<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 30, 2000
-------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-18492
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TEAMSTAFF, INC.
---------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1899798
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 Atrium Drive, Somerset, NJ 08873
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732)748-1700
-------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
7,952,261 shares of Common Stock, par value $.001 per share, were outstanding as
of August 11, 2000.
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TEAMSTAFF, INC. AND SUBSIDIARIES
FORM 10-Q
June 30, 2000
<TABLE>
<CAPTION>
Table of Contents
Part I - Financial Information Page No.
------------------------------ --------
<S> <C> <C>
Item 1. Consolidated Balance Sheets as of
June 30, 2000 (Unaudited) and
September 30, 1999 3
Consolidated Statements of
Income for the three months ended
June 30, 2000 and 1999 (Unaudited) 5
Consolidated Statements of
Income for the nine months ended
June 30, 2000 and 1999 (Unaudited) 6
Consolidated Statements of Cash Flows for the
nine months ended June 30, 2000 and 1999
(Unaudited) 7
Notes to Consolidated Financial Statements
(Unaudited) 8
Item 2. Management's discussion and analysis of
financial condition and results of operations 13
Part II - Other Information
---------------------------
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
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<PAGE> 3
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 1999
-------------------------- ----------------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,409,000 $ 1,948,000
Restricted cash 375,000 362,000
Accounts receivable, net of allowance 17,776,000 13,557,000
Current deferred tax asset 1,536,000 1,464,000
Other current assets 539,000 552,000
-------------------------- ----------------------------
Total current assets 23,635,000 17,883,000
EQUIPMENT AND IMPROVEMENTS
Equipment 3,990,000 3,748,000
Leasehold improvements 132,000 100,000
-------------------------- ----------------------------
4,122,000 3,848,000
Accumulated depreciation and amortization 3,329,000 3,023,000
-------------------------- ----------------------------
793,000 825,000
DEFERRED TAX ASSET - 328,000
INTANGIBLES, net of amortization 19,785,000 16,798,000
OTHER ASSETS 616,000 548,000
-------------------------- ----------------------------
TOTAL ASSETS $ 44,829,000 $ 36,382,000
========================== ============================
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
Page 3 of 20
<PAGE> 4
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 1999
------------------------ ------------------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,550,000 $ 1,034,000
Accounts payable 6,758,000 2,924,000
Accrued expenses and other current liabilities 11,711,000 10,957,000
------------------------ ------------------------
Total current liabilities 20,019,000 14,915,000
LONG-TERM DEBT 6,703,000 4,502,000
------------------------ ------------------------
Total Liabilities 26,722,000 19,417,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value; authorized 11,429,000
shares; issued 7,980,718 and 7,980,718; outstanding
7,952,260 and 7,962,403 at June 30, 2000 and
September 30, 1999 8,000 8,000
Additional paid-in capital 21,337,000 21,093,000
Treasury Stock (113,000) (75,000)
Accumulated deficit (3,125,000) (4,061,000)
------------------------ ------------------------
Total shareholders' equity 18,107,000 16,965,000
------------------------ ------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 44,829,000 $ 36,382,000
======================== ========================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
Page 4 of 20
<PAGE> 5
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
---------------------------------------------------
2000 1999
-------------------- ----------------------
<S> <C> <C>
REVENUES $ 137,316,000 $ 70,747,000
DIRECT EXPENSES 131,691,000 65,971,000
------------------ ---------------------
Gross profit 5,625,000 4,776,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,751,000 3,227,000
DEPRECIATION AND AMORTIZATION 353,000 353,000
------------------ ---------------------
Income from operations 521,000 1,196,000
------------------ ---------------------
OTHER INCOME (EXPENSE)
Interest and other income 142,000 84,000
Interest expense (480,000) (340,000)
------------------ ---------------------
(338,000) (256,000)
------------------ ---------------------
Income before income tax benefit (expense) 183,000 940,000
INCOME TAX BENEFIT (EXPENSE) 127,000 (451,000)
------------------ ---------------------
NET INCOME $ 310,000 $ 489,000
================== =====================
BASIC EARNINGS PER COMMON SHARE $ 0.04 $ 0.06
================== =====================
BASIC SHARES OUTSTANDING 7,954,141 7,980,046
================== =====================
DILUTED EARNINGS PER COMMON SHARE $ 0.04 $ 0.06
================== =====================
DILUTED SHARES OUTSTANDING 7,985,417 8,005,046
================== =====================
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
Page 5 of 20
<PAGE> 6
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
JUNE 30,
-----------------------------------------------------
2000 1999
--------------------- --------------------
<S> <C> <C>
REVENUES $ 299,140,000 $ 165,694,000
DIRECT EXPENSES 284,134,000 154,314,000
-------------------- -------------------
Gross profit 15,006,000 11,380,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 12,000,000 8,245,000
DEPRECIATION AND AMORTIZATION 973,000 824,000
-------------------- -------------------
Income from operations 2,033,000 2,311,000
-------------------- -------------------
OTHER INCOME (EXPENSE)
Interest and other income 429,000 289,000
Interest expense (1,094,000) (803,000)
-------------------- -------------------
(665,000) (514,000)
-------------------- -------------------
Income before income tax expense 1,368,000 1,797,000
INCOME TAX EXPENSE (432,000) (446,000)
-------------------- -------------------
NET INCOME $ 936,000 $ 1,351,000
==================== ===================
BASIC EARNINGS PER COMMON SHARE 0.12 $ 0.20
==================== ===================
BASIC SHARES OUTSTANDING 7,956,413 6,842,679
==================== ===================
DILUTED EARNINGS PER COMMON SHARE 0.12 $ 0.20
==================== ===================
DILUTED SHARES OUTSTANDING 8,008,002 6,896,080
==================== ===================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
Page 6 of 20
<PAGE> 7
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JUNE 30,
---------------------------------------------------
2000 1999
---------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 936,000 $ 1,351,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 256,000 440,000
Depreciation and amortization 973,000 824,000
Provision for doubtful accounts 105,000 144,000
Disposal of equipment (35,000) -
Noncash consulting expense 193,000 -
Changes in operating assets and liabilities, net of businesses acquired:
(Increase) decrease in accounts receivable (4,324,000) 164,000
Decrease in other current assets 13,000 415,000
(Increase) decrease in other assets (77,000) 173,000
Increase in restricted cash (13,000) (350,000)
Increase (decrease) in accounts payable, accrued expenses and
other current liabilities 4,587,000 (765,000)
------------------------ -------------------------
Net cash provided by operating activities 2,614,000 2,396,000
------------------------ -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses (3,609,000) (4,331,000)
Purchase of equipment and improvements (274,000) (96,000)
------------------------ -------------------------
Net cash used in investing activities (3,883,000) (4,427,000)
------------------------ -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on long-term debt 4,000,000 2,500,000
Proceeds from revolving line of credit - 1,015,000
Proceeds from borrowings on bridge loan - 750,000
Repayments on bridge loan - (750,000)
Repayments on long-term debt (780,000) (541,000)
Repayments on revolving line of credit (478,000) (663,000)
Repayments on capital lease obligations (25,000) (33,000)
Repurchase of common shares (38,000) -
Proceeds from issuance of common stock and
exercise of common stock options and warrants - net 51,000 47,000
------------------------ -------------------------
Net cash provided by financing activities 2,730,000 2,325,000
------------------------ -------------------------
Net increase in cash 1,461,000 294,000
CASH AT BEGINNING OF PERIOD 1,948,000 1,530,000
------------------------ -------------------------
CASH AT END OF PERIOD $ 3,409,000 $ 1,824,000
==================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 976,000 $ 469,000
===================================================
Cash paid during the period for taxes $ 478,000 $ 260,000
===================================================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
Page 7 of 20
<PAGE> 8
TEAMSTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) ORGANIZATION AND BUSINESS
TeamStaff, Inc. (the "Company"), (formerly Digital Solutions, Inc.), a New
Jersey Corporation, provides a broad spectrum of human resource services
including professional employer organization ("PEO"), payroll processing, human
resource administration and placement of temporary and permanent employees.
Effective January 25, 1999, the Company acquired the ten entities operating
under the trade name, the TeamStaff Companies. In conjunction with the
acquisition, the Company changed its name from Digital Solutions, Inc., to
TeamStaff, Inc. on February 10, 1999.
Effective April 8, 2000, the Company acquired substantially all of the assets of
the professional employer organization ("PEO") business of Outsource
International, Inc. ("Outsource") which has operated under the trade name
"Synadyne". The assets were acquired through one of TeamStaff's subsidiaries.
Effective June 2, 2000 the Company effected a reverse stock split at a rate of
one (1) new share for each existing 3.5 shares of TeamStaff common stock. All
common shares and per share amounts in the accompanying financial statements
have been adjusted retroactively to effect the reverse stock split.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-
The consolidated financial statements included herein have been prepared by the
registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-K. This financial information reflects, in the opinion
of management, all adjustments necessary to present fairly the results for the
interim periods. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
The accompanying consolidated financial statements include those of TeamStaff
Inc., and its wholly-owned subsidiaries. The results of operations of acquired
companies have been included in
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<PAGE> 9
the consolidated financial statements from the date of acquisition. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
EARNINGS PER SHARE-
Basic earnings per share ("Basis EPS") is calculated by dividing income
available to common shareholders by the weighted average number of
shares of common stock outstanding during the period. Diluted earnings
per share ("Diluted EPS") is calculated by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period adjusted to reflect potentially dilutive
securities.
The following table reconciles net income and share amounts used to calculate
basic earnings per share and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income $310,000 $489,000 $936,000 $1,351,000
Denominator:
Weighted average number of common shares
Outstanding- basic 7,954,141 7,980,046 7,956,413 6,842,679
Incremental shares for assumed conversions
of stock options/warrants 31,276 25,000 51,589 53,401
------------------------------------------------------------
Weighted average number of common
and equivalent shares outstanding-diluted 7,985,417 8,005,046 8,008,002 6,896,080
------------------------------------------------------------
Earnings per share-basic $0.04 $0.06 $0.12 $0.20
Earnings per share-diluted $0.04 $0.06 $0.12 $0.20
</TABLE>
Stock options and warrants outstanding at June 30, 2000 to purchase 242,120
shares of common stock were not included in the computation of diluted earnings
per share for the nine months ended June 30, 2000 as they were antidilutive.
(3) INCOME TAXES:
At June 30, 2000 the Company had available operating loss carryforwards of
approximately $3,081,000 to reduce future periods' taxable income. The
carryforwards expire in various years beginning in 2004 and extending through
2012.
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<PAGE> 10
The Company has a $1,536,000 and a $1,792,000 deferred tax asset at June 30,
2000 and September 30, 1999, respectively. This represents management's estimate
of the income tax benefits to be realized upon utilization of its net operating
losses as well as temporary differences between the financial statement and tax
bases of certain assets and liabilities, for which management believes
utilization to be more likely than not. Management believes the Company's
operations can generate sufficient taxable income to realize this deferred tax
asset as a result of recent business developments as well as its ability to meet
its operating plan.
(4) DEBT:
The Company has a long-term credit facility from FINOVA Capital Corporation
totaling $12.5 million. Substantially all assets of the Company secure the
credit facility. The facility is comprised of (i) two three-year term loans each
for $2.5 million, with a five-year amortization, at prime plus 3% (12.50% at
June 30, 2000); (ii) a three-year term loan for $4.0 million, with a five-year
amortization, at prime plus 3% (12.50% at June 30, 2000) and (iii) a $3.5
million revolving line of credit at prime plus 1% (10.50% at June 30, 2000)
secured by certain accounts receivable of the Company. The credit facility is
subject to success fees for each of the $2.5 million term loans in the amounts
of $200,000, $225,000 and $250,000 due on the anniversary dates of the loan. In
addition the $4.0 million term loan is subject to annual success fees at the
beginning of each loan year in the amount of $500,000. The credit facility is
subject to certain covenants including, but not limited to, a debt to net worth
ratio, a minimum net worth and a minimum debt service coverage ratio, as
defined. On April 27, 2000 the Company remitted success fees in the amount of
$225,000.
In connection with the Synadyne acquisition the two three-year term loans, each
for $2.5 million, have been extended to April 30, 2003 and March 1, 2003. The
$4.0 million term loan consists of no principal payments for the first six
months and expires on April 30, 2003, with a balloon payment at the end of the
three years. The revolving line of credit expires on April 30, 2003.
Total outstanding debt as of July 31, 2000 and June 30, 2000 was $8,647,000 and
$8,253,000 respectively.
(5) ACQUISITION OF SYNADYNE:
On April 7, 2000 TeamStaff, Inc. entered into a definitive Asset Purchase
Agreement to acquire substantially all of the assets of the professional
employer organization ("PEO") business of Outsource International, Inc.
("Outsource") which had operated under the tradename "Synadyne". The assets were
acquired through one of TeamStaff's subsidiaries. The transaction was effective
April 8, 2000. TeamStaff acquired the tradename "Synadyne" as part of the
transaction, as well as all of the customer contracts of the PEO business. Under
the terms of the Asset Purchase Agreement, TeamStaff paid an aggregate purchase
price of $3,500,000. The agreement also provides for an additional potential
payment in one year of up to $1,250,000 provided that the former clients of
Outsource have at least 9,500 worksite employees as of March
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31, 2001. In the event there are less than 9,500 employees, the amount of the
earnout will be reduced by a pre-determined formula.
(6) FARIAS JUDGEMENT:
The Company's subsidiary, DSI Staff Connxions-Southwest, Inc., is the defendant
in a lawsuit (Frederico Farias v. Thomson Consumer Electronics and DSI Staff
Connxions - Southwest, Inc.; 327th Judicial District Case No. 96-3036; District
Court of El Paso County, Texas) whereby a former leased employee of a client
obtained a judgment against the Company during August, 1998 in the amount of
$315,000 including interest. The judgment includes approximately $95,000 in
compensatory damages, $200,000 in punitive damages and $20,000 in pre-trial
interest. The Company has posted a bond for the full amount of the judgment plus
accrued interest and is appealing the judgement. On May 31, 2000 the Company was
notified that is has lost its initial appeal. The Company has filed an appeal to
the Texas Supreme Court. To reflect this potential judgement, the Company's
financial statements include a charge against earnings of $381,000 which
approximates the full cost of the judgement to include post-judgement interest.
(7) SEGMENT REPORTING:
The Company operates three different lines of business: professional employer
organization (PEO), temporary staffing and payroll services. Each business is
managed by individual executives.
The PEO segment provides services such as payroll processing, personnel and
administration, benefits administration, workers' compensation administration
and tax filing services to small business owners. Essentially, in this business
segment, the Company provides services that function as the human resource
department for small to medium companies wherein the Company becomes a
co-employer.
The Company provides two distinctive forms of temporary staffing: one for
technical employees such as engineers, information systems specialists and
project managers and another for medical imaging professionals with hospitals,
clinics and therapy centers. Temporary staffing enables clients to attain
management and productivity goals by matching highly trained professionals and
technical personnel to specific project requirements.
Through its payroll services business segment, the Company provides basic
payroll services to its clients, 70% of whom are in the construction industry.
Services provided include the preparation of payroll checks, filing of taxes,
government reports, W-2's, remote processing directly to the client's offices
and certified payrolls.
Corporate is a separate unit which reflects all corporate expenses, amortization
of recently
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acquired goodwill, interest expense as well as depreciation on corporate assets
and miscellaneous charges.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates the
performance of its business lines based on pre-tax income.
The following table represents the condensed financial results for the third
quarter and nine months ended June 30, 2000 and 1999 for each of the Company's
segments:
<TABLE>
<CAPTION>
Net Sales
------------------------------------------
Three Months Nine Months
Ended June 30, Ended June 30,
($ in thousands) 2000 1999 2000 1999
---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Professional Employer Services $123,242 $60,175 $260,546 $137,858
Temporary Staffing 13,170 9,732 35,777 25,112
Payroll Services 904 840 2,817 2,724
------------ ---------- ------------ -----------
137,316 70,747 299,140 165,694
Corporate - - - -
------------ ---------- ------------ -----------
Consolidated $137,316 $70,747 $299,140 $165,694
</TABLE>
<TABLE>
Income Before Taxes
----------------------------------------
Three Months Nine Months
Ended June 30, Ended June 30,
($ in thousands) 2000 1999 2000 1999
---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Professional Employer Services $ (478)* $ 1,079 $ 131* $ 1,563
Temporary Staffing 1,569 964 4,086 2,222
Payroll Services 355 294 1,043 1,118
---------- ---------- ------------ ---------
1,446 2,337 5,260 4,903
Corporate (1,263) (1,397) (3,892) (3,106)
---------- ---------- ------------ ---------
Consolidated $ 183 $ 940 $ 1,368 $ 1,797
</TABLE>
*Included in these numbers is a $600,000 workers' compensations charge and a
$381,000 settlement claim explained in the Management's Discussion and Analysis.
The Company has no revenue derived outside of the United States.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"1995 Reform Act"). TeamStaff, Inc. desires to avail itself of certain "safe
harbor" provisions of the 1995 Reform Act and is therefore including this
special note to enable the Company to do so. Forward-looking statements included
in this report involve known and unknown risks, uncertainties, and other factors
which could cause the Company's actual results, performance (financial or
operating) or achievements to differ from the future results, performance
(financial or operating) achievements expressed or implied by such
forward-looking statements. Such future results are based upon management's best
estimates based upon current conditions and the most recent results of
operations. These risks include, but are not limited to, risks associated with
risks undertaken in connection with acquisitions, risks from potential workers'
compensation claims and required payments, risks from employer/employee suits
such as discrimination or wrongful termination, risks associated with payroll
and employee related taxes which may require unanticipated payments by the
Company, liabilities associated with the company's status under certain federal
and state employment laws as a co-employer, effects of competition, the
Company's ability to implement its internet based business and technological
changes and dependence upon key personnel.
The Company's revenues for the three months ended June 30, 2000 and 1999 were
$137,316,000 and $70,747,000, respectively, which represents an increase of
$66,569,000 or 94.1%. Of this increase, $52,910,000 was due to the acquisition
of Synadyne with the balance due to internal growth. This later growth reflects
a 19% increase over last year. For the nine months ended June 30, 2000 and 1999,
the Company's revenues were $299,140,000 and $165,694,000, respectively, which
represents an increase of $133,446,000 or 80.5%. Of this increase, $37,517,000
was due to the acquisition of the TeamStaff Companies and $52,910,486 was due to
the acquisition of Synadyne with the balance due to internal growth. This later
growth reflects a 26% increase over last year.
Direct expenses were $131,691,000 for the three months ended June 30, 2000 and
$65,971,000 for the comparable period last year, representing an increase of
$65,720,000 or 99.6%. As a percentage of revenue, direct expenses for the three
months ended June 30, 2000 and 1999 were 95.9% and 93.2%. These increases
represent the higher direct expenses associated with the increased PEO business
as well as a $600,000 charge to increase the Company's workers' compensation
reserves. Approximately $300,000 of the charge is the result of a recent audit
of the Company's workers' compensation program for the two-year period ended
March 31, 1999.
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This adjustment amounts to less than 5 percent of the workers' compensation
revenue during this two-year period. The Company is still in the process of
reviewing the audit but has elected to record the charge. The remaining $300,000
charge pertains to the workers' compensation year ended August 1, 1999. The
management of the workers' compensation program, as of April 1, 1999, was
shifted to the then newly acquired TeamStaff Companies' Risk Management
Department, which significantly reduced the old DSI incurred claims immediately.
However, based upon the different mix of business DSI had versus the TeamStaff
Companies, and the slower reserve development experienced on these claims, the
losses developed higher in 2000 than had historically been the case for the
TeamStaff Companies. Accordingly, the Company elected to increase these reserves
by an additional $300,000. For fiscal 2000, the Company has implemented a
program to develop loss reserves on an accelerated basis. After adjusting for
these items, direct expenses for the third quarter of 2000 would have been
$131,091,000 versus $66,421,000 for the third quarter of 1999, representing an
increase of 97.4%. For the nine months ended June 30, 2000 and 1999, direct
expenses increased $129,820,000 or 84.1% from 154,314,000 to $284,134,000,
respectively. As a percentage of revenue, direct expenses for the nine months
ended June 30, 2000 and 1999 were 95.0% and 93.1%. After adjusting for the
workers' compensation items previously discussed, direct expenses for the nine
months ended June 30, 2000 would have increased 83.2% from $154,764,000 to
$283,534,000
Gross profits were $5,625,000 and $4,776,000 for the quarters ended June 30,
2000 and 1999, respectively, an increase of $849,000 or 17.8% despite a $600,000
charge to increase the Company's workers' compensation reserves. Gross profits,
as a percentage of revenue, were 4.1% and 6.8% for the quarters ended June 30,
2000 and 1999, respectively. After adjusting for the workers' compensation
charge previously discussed, gross profit for the third quarter of 2000 would
have been $6,225,000 versus $4,326,000 for the third quarter of 1999,
representing an increase of 43.9%. As a percentage of revenue, and as adjusted
for the workers' compensation items, gross profit for this quarter was 4.5%
versus 6.2% for the same period in fiscal 1999. Gross profits were $15,006,000
and $11,380,000 for the nine months ended June 30, 2000 and 1999, respectively,
representing an increase of $3,626,000 or 31.9%. Gross profits, as a percentage
of revenue, were 5.0% and 6.9% for the nine months ended June 30, 2000 and 1999.
Adjusting for the workers' compensation items previously discussed, gross profit
for the nine months ended June 30, 2000 would have increased 42.8% from
$10,930,000 to $15,606,000. As a percentage of revenue, and as adjusted for the
workers' compensation items, gross profit for the nine months ended June 30,
2000 would have been 5.2% versus 6.6% for the same period in fiscal 1999. The
gross profit as a percentage of revenue declined because a substantial portion
of our revenue growth occurred in the PEO line of business, which has lower
margins but generates higher dollars of gross profit.
Selling, general and administrative( "SG&A") expenses for the quarters ended
June 30, 2000 and 1999 were $4,751,000 and $3,227,000, respectively,
representing an increase of $1,524,000 or 47.2%. This increase is primarily
attributed to $954,000 of SG&A expenses related to the newly acquired Synadyne
operation and a $381,000 charge associated with the Farias judgement, leaving
the remaining net increase of 5.1% attributed to the build-up in the PEO sales
force offset
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by the reduction in other costs. SG&A expenses for the nine months ended June
30, 2000 and 1999 were $12,000,000 and $8,245,000, respectively, representing an
increase of $3,755,000 or 45.5%. This increase is similarly attributed to the
Synadyne and TeamStaff acquisitions, the significant increase in the PEO sales
force, a $175,000 charge for noncash consulting expenses associated with the
issuance of 350,000 warrants to Donald & Company and a $381,000 charge
associated with the Farias settlement. After adjusting for the Farias judgement,
the $175,000 non-cash consulting expenses reflected in the first quarter of
fiscal 2000, and to account for the SG&A from the Synadyne and TeamStaff
acquisitions, selling, general and administrative expenses increased $671,000,
or 8.2% over the same period last year.
Depreciation and amortization for the quarters ended June 30, 2000 and 1999
remained flat over the similar period last year. Depreciation and amortization
for the nine months ended June 30, 2000 and 1999 increased to $973,000 from
$824,000 respectively, or $149,000. The increase is primarily attributed to the
additional amortization of goodwill related to the acquisitions of the TeamStaff
Companies and Synadyne.
Interest expense for the quarter ended June 30, 2000 increased $140,000 to
$480,000 from $340,000 in the corresponding period in 1999 due to the additional
debt associated with the Synadyne acquisition. Interest expense for the nine
months ended June 30, 2000 increased $291,000 to $1,094,000 from $803,000 in the
nine months ended June 30, 1999, due to the TeamStaff and Synadyne acquisitions.
Income taxes for the quarter ended June 30, 2000 reflected a tax benefit of
$127,000 versus a tax expense of $451,000 for the similar period last year. The
third quarter of fiscal 2000 includes $185,000 tax credit earned on certain
employees' wages. Income tax expense for the nine months ended June 30, 2000 and
1999 were $432,000 and $446,000, respectively. Included in the second quarter of
fiscal 1999 was a $400,000 net tax benefit reflecting the elimination of a
deferred tax valuation allowance.
Net income for the quarter ended June 30, 2000 was $310,000, or $0.04 per
fully-diluted share, as compared to $489,000, or $0.06 per fully-diluted share
for the quarter ended June 30, 1999. After all the adjustments previously
discussed, only the $300,000 charge to increase the Company's workers'
compensation reserves for the covered year ending August 1, 1999, affected the
Company's bottom line performance this quarter. After adjusting both quarters
for the workers' compensation adjustments, June 30, 2000 and June 30, 1999, net
income would have been $484,000, or $0.06 per fully-diluted share for 2000, and
$315,000, or $0.04 per fully-diluted share for 1999. This represents an increase
of 53%. Net income for the nine months ended June 30, 2000 was $936,000, or
$0.12 per fully-diluted share, versus $1,351,000, or $0.20 per fully-diluted
share. After adjusting for the first quarter 2000 non-cash consulting expenses
and the workers' compensation adjustments, as previously discussed, net income
for the nine months ended June 30, 2000 would have been $1,212,000, or $0.15 per
fully-diluted share. After adjusting for the same workers' compensation
adjustments and the deferred tax item, as previously discussed, net income for
the nine months ended June 30, 1999 would have been
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<PAGE> 16
$777,000, or $0.11 per fully-diluted share. Net income for the nine months ended
June 30, 2000 increased 56% over the same period in 1999 based upon these
numbers.
In July 2000, the Company made claims for indemnification against the selling
shareholders of the TeamStaff Companies which were acquired by the Company in
January 1999. The claims consist of various liabilities and expenses incurred
based on breaches of representations and warranties contained in the acquisition
agreement. The Sellers have disputed these claims and have attempted to assert
claims of their own. Under the terms of the acquisition agreements, the Sellers
secured their indemnification obligation by depositing 420,000 shares of the
Company's common stock in escrow. The Company believes that it has good and
meritorious claims against the Sellers and good and meritorious defenses to any
of the Sellers' claims against the Company. However, there can be no assurance
that the Company will obtain a successful resolution of all of its claims. In
the event that the Company is obligated to pay third parties in respect of
breaches for which it cannot obtain indemnification from the former shareholders
(or reimbursement of previously paid sums) the Company's financial condition may
be adversely impacted. Failure to successfully resolve the Company's claims
against the Sellers may have a material adverse effect on the Company's
financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities improved in the first nine months of
fiscal 2000 to $2,614,000 from $2,396,000 in the same period of fiscal 1999. The
increase in cash flows from operations is attributable to the continued earnings
improvement of the Company adjusted for non-cash charges such as depreciation
and amortization, non-cash consulting expense, an increase in accounts payable,
accrued expenses and other current liabilities offset by an increase in accounts
receivable. Cash outflow for the purchase of equipment and improvements was
$274,000 in the nine months ended June 30, 2000 compared to $96,000 in the nine
months ended June 30, 1999. The net cash provided by financing activities
increased in the nine months ended June 30, 2000, compared to the nine months
ended June 30, 1999 due to additional borrowings for the Synadyne acquisition.
At June 30, 2000, the Company had cash of $3,409,000, restricted cash of
$375,000 and net accounts receivable of $17,776,000.
The Company has a long-term credit facility from FINOVA Capital Corporation
totaling $12.5 million. The facility is comprised of (i) two three-year term
loans each for $2.5 million, with a five-year amortization, at prime plus 3%
(12.50% at June 30, 2000); (ii) a three-year term loan for $4.0 million, with a
five-year amortization, at prime plus 3% (12.50% at June 30, 2000) and (iii) a
$3.5 million revolving line of credit at prime plus 1% (10.50% at June 30, 2000)
secured by certain accounts receivable of the Company. The credit facility is
subject to success fees for each of the $2.5 million term loans in the amounts
of $200,000, $225,000 and $250,000 due on the anniversary dates of the loan. In
addition the $4.0 million term loan is subject to annual
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<PAGE> 17
success fees at the beginning of each loan year in the amount of $500,000. On
April 27, 2000 the Company remitted success fees in the amount of $225,000.
In connection with the Synadyne acquisition the two three-year term loans each
for $2.5 million has been extended to April 30, 2003 and March 1, 2003. The $4.5
million term loan consists of no principal payments for the first six months and
expires on April 30, 2003, with a balloon payment at the end of the three years.
The revolving line of credit expires on April 30, 2003.
Total outstanding debt as of July 31, 2000 and June 30, 2000 was
$8,647,000 and $8,253,000, respectively.
On July 22, 1999 the Board of Directors authorized the Company to
repurchase up to 3% of the outstanding shares of the Company's common stock
subject to the approval of the Company's lenders and any regulatory approval
required. As of June 30, 2000 the Company repurchased 28,500 shares at an
average cost of $3.96
Management of the Company believes that its existing cash and available
borrowing capacity will be sufficient to support cash needs for the next twelve
months.
Inflation and changing prices have not had a material effect on the Company's
net revenues and results of operations in the last three fiscal years, as the
Company has been able to modify its prices and cost structure to respond to
inflation and changing prices.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's subsidiary, DSI Staff Connxions-Southwest, Inc., is the defendant
in a lawsuit (Frederico Farias v. Thomson Consumer Electronics and DSI Staff
Connxions - Southwest, Inc.; 327th Judicial District Case No. 96-3036; District
Court of El Paso County, Texas) whereby a former leased employee of a client
obtained a judgment against the Company during August, 1998 in the amount of
$315,000 including interest. The judgment includes approximately $95,000 in
compensatory damages, $200,000 in punitive damages and $20,000 in pre-trial
interest. The Company has posted a bond for the full amount of the judgment plus
accrued interest and is appealing the judgement. On May 31, 2000 the Company was
notified that is has lost its initial appeal. The Company has filed an appeal to
the Texas Supreme Court. To reflect this potential judgement, the Company's
financial statements include a charge against earnings
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<PAGE> 18
of $381,000 which approximates the full cost of the judgement to include
post-judgement interest.
The Company is engaged in litigation from time to time during the ordinary
course of business in connection with employee suits, workers' compensation and
other matters. The Company is engaged in no other litigation, the effect of
which would be anticipated to have a material adverse impact on the Company's
financial conditions or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) TeamStaff held a Special Meeting of its Shareholders on May 31, 2000 to
authorize the Board of Directors of the Company to effect a 1:3.5
reverse split of the common stock of the Company. Out of the 27,932,513
shares outstanding on the record date, holders of 22,001,119 shares
approved the reverse stock split. The Board of Directors implemented the
reverse split on June 2, 2000. Represents pre-split shares of common
stock.
(b) TeamStaff held its Annual Meeting of shareholders on April 13, 2000. As
of the record date of March 7, 2000, there were 27,932,513 shares
outstanding and eligible to vote at the Annual Meeting. Represents
pre-split shares of common stock. At the Annual Meeting shareholders
approved the following actions:
1. Election Of Directors
Shareholders were requested to vote on the election of two Class 3
directors
<TABLE>
<CAPTION>
Nominee Name Votes Against Votes in Favor % in Favor
<S> <C> <C> <C>
Kirk Scoggins 145,339 25,554,907 99%
Martin J. Delaney 153,939 25,546,307 99%
</TABLE>
2. Adoption of 2000 Employee Stock Option Plan
Shareholders were requested to approve adoption of the 2000 Employee
Stock Option Plan to provide for the grant of options to purchase up to
6,000,000 shares of the Corporation's common stock.
<TABLE>
<CAPTION>
Votes Cast in Favor % In Favor Votes Against Votes Abstaining
<S> <C> <C> <C>
15,307,440 89% 1,749,275 460,406
</TABLE>
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<PAGE> 19
3. Adoption of 2000 Non-Executive Director Stock Option Plan
Shareholders were requested to approve adoption of the 2000
Non-Executive Director Stock Option Plan to provide for the issuance of
options to purchase common stock to non-employee directors.
<TABLE>
<CAPTION>
Votes Cast in Favor % in Favor Votes Against Votes Abstaining
<S> <C> <C> <C>
15,420,070 90% 1,707,012 390,039
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
Date of Report Item Reported
April 21, 2000 Item 2 - Acquisition of Synadyne Assets. Filed to
report the acquisition of the Synadyne assets of
Outsource International, Inc.
Item 5 - Other events. Report of results of annual
meeting.
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<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEAMSTAFF, INC.
(Registrant)
/s/ Donald W. Kappauf
---------------------------
Donald W. Kappauf
Chief Executive Officer
/s/ Donald T. Kelly
---------------------------
Donald T. Kelly
Chief Financial Officer
Date: August 15, 2000
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