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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-21533
TEAM AMERICA, INC.
(Exact Name of Registrant As Specified In Its Charter)
OHIO 31-1209872
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 EAST CAMPUS VIEW BOULEVARD, SUITE 170
COLUMBUS, OH 43235
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(614) 848-3995
(Former Name, Former Address and Former Fiscal year,
If Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]
THE NUMBER OF SHARES OF REGISTRANT'S ONLY CLASS OF COMMON STOCK OUTSTANDING ON
August 8, 2003 WAS 8,215,628.
TEAM AMERICA, INC. AND SUBSIDIARIES
JUNE 28, 2003
INDEX
PART I. FINANCIAL INFORMATION
PAGE
NO.
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - June 28, 2003
and December 28, 2002...................................................................................... 3
Condensed Consolidated Statements of Operations - Three and six-month periods
ended June 28, 2003 and June 29, 2002 ..................................................................... 5
Condensed Consolidated Statements of Cash Flows - Three and six-month periods
ended June 28, 2003 and June 29, 2002...................................................................... 6
Condensed Consolidated Statement of Changes in Shareholders' Equity - Six-month
period ended June 28, 2003................................................................................. 8
Notes to Condensed Consolidated Financial Statements....................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................... 25
Item 4. Controls and Procedures.............................................................................. 25
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................................................... 26
Signatures.................................................................................................... 27
Exhibit Index................................................................................................. 28
Note: Items 1 through 5 of Part II are omitted because they are not applicable.
2
TEAM AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 28, 2003 AND DECEMBER 28, 2002
(000's omitted except for share amounts)
JUNE 28, DECEMBER 28,
2003 2002
-------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Receivables:
Trade, net of allowance for doubtful accounts of $102 and $142, respectively 1,055 2,127
Unbilled receivables 9,552 12,813
Other receivables 22 185
Income tax receivable -- 1,207
------- -------
Total receivables 10,629 16,332
------- -------
Prepaid expenses 2,734 3,122
Deferred income tax asset -- 1,037
------- -------
Total Current Assets 13,363 20,491
------- -------
PROPERTY AND EQUIPMENT, NET 1,644 1,994
------- -------
OTHER ASSETS:
Goodwill, net 36,014 36,014
Other intangible assets, net 776 945
Deferred income tax asset -- 275
Other 2,394 3,544
------- -------
Total Other Assets 39,184 40,778
------- -------
Total Assets $54,191 $63,263
======= =======
Continued on next page
3
TEAM AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 28, 2003 AND DECEMBER 28, 2002
(000's omitted except for share amounts)
JUNE 28, DECEMBER 28,
2003 2002
-------- ------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 3,606 $ 2,545
Checks drawn in excess of bank balances 1,087 1,696
Debt 8,675 771
Capital lease obligations 280 303
Accrued compensation 9,426 12,203
Accrued payroll taxes and insurance 5,038 6,564
Accrued workers' compensation liability 2,207 2,252
Other accrued expenses 3,437 3,398
-------- --------
Total Current Liabilities 33,756 29,732
-------- --------
LONG-TERM LIABILITIES:
Debt, less current portion -- 8,128
Capital lease obligations, less current portion 325 463
Accrued workers' compensation liability, less current portion 1,328 2,241
Client deposits and other liabilities 1,741 2,044
-------- --------
Total Liabilities 37,150 42,608
-------- --------
CONVERTIBLE PREFERRED STOCK, FACE AMOUNT OF $11,000 9,552 9,552
BRIDGE NOTE 1,500 1,500
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 45,000,000 shares authorized, 10,955,410 issued 45,189 44,552
Deferred compensation (7) (11)
Accumulated deficit (24,417) (20,162)
-------- --------
20,765 24,379
Less - Treasury stock, 2,739,782 shares, at cost (14,776) (14,776)
-------- --------
Total Shareholders' Equity 5,989 9,603
-------- --------
Total Liabilities and Shareholders' Equity $ 54,191 $ 63,263
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
TEAM AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 28, 2003 AND JUNE 29, 2002
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
2003 2002 2003 2002
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES $ 12,104 $ 15,142 $ 26,493 $ 28,691
-------- -------- -------- --------
COST OF SERVICES 8,752 9,983 18,748 18,910
-------- -------- -------- --------
GROSS PROFIT 3,352 5,159 7,745 9,781
-------- -------- -------- --------
OPERATING EXPENSES:
Administrative salaries 2,334 2,904 5,036 5,726
Other selling, general and administrative expenses 1,593 1,895 3,199 4,101
Merger related costs 785 -- 785 --
Restructuring charges (39) 241 (55) 241
Systems and operations development costs -- -- -- 302
Depreciation and amortization 304 365 621 667
-------- -------- -------- --------
Total operating expenses 4,977 5,405 9,586 11,037
-------- -------- -------- --------
OPERATING LOSS (1,625) (246) (1,841) (1,256)
Interest expense, net (687) (538) (1,108) (750)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (2,312) (784) (2,949) (2,006)
Income tax expense (1,313) (37) (1,306) (37)
-------- -------- -------- --------
NET LOSS (3,625) (821) (4,255) (2,043)
Preferred stock dividends -- (302) -- (597)
-------- -------- -------- --------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (3,625) $ (1,123) $ (4,255) $ (2,640)
======== ======== ======== ========
Basic and diluted net loss per common share $ (0.44) $ (0.14) $ (0.52) $ (0.33)
Weighted average number of shares used in per share computation 8,216 8,197 8,216 8,123
See Notes to Condensed Consolidated Financial Statements.
5
TEAM AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 28, 2003 AND JUNE 29, 2002
(000's omitted)
Six Months Ended
-----------------------
JUNE 28, JUNE 29,
2003 2002
-------- --------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,255) $(2,043)
Adjustments to reconcile net loss to net cash used in
operating activities, excluding the impact of acquisitions:
Depreciation and amortization 625 667
Amortization of financing costs 651 85
Bad debt expense 120 119
Gain/Loss in fair market value of derivative (140) 38
Valuation allowance on deferred tax asset 1,313 --
Change in other assets and liabilities 2,322 (4,072)
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 636 (5,206)
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (109) (144)
Cash used in acquisitions of intangible assets -- (550)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (109) (694)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Checks drawn in excess of bank balances (609) 2,563
Advance from merger partner 500 --
Proceeds from bank borrowings -- 750
Proceeds from short term borrowing - related party -- 1,500
Notes payable and short-term borrowing repaid (134) (693)
Proceeds from issuance of common stock -- 500
Payments on capital lease obligations (161) (142)
Payments of financing costs (123) (25)
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (527) 4,453
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- (1,447)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD -- 1,447
------- -------
CASH AND EQUIVALENTS, END OF PERIOD $ -- $ --
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 398 $ 580
Income tax (refunded) paid, net $(1,114) $ 15
See Notes to Condensed Consolidated Financial Statements.
6
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the six-month period ended June 29, 2002, the Company accrued preferred
stock dividends payable in-kind equivalent of $597,000 in connection with the
$11,000,000 face value of preferred stock.
During the six-month periods ended June 28, 2003 and June 29, 2002, the Company
acquired $27,000 and $14,000 of property and equipment under capital leases,
respectively.
7
TEAM AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 28, 2003
(000's omitted except for share amounts)
Common Stock Issued
------------------------- Deferred Treasury Accumulated
Number Value Compensation Stock Deficit Total
---------- ---------- ------------ ---------- ----------- ----------
Balance at December 28, 2002 10,955,410 $ 44,552 $ (11) $ (14,776) $ (20,162) $ 9,603
Amortization of deferred
compensation -- -- 4 -- -- 4
Issuance of warrants to
purchase common stock -- 637 -- -- -- 637
Net loss -- -- -- -- (4,255) (4,255)
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 28, 2003 10,955,410 $ 45,189 $ (7) $ (14,776) $ (24,417) $ 5,989
========== ========== ========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
TEAM America, Inc. (the "Company"), an Ohio corporation, is a Business Process
Outsourcing ("BPO") company specializing in human resources. TEAM America is a
leading provider of Professional Employment Organization ("PEO") services in
Ohio, Texas, Utah, Nevada, Georgia and California. The Company, through its
subsidiaries, offers its services to small to medium-sized businesses. These
services include payroll, benefits administration, on-site and online employee
and employer communications and self-service, employment practices and human
resources risk management, and workforce compliance administration.
The Company was formed by the December 28, 2000 merger of TEAM America
Corporation and Mucho.com, Inc. in a transaction accounted for under the
purchase method of accounting as a reverse acquisition. Mucho.com, Inc. was
treated as the acquiring company for accounting purposes because its
shareholders controlled more than 50% of the post-transaction combined company.
The financial statements contained herein should be read in conjunction with the
audited financial statements contained in the Company's Annual Report on Form
10-K for the year ended December 28, 2002 as filed with the Securities and
Exchange Commission on March 28, 2003.
NOTE 2 - MERGER AGREEMENT
On June 12, 2003, the Company and one of its wholly-owned subsidiaries entered
into a merger agreement with Vsource, Inc. ("Vsource"). Under the terms of this
agreement, the Company will exchange approximately 62.6 million shares of its
common shares in exchange for all of the outstanding common shares, Series 1-A,
2-A and 4-A preferred stock of Vsource. At the completion of the merger, the
Company will be renamed Vsource Corporation. As the existing shareholders of
Vsource will own approximately 80.0% of the combined merged company, the
transaction will be accounted for as a reverse acquisition using the purchase
method of accounting. TEAM America's market capitalization, including the value
of outstanding options and warrants and shares expected to be issued as part of
a recapitalization will be the purchase price used in accounting for the merger.
The total estimated purchase price, including direct costs incurred by Vsource,
is approximately $16,880,000. In addition to the consideration paid, Vsource
will assume the liabilities of TEAM America, subject to certain recapitalization
and debt restructuring agreements.
If the merger and other proposals are approved by the Company's shareholders,
then immediately before the consummation of the merger, the holders of TEAM
America's outstanding Class A Preferred Stock will exchange their preferred
stock and warrants to acquire 1,777,777 shares of common stock for a total of
5,634,512 shares of common stock and subordinated notes with a total principal
amount of $2,500,000. In addition, one of the Company's preferred shareholders
will exchange a $1,500,000 bridge note for a new subordinated note in the amount
of $1,517,000.
In connection with the merger, TEAM America and Vsource have executed a debt
restructuring agreement with one of the Company's lenders that will be effective
upon consummation of the merger. This agreement refinances and restructures TEAM
America's senior debt of approximately $4,100,000 in principal with the interest
rate on the debt being the bank's prime rate plus one percent (5.25% at June 28,
2003). The debt will be repaid in equal monthly installments of principal over
four years.
Pursuant to a Purchase and Sale Agreement dated as of June 30, 2003, and subject
to consummation of the merger, one of TEAM America's senior lenders has agreed
to sell to Vsource or its designee its interest in TEAM America's senior debt,
representing approximately $4,900,000 in principal amount and warrants to
acquire 600,000 shares of TEAM America common stock. This lender is also a Class
A Preferred Shareholder and has agreed, subject to the consummation of the
merger, to sell to Vsource or its designee, the securities they will own
pursuant to the Company's recapitalization, which will be 519,989 shares of TEAM
America common stock and subordinated note of $227,375. Vsource or its designee
will acquire all of the securities for an aggregate purchase price of
$1,600,000.
At the TEAM America annual meeting, shareholders of TEAM America will be asked
to approve the issuance immediately before the consummation of the merger of 1.8
million shares of TEAM America common stock (or "in-the-money" options or other
convertible securities to acquire 1.8 million shares of TEAM America common
stock, or any combination of shares and options or convertible securities that
in the aggregate would result in the same number of shares) to S. Cash
Nickerson, TEAM America's current Chairman and CEO. In connection with the
merger, Mr. Nickerson will be accepting the executive officer position of Vice
Chairman of the new combined company,
9
Vsource Corporation. The board of directors of TEAM America is proposing this
issuance as a reflection of Mr. Nickerson's efforts to bring about the merger
between Vsource and TEAM America, his unique knowledge of and management
experience with respect to TEAM America, and as an inducement for Mr. Nickerson
to remain with the combined company and thereby contribute to the completion of
the proposed merger and the success of the combined merger company.
Under his December 1, 2002 employment agreement, Mr. S. Cash Nickerson is
entitled to receive a bonus of $100,000 plus 100,000 qualified stock options
with an exercise price of $0.60 if the Company completes a sale, merger or major
refinance transaction in fiscal 2003. In June 2003, our board of directors
determined that Mr. Nickerson was entitled to receive the cash portion of this
bonus based upon the bank restructuring associated with the Third Amendment and
waiver to our Senior Credit Agreement and execution of the merger agreement with
Vsource. Upon receiving the cash bonus in July 2003, Mr. Nickerson loaned the
Company $100,000, which is payable to Mr. Nickerson upon demand.
NOTE 3 - LIQUIDITY AND FINANCIAL CONDITION
The Company continues to operate with a significant working capital deficit and
experiences pressure on the business due to the overall weak national economy.
In addition, the Company was not in compliance with certain financial covenants
under its amended credit facility as of June 28, 2003. In order to address these
issues, management executed restructurings of the Company's operations
throughout 2002 and is continuing the implementation of cost-savings strategies
in 2003. Additionally, on June 30, 2003, the Company entered into a Fourth
Amendment to its Senior Credit Agreement (see Note 7).
Effective May 1, 2003, the Company and Vsource entered into an agreement
pursuant to which Vsource is to provide general outsourcing services to support
the Company's operations. Upon entering into the agreement, Vsource advanced the
Company $500,000 to assist with working capital expenditures during the
implementation phase of the agreement. This advance is to be repaid in equal
monthly installments beginning on June 30, 2003. No repayments have been made
under this agreement.
In addition to the advance, Vsource was to charge the Company $166,667 per month
beginning May 31, 2003 for the services provided under the agreement. The
implementation phase is currently in progress and, accordingly, services have
not yet begun under the agreement, therefore, no amounts have been accrued for
such services.
Management believes that should the merger transaction described in NOTE 2 -
Merger Agreement not be consummated, that the Company would require additional
capital to continue operating. Prior to entering into the merger agreement, the
Company had been in the process of seeking additional sources of capital and
assessing various strategic alternatives. Failure to complete the merger
transaction and to subsequently raise additional capital would result in a
material adverse effect on the future financial condition and results of
operations of the Company.
NOTE 4 - ACCOUNTING POLICIES
Goodwill
Effective December 30, 2001, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, the Company no longer amortizes
goodwill, but is required to test for impairment on an annual basis and at
interim periods if certain factors are present that may indicate that the
carrying value of the reporting unit is greater than its fair value. The Company
has determined that it operates as a single reporting unit; therefore, any
potential goodwill impairment is measured at the corporate level.
In connection with the adoption of SFAS No. 142, management, in determining its
methodology for measuring fair value, assessed that its market price may not be
reflective of fair value due to various factors, including that the Company's
officers, directors and significant shareholders own a controlling interest in
the Company's common shares and, as a result, that the market may be illiquid at
times with regard to the remaining shares as such shares are thinly traded.
Accordingly, in order to assess fair value of the Company, management determined
that a number of measures should be considered, including but not limited to,
market capitalization of the Company, market capitalization of the Company plus
a "control" premium, discounted projected earnings before interest, depreciation
and amortization (EBITDA), multiples of sales and EBITDA as compared to other
industry participants and comparison of historical transactions.
10
SFAS No. 142 required that the Company adopt an annual date at which it would
test for impairment of goodwill. In connection with the adoption of this
statement, the Company chose the end of the third quarter as its date to test
for such impairment. At the end of the third quarter of fiscal year 2002,
management determined that no impairment existed.
In assessing the Company's fair value at the end of the third quarter of 2002,
management determined that the Company's market capitalization was not
reflective of fair value as the common stock price dropped precipitously
immediately following a NASDAQ required press release describing NASDAQ's
initial determination that the Company was not in compliance with NASDAQ listing
requirements and was therefore subject to delisting. These events were caused by
the Company's filing of its second quarter Form 10-Q without an independent
auditor's review, due to the demise of Arthur Andersen LLP, and the Company's
related restatement of its 2001 and 2000 financial statements as described in
its Annual Report on Form 10-K for fiscal year 2002. In accordance with this
process, the NASDAQ appended an "E" to the Company's trading symbol, noting the
failure to comply with continued listing requirements and potential delisting.
Following the Company's press release, the Company's common stock price dropped
from $1.36 to $0.45 per share. For the period from July 1, 2002 up to the date
of the press release, the common stock had traded in the range of $1.36 to
$2.50. Accordingly, in management's judgment, the drop in the stock price was a
temporary event related to the potential delisting and not due to fundamental
changes in the business. The appended "E" was removed in mid-April since which
time the Company's stock has traded between $0.42 and $1.19 per share.
After assessing all of the measures regarding fair value as outlined above,
management determined that as of the end of the third quarter 2002, no
impairment charge of goodwill was required. Had the Company used only the market
capitalization of the Company as a measure of fair value, an impairment charge
would have been required. Management estimates that the minimum required charge
under this market capitalization methodology would have been approximately
$3,484,000.
During the second quarter of 2003, management, as required by SFAS No. 142,
assessed whether or not events or circumstances had occurred subsequent to the
Company's annual measurement date that would more likely than not reduce the
fair value of the Company below its carrying amount. Based upon its assessment,
management determined that there were no factors subsequent to the third quarter
of 2002 that would more likely than not reduce the fair value of the Company.
Additionally, the Company and its wholly-owned subsidiary entered into the
merger agreement with Vsource during the second quarter 2003. In connection with
the accounting treatment for this proposed transaction, the effective purchase
price of the Team America equivalent shares will be approximately $16,880,000.
Should the proposed merger transaction not close, management will continue to
assess the potential indicators of impairment, including the Company's common
stock price during the remainder of 2003 and will perform the required annual
test at the end of the third quarter. There can be no assurance that future
goodwill impairment tests, including interim tests as may be required, will not
result in a charge to future operations.
Further, there can be no assurance that the Staff of the United States
Securities and Exchange Commission will not have different views in respect to
whether the Company's stock price is reflective of an active market and that the
use of only market price should have been used in the valuation of goodwill. The
use of quoted market price to determine any goodwill impairment would have
resulted in a minimum impairment charge of approximately $573,000 at June 28,
2003.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs and is effective for the fiscal years beginning after June 15, 2002.
Adoption of this statement had no impact on the Company's consolidated financial
statements.
On May 1, 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 is effective for the Company's fiscal year beginning December 29,
2002. Adoption of this statement had no impact on the Company's consolidated
financial statements.
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," that is applicable to exit or disposal
activities initiated after December 31, 2002. This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
This standard does not apply where SFAS No. 144 is applicable. The Company
adopted this statement in its first quarter 2003. Adoption of this statement had
no significant impact on the Company's results of operations or financial
condition.
11
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." This statement
established standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for the Company's quarter beginning June 29, 2003. Adoption
of this statement is not expected to be material to the Company's financial
statements.
NOTE 5 - LOSS PER SHARE
Loss per share was determined in accordance with SFAS No. 128. There were no
differences to reconcile net (loss) for basic and diluted earnings per share
purposes.
NOTE 6 - PRO-FORMA RESULTS
The following table sets forth the pro-forma results of operations for the three
and six-month periods ended June 29, 2002.
The pro-forma results of operations from the three and six-month periods ended
June 29, 2002 include the unaudited results of TEAM America and the pro-forma
results of SSMI and Inovis as if they were acquired by TEAM America as of
December 29, 2001. The primary adjustments from the historical results of the
acquired entities include amortization of other intangibles and interest
expense.
(000'S OMITTED EXCEPT FOR SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 29, June 29,
2002 2002
------------------ ----------------
Revenue $ 15,868 $ 32,168
Net loss $ (1,099) $ (2,169)
Net loss attributable to common shareholders $ (1,401) $ (2,766)
Basic and diluted loss per common share $ (0.17) $ (0.34)
Weighted average number of shares outstanding 8,197 8,123
NOTE 7 - CREDIT FACILITY
On March 28, 2003, the Company entered into a Third Amendment and Waiver to its
Senior Credit Facility (the "Bank Agreement").
Under the terms of the Bank Agreement, the Company and its senior lenders agreed
to amend the Senior Credit Facility as follows:
o The outstanding amounts under the Senior Credit Facility of $8,728,000
were restructured into three separate tranches. Tranche A representing
a $6,000,000 Term Loan, Tranche B representing a $3,060,000 Balloon
Loan and Tranche C representing $914,000 of outstanding letters of
credit. Tranche B includes certain costs associated with the Senior
Credit Facility, including accrued interest of $132,000, a forbearance
fee of $100,000 and a renewal fee of $100,000.
o The Senior Credit Facility is senior to the $1,500,000 subordinated
note issued in satisfaction of the Bridge Note discussed below under
Note 12 - Preferred Stock Restructuring.
o The maturity of the Senior Credit Facility is January 5, 2004.
o The interest rate on each tranche is: Tranche A - the Provident Bank
Prime Commercial Lending Rate plus two percent (6.25% at June 28,
2003); Tranche B - 12%, eight percent payable in cash and four percent
payable-in-kind; and Tranche C (if drawn) - the Provident Bank's Prime
Lending Rate plus five percent (9.25% at June 28, 2003).
12
o Tranche A requires principal payments of $100,000 per month beginning
July 2003, Tranche B is due at maturity and Tranche C is due
immediately upon any draw under the letters of credit.
In addition to the above terms, the Company issued to the banks 1,080,000
warrants to purchase common stock of the Company at a price of $0.50 per share.
These warrants expire in seven years. The Bank Agreement states that no new
indebtedness may be incurred under the facility and that any future acquisitions
are subject to consent of the banks.
As a result of the issuance of these warrants, the Company has recorded a
discount to the related debt instruments for fair value of the warrants using
the Black-Scholes pricing model. The total fair value of the warrants issued of
$637,000 will be amortized, as interest expense, over the new life of the debt
instruments. During the second quarter 2003, the Company recognized $212,000 of
amortization as interest expense.
The Senior Credit Facility is collateralized by all of the assets of the
Company.
The Senior Credit Facility, as amended, contains certain monthly financial
covenants, the most stringent of which are monthly earnings before interest,
taxes, depreciation and amortization and a fixed charge coverage ratio. The
Company was not in compliance with these covenants at June 28, 2003.
In connection with entering into the merger agreement, the Company entered into
a Fourth Amendment to its Senior Credit Facility. Under the terms of the Fourth
Amendment, the Company agreed that beginning July 1, 2003 and continuing on the
first day of each month before the consummation of the merger, it would make
payments on the Senior Credit Agreement in the amount of $100,000 per month plus
accrued interest. In July 2003, the Company deposited $100,000 with one of the
lenders as collateral for its pro rata share of principal. The senior lenders
have agreed to forebear against the exercise of any of their remedies under the
Senior Credit Agreement until September 30, 2003 in the event that the Company
misses any such monthly payment; provided that the lender for whom the $100,000
collateral was posted is required to use such collateral to satisfy its pro rata
share of principal. The Company did not make its payment of principal on July 1,
2003.
At June 28, 2003, the Company's outstanding indebtedness under its Senior Credit
Facility, as amended, is:
Tranche A $ 6,000,000
Tranche B 3,060,000
-----------
Total $ 9,060,000
Current 9,060,000
-----------
Non-Current $ -
===========
NOTE 8 - INCOME TAXES
As a result of entering into the merger agreement during the second quarter
2003, management determined that the primary tax planning strategies that had
previously been available to recognize the deferred tax assets for which no
valuation allowance had been provided would no longer be available.
Additionally, due to the potential negative impact to the Company's future
financial condition and results of operations should the merger transaction not
close, management determined that it was not more likely than not that the
Company would be able to execute such strategies and / or generate taxable
income in the foreseeable future. Accordingly a valuation allowance of
$1,312,000 has been provided for the deferred tax assets during the second
quarter.
At December 28, 2002, the Company had net operating loss carryforwards (NOL's)
available for federal tax purposes of approximately $7,685,000. Certain of these
NOL's are subject to annual limits and begin to expire in 2019; accordingly, no
provision for federal taxes has been provided for the periods ended June 28,
2003 or June 29, 2002.
NOTE 9 - STOCK-BASED COMPENSATION
The Company adopted the disclosure requirements of SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS 148") effective
December 29, 2002. SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
compensation and also amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
methods of accounting for
13
stock-based employee compensation and the effect of the method used on reported
results. As permitted by SFAS 148 and SFAS 123, the Company continues to apply
the accounting provisions of Accounting Principles Board ("APB") Opinion Number
25, "Accounting for Stock Issued to Employees," and related interpretations,
with regard to the measurement of compensation cost for options granted under
the Company's stock option plans. No employee compensation expense has been
recorded as all options granted had an exercise price equal to the market value
of the underlying common stock on the date of grant. The Company's pro-forma
information, as if the Company had accounted for its employee stock options
granted under the fair value method prescribed by SFAS 123 is as follows (in
thousands, except per share data):
Six Months Ended
--------------------------
June 28, June 29,
2003 2002
-------- --------
Net loss attributable to common shareholders, as reported $(4,255) $(2,640)
Less: Stock -based compensation expense (60) (62)
------- -------
Pro-forma net loss $(4,315) $(2,702)
======= =======
Net loss per share attributable to common shareholders:
As reported $ (0.52) $ (0.33)
======= =======
Pro-forma $ (0.52) $ (0.33)
======= =======
NOTE 10 - RESTRUCTURING RESERVES
During 2002, the Company recorded certain charges related to the restructuring
of its operations. These charges included relocation costs, employee severance
and costs to exit contractual agreements (primarily office leases). At December
28, 2002, the Company had recorded as a current liability in accrued expenses
approximately $196,000 related to these charges, primarily related to office
leases.
During 2003, the Company has charged against these reserves approximately
$37,000. Additionally, the Company settled certain office lease obligations for
less than the amount estimated at December 28, 2002 and accordingly reversed
$48,000. At June 28, 2003, restructuring reserves of approximately $128,000 are
included as other accrued expenses.
NOTE 11 - CONTINGENCIES
At June 28, 2003, the Company has recorded a $425,000 reserve for certain tax
contingencies. The estimated amount of possible loss in excess of these reserves
is $575,000.
The Company has ongoing litigation matters pertaining to worksite employees and
other legal matters that have arisen in the ordinary course of business. The
Company provides reserves for estimated future costs to defend the Company
and/or the estimated amount to be paid if the award or payment is probable and
estimable. Management believes these claims will not have a material adverse
effect on the results of operations or financial condition of the Company.
NOTE 12 - PREFERRED STOCK RESTRUCTURING
On March 28, 2003, the Company and its preferred shareholders entered into a
Memorandum of Understanding through which they agreed to restructure the
preferred shareholders' investment in the Company, subject to approval by the
Company's shareholders. This Memorandum of Understanding was amended on June 12,
2003. The Amended Memorandum of Understanding resulted in a proposed
recapitalization agreement. The recapitalization is expected to close
immediately before the merger. The primary terms of the recapitalization are as
follows:
o The $1,500,000 Bridge Note that was to be paid to one of the preferred
shareholders from proceeds of an equity financing if a financing had
occurred prior to August 9, 2002, will be converted into New
Subordinated Debt with a face amount of $1,517,000 and will bear
interest at the Huntington National Bank prime rate (the "Prime Rate")
plus 2.5% (6.75% at June 28, 2003), which shall be subordinated to the
New Senior Credit Facility (the "Subordinated Debt"). The Subordinated
Debt will be due June 30, 2007 along with all accrued interest.
o All of the Class A Preferred Shares will be exchanged by the holders
for:
14
- $2,500,000 of New Subordinated Debt that will bear interest at
the Prime Rate plus 2.5% (6.75% at June 28, 2003). This debt will
be subordinate to the New Credit Facility and the $1,517,000
Subordinated Note described above.
- 5,634,512 common shares of the Company.
In accordance with the Memorandum of Understanding, no preferred dividends have
been declared for the period ended June 28, 2003.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TEAM America, Inc. (the "Company"), an Ohio corporation, is a Business Process
Outsourcing ("BPO") company specializing in human resources. TEAM America is a
leading provider of Professional Employment Organization ("PEO") services in
Ohio, Texas, Utah, Nevada, Georgia and California. The Company, through its
subsidiaries, offers its services to small to medium-sized businesses. These
services include payroll, benefits administration, on-site and online employee
and employer communications and self-service, employment practices and human
resources risk management, and workforce compliance administration.
The Company was formed by the December 28, 2000 merger of TEAM America
Corporation and Mucho.com, Inc. in a transaction accounted for under the
purchase method of accounting as a reverse acquisition. Mucho.com, Inc. was
treated as the acquiring company for accounting purposes because its
shareholders controlled more than 50% of the post-transaction combined company.
PEO revenue is recognized as service is rendered. The PEO revenue consists of
charges by the Company for the administrative service fees, health insurance,
workers' compensation charges and employer paid unemployment insurance. These
charges, along with gross payroll, payroll taxes and retirement benefits are
invoiced to the client at the time of each periodic payroll. The Company
negotiates the pricing for its various services on a client-by-client basis
based on factors such as market conditions, client needs and services requested,
the client's workers' compensation experience, credit exposure and the required
resources to service the account. Because the pricing is negotiated separately
with each client and varies according to circumstances, the Company's revenue,
and therefore its gross margin, will fluctuate based on the Company's client
mix. Costs of services in the Company's Statement of Operations reflect the type
of revenue being generated.
Costs of services include health insurance, workers' compensation insurance and
unemployment insurance costs. The Company maintained a self-insured workers'
compensation program for most of its Ohio employees from July 1999 through May
2002 and maintained a high retention workers' compensation policy covering most
of its non-Ohio employees, or "all other states" (AOS), until December 31, 2002.
Effective June 1, 2002, the Company's Ohio worksite employees became insured
through the Ohio Bureau of Workers' Compensation Program, which is a fully
insured program, where premiums represent the maximum cost. Effective January 1,
2003, the Company participates in fully insured workers' compensation programs
provided by Cedar Hill Zurich, various other regional insurers and certain state
workers' compensation funds. Under these programs, the Company's maximum cost is
represented by the premiums paid to these insurers. The Company does not provide
workers' compensation coverage to non-employees of the Company. The AOS workers'
compensation insurance program provider was The Hartford Insurance Company
("Hartford") for the period July 1999 through December 2002.
With respect to the historical loss-sensitive programs, the Company records in
cost of services a monthly charge based upon its estimate of the year's ultimate
fully-developed losses plus the fixed costs charged by the insurance carrier to
support the program. This estimate is established each quarter based in part
upon information provided by the Company's insurers, internal analysis and its
insurance broker. The Company's internal analysis includes a quarterly review of
open claims and review of historical claims and losses related to the workers'
compensation programs. While management uses available information, including
nationwide loss ratios, to estimate ultimate losses, future adjustments may be
necessary based on actual losses.
As of June 28, 2003, the adequacy of the workers' compensation reserves were
determined, in management's opinion, to be reasonable. However, since these
reserves are for losses that have not been sufficiently developed due to the
relatively young age of these claims, and variables such as timing of payments
are uncertain or unknown, actual results may vary
15
from current estimates. The Company will continue to monitor the development of
these reserves, the actual payments made against the claims incurred, the timing
of these payments and adjust the reserves as deemed appropriate.
The Company's clients are billed at fixed rates determined when the contract is
negotiated with the client. The fixed rates include charges for workers'
compensation based upon the Company's assessment of the costs of providing
workers' compensation to the client. If the Company's costs for workers'
compensation are greater than the costs included in the client's contractual
rate, the Company may be unable to recover these excess charges from the
clients. The Company reserves the right in its contracts to increase the
workers' compensation charges on a prospective basis only.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements that have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. The Company evaluates its estimates, including those
related to customer bad debts, workers' compensation reserves, income taxes, and
contingencies and litigation on an on-going basis. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates.
The Company believes the following critical accounting policies reflect the more
significant judgments and estimates used in the preparation of its consolidated
financial statements:
Revenue Recognition. The Company bills its clients on each payroll date for (i)
the actual gross salaries and wages, related employment taxes and employee
benefits of the Company's worksite employees, (ii) actual advertising costs
associated with recruitment, (iii) workers' compensation and unemployment
service fees and (iv) an administrative fee. The Company's administrative fee is
computed based upon either a fixed fee per worksite employee or an established
percentage of gross salaries and wages (subject to a guaranteed minimum fee per
worksite employee), negotiated at the time the client service agreement is
executed. The Company's administrative fee varies by client based primarily upon
the nature and size of the client's business and the Company's assessment of the
costs and risks associated with the employment of the client's worksite
employees. Accordingly, the Company's administrative fee income will fluctuate
based on the number and gross salaries and wages of worksite employees, and the
mix of client fee income will fluctuate based on the mix of total client fee
arrangements and terms. Although most contracts are for one year and renew
automatically, the Company and its clients generally have the ability to
terminate the relationship with 30 days' notice.
The Company bills its clients for workers' compensation and unemployment costs
at rates that vary by client based upon the client's claims and rate history.
The amount billed is intended (i) to cover payments made by the Company for
insurance premiums and unemployment taxes, (ii) to cover the Company's cost of
contesting workers' compensation and unemployment claims, and other related
administrative costs and (iii) to compensate the Company for providing such
services. The Company has an incentive to minimize its workers' compensation and
unemployment costs because the Company bears the risk that its actual costs will
exceed those billed to its clients, and conversely, the Company profits in the
event that it effectively manages such costs. The Company believes that this
risk is mitigated by the fact that its typical standard client agreement
provides that the Company, at its discretion, may adjust the amount billed to
the client to reflect changes in the Company's direct costs, including, without
limitation, statutory increases in employment taxes and insurance. Any such
adjustment that relates to changes in direct costs is effective as of the date
of the changes, and all changes require 30 days' prior notice.
In accordance with Emerging Issues Task Force (EITF) Issue No. 99-19, "Reporting
Revenue Gross as a Principal versus Net as an Agent," the Company recognizes
amounts billed to clients for administrative fees, health insurance, workers'
compensation and unemployment insurance because revenues as the Company acts as
a principal with regard to these matters. Amounts billed for gross payrolls
(less employee health insurance contributions), employer taxes and 401(k)
matching contributions are recorded net of corresponding payments as the Company
is deemed to act only as an agent in these transactions. The Company recognizes
in its balance sheet the entire amounts billed to clients for gross payroll and
related taxes, health insurance, workers' compensation, unemployment insurance
and administrative fees as unbilled receivables, on an accrual basis, any such
amounts that relate to services performed by worksite employees that have not
yet been billed to the client at the end of an accounting period. The related
gross payroll and related taxes and costs of health insurance, workers'
compensation and unemployment insurance are recorded as accrued compensation at
the end of an accounting period.
16
Workers' Compensation. The Company maintained a self-insured workers'
compensation program for most of its Ohio employees from July 1999 through May
2002 and maintained a high retention workers' compensation policy covering most
of its non-Ohio employees until December 31, 2002. The Company records workers'
compensation expense for the loss- sensitive programs based upon the estimated
ultimate total cost of each claim, plus an estimate for incurred but not
reported claims. Under the Ohio self-insured program, the Company was
self-funded up to $250,000 per occurrence through December 31, 2001 and $500,000
per occurrence for the period January 1, 2002 through May 31, 2002 and purchased
private insurance for individual claims in excess of that amount. Effective June
1, 2002, the Company's Ohio worksite employees became insured through the Ohio
Bureau of Workers' Compensation Program, which is a fully insured program, where
premiums represent the maximum cost.
Under its historical insured program for non-Ohio employees, the Company has a
per claim retention limit of $500,000 for the first two occurrences and $250,000
per occurrence thereafter. For the insurance program covering the periods July
1, 1999 through September 30, 2000, October 1, 2000 through December 31, 2001
and January 1, 2002 through December 31, 2002, the aggregate caps are estimated
to be $4,176,000, $4,950,000 and $9,000,000, respectively.
In addition to providing the claims expense under the plan, as described above,
the Company was required to "pre-fund" a portion of the estimated claims under
the non-Ohio program. The amounts "pre-funded" are used by the insurance carrier
to pay claims. The amount "pre-funded" is measured at various periods in the
insurance contract to determine, based upon paid and incurred claims history,
whether the Company is due a refund or owes additional funding.
Since January 1, 2003, substantially all workers' compensation coverage has been
obtained on a guaranteed cost basis, so the premiums for any program represents
the Company's maximum liability.
Goodwill
Effective December 30, 2001, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, the Company no longer amortizes
goodwill, but is required to test for impairment on an annual basis and at
interim periods if certain factors are present that may indicate that the
carrying value of the reporting unit is greater than its fair value. The Company
has determined that it operates as a single reporting unit; therefore, any
potential goodwill impairment is measured at the corporate level.
In connection with the adoption of SFAS No. 142, management, in determining its
methodology for measuring fair value, assessed that its market price may not be
reflective of fair value due to various factors, including that the Company's
officers, directors and significant shareholders own a controlling interest in
the Company's common shares and, as a result, that the market may be illiquid at
times with regard to the remaining shares as such shares are thinly traded.
Accordingly, in order to assess fair value of the Company, management determined
that a number of measures should be considered, including but not limited to,
market capitalization of the Company, market capitalization of the Company plus
a "control" premium, discounted projected earnings before interest, depreciation
and amortization (EBITDA), multiples of sales and EBITDA as compared to other
industry participants and comparison of historical transactions.
SFAS No. 142 required that the Company adopt an annual date at which it would
test for impairment of goodwill. In connection with the adoption of this
statement, the Company chose the end of the third quarter as its date to test
for such impairment. At the end of the third quarter of fiscal year 2002,
management determined that no impairment existed.
In assessing the Company's fair value at the end of the third quarter of 2002,
management determined that the Company's market capitalization was not
reflective of fair value as the common stock price dropped precipitously
immediately following a NASDAQ required press release describing NASDAQ's
initial determination that the Company was not in compliance with NASDAQ listing
requirements and was therefore subject to delisting. These events were caused by
the Company's filing of its second quarter Form 10-Q without an independent
auditor's review, due to the demise of Arthur Andersen LLP, and the Company's
related restatement of its 2001 and 2000 financial statements as described in
its Annual Report on Form 10-K for fiscal year 2002. In accordance with this
process, the NASDAQ appended an "E" to the Company's trading symbol, noting the
failure to comply with continued listing requirements and potential delisting.
Following the Company's press release, the Company's common stock price dropped
from $1.36 to $0.45 per share. For the period from July 1, 2002 up to the date
of the press release, the common stock had traded in the range of $1.36 to
$2.50. Accordingly, in management's judgment, the drop in the stock price was a
temporary event related to the potential delisting and not due to fundamental
changes in the business. The appended "E" was removed in mid-April since which
time the Company's stock has traded between $0.42 and $1.19 per share.
17
After assessing all of the measures regarding fair value as outlined above,
management determined that as of the end of the third quarter, no impairment
charge of goodwill was required. Had the Company used only the market
capitalization of the Company as a measure of fair value, an impairment charge
would have been required. Management estimates that the minimum required charge
under this market capitalization methodology would have been approximately
$3,484,000.
During the second quarter of 2003, management, as required by SFAS No. 142,
assessed whether or not events or circumstances had occurred subsequent to the
Company's annual measurement date that would more likely than not reduce the
fair value of the Company below its carrying amount. Based upon its assessment,
management determined that there were no factors subsequent to the third quarter
of 2002 that would more likely than not reduce the fair value of the Company.
Additionally, the Company and its wholly-owned subsidiary entered into the
merger agreement with Vsource during the second quarter 2003. In connection with
the accounting treatment for this proposed transaction, the effective purchase
price of the Team America equivalent shares will be approximately $16,880,000.
Should the proposed merger transaction not close, management will continue to
assess the potential indicators of impairment, including the Company's common
stock price during the remainder of 2003 and will perform the required annual
test at the end of the third quarter. There can be no assurance that future
goodwill impairment tests, including interim tests as may be required, will not
result in a charge to future operations.
Further, there can be no assurance that the Staff of the United States
Securities and Exchange Commission will not have different views in respect to
whether the Company's stock price is reflective of an active market and that the
use of only market price should have been used in the valuation of goodwill. The
use of quoted market price to determine any goodwill impairment would have
resulted in a minimum impairment charge of approximately $573,000 at June 28,
2003.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs and is effective for the fiscal years beginning after June 15, 2002.
Adoption of this statement had no impact on the Company's consolidated financial
statements.
On May 1, 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 is effective for the Company's fiscal year beginning December 29,
2002. Adoption of this statement had no impact on the Company's consolidated
financial statements.
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," that is applicable to exit or disposal
activities initiated after December 31, 2002. This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
This standard does not apply where SFAS No. 144 is applicable. The Company
adopted this statement in its first quarter 2003. Adoption of this statement had
no significant impact on the Company's results of operations or financial
condition.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." This statement
established standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for the Company's quarter beginning June 29, 2003. Adoption
of this statement is not expected to be material to the Company's financial
statements.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 28, 2002, including all
amendments thereto, as well as the consolidated financial statements and notes
thereto included in this Quarterly Report on Form 10-Q.
THREE MONTHS ENDED JUNE 28, 2003 COMPARED TO THREE MONTHS ENDED JUNE 29, 2002
The following table presents certain information related to the Company's
results of operations for the three months ended June 28, 2003 and June 29,
2002:
18
(000'S OMITTED EXCEPT FOR PER SHARE AMOUNTS)
June 28, June 29, %
2003 2002 Change
-------- -------- ------
(UNAUDITED) (UNAUDITED)
Revenues $ 12,104 $ 15,142 -20.1%
Gross Profit 3,352 5,159 -35.0%
Operating Expenses 4,977 5,405 -7.9%
Operating Loss (1,625) (246) 560.6%
Net Loss (3,625) (821) 341.5%
Net Loss Attributable to Common Shareholders (3,625) (1,123) 222.8%
Net Loss Per Share Attributable to Common Shareholders (0.44) (0.14) 214.3%
REVENUES
Consolidated revenues were $12,104,000 for the three months ended June 28, 2003
compared to $15,142,000 for the three months ended June 29, 2002, which is a
decrease of $3,038,000, or 20.1%. The decrease in revenue is attributable to a
decrease in the average number of worksite employees paid to 9,759 from 13,382,
or 27.1%. This was partially offset by a favorable change in the overall mix of
worksite employees in 2003 with a higher concentration being in the Company's
core urban markets, which generate higher revenues due to an average
higher-per-employee payroll.
COSTS OF SERVICES/GROSS PROFIT
For the three months ended June 28, 2003, costs of services were $8,752,000, or
72.3% of revenues, compared to costs of services of $9,983,000, or 65.9% of
revenues, for the three months ended June 29, 2002. Gross profit for the three
months ended June 28, 2003 was $3,352,000, or 27.7% of revenues, compared to
$5,159,000, or 34.1% of revenues, for the three months ended June 29, 2002.
Gross profit decreased in 2003 primarily due to the decrease in average worksite
employees paid and the Company earning a lower margin on workers' compensation,
due to its decision to exit the historic loss-sensitive programs and procure
fully-insured programs for its worksite employees.
OPERATING EXPENSES
For the three months ended June 28, 2003, consolidated operating expenses were
$4,977,000, or 41.1% of revenues compared to $5,405,000, or 35.7% of revenues,
for the three months ended June 29, 2002. During the three months ended June 28,
2003, the Company incurred $785,000 of costs related to the planned merger
between one of the Company's wholly-owned subsidiaries and Vsource, Inc. The
Company incurred restructuring costs of $241,000 in the three months ended June
29, 2002 and during the three months ended June 29, 2003 favorably settled
certain lease obligations resulting in a $39,000 decrease in previously provided
restructuring reserves. Excluding merger related and restructuring costs, total
operating expenses for the three months ended June 28, 2003 were $4,231,000, or
34.9% of total revenues, compared to $5,164,000, or 34.1% of total revenues, for
the three months ended June 29, 2002. The decrease of $940,000 is due to
decreases in administrative salaries of $570,000, or 19.6%, and other selling,
general and administrative expenses of $309,000, or 15.9%, and a decrease in
depreciation and amortization. A significant portion of the reduction in
corporate payroll costs and in selling, general and administrative expenses were
a result of the 2002 restructuring efforts, including office closures after the
fourth quarter of 2002.
OPERATING LOSS
For the three months ended June 28, 2003, consolidated operating loss was
$3,625,000 compared to a consolidated operating loss of $246,000 for the three
months ended June 29, 2002. The increase in operating loss is primarily a result
of the decrease in gross profit and the merger related costs partially offset by
the decrease in operating expenses discussed above.
INTEREST EXPENSE
For the three months ended June 28, 2003, net interest expense was $687,000
compared to $538,000 for the three months ended June 29, 2002. The increase in
net interest expense is due to an increase in interest on bank debt and other
financing arrangements of $39,000, and increase in amortization of discount on
term debt related to the issuance of warrants in March 2003 of $212,000, a
decrease in interest due to capital leases of $3,000, resulting in an increase
in interest expense,
19
net of $248,000. This increase was partially offset by a change in the fair
value of an interest rate swap instrument of $99,000.
The increase in interest expense on bank debt and other financing arrangements
is primarily due to increased average borrowings under the Company's Credit
Facility.
INCOME TAX EXPENSE
For the three months ended June 28, 2003 and June 29, 2002, respectively, no
provision for federal income taxes has been recorded.
As a result of entering into the merger agreement during the second quarter
2003, management determined that the primary tax planning strategies that had
previously been available to recognize the deferred tax assets for which no
valuation allowance had been provided would no longer be available.
Additionally, due to the potential negative impact to the Company's future
financial condition and results of operations should the merger transaction not
close, management determined that it was not more likely than not that the
Company would be able to execute such strategies and / or generate taxable
income in the foreseeable future. Accordingly a valuation allowance of
$1,312,000 has been provided for the deferred tax assets during the second
quarter.
NET LOSS AND LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
The net loss for the three months ended June 28, 2003 was $3,625,000 compared to
a net loss of $821,000 for the three months ended June 29, 2002. During the
three months ended June 29, 2002, the Company recorded preferred stock dividends
of $302,000. Net loss attributable to common shareholders was $3,625,000, or
$0.44 per share, for the three months ended June 28, 2003 and $1,123,000, or
$0.14 per share, for the three months ended June 29, 2002.
The weighted average number of shares used in the calculation of loss
attributable to common shareholders for the three months ended June 28, 2003 and
June 29, 2002 excludes options, warrants and the convertible preferred stock, as
their inclusion would be anti-dilutive.
SIX MONTHS ENDED JUNE 28, 2003 COMPARED TO SIX MONTHS ENDED JUNE 29, 2002
The following table presents certain information related to the Company's
results of operations for the six months ended June 28, 2003 and June 29, 2002:
(000'S OMITTED EXCEPT FOR PER SHARE AMOUNTS)
June 28, June 29, %
2003 2002 Change
-------- -------- ------
(UNAUDITED) (UNAUDITED)
Revenues $ 26,493 $ 28,691 -7.7%
Gross Profit 7,745 9,781 -20.8%
Operating Expenses 9,586 11,037 -13.1%
Operating Loss (1,841) (1,256) 46.6%
Net Loss (4,255) (2,043) 108.3%
Net Loss Attributable to Common Shareholders (4,255) (2,640) 61.2%
Net Loss Per Share Attributable to Common Shareholders (0.52) (0.33) 57.6%
REVENUES
Consolidated revenues were $26,493,000 for the six months ended June 28, 2003
compared to $28,691,000 for the six months ended June 29, 2002, which is a
decrease of $2,198,000, or 7.7%. The decrease in revenue is attributable to a
decrease in the average number of worksite employees paid to 10,671 from 12,333,
or 13.5%. The decrease was partially offset by a favorable change in the mix of
worksite employees in 2003 with a higher concentration being in the Company's
core urban markets, which generate higher revenues due to an average
higher-per-employee payroll.
20
COSTS OF SERVICES/GROSS PROFIT
For the six months ended June 28, 2003, costs of services were $18,748,000, or
70.8% of revenues, compared to costs of services of $18,910,000, or 65.9% of
revenues, for the six months ended June 29, 2002. Gross profit for the six
months ended June 28, 2003 was $7,745,000, or 29.2% of revenues, compared to
$9,781,000, or 34.1% of revenues, for the six months ended June 29, 2002. Gross
profit decreased in 2003 primarily due to the lower number of worksite employees
paid and the Company earning a lower margin on workers' compensation, due to its
decision to exit the historic loss-sensitive programs and procure fully-insured
programs for its worksite employees.
OPERATING EXPENSES
For the six months ended June 28, 2003, consolidated operating expenses were
$9,586,000, or 36.2% of revenues, compared to $11,037,000, or 38.5% of revenues,
for the six months ended June 29, 2002. During the six months ended June 28,
2003, the Company incurred $785,000 costs related to the planned merger between
one of the Company's wholly-owned subsidiaries and Vsource. The Company incurred
systems and operations development costs of $302,000 and restructuring costs of
$241,000 in the six months ended June 29, 2002. During the six months ended June
29, 2003, the Company favorably settled certain lease obligations resulting in a
$55,000 decrease in previously provided restructuring reserves. Excluding merger
related, restructuring and systems and operations development costs, total
operating expenses for the six months ended June 28, 2003 were $8,856,000, or
33.4% of total revenues, compared to $10,494,000, or 36.6% of total revenues,
for the six months ended June 29, 2002. The decrease of $940,000 is due to
decreases in administrative salaries of $690,000, or 12.1%, and other selling,
general and administrative expenses of $902,000, or 22.0%, and a decrease in
depreciation and amortization. A significant portion of the reduction in
administrative salaries and in selling, general and administrative expenses were
a result of the 2002 restructuring efforts, including office closures after the
fourth quarter of 2002.
OPERATING LOSS
For the six months ended June 28, 2003, consolidated operating loss was
$1,841,000 compared to a consolidated operating loss of $1,256,000 for the six
months ended June 29, 2002. The increase in operating loss is a result of the
changes in gross profit and operating expenses discussed above.
INTEREST EXPENSE
For the six months ended June 28, 2003, net interest expense was $1,108,000
compared to $750,000 for the six months ended June 29, 2002. The increase in net
interest expense is due to an increase in interest on bank debt and other
financing arrangements of $232,000, an increase in amortization of discount on
term debt related to the issuance of warrants in March 2003 of $212,000, a
decrease in interest due to capital leases of $4,000, resulting in an increase
in interest expense, net of $440,000. This increase was partially offset by a
change in the fair value of an interest rate swap instrument of $82,000.
The increase in interest expense on bank debt and other financing arrangements
is primarily due to increased average borrowings under the Company's Credit
Facility.
INCOME TAX EXPENSE
For the six months ended June 28, 2003 and June 29, 2002, respectively, no
provision for federal income taxes has been recorded.
As a result of entering into the merger agreement during the second quarter
2003, management determined that the primary tax planning strategies that had
previously been available to recognize the deferred tax assets for which no
valuation allowance had been provided would no longer be available.
Additionally, due to the potential negative impact to the Company's future
financial condition and results of operations should the merger transaction not
close, management determined that it was not more likely than not that the
Company would be able to execute such strategies and / or generate taxable
income in the foreseeable future. Accordingly a valuation allowance of
$1,312,000 has been provided for the deferred tax assets during the second
quarter.
21
NET LOSS AND LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
The net loss for the six months ended June 28, 2003 was $4,255,000 compared to a
net loss of $2,043,000 for the six months ended June 29, 2002. During the six
months ended June 29, 2002, the Company recorded preferred stock dividends of
$597,000. Net loss attributable to common shareholders was $4,255,000, or $0.52
per share, for the six months ended June 28, 2003 and $2,640,000, or $0.33 per
share, for the six months ended June 29, 2002.
The weighted average number of shares used in the calculation of loss
attributable to common shareholders for the six months ended June 28, 2003 and
June 29, 2002 excludes options, warrants and the convertible preferred stock, as
their inclusion would be anti-dilutive.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $636,000 for the six months ended
June 28, 2003 compared to net cash used in operating activities of $5,206,000
for the six months ended June 29, 2002. The increase in cash provided by
operating activities was primarily due to the timing of cash receipts.
Net cash used in investing activities was $109,000 for the six months ended June
28, 2003 compared to $694,000 for the six months ended June 29, 2002. The
primary use of cash for investing activities during the six months ended June
29, 2002 was $550,000 for the acquisition of customer relationship rights from
Strategic Staff Management, Inc. ("SSMI") and a related non-competition
agreement and the acquisition of certain assets of Inovis, Inc. The Company
purchased property and equipment of $109,000 during the six months ended June
28, 2003. Property and equipment additions during the six months ended June 29,
2002 were $144,000.
Net cash used in financing activities during the six months ended June 28, 2003
was $527,000 compared to net cash provided by financing activities during the
six months ended June 29, 2002 of $4,453,000. The primary use of cash during the
six months ended June 28, 2003 was for the reduction of checks drawn in excess
of bank balances of $609,000, compared to an increase in checks drawn in excess
of bank balances of $2,563,000 for the six months ended June 29, 2002. Other
changes included the decrease in the payment of notes payable and short-term
borrowings from $693,000 for the six months ended June 29, 2002 to $134,000 for
the six months ended June 28, 2003, which was offset by an increase in payments
on capital lease obligations, which increased from $142,000 for the six months
ended June 29, 2002 to $161,000 for the six months ended June 28, 2003. The
checks drawn in excess of bank balances is primarily a timing function related
to the Company's cash inflows from clients being distributed between electronic
payments and cash payments and the majority of client related cash outflows
being paid electronically.
In connection with a services agreement executed on May 1, 2003, Vsource
advanced the Company $500,000. These funds were advanced to the Company to
assist with working capital expenditures during the implementation phase of the
service agreement. The $750,000 borrowed under the Company's credit facility was
used for the SSMI transaction during the three months ended March 30, 2002.
On June 12, 2003 the Company and one of its wholly-owned subsidiaries entered
into a merger agreement with Vsource, Inc. Under the terms of this agreement
the Company will exchange approximately 62.6 million shares of common stock in
exchange for all of the outstanding common shares, Series 1-A, 2-A and 4-A
preferred stock of Vsource. At the completion of the merger, the Company will be
renamed Vsource Corporation. As the existing shareholders of Vsource will own
approximately 80.0% of the combined merger company, the transaction will be
accounted for as a reverse acquisition using the purchase method of accounting.
TEAM America's market capitalization including the value of outstanding options
and warrants and shares to be issued as part of its recapitalization will be the
purchase price used in accounting for the merger. The total estimated purchase
price, including direct costs incurred by Vsource, is approximately $16,880,000.
In addition to the consideration paid, Vsource will assume the liabilities of
TEAM America, subject to the recapitalization and debt restructuring agreements.
Immediately before the consummation of the merger, the holders of TEAM America's
outstanding Class A Preferred Stock will exchange there preferred stock and
warrants to acquire 1,777,777 shares of TEAM America's common stock for a total
of 5,634,512 shares of TEAM America common stock and subordinated notes with a
total principal amount of $2,500,000. In addition, one of the Company's
preferred shareholders will exchange a $1,500,000 bridge note for a new
subordinated note in the amount of $1,517,000.
22
TEAM America and Vsource have executed a debt restructuring agreement with one
of the Company's lenders for the refinancing and restructuring of TEAM America's
senior debt for approximately $4,100,000 in principal with the interest rate on
the debt being the banks prime rate plus one percent (5.25% at June 28, 2003).
The debt will be repaid in equal monthly installments of principal over four
years.
Pursuant to a Purchase and Sale Agreement dated as of June 30, 2003, and subject
to consummation of the merger, one of TEAM America's senior lenders has agreed
to sell to Vsource or its designee its interest in TEAM America's senior debt,
representing approximately $4,900,000 in principal amount and warrants to
acquire 600,000 shares of TEAM America common stock. This lender is also a
Series A Preferred Shareholder and has agreed, subject to the consummation of
the merger, to sell to Vsource or its designee, the securities and debt they
will own subject to the completion of the recapitalization which is 519,989
shares of TEAM America common stock and a subordinated note of $227,375. Vsource
or its designee will acquire all of the securities and debt for an aggregate
purchase price of $1,600,000.
On March 28, 2003, the Company entered into a Third Amendment and Waiver to its
Senior Credit Facility (the "Bank Agreement").
Under the terms of the Bank Agreement, the Company and its senior lenders agreed
to amend the Senior Credit Facility as follows:
o The outstanding amounts under the Senior Credit Facility of $8,728,000
were restructured into three separate tranches. Tranche A representing
a $6,000,000 Term Loan, Tranche B representing a $3,060,000 Balloon
Loan and Tranche C representing $914,000 of outstanding letters of
credit. Tranche B includes certain costs associated with the Senior
Credit Facility, including accrued interest of $132,000, a forbearance
fee of $100,000 and a renewal fee of $100,000.
o The Senior Credit Facility is senior to the $1,500,000 subordinated
note issued in satisfaction of the Bridge Note discussed below under
the Preferred Agreement.
o The maturity of the Senior Credit Facility is January 5, 2004.
o The interest rate on each tranche is: Tranche A - the Provident Bank
Prime Commercial Lending Rate plus two percent (6.25% at June 28,
2003); Tranche B - 12%, eight percent payable in cash and four percent
payable-in-kind; and Tranche C (if drawn) - the Provident Bank's Prime
Lending Rate plus five percent (9.25% at June 28, 2003).
o Tranche A requires principal payments of $100,000 per month beginning
July 2003, Tranche B is due at maturity and Tranche C is due
immediately upon any draw under the letters of credit.
In addition to the above terms, the Company issued to the banks 1,080,000
warrants to purchase common stock of the Company at a price of $0.50 per share.
These warrants expire in seven years. The Bank Agreement states that no new
indebtedness may be incurred under the facility and that any future acquisitions
are subject to consent of the banks.
As a result of the issuance of these warrants, the Company has recorded a
discount to the related debt instruments for fair value of the warrants using
the Black-Scholes pricing model. The total fair value of the warrants issued of
$637,000 will be amortized, as interest expense, over the new life of the debt
instruments. During the second quarter 2003, the Company recognized $212,000 of
amortization as interest expense.
The Senior Credit Facility is collateralized by all of the assets of the
Company.
The Senior Credit Facility, as amended, contains certain monthly financial
covenants, the most stringent of which are monthly earnings before interest,
taxes, depreciation and amortization and a fixed charge coverage ratio. The
Company was not in compliance with these covenants during the second quarter
2003.
In connection with entering into the merger agreement, the Company entered into
a Fourth Amendment to its Senior Credit Facility. Under the terms of the Fourth
Amendment, the Company agreed that beginning July 1, 2003 and continuing on the
first day of each month before the consummation of the merger, it would make
payments on the Senior Credit Agreement in the amount of $100,000 per month plus
accrued interest. The Company deposited $100,000 with one of the lenders as
collateral for its pro rata share of principal during this period. The senior
lenders have agreed to forebear against
23
the exercise of any of their remedies under the Senior Credit Agreement until
September 30, 2003 in the event that the Company misses any such monthly
payment; provided that the lender for whom the $100,000 collateral was posted is
required to use such collateral to satisfy its pro rata share of principal. The
Company did not make its payment of principal on July 1, 2003.
On March 28, 2003, the Company and its preferred shareholders entered into a
Memorandum of Understanding through which they agreed to restructure the
preferred shareholders' investment in the Company, subject to approval by the
Company's shareholders. This Memorandum of Understanding was amended on June 12,
2003. The Amended Memorandum of Understanding resulted in the proposed
recapitalization agreement. The recapitalization is expected to close
immediately before the merger. The primary terms of the recapitalization are as
follows:
o The $1,500,000 Bridge Note that was to be paid to a preferred
shareholder from proceeds of an equity financing if a financing had
occurred prior to August 9, 2002, will be converted into New
Subordinated Debt with a face amount of $1,517,000 and will bear
interest at the Huntington National Bank prime rate (the "Prime Rate")
plus 2.5% (6.75% at June 28, 2003), which shall be subordinated to the
New Senior Credit Facility (the "Subordinated Debt"). The Subordinated
Debt will be due June 30, 2007 along with all accrued interest.
o All of the Class A Preferred Shares will be exchanged by the holders
for:
- $2,500,000 of New Subordinated Debt that will bear interest at
the Prime Rate plus 2.5% (6.75% at June 28, 2003). This debt will
be subordinate to the New Credit Facility and the $1,517,000
Subordinated Note described above.
- 5,634,512 common shares of the Company.
In accordance with the Memorandum of Understanding, no preferred dividends have
been declared for the period ended June 28, 2003.
The Company continues to operate with a significant working capital deficit and
experiences pressure on the business due to the overall weak national economy.
In addition, the Company was not in compliance with certain financial covenants
under its amended credit facility as of June 28, 2003. In order to address these
issues, management executed restructurings of the Company's operations
throughout 2002 and is continuing the implementation of cost-savings strategies
in 2003.
Effective May 1, 2003, the Company and Vsource entered into an agreement
pursuant to which Vsource is to provide general outsourcing services to support
the Company's operations. Upon entering into the agreement, Vsource advanced the
Company $500,000 to assist with working capital expenditures during the
implementation phase of the agreement. This advance is to be repaid in equal
monthly installments beginning on June 30, 2003. No repayments have been made
under this agreement.
In addition to the advance, Vsource was to charge the Company $166,667 per month
beginning May 31, 2003 for the services provided under the agreement. The
implementation phase is currently in progress and, accordingly, services have
not yet begun under the agreement, therefore, no amounts have been accrued for
such services.
Management believes that should the merger transaction described in NOTE 2 -
Merger Agreement not be consummated, that the Company would require additional
capital to continue operating. Prior to entering into the merger agreement, the
Company had been in the process of seeking additional sources of capital and
assessing various strategic alternatives. Failure to complete the merger
transaction and to subsequently raise additional capital would result in a
material adverse effect on the future financial condition and results of
operations of the Company.
INFLATION
The Company believes the effects of inflation have not had a significant impact
on its results of operations or financial condition.
24
FORWARD-LOOKING INFORMATION
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). You
can identify such forward-looking statements by the words "expects," "intends,"
"plans," "projects," "believes," "estimates," and similar expressions. It is
important to note that the Company's actual results could differ materially from
those projected in such forward-looking statements. In the normal course of
business, the Company's management, in an effort to help keep the Company's
shareholders and the public informed about our operations, may from time to time
issue such forward-looking statements, either orally or in writing. Generally,
these statements relate to business plans or strategies, projected or
anticipated benefits or other consequences of such plans or strategies, or
projections involving anticipated revenues, earnings or other aspects of
operating results. Management bases the forward-looking statements on its
current expectations, estimates and projections. Management cautions you that
these statements are not guarantees of future performance and involve risks,
uncertainties and assumptions that we cannot predict. In addition, Management
has based many of these forward-looking statements on assumptions about future
events that may prove to be inaccurate. Therefore, the actual results of the
future events described in the forward-looking statements in this Quarterly
Report on Form 10-Q, or elsewhere, could differ materially from those stated in
the forward-looking statements. Shareholders are cautioned not to put undue
reliance on forward-looking statements. In addition, the Company does not have
any intention or obligation to update forward-looking statements after the date
hereof, even if new information, future events, or other circumstances have made
them incorrect or misleading. For those statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its exposure to market risk associated with its
financial statements is not material.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in the Exchange Act Rules
13a-15(e) and 15d-15(e). Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in enabling the Company to
record, process, summarize, and report information required to be included in
the Company's periodic SEC filings within the required time period.
(b) Changes in Internal Control Over Financial Reporting
The evaluation described above did not identify any change in the Company's
internal control over financial reporting that occurred during the quarter ended
June 28, 2003 that materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
25
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger, dated as of June 16, 2000 among the
Company, TEAM Merger Corporation and Mucho.com, Inc. (Attached as
Appendix A to the Registration Statement on Form S-4, File No.
333-43630, filed with the SEC on November 27, 2000 and incorporated
herein by reference.)
2.2 Merger Agreement, dated as of June 12, 2003, among the Company, Beaker
Acquisition Co., Inc. and Vsource, Inc. (Attached as Exhibit 2.1 to
the Report on Form 8-K, File No. 000-21533, filed with the SEC on June
13, 2003 and incorporated herein by reference.)
3.1 Third Amended and Restated Articles of Incorporation of the Company.
(Attached as Appendix B to the Definitive Proxy Statement for the
Meeting of the Shareholders held on September 20, 2001, filed with the
SEC on August 21, 2001 and incorporated herein by reference.)
3.2 Second Amended and Restated Code of Regulations of the Company.
(Attached as Appendix E to the Registration Statement on Form S-4,
File No. 333-43630, filed with the SEC on November 27, 2000 and
incorporated herein by reference.)
10.1 Service Agreement, dated as of May 1, 2003, between the Company and
Vsource, Inc. (Attached as Exhibit 10.17 to the Company's S-4, File
No. 333-106995, filed with the SEC on July 11, 2003 and incorporated
herein by reference.)
31.1 Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith).
(b) Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the
second quarter ended June 28, 2003:
(i) Current Report on Form 8-K, dated April 11, 2003, filed with the
Securities and Exchange Commission on April 11, 2003.
(ii) Current Report on Form 8-K, dated April 23, 2003, filed with the
Securities and Exchange Commission on April 23, 2003.
(iii) Current Report on Form 8-K, dated May 12, 2003, filed with the
Securities and Exchange Commission on May 13, 2003.
(iv) Current Report on Form 8-K, dated June 12, filed with the Securities
and Exchange Commission on June 13, 2003.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEAM AMERICA, INC.
BY: /s/ Andrew H. Johnson
-------------------------
Andrew H. Johnson
Chief Financial Officer and
Authorized Signing Officer
August 12, 2003
27
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of June 16, 2000 among the
Company, TEAM Merger Corporation and Mucho.com, Inc. (Attached as
Appendix A to the Registration Statement on Form S-4, File No.
333-43630, filed with the SEC on November 27, 2000 and
incorporated herein by reference.)
2.2 Merger Agreement, dated as of June 12, 2003, among the Company,
Beaker Acquisition Co., Inc. and Vsource, Inc. (Attached as
Exhibit 2.1 to the Report on Form 8-K, File No. 000-21533, filed
with the SEC on June 13, 2003 and incorporated herein by
reference.)
3.1 Third Amended and Restated Articles of Incorporation of the
Company. (Attached as Appendix B to the Definitive Proxy
Statement for the Meeting of the Shareholders held on September
20, 2001, filed with the SEC on August 21, 2001 and incorporated
herein by reference.)
3.2 Second Amended and Restated Code of Regulations of the Company.
(Attached as Appendix E to the Registration Statement on Form
S-4, File No. 333-43630, filed with the SEC on November 27, 2000
and incorporated herein by reference.)
10.1 Service Agreement, dated as of May 1, 2003, between the Company
and Vsource, Inc. (Attached as Exhibit 10.17 to the Company's
S-4, File No. 333-106995, filed with the SEC on July 11, 2003 and
incorporated herein by reference.)
31.1 Certification of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
28