<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 March 31, 2000
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ---------------------
Commission File No. 0-18492
TEAMSTAFF, INC.
---------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1899798
- -------------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 Atrium Drive, Somerset, NJ 08873
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732)748-1700
---------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--
27,848,913 shares of Common Stock, par value $.001 per share, were outstanding
as of May 10, 2000.
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<PAGE> 2
TEAMSTAFF, INC. AND SUBSIDIARIES
FORM 10-Q
March 31, 2000
Table of Contents
<TABLE>
<CAPTION>
Part I - Financial Information Page No.
- ------------------------------ --------
<S> <C> <C>
Item 1. Consolidated Balance Sheets as of
March 31, 2000 (Unaudited) and
September 30, 1999 3
Consolidated Statements of
Income for the three months ended
March 31, 2000 and 1999 (Unaudited) 5
Consolidated Statements of
Income for the six months ended
March 31, 2000 and 1999 (Unaudited) 6
Consolidated Statements of Cash Flows for the
six months ended March 31, 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 14
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 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
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<PAGE> 3
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
(unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,202,000 $ 1,948,000
Restricted cash 362,000 362,000
Accounts receivable, net of allowance 14,518,000 13,557,000
Current deferred tax asset 1,373,000 1,464,000
Other current assets 545,000 552,000
----------- -----------
Total current assets 21,000,000 17,883,000
EQUIPMENT AND IMPROVEMENTS
Equipment 3,899,000 3,748,000
Leasehold improvements 132,000 100,000
----------- -----------
4,031,000 3,848,000
Accumulated depreciation and amortization 3,251,000 3,023,000
----------- -----------
780,000 825,000
DEFERRED TAX ASSET - 328,000
INTANGIBLE ASSETS, net of amortization 16,427,000 16,798,000
OTHER ASSETS 579,000 548,000
----------- -----------
TOTAL ASSETS $ 38,786,000 $ 36,382,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
Page 3 of 19
<PAGE> 4
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
------------- --------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $ 1,027,000 $ 1,034,000
Accounts payable 3,786,000 2,924,000
Accrued expenses and other current liabilities 12,136,000 10,957,000
----------- -----------
Total current liabilities 16,949,000 14,915,000
LONG-TERM DEBT 4,026,000 4,502,000
----------- -----------
Total Liabilities 20,975,000 19,417,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value; authorized 40,000,000 shares;
issued 27,932,513 and 27,932,513; outstanding 27,848,913
and 27,868,413 at March 31, 2000 and September 30, 1999 28,000 28,000
Additional paid-in capital 21,312,000 21,073,000
Treasury stock (94,000) (75,000)
Accumulated deficit (3,435,000) (4,061,000)
----------- -----------
Total shareholders' equity 17,811,000 16,965,000
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 38,786,000 $ 36,382,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
Page 4 of 19
<PAGE> 5
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------------------------------
2000 1999
----------------------------------------------------
<S> <C> <C>
REVENUES $ 79,602,000 $ 55,248,000
DIRECT EXPENSES 75,105,000 51,638,000
----------- -----------
Gross profit 4,497,000 3,610,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,580,000 2,868,000
DEPRECIATION AND AMORTIZATION 310,000 295,000
----------- -----------
Income from operations 607,000 447,000
----------- -----------
OTHER INCOME (EXPENSE)
Interest and other income 141,000 101,000
Interest expense (310,000) (297,000)
----------- -----------
(169,000) (196,000)
----------- -----------
Income before tax 438,000 251,000
INCOME TAX (EXPENSE) BENEFIT (240,000) 276,000
----------- -----------
NET INCOME $ 198,000 $ 527,000
============ ============
BASIC EARNINGS PER COMMON SHARE $ 0.01 $ 0.02
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 27,848,913 24,620,265
============ ============
DILUTED EARNINGS PER COMMON SHARE $ 0.01 $ 0.02
============ ============
DILUTED SHARES OUTSTANDING 28,252,867 24,783,175
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
Page 5 of 19
<PAGE> 6
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
MARCH 31,
---------------------------------------------
2000 1999
---------------------------------------------
<S> <C> <C>
REVENUES $ 161,824,000 $ 94,947,000
DIRECT EXPENSES 152,443,000 88,343,000
------------- ------------
Gross profit 9,381,000 6,604,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,249,000 5,018,000
DEPRECIATION AND AMORTIZATION 620,000 471,000
------------- ------------
Income from operations 1,512,000 1,115,000
------------- ------------
OTHER INCOME (EXPENSE)
Interest and other income 287,000 205,000
Interest expense (614,000) (463,000)
------------- ------------
(327,000) (258,000)
------------- ------------
Income before tax 1,185,000 857,000
INCOME TAX (EXPENSE) BENEFIT (559,000) 5,000
------------- ------------
NET INCOME $ 626,000 $ 862,000
=============== ==============
BASIC EARNINGS PER COMMON SHARE 0.02 $ 0.04
=============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 27,851,399 21,958,982
=============== ==============
DILUTED EARNINGS PER COMMON SHARE 0.02 $ 0.04
=============== ==============
DILUTED SHARES OUTSTANDING 28,068,031 22,117,982
=============== ==============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
Page 6 of 19
<PAGE> 7
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MARCH 31,
-------------------------------------------------
2000 1999
------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 626,000 $ 862,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 419,000 (110,000)
Depreciation and amortization 620,000 471,000
Provision for doubtful accounts 108,000 96,000
Noncash consulting expense 188,000 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,069,000) 190,000
Decrease in other current assets 8,000 568,000
Increase in other assets (39,000) -
Increase in restricted cash - (350,000)
Increase in accounts payable, accrued expenses and
other current liabilities 2,040,000 83,000
---------- -----------
Net cash provided by operating activities 2,901,000 1,810,000
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of TeamStaff Companies (13,000) (4,282,000)
Purchase of equipment and improvements (183,000) (53,000)
---------- -----------
Net cash used in investing activities (196,000) (4,335,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on long-term debt - 2,500,000
Proceeds from revolving line of credit 38,000 765,000
Proceeds from borrowings on bridge loan - 750,000
Repayments on long-term debt (508,000) (291,000)
Repayments on revolving line of credit - (663,000)
Repayments on capital lease obligations (13,000) (21,000)
Repurchase of common shares (19,000) -
Proceeds from issuance of common stock and
exercise of common stock options and warrants - net 51,000 43,000
---------- -----------
Net cash (used in) provided by financing activities (451,000) 3,083,000
---------- -----------
Net increase in cash and cash equivalents 2,254,000 558,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,948,000 1,530,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,202,000 $ 2,088,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest; $ 500,000 $ 237,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
Page 7 of 19
<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 wholly-owned
subsidiaries, of which Outsource had indirectly held a 20% ownership interest.
The 20% ownership interest was subsequently purchased by TeamStaff.
(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 the consolidated financial statements from the
date of acquisition. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements.
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<PAGE> 9
EARNINGS PER SHARE-
In February 1997, the FASB issued Statement on Financial Accounting Standards
Number 128, "Earnings Per Share" ("SFAS 128"), which requires the presentation
of basic earnings per share ("Basis EPS") and diluted earnings per share
("Diluted EPS"). Basic EPS is calculated by dividing income available to common
shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is calculated by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period adjusted to reflect potentially dilutive securities.
In accordance with SFAS 128, the following table reconciles net income and share
amounts used to calculate basic earnings per share and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
-----------------------------------------
<S> <C> <C>
Numerator:
Net income $198,000 $527,000
Denominator:
Weighted average number of common shares
Outstanding- basic 27,848,913 24,620,265
Incremental shares for assumed conversions of stock
options/warrants 403,954 162,910
-----------------------------------------
Weighted average number of common and
equivalent shares outstanding-diluted 28,252,867 24,783,175
-----------------------------------------
Earnings per share-basic $0.01 $0.02
Earnings per share-diluted $0.01 $0.02
Six Months Ended March 31,
2000 1999
-----------------------------------
<S> <C> <C>
Numerator:
Net income $626,000 $862,000
Denominator:
Weighted average number of common shares
Outstanding- basic 27,851,399 21,958,982
Incremental shares for assumed conversions of stock
options/warrants 216,632 159,000
-----------------------------------
Weighted average number of common and
equivalent shares outstanding-diluted 28,068,031 22,117,982
-----------------------------------
Earnings per share-basic $0.02 $0.04
Earnings per share-diluted $0.02 $0.04
</TABLE>
Stock options and warrants outstanding at March 31, 2000 to purchase 852,779
shares of common stock were not included in the computation of Diluted EPS for
the six months ended March 31, 2000 as they were antidilutive.
(3) INCOME TAXES:
At March 31, 2000 the Company had available operating loss carryforwards of
approximately $3,274,000 to reduce future periods' taxable income. The
carryforwards expire in various years beginning in 2004 and extending through
2012.
The Company has a $1,373,000 and a $1,792,000 deferred tax asset at March 31,
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
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<PAGE> 10
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% (12.00%
at March 31, 2000); (ii) a three-year term loan for $4.0 million, with a
five-year amortization, at prime plus 3% (12.00% at March 31, 2000) and (iii) a
$3.5 million revolving line of credit at prime plus 1% (10.00% at March 31,
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 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 April 30, 2000 and March 31, 2000 was $8,568,000
and $5,053,000, respectively.
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<PAGE> 11
(5) ACQUISITION OF THE TEAMSTAFF COMPANIES:
On January 25, 1999 TeamStaff, Inc., completed the acquisition of 10 entities
operating as the TeamStaff Companies through the issuance of 8,233,334 shares of
common stock and $3.2 million in cash in exchange for all capital stock of the
TeamStaff Companies and for the repayment of debt. The Company also incurred
$1.3 million for certain legal, accounting and investment banking expenses. The
acquisition has been accounted for under the purchase method and the results of
operations of the acquired companies have been included in the consolidated
financial statements appearing in this Form 10-Q since the date of the
acquisition. The purchase price has been allocated based on the estimated fair
value at the date of the acquisition. The application of the purchase method of
accounting resulted in approximately $13.3 million in excess of purchase price
over net tangible assets acquired. The excess of the purchase price over the net
tangible assets acquired has been allocated to trade name ($4.7 million) and
goodwill ($8.6 million) which are being amortized over 25 years.
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and the acquired companies as if the
acquisition had occurred October 1, 1998.
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1999
--------------
<S> <C>
Net Sales $129,538,000
Net Income $688,000
Earnings per common share $0.03
</TABLE>
(6) 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 wholly-owned subsidiaries, of which
Outsource indirectly held a 20% ownership interest. The 20% ownership interest
was subsequently purchased by TeamStaff. 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 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.
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<PAGE> 12
(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 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.
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<PAGE> 13
The following table represents the condensed financial results for the second
quarter and six months ended March 31, 2000 and 1999 for each of the Company's
segments:
<TABLE>
<CAPTION>
Net Sales
-------------------------------------------------
Three Months Six Months
Ended March 31, Ended March 31,
($ in thousands) 2000 1999 2000 1999
- ---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Professional Employer Services $67,185 $46,343 $137,304 $77,683
Temporary Staffing 11,540 8,065 22,607 15,380
Payroll Services 877 840 1,913 1,884
---------- ---------- ------------ ---------
79,602 55,248 161,824 94,947
Corporate - - - -
---------- ---------- ------------ ---------
Consolidated $79,602 $55,248 $161,824 $94,947
</TABLE>
<TABLE>
<CAPTION>
Income Before Taxes
--------------------------------------------------
Three Months Six Months
Ended March 31, Ended March 31,
($ in thousands) 2000 1999 2000 1999
- ---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Professional Employer Services $ 230 $ 53 $ 609 $ 484
Temporary Staffing 1,215 678 2,517 1,257
Payroll Services 225 300 688 825
---------- ---------- ------------ ---------
1,670 1,031 3,814 2,566
Corporate (1,232) (780) (2,629) (1,709)
---------- ---------- ------------ ---------
Consolidated $ 438 $ 251 $ 1,185 $ 857
</TABLE>
The Company has no revenue derived outside of the United States.
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<PAGE> 14
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
the Company's risks of current as well as future acquisitions, risks from
potential workers' compensation claims and required payments, 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 and
technological changes and dependence upon key personnel.
The Company's revenues for the three months ended March 31, 2000 and 1999 were
$79,602,000 and $55,248,000, respectively, which represents an increase of
$24,354,000 or 44.1%. Of this increase, $8,527,046 was due to the acquisition of
the TeamStaff Companies with the balance due to internal growth. For the six
months ended March 31, 2000 and 1999, the Company's revenues were $161,824,000
and $94,947,000, respectively, which represents an increase of $66,877,000 or
70.4%. Of this increase, $37,517,353 was due to the acquisition of the TeamStaff
Companies with the balance due to internal growth.
Direct expenses were $75,105,000 for the three months ended March 31, 2000 and
$51,638,000 for the comparable period last year, representing an increase of
$23,467,000 or 45.4%. As a percentage of revenue, direct expenses for the three
months ended March 31, 2000 and 1999 were 94.4% and 93.5%. For the six months
ended March 31, 2000 and 1999, direct expenses increased $64,100,000 or 72.6%
from 88,343,000 to $152,443,000, respectively. These increases represent the
higher direct expenses associated with the increased PEO business. As a
percentage of revenue, direct expenses for the six months ended March 31, 2000
and 1999 were 94.2% and 93.0%.
Gross profits were $4,497,000 and $3,610,000 for the quarters ended March 31,
2000 and 1999, respectively, an increase of $887,000 or 24.6%. Gross profits, as
a percentage of revenue, were 5.6% and 6.5% for the quarters ended March 31,
2000 and 1999, respectively. Gross profits were $9,381,000 and $6,604,000 for
the six months ended March 31, 2000 and 1999,
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<PAGE> 15
respectively, representing an increase of $2,777,000 or 42.1%. Gross profits, as
a percentage of revenue, were 5.8% and 7.0% for the six months ended March 31,
2000 and 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
March 31, 2000 and 1999 were $3,580,000 and $2,868,000, respectively,
representing an increase of $712,000 or 24.8%. This increase is primarily
attributed to the TeamStaff Companies acquisition and the significant increase
in the PEO sales force. SG&A expenses for the six months ended March 31, 2000
and 1999 were $7,249,000 and $5,018,000, respectively, representing an increase
of $2,231,000 or 44.5%. This increase is similarly attributed to the TeamStaff
Companies acquisition, the significant increase in the PEO sales force and a
$175,000 charge for noncash consulting expenses associated with the issuance of
350,000 warrants to Donald & Company. Without the non-cash consulting expense,
SG&A for the six months ended March 31, 2000 would have increased 41.0% over the
similar period last year.
Depreciation and amortization for the quarters ended March 31, 2000 and 1999
increased to $310,000 from $295,000 respectively, or $15,000. The increase is
reflective of the amortization of goodwill and intangibles related to the
acquisition of the TeamStaff Companies. Depreciation and amortization for the
six months ended March 31, 2000 and 1999 increased to $620,000 from $471,000
respectively, or $149,000. The increase is primarily attributed to the
additional amortization expense related to the acquisition of the TeamStaff
Companies.
Interest expense for the quarter ended March 31, 2000 increased $13,000 to
$310,000 from $297,000 in the corresponding period in 1999 due to the additional
debt associated with the TeamStaff acquisition. Interest expense for the six
months ended March 31, 2000 increased $151,000 to $614,000 from $463,000 in the
six months ended March 31, 1999, due to the same reason as the increase in the
three month period.
The income tax expense for the quarter ended March 31, 2000 was $240,000 versus
a tax benefit of $276,000 for the similar period last year. For the six months
ended March 31, 2000 the tax expense was $559,000 versus a tax benefit of $5,000
for the similar period last year. Included in the second quarter of fiscal 1999
was a $400,000 net tax benefit reflecting the elimination of a deferred tax
valuation allowance. After eliminating the tax benefit, the income tax expense
for the six months ended March 31, 1999 would have been $395,000 and the
effective income tax rate would have been 46% versus 47% for the six months
ended March 31, 2000.
Net income for the quarter ended March 31, 2000 was $198,000 versus net income
of $527,000 for the similar period in 1999. After adjusting for the reversal of
the deferred tax valuation allowance of $400,000 in the prior year, net income
would have been $127,000, which makes the earnings increase for the quarter
ending March 31, 2000 $71,000 or 56% over the same period last year. Net income
for the six months ended March 31, 2000 was $626,000 as
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<PAGE> 16
compared to $862,000 in the prior period. After adjusting for the Donald &
Company non-cash consulting charge and the elimination of the deferred tax
valuation allowance, net income for the six months ended March 31, 2000 would
have been $729,000 and $462,000. This represents an increase of $267,000 or
57.8%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities improved in the first six months of
fiscal 2000 to $2,901,000 from net cash provided of $1,810,000 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 $183,000 in the six months ended
March 31, 2000 compared to $53,000 in the six months ended March 31, 1999. The
net cash used in financing activities increased in the six months ended March
31, 2000, compared to the six months ended March 31, 1999 due to limited
borrowings and repayments on long-term debt whereas last year the Company
completed various borrowings and made repayments on long-term debt. At March 31,
2000, the Company had cash of $4,202,000, restricted cash of $362,000 and net
accounts receivable of $14,518,000.
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%
(12.00% at March 31, 2000); (ii) a three-year term loan for $4.0 million, with a
five-year amortization, at prime plus 3% (12.00% at March 31, 2000) and (iii) a
$3.5 million revolving line of credit at prime plus 1% (10.00% at March 31,
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. 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 01, 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 April 30, 2000 and March 31, 2000 was $8,568,000
and $5,053,000, 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
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<PAGE> 17
lenders and any regulatory approval required. As of March 31, 2000 the Company
repurchased 83,600 shares at an average cost of $1.10.
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 $115,000 in
compensatory damages and $200,000 in punitive damages. The Company has posted a
bond for the full amount of the judgment and is appealing the judgement.
Management of the Company, after consultation with counsel, believes that there
is no basis for the awarding of punitive damages, and that the award of
compensatory damages was based on insufficient evidence. Although there can be
no assurances the Company will be successful in prosecuting the appeal, the
management of the Company, after consultation with counsel, believes it will
obtain a reversal of the judgment. If the Company is not successful with the
appeal, the Company would record expense of $315,000.
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.
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<PAGE> 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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> 19
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: May 15, 2000
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