Form
10-K for the Fiscal year ended February 28, 1997 (File No. 0-11380),
filed with the Commission on May 27, 1997.
43
44
NOTES TO EXHIBIT
(O) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended August 31, 1998 (File No. 0-11380), filed with the
Commission on October 15, 1998.
(P) Incorporated by reference to the Company's Form 10 for the quarterly
period ended May 31, 1998 (File No. 0-11380), filed with the Commission
on July 15, 1998.
(Q) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1996 (File No. 0-11380), filed with the
Commission on January 14, 1997.
(R) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1999 (File No. 0-11380), filed with the
Commission on January 19, 2000.
(S) Incorporated by reference to Tender Loving Care Health Care Services
Inc.'s Form 10-Q for the quarterly period ended August 31, 1999 (File
No. 0-25777) filed with the Commission on October 20, 1999.
(T) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended August 31, 1999 (File No. 0-11380) filed with the
Commission on October 20, 1999.
(U) Incorporated by reference to the Company's Form 10-K for the year ended
February 29, 2000 (File No. 0-11380) filed with the Commission on July
17, 2000.
(V) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended August 31, 2000 (File No. 0-11380) filed with the
Commission on October 16, 2000.
* Incorporated herein.
** To be filed by amendment to Form 10-K for the year ended February 28,
2001.
44
45
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.
STAFF BUILDERS, INC.
By: /s/ STEPHEN SAVITSKY
----------------------------------------
Stephen Savitsky
Chairman of the Board
and Chief Executive Officer
Dated: May 25, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ STEPHEN SAVITSKY Chairman of the Board May 25, 2001
Stephen Savitsky and Chief Executive Officer
(Principal Executive
Officer) and Director
/s/ DAVID SAVITSKY President, Secretary May 25, 2001
David Savitsky and Director
/s/ ALAN LEVY Senior Vice President, Finance, May 25, 2001
Alan Levy Chief Financial Officer and
Treasurer (Principal Financial and
Accounting Officer)
* Director May 25, 2001
- -------------------------------
Bernard J. Firestone, Ph.D.
* Director May 25, 2001
- -------------------------------
Jonathan Halpert, Ph.D.
* Director May 25, 2001
- -------------------------------
Donald Meyers
*By: /s/ STEPHEN SAVITSKY
--------------------------
(Stephen Savitsky,
Attorney-in-Fact)
45