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FORM 10-K
The U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[X]ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ]TRANSITION REPORT UNDER 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 CORPORATION
(Name of registrant as specified in its charter)
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<CAPTION>
Ohio 31-1209872
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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110 E. Wilson Bridge Road
Worthington, Ohio 43085
(Address of principal executive offices)(Zip Code)
Registrant's telephone number: 614-848-3995
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to the filing
requirements for at least the past 90 days. YES_X_ NO___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
Aggregate market value of voting stock held by non-affiliates of
registrant as of March 18, 1997 was approximately $17,181,600.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 3,335,088 shares of
Common Stock were outstanding at, March 1, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Proxy Statement for 1997 Annual Meeting of Shareholders, in part, as
indicated.
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PART I
ITEM 1. BUSINESS.
GENERAL
TEAM America Corporation (the "Company") is a Professional Employer
Organization ("PEO") which was founded in 1986 and incorporated in Ohio in
1987. The Company through its subsidiaries provides comprehensive and
integrated human resource management services to small and medium-sized
businesses, thereby allowing such businesses to outsource their human resource
responsibilities. Each subsidiary (or "Team") of the Company employs worksite
employees from a different industry group category, such as services and
commercial, manufacturing or professional. The Company offers a broad range of
services including human resource administration, regulatory compliance
management, employee benefits administration, risk management services and
employer liability protection, payroll and payroll tax administration, and
placement services. The Company provides such services by establishing an
employment relationship with the worksite employees of its clients,
contractually assuming substantial employer responsibilities with respect to
worksite employees, and instructing its clients regarding employment practices.
While the Company becomes the legal employer for most purposes, the client
remains in operational control of its business. As of December 31, 1996, the
Company provided professional employer services to approximately 241 clients
and approximately 3,646 worksite employees, substantially all of whom were
located in the midwestern United States, principally Ohio.
By entering into an agreement with its clients whereby the Company
participates with the client in the employment of its worksite employees, the
Company is able to take advantage of certain economies of scale in the
"business of employment" and to pass those benefits on to its clients and
worksite employees. As a result of such employment arrangements, the Company is
able to obtain, at an economical cost, services and expertise similar to those
provided by the human resource departments of large companies. The Company's
services provide substantial benefits to both the client and its worksite
employees. The Company believes its services assist business owners by (i)
permitting the managers of the client to concentrate on the client's core
business as a result of the reduced time and effort that they are required to
spend dealing with complex human resource, legal and regulatory compliance
issues and employee administration, and (ii) managing escalating costs
associated with unemployment, workers' compensation, health insurance coverage,
worksite safety programs and employee-related litigation. The Company also
believes that its worksite employees benefit from their relationship with the
Company by having access to better, more affordable benefits, enhanced benefit
portability, improved worksite safety and employment stability.
The Company believes that there are opportunities for growth in the
PEO industry as a result of the increasing trend of businesses to outsource
non-core activities and functions, the low
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market penetration of the PEO industry, and the expanding number of small
businesses in the United States. The Company also believes that growing human
resource, legal and regulatory complexities and the need to invest significant
capital in service delivery infrastructures and management information systems
should lead to significant consolidation opportunities in the PEO industry.
GROWTH STRATEGY
The Company intends to further strengthen its position in Ohio and
other midwestern United States markets by pursuing the following business
strategies:
DELIVER HIGH-QUALITY SERVICES AND EXPAND CLIENT BASE. By offering a
broad and increasing range of high-quality services, the Company believes it is
attractive to employers who are seeking a single-source solution to their human
resource needs. The Company intends to continue to focus on providing
high-quality, value-added services as a means to differentiate itself from
competitors. Certain PEOs compete primarily by offering comparatively
lower-cost health and workers' compensation coverage to high risk industries or
by providing principally basic payroll and payroll tax administration with only
limited additional services. In contrast, the Company provides comprehensive
and integrated human resource management to clients who are selected after
performing a risk management assessment. The Company believes that its strategy
of emphasizing the quality and breadth of its services results in lower client
turnover and more consistent growth and profits than the strategy of certain
PEOs which compete by offering comparatively lower-cost coverage or limited
services.
INCREASE PENETRATION OF EXISTING MARKETS. The Company believes that
additional market penetration in established markets offers significant growth
potential. Based upon data obtained from the U.S. Department of Commerce, the
Company believes that it serves less than 1.0% of the total number of
businesses in Ohio having more than 20 and fewer than 500 employees. In
established markets, the Company's ability to achieve its growth objectives is
enhanced by a larger number of referrals, a higher client retention rate, a
more experienced sales force and greater momentum in its marketing efforts than
in new markets. The Company intends to capitalize on these advantages and to
achieve higher penetration in its existing markets by hiring additional sales
personnel and improving sales productivity. In addition, the Company intends to
increase significantly its advertising and promotional efforts in order to
educate the market place regarding the quality and breadth of the Company's
services and the benefits of "partnering in employment" through outsourcing the
human resource function. The Company believes that increasing its penetration
in existing markets will allow the Company to leverage its current economies of
scale, thereby increasing its cost effectiveness and profit margins.
EXPAND THROUGH ACQUISITIONS. The PEO industry is highly fragmented,
with in excess of 2,000 companies providing PEO services in 1995 according to
the National Association of Professional Employer Organizations ("NAPEO").
Accordingly, the Company believes significant
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opportunities for consolidation exist in the PEO industry. The Company believes
that this industry consolidation will be driven by growing human resource,
legal and regulatory complexities, increasing capital requirements, and the
significant economies of scale available to PEOs with a regional concentration
of clients. The Company intends to expand in its current markets in the
midwestern United States and possibly to enter selected new markets by
acquiring established high-quality PEOs in order to provide a platform for
future regional consolidation. The Company has identified certain fundamental
attributes which characterize attractive markets such as (i) proximity to a
major metropolitan area, (ii) regulatory receptivity to PEOs, (iii) prior
successful introduction of the PEO concept, (iv) favorable economic conditions,
and (v) a high concentration of small to medium-sized businesses.
DEVELOP PROPRIETARY INFORMATION SYSTEMS. The Company will continue to
develop its proprietary information systems which will enable the Company to
integrate all aspects of the administration of payroll, human resources and
employee benefits, thereby providing a significant competitive advantage in
managing costs and delivering a full range of high-quality services.
TARGET SELECTED CLIENTS IN GROWTH INDUSTRIES. The Company attempts to
target, and tailors its services to meet the needs of, businesses with between
20 and 500 employees in industries which the Company believes have the
potential for significant growth. As of December 31, 1996, the Company's
clients had an average of approximately 15 worksite employees, compared to the
1995 industry-wide average of 16 worksite employees according to a NAPEO
survey. The Company believes that its targeted businesses are likely to (i)
desire the wide range of employee benefits offered by the Company, (ii)
recognize the burden of their human resource administration costs, (iii)
experience greater employment-related regulatory burdens, and (iv) be more
financially stable. In addition, the Company believes that targeting such
businesses results in greater marketing efficiency, lower business turnover due
to client business failure, and less exposure to credit risk. As of December
31, 1996, approximately 17% of the Company's clients fell within its target
market of businesses with 20 to 500 employees. The Company believes that, in
the event that it is unable to increase the portion of its clients which are in
its target market, it will not experience any material adverse consequences,
but may not realize the potential benefits discussed above.
CLIENT SERVICES
CLIENT SERVICE TEAMS. The Company has two client service directors who
oversee a service staff consisting of eight customer service representatives
("CSRs") and two customer service administrators. A team consisting of a client
service director, a client service representative and a client service
administrator is assigned to each client. The client service team is
responsible for administering the client's personnel and benefits, coordinating
the Company's response to client needs for administrative support and
responding to any questions or problems encountered by the client.
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The CSR acts as the principal client service representative of the
Company and typically is on call and in contact with each client throughout the
week. The CSR serves as the communication link between the Company's various
departments and the Company's on-site supervisor, who in many cases is the
manager of the client's business. Accordingly, the CSR is involved in every
aspect of the Company's delivery of services to the client. For example, the
CSR is responsible for gathering all information necessary to process each
payroll of the client and for all other information needed by the Company's
human resources, accounting and other departments with respect to such client
and its worksite employees. The CSRs also actively participate in hiring,
disciplining and terminating worksite employees, administering employee
benefits, and responding to employee complaints and grievances.
CORE ACTIVITIES. The Company provides professional employer services
through six core activities: (i) human resource administration, (ii) regulatory
compliance management, (iii) employee benefits administration, (iv) risk
management services and employer liability protection, (v) payroll and payroll
tax administration, and (vi) placement services.
HUMAN RESOURCE ADMINISTRATION. The Company, as an employer, provides
its clients with a broad range of human resource services including on-going
supervisory education and training regarding risk management and employment
laws, policies and procedures. In addition, the Company's human resource
department handles sensitive and complicated employment issues such as employee
discipline, termination, sexual harassment, and wage and salary planning and
analysis. The Company is in the process of expanding its human resource
services to assist clients in areas such as employee morale and worksite
employee and on-site supervisor training. The Company provides a comprehensive
employee handbook to all worksite employees which includes customized,
site-specific materials concerning each worksite. In addition, the Company
maintains extensive files and records regarding worksite employees for
compliance with various state and federal laws and regulations. This extensive
record keeping is designed to substantially reduce legal actions arising from
lack of proper documentation.
REGULATORY COMPLIANCE MANAGEMENT. The Company, under its standard
client agreement, assumes responsibility for complying with many employment
related regulatory requirements. As an employer, the Company must comply with
numerous federal and state laws, including (i) certain tax, workers'
compensation, unemployment, immigration, civil rights, and wage and hour laws,
(ii) the Americans with Disabilities Act of 1990, (iii) the Family and Medical
Leave Act, (iv) laws administered by the Equal Employment Opportunity
Commission, and (v) employee benefits laws such as ERISA and COBRA. The Company
provides bulletin boards to its clients and maintains them for compliance with
required posters and notices. The Company also assists its clients in their
efforts as employers to comply with and understand certain other laws and
responsibilities with respect to which the Company does not assume liability
and responsibility. For example, while the Company provides significant safety
training and risk management services to its clients, it does not assume
responsibility for compliance with the Occupational Safety and Health Act
because the client controls its worksite facilities and
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equipment.
EMPLOYEE BENEFITS ADMINISTRATION. The Company offers a broad range of
employee benefit programs to its worksite employees. The Company administers
such benefit programs, thereby reducing the administrative responsibilities of
its clients for maintaining complex and tax-qualified employee benefit plans.
By combining its multiple worksite employees, the Company is able to take
advantage of certain economies of scale in the administration and provision of
employee benefits. As a result, the Company is able to offer to its worksite
employees benefit programs which are comparable to those offered by large
corporations. In fact, some programs offered by the Company would not otherwise
be available to the worksite employees of many clients if such clients were the
sole employers. Eligible worksite and corporate staff employees of the Company
are entitled to participate in the Company's employee benefit programs without
discrimination. Such programs include life insurance coverage as well as the
Company's cafeteria plan which offers a choice of different health plans and
dental, vision and prescription card coverage. In addition, the Company permits
each qualified employee to participate in the Company's 401(k) retirement plan
and the Company's dependent care assistance program. Each worksite employee is
given (i) the opportunity to purchase group-discounted, payroll-deducted auto,
homeowners or renters insurance and long-term disability insurance, and (ii)
access to store discount programs, free checking accounts with participating
banks, a prepaid legal services plan, and various other employee benefits. The
Company believes that by offering its worksite employees a broad range of large
corporation style benefit plans and programs it is able to reduce worksite
employee turnover which results in cost savings for the Company and its
clients. The Company performs regulatory compliance and plan administration in
accordance with state and federal benefit laws.
RISK MANAGEMENT SERVICES AND EMPLOYER LIABILITY PROTECTION. The
Company's risk management of the worksite includes policies and procedures
designed to proactively prevent and control costs of lawsuits, fines,
penalties, judgments, settlements and legal and professional fees. In addition,
the Company controls benefit plan costs by attempting to prevent fraud and
abuse by closely monitoring claims. Other risk management programs of the
Company include effectively processing workers' compensation and unemployment
claims and aggressively contesting any suspicious or improper claims. The
Company believes that such risk management efforts increase the profitability
of the Company by reducing the Company's liability exposure and by increasing
the value of the Company's services to its clients.
Many of the Company's direct competitors in both the public and
private sector are self-insured for health care, workers' compensation and
employment practices risks. The Company, however, maintains insurance for
employment practices risks, including liability for employment discrimination
and wrongful termination. The Company believes that it historically has been
able to achieve a higher level of client satisfaction and security by being
insured for such risks. The Company also believes that being insured has
greatly reduced its liability exposure and, consequently, the potential
volatility of its income from operations because it is
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not required to rely exclusively on contractual indemnification from its
clients, many of whom do not carry insurance which covers employment practices
liability or do not have sufficient net worth to support their indemnification
obligations. The Company has arranged for a large surplus lines insurance
company rated A++ (superior) by A.M. Best Company to provide to the Company and
to its clients, as additional insureds, employment practices liability
insurance; however, there can be no assurance that such insurance will be
available to the Company in the future on satisfactory terms, if at all, or if
available, will be sufficient. The Company believes that this arrangement is
better received by clients who are seeking to reduce their employment liability
exposures and also prevents the Company from becoming involved in adversarial
situations with its clients by eliminating the need for the Company to seek
indemnification. The Company continues to study the possibility of becoming
self-insured in the future for selected risks and believes that significant
opportunities to self-insure may arise in the future.
PAYROLL AND PAYROLL TAX ADMINISTRATION. The Company provides its
clients with comprehensive payroll and payroll tax administration which
substantially eliminates client responsibility for payroll and payroll taxes
beyond verification of payroll information. Unlike traditional payroll service
providers which do not act as employers, the Company, as the employer, assumes
liability and responsibility for the payroll and payroll taxes of its worksite
employees and the obligations of its client to make federal and state
unemployment and workers' compensation filings, FICA deposits, child support
levies and garnishments, and new hire reports. The Company receives all payroll
information, calculates, processes and records all such information, and issues
payroll checks and/or directly deposits the net pay of worksite employees into
their bank accounts. The Company delivers all payroll checks either to the
on-site supervisor of the worksite or directly to the worksite employees. As
part of the Company's strategic plan of expanding its information technology,
the Company is in the process of developing client-based software interfaces to
make it possible for clients to enter and submit payroll information via
computer modems.
PLACEMENT SERVICES. As a part of its overall employment relationship,
the Company assists its clients in their efforts to hire new employees. The
Company passes the cost of advertising for such positions through to its
client. As a result of the Company's advertising volume and contracts with
newspapers and other media, the Company is able to place such advertisements at
significantly lower prices than those available to the Company's clients. In
addition, in some cases, the Company does not have to place such advertisements
because it already has multiple qualified candidates in a job bank or pool of
candidates. The Company interviews, screens and pre-qualifies candidates based
on criteria established in a job description prepared by the Company with the
client's assistance and performs background checks. In addition, depending on
the needs of the client, the Company tests worksite employees for skills,
health, and drug-use in accordance with state and federal laws. Following the
selection of a candidate, the Company completes all hiring paperwork and, if
the employee is eligible, enrolls the employee in the Company's benefit
programs. The Company believes that its unique approach in providing such
services gives the Company a significant advantage over its
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competitors. Such services also enable the Company to reduce its administrative
expenses and employee turnover and to avoid hiring unqualified or problem
employees.
CLIENTS
The Company and its clients are each responsible for certain specified
employer-related obligations. While the Company becomes the legal employer for
most purposes, the client remains in operational control of its business. The
Company appoints an on-site supervisor for each client worksite. In many cases,
such on-site supervisor is the manager of the client's business. The Company
requires each on-site supervisor to enter into a standard on-site supervisor
employment agreement with the Company which specifies the on-site supervisor's
duties, responsibilities and limitations of authority.
Pursuant to the provisions of its standard client agreement, the
Company is the legal employer of the client's worksite employees for most
purposes and has the right, among others, to hire, supervise, terminate and set
the compensation of such worksite employees. 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 average annual administrative fee is approximately
$1,000 per employee. Such 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), which fixed fee or
percentage is negotiated at the time the client 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 arrangements and terms. In addition to the items noted above, each
client must pay a one-time enrollment fee of $50.00 plus $10.00 per worksite
employee. Consistent with PEO industry practice, the Company recognizes all
amounts billed to its clients as revenue because the Company is at risk for the
payment of its direct costs, whether or not the Company's clients pay the
Company on a timely basis or at all.
At December 31, 1996, the Company served approximately 241 clients and
approximately 3,646 worksite employees resulting in an average of 15 worksite
employees per client. No single client accounted for more than 10% of the
Company's revenues for the twelve months ended December 31, 1996. However,
approximately 94% of the Company's 1996 revenues were derived from clients in
Ohio. As of December 31, 1996, approximately 17% of the Company's clients fell
within its target market of businesses with 20 to 500 employees and the
remaining 83% of the Company's clients each had less than 20 employees. The
Company's client base is
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broadly distributed throughout a wide variety of industries. As of December 31,
1996, the number of Company clients were distributed among the industries
indicated below:
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Industry Group Number of Clients
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Professional 72
Manufacturing 48
Construction 29
Commercial 26
Transportation 7
Non-Profit 9
Agriculture 8
Services 8
Other 34
---
Total 241
===
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The Company has benefitted from a high level of client retention,
resulting in a significant recurring revenue stream. The infrequent attrition
that the Company has experienced has typically been attributable to a variety
of factors, including (i) sale or acquisition of the client, (ii) termination
by the Company resulting from the client's inability to make timely payments,
(iii) client business failure or downsizing, and (iv) client nonrenewal due to
price or service dissatisfaction. The Company believes that the risk of a
client terminating its relationship with the Company decreases substantially
after the client has been associated with the Company for over one year because
of the client's increased appreciation of the Company's value-added services
and the difficulties associated with a client reassuming the burdens of being
the sole employer. The Company believes that only a small percentage of
nonrenewing clients withdraw due to dissatisfaction with the Company's services
or to retain the services of a competitor.
SALES AND MARKETING
The Company markets its services through a direct sales force of four
sales executives. Each of the Company's sales executives enters into an
employment agreement with the Company which establishes a performance-based
compensation program, which currently includes a base amount, sales commissions
and a bonus for each new worksite employee enlisted. Such employment agreements
contain certain non-competition and non-solicitation provisions which prohibit
the sales executives from competing with the Company. The Company attributes
the productivity of its sales executives in part to their experience in fields
related to one or more of the Company's core services. The background of the
Company's sales executives includes experience in industries such as
information services, health insurance, business consulting and commercial
sales. The Company's sales materials emphasize its broad range of high-quality
services and the resulting benefits to clients and worksite employees.
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The Company's sales and marketing strategy is to achieve higher
penetration in its existing markets by hiring additional sales personnel and
increasing sales productivity. The Company also intends to significantly
increase its advertising and promotional efforts in order to improve awareness
of the PEO industry, the Company and its value-added services. Currently, the
Company generates sales leads from two primary sources, referrals and direct
sales efforts. These leads result in initial presentations to prospective
clients. The Company's sales executives gather information about the
prospective client and its employees, including job classification, workers'
compensation and health insurance claims history, salary and the desired level
of employee benefits. The Company performs a risk management analysis of each
prospective client which involves a review of such factors as the client's
credit history, financial strength and health insurance and unemployment claims
history. Following a review of these factors, a client proposal is prepared
for acceptable clients. Management believes that its stringent underwriting
procedures greatly reduce the controllable costs and liability exposure of the
Company. In addition, the Company believes that the application of such
underwriting guidelines is in part responsible for the Company's high rate of
client retention.
Once a prospective client accepts the Company's proposal, the new
client is quickly incorporated into the Company's system by a "client service
team" consisting of one of the Company's two client service directors, a CSR
and a client service administrator. The client service team is responsible for
administering the client's personnel and benefits, coordinating the Company's
response to client needs for administrative support and responding to any
questions or problems encountered by the client.
INFORMATION TECHNOLOGY
The Company's primary information processing center is located at its
corporate headquarters. The Company's other offices are connected to the
centralized system through network dial-up services. The Company uses
industry-standard software to process its payroll and other commercially
available software to manage standard business functions such as accounting and
finance.
Since October 1995, the Company has been developing an integrated
information system based on client-server technology using an OracleTM
relational database. The Company's new system will allow clients to enter and
submit payroll data via modem. The new system will also be used to store and
retrieve information regarding all aspects of the Company's business, including
human resource administration, regulatory compliance management, employee
benefits administration, risk management services, payroll and payroll tax
administration, and placement services. The Company's development of such
system is in the parallel testing phase and the Company expects that the new
system will be operational in 1997. The Company believes that this system will
be capable of being upgraded and expanded to meet the needs of the Company for
the next five years.
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COMPETITION
The PEO industry is highly fragmented, with in excess of 2,000
companies currently providing PEO services, mostly in a single market or
region. The Company's competitors include traditional in-house human resource
departments and other PEOs. The Company also competes with providers of
unbundled employment-related services such as payroll processing firms, human
resource consultants, and workers compensation and unemployment administrators.
Certain of such companies, many of which have greater financial and other
resources than the Company, are seeking to enter the professional employer
services market. The Company believes that the primary elements of competition
are quality of service, choice and quality of benefits, reputation and price.
The Company believes that service quality, name recognition, regulatory
expertise, financial resources, risk management and data processing capability
distinguish leading PEOs from the rest of the industry.
The Company believes that barriers to entry into the PEO industry are
increasing as a result of several factors, including the following: (i) the
complexity of the PEO business and the need for expertise in multiple
disciplines; (ii) the need to invest significant capital in service delivery
infrastructures and management information systems; (iii) the requirement for
sophisticated management information systems to track all aspects of business
in a high-growth environment; and (iv) the three to five years of experience
required to establish experience ratings in the key cost areas of workers'
compensation, health insurance and unemployment.
CORPORATE EMPLOYEES
As of December 31, 1996, the Company had 54 corporate employees.
INDUSTRY REGULATION
OVERVIEW
The Company's professional employer operations are subject to
extensive state and federal regulations that include operating, fiscal,
licensing and certification requirements. Adding complexity to the Company's
regulatory environment are (i) uncertainties resulting from the non-traditional
employment relationships created by PEOs, (ii) variations in state regulatory
schemes, and (iii) the ongoing evolution of regulations regarding health care
and workers' compensation.
Many of the federal and state laws and regulations relating to labor,
tax and employment matters applicable to employers were enacted prior to the
development of non-traditional employment relationships and, accordingly, do
not specifically address the obligations and
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responsibilities of PEOs. Moreover, the Company's PEO services are regulated
primarily at the state level. Regulatory requirements regarding the Company's
business therefore vary from state to state, and as the Company enters new
states it will be faced with new regulatory and licensing environments. There
can be no assurance that the Company will be able to satisfy the licensing
requirements or other applicable regulations of any particular state in which
it is not currently operating.
The application of many laws to the Company's PEO services will depend
on whether the Company is considered an employer under the relevant statutes
and regulations. The common law test of the employment relationship is
generally used to determine employer status for benefit plan purposes under
Employee Retirement Income Security Act of 1974, as amended ("ERISA") the
Internal Revenue Code of 1986, as amended (the "Code"), the workers'
compensation laws of many states and various state unemployment laws. This
common law test involves an examination of approximately 20 factors to
ascertain whether an employment relationship exists between a worker and a
purported employer. By contrast, certain statutes such as those relating to PEO
licensing and federal income tax withholding use differing or more expansive
definitions of employer. In addition, from time to time, there have been
proposals to enact a statutory definition of employer for other purposes of the
Code.
While the Company cannot predict with certainty the development of
federal and state regulations, management will continue to pursue a practice
strategy of educating administrative authorities as to the advantages of PEOs
and assisting in the development of regulation which appropriately accommodates
their legitimate business function.
PEO SERVICES
PEO LICENSING REQUIREMENTS. While many states do not explicitly
regulate PEOs, approximately one-third of the states (not including Ohio) have
enacted laws that have licensing or registration requirements for PEOs and
several additional states, including Ohio, are considering such laws. Such laws
vary from state to state but generally provide for the monitoring of the fiscal
responsibility of PEOs. None of the other midwestern states in which the
Company presently operates or intends to operate regulates PEOs. State
regulation assists in screening insufficiently capitalized PEO operations and,
in the Company's view, has the effect of legitimizing the PEO industry
generally by resolving interpretative issues concerning employee status for
specific purposes under applicable state law. However, because existing
regulations are relatively new, there is limited interpretive or enforcement
guidance available. The development of additional regulations and
interpretation of existing regulations can be expected to evolve over time. The
Company has actively supported such regulatory efforts, including certain
proposed legislation in Ohio that would require PEOs to be registered with the
state. Such proposed Ohio legislation would not have a material adverse effect
on the Company's business, financial condition or results of operations, rather
the Company believes that such legislation would benefit the Company and the
PEO industry by recognizing the status of PEOs as legal employers.
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FEDERAL AND STATE EMPLOYMENT TAXES. The Company assumes the sole
responsibility and liability for the payment of federal and state employment
taxes with respect to wages and salaries paid to its employees, including
worksite employees. There are essentially three types of federal employment tax
obligations: (i) income tax withholding requirements, (ii) social security
obligations under FICA, and (iii) unemployment obligations under FUTA. Under
these Code sections, the employer has the obligation to withhold and remit the
employer portion and, where applicable, the employee portion of these taxes.
EMPLOYEE BENEFIT PLANS. The Company offers various employee benefit
plans to its worksite employees, including a 401(k) plan, a cafeteria plan, a
group health plan, a group life insurance plan, a group disability insurance
plan and an employee assistance plan. Generally, employee benefit plans are
subject to provisions of both the Code and ERISA. In order to qualify for
favorable tax treatment under the Code, the plans must be established and
maintained by an employer for the exclusive benefit of its employees. Most of
these benefit plans are also offered to the Company's corporate employees.
Representatives of the IRS have publicly stated that a Market Segment
Study Group established by the IRS is examining whether PEOs are the employers
of worksite employees under Code provisions applicable to employee benefit
plans and consequently able to offer to worksite employees benefit plans that
qualify for favorable tax treatment and whether client company owners are
employees of PEOs under Code provisions applicable to employee benefit plans.
The Company has limited knowledge of the nature, scope and status of the Market
Segment Study because it is not a part thereof and the IRS has not publicly
released any information regarding the study to date. In addition, the
Company's 401(k) plan was audited for the year ended December 31, 1992, and as
a part of that audit, the IRS regional office has asked the IRS national office
to issue a TAM regarding whether or not the Company is the employer for benefit
plan purposes. The Company has stated its position in a filing with the IRS
that it is the employer for benefit plan purposes. The Company is unable to
predict the timing or nature of the findings of the Market Segment Study Group,
the timing or conclusions of the TAM, or the ultimate outcome of such
conclusions or findings. If the IRS study were to conclude that a PEO is not
an employer of its worksite employees for plan purposes, then worksite
employees could not continue to make contributions to the Company's 401(k) plan
or cafeteria plan. The Company believes that, although unfavorable to the
Company, a prospective application by the IRS of an adverse conclusion would
not have a material adverse effect on its financial position and results of
operations. If such conclusion were applied retroactively, then employees'
vested account balances could become taxable immediately, the Company would
lose its tax deduction for deposits to the plan trust which would become a
taxable trust, and penalties could be assessed. In such a scenario, the Company
would face the risk of client dissatisfaction as well as potential litigation.
A retroactive application by the IRS of an adverse conclusion could have a
material adverse effect on the Company's financial position and results of
operations. While the Company believes that a retroactive disqualification is
unlikely, there can be no assurance as to the ultimate resolution of these
issues.
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<PAGE> 14
In addition to the employer/employee relationship issues described
above, pension and profit-sharing plans, including the Company's 401(k) plan,
must satisfy certain other requirements under the Code. These other
requirements are generally designed to prevent discrimination in favor of
highly compensated employees to the detriment of non-highly compensated
employees with respect to both the availability of, and the benefits, rights
and features offered in, qualified employee benefit plans. The Company applies
the nondiscrimination requirements of the Code to ensure that its 401(k) plan
is in compliance with the requirements of the Code.
WORKERS' COMPENSATION. Workers' compensation is a state mandated,
comprehensive insurance program that requires employers to fund medical
expenses, lost wages and other costs resulting from work-related injuries
illnesses and deaths. In exchange for providing workers' compensation coverage
for employees, employers are not subject to litigation by employees for
benefits in excess of those provided by the relevant state statute. In most
states, the extensive benefits coverage (for both medical cost and lost wages)
is provided through the purchase of commercial insurance from private insurance
companies, participation in state-run insurance funds or employer
self-insurance. Workers' compensation benefits and arrangements vary on a
state-by-state basis and are often highly complex. These laws establish the
rights of workers to receive benefits and to appeal benefit denials.
As a creation of state law, workers' compensation is subject to change
by the state legislature in each state and is influenced by the political
processes in each state. Several states, such as Ohio, have mandated that
employers receive coverage only from state operated funds. Although Ohio
maintains such a "state fund," it does allow employers of a sufficient size and
with sufficient ties to the state to self-insure for workers' compensation
purposes. Employers granted the privilege of self-insurance must be self-funded
for at least the first $50,000 of cost in every claim but may purchase private
insurance for costs in excess of that amount. Ohio also allows its "state fund"
employers who meet certain criteria as a group to band together for risk
pooling purposes. In addition, Ohio provides safety prevention program premium
discounts. Although workers' compensation in Ohio is mandatory and generally
shields employers from common law civil suits, the Ohio General Assembly has
created an exception for so-called "intentional torts." In 1995, the General
Assembly enacted a law imposing a very strict standard for plaintiffs to bring
such suits. Similar legislative efforts in the past, however, were struck down
by the Ohio Supreme Court.
Ohio and certain other states have recently adopted legislation
requiring that all workers' compensation injuries be treated through a managed
care program. Ohio's program became effective in March 1997. The Company
believes that such program will not significantly impact the operations of the
Company because all Ohio employers will be subject to such new laws and
regulations.
OTHER EMPLOYER RELATED REQUIREMENTS. As an employer, the Company is
subject to a wide variety of federal and state laws and regulations governing
employer-employee relationships,
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<PAGE> 15
including the Immigration Reform and Control Act, the Americans with
Disabilities Act of 1990, the Family Medical Leave Act, the Occupational Safety
and Health Act, wage and hour regulations, and comprehensive state and federal
civil rights laws and regulations, including those prohibiting discrimination
and sexual harassment. The definition of employer may be broadly interpreted
under these laws.
Responsibility for complying with various state and federal laws and
regulations is allocated by agreement between the Company and its clients, or
in some cases is the joint responsibility of both. Because the Company acts as
an employer of worksite employees for many purposes, it is possible that the
Company could incur liability for violations of laws even though the Company is
not contractually or otherwise responsible for the conduct giving rise to such
liability. The Company's standard client agreement generally provides that the
client will indemnify the Company for liability incurred as a result of an act
of negligence of a worksite employee under the direction and control of the
client or to the extent the liability is attributable to the client's failure
to comply with any law or regulation for which it has specified contractual
responsibility. However, there can be no assurance that the Company will be
able to enforce such indemnification and the Company may therefore be
ultimately responsible for satisfying the liability in question.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of the Company or the PEO industry to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
(i) potential for unfavorable interpretation, of government regulations
relating to labor, tax, insurance and employment matters; (ii) changes in the
laws regulating collection and payment of payroll taxes and employee benefits,
including 401(k) plans; (iii) potential loss of qualified status for the
Company's 401(k) plan as a result of request by Internal Revenue Service
("IRS") for Tax Advice Memorandum ("TAM"); (iv) general market conditions,
including demand for the Company's products and services, competition and price
levels or adverse economic developments in Ohio where a substantial portion of
the Company's business is concentrated; (v) the Company's ability to offer its
services in states other than Ohio where it has little or no market
penetration; (vi) higher than expected workers' compensation claims, increases
in rates, or changes in applicable laws or regulations; (vii) the level and
quality of acquisition opportunities available to the Company and the ability
to properly manage growth when acquisitions are made; (viii) short-term nature
of client agreements and the financial condition of the Company's clients; (ix)
liability for employment practices of clients; and (x) additional regulatory
requirements affecting the Company.
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<PAGE> 16
ITEM 2. PROPERTIES.
FACILITIES
The Company maintains five facilities located in Columbus, Cleveland
and Dayton, Ohio, Indianapolis, Indiana and Orlando, Florida. The Company's
headquarters are located in a suburb of Columbus, Ohio in a leased building
that houses the Company's executive offices and PEO operations for central Ohio
worksite employees. The Company's other offices are used to service its local
PEO operations and are also leased. The Company believes that its current
facilities are adequate for its current needs and that additional suitable
space will be available as required.
ITEM 3.
LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings,
other than ordinary routine litigation incidental to its business. The Company
does not believe that any such pending legal proceedings, individually or in
the aggregate, will have a material adverse effect on the Company's financial
results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 24, 1996, prior to the completion of the Company's initial
public offering (the "Offering"), the shareholders unanimously approved the
following:
a. An increase in the number of shares of authorized capital stock to
11,000,000 shares, no par value, of which 500,000 are designated as voting
preferred shares, 500,000 are designated as nonvoting preferred shares, and
10,000,000 are designated as common shares.
b. A conversion of all of the Company's previously issued Class A
common shares and Class B common shares to a single class of common shares
and the elimination of the classes of Class A common shares and Class B
common shares.
c. A conversion of the Company's previously issued Class A preferred
shares, $100 par value, to an equal number of common shares and the
elimination of the class of Class A preferred shares.
d. A 184-to-1 split of the common shares prior to the Offering.
e. An Incentive Stock Plan for employees which provides for the
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<PAGE> 17
issuance of up to 350,000 common shares. The maximum number of shares, that
may be awarded during any calendar year, may not exceed 10% of the total
number of issued and outstanding common shares of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Shares have been quoted on the Nasdaq National
Market under the symbol "TMAM" since the commencement of the Offering on
December 10, 1996. The high and low bid price for the period from December 10,
1996 through December 31, 1996 as reported by the Nasdaq was 13 1/4 and 11,
respectively. At March 1, 1997, the Company had 54 shareholders of record.
The Company has not paid any cash dividends to holders of its Common
Shares and does not anticipate paying any cash dividends in the foreseeable
future, but intends instead to retain future earnings for reinvestment in its
business. The payment of any future dividends would be at the discretion of the
Company's Board of Directors and would depend upon, among other things, future
earnings, operations, capital requirements, the general financial condition of
the Company and general business conditions.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical financial data for the Company
should be read in conjunction with the Company's Consolidated Financial
Statements, including the Notes, thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The statement of
operations data set forth below with the respect to the years ended December
31, 1993, 1994, 1995 and 1996 and the balance sheet data as of December 31,
1993, 1994, 1995 and 1996 are derived from audited consolidated financial
statements. The statement of operations data for the year ended April 30, 1992
and the eight month transition period ended December 31, 1992 and the balance
sheet data as of April 30, 1992 and December 31, 1992 are unaudited.
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<PAGE> 18
<TABLE>
<CAPTION>
EIGHTH MONTH YEAR
YEAR ENDED DECEMBER 31, TRANSITION ENDED
-------------------------------------------------- PERIOD ENDED DECEMBER APRIL 30,
1996 1995 1994 1993 31, 1992(1) 1992
---- ---- ---- ---- --------------------- ----
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues....................... $95,468 $74,921 $56,070 $41,252 $23,708 $30,862
Direct costs:
Salaries and wages......... 81,262 63,502 47,602 34,555 19,859 27,356
Payroll taxes, workers'
compensation premiums,
employee benefits and
other..................... 8,763 7,594 5,578 4,018 2,290 2,036
----- ----- ----- ----- ----- -----
Gross profit................... 5,443 3,825 2,890 2,679 1,559 1,470
Operating expenses:
Administrative salaries,
wages and employment
taxes.................... 2,741 2,013 1,428 1,284 730 983
Other general and
administrative expenses... 1,288 1,039 857 646 468 620
Advertising................ 272 116 66 61 26 87
Depreciation and
amortization.............. 125 43 50 54 33 34
--- -- -- -- -- --
Total operating expenses.. 4,426 3,211 2,401 2,045 1,257 1,724
----- ----- ----- ----- ----- -----
Operating income (loss)........ 1,017 614 489 634 302 (254)
Other income (expenses), net... 65 (77) (37) (47) (41) 21
-- --
Income (loss) before taxes..... 1,082 537 452 587 261 (233)
Income tax expense
(benefit)..................... 458 247 182 (172) 109 --
Cumulative effect of change
in accounting................ -- -- -- -- 91 --
-- -- -- -- -- --
Net income (loss).............. $624 $290 $270 $759 $243 $(233)
==== ==== ==== ==== ==== =====
Earnings (loss) per common and
common equivalent
shares (2)................... $ 0.29 $ 0.14 $ 0.14 $ 0.46 $ 0.21 $ (.20)
Weighted average shares
outstanding (2).............. 2,160 2,130 1,920 1,669 1,160 1,165
</TABLE>
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<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
STATISTICAL DATA:
Average gross payroll
per employee................. $23,946 $21,566 $18,419 * * *
Worksite employees at period
end (3)..................... 3,646 3,141 2,748 2,421 * *
Clients at period end(4)....... 241 184 168 144 * *
Average number of worksite
employees per client
at period end................ 15.1 17.1 16.4 16.8 * *
Gross profit margin (5)........ 5.7% 5.1% 5.2% 6.5% 6.6% 4.8%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, APRIL
1996 1995 1994 1993 1992 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............ $13,484 $ (73) $ (263) $ (583) $ (1,346) $(1,413)
Total assets......................... 19,899 4,986 3,847 2,663 1,947 2,102
Long-term obligations and
redeemable preferred
stock.............................. 386 364 329 245 225 187
Total shareholders' equity
(deficit).......................... 14,147 212 (105) (405) (1,163) (1,409)
</TABLE>
* Data not available for period indicated.
(1) Effective as of May 1, 1992, the Company changed its fiscal year end from
April 30 to December 31.
(2) See Note 2 of the Notes to Consolidated Financial Statements.
(3) Reflects the number of active employees as of the last business day of the
period.
(4) Represents the number of active clients as of the last business day of the
period.
(5) For a discussion of gross profit margin, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Consistent with PEO industry practice, the Company recognizes all
amounts billed to its clients as revenue because the Company is at risk for the
payment of its direct costs, whether or not the Company's clients pay the
Company on a timely basis or at all. The Company also recognizes as revenue and
as unbilled receivables, on an accrual basis, any such amounts which relate to
services performed by worksite employees as of the end of the accounting period
which have not yet been billed to the client because of timing differences
between the day the Company's accounting period ends and its billing dates. For
further information concerning revenue recognition see Note 2 to the Notes to
Consolidated Financial Statements included in this report.
The Company's primary direct costs are salaries and wages of worksite
employees, federal and state employment taxes, workers' compensation premiums,
employee benefits and other associated costs. The Company may significantly
affect its gross profit margin by effectively managing its employment risks,
including workers' compensation and state unemployment costs, as described
below. The Company's risk management of the worksite includes policies and
procedures designed to proactively prevent and control costs of lawsuits,
fines, penalties, judgments, settlements and legal and professional fees. In
addition, the Company controls benefit plan costs by attempting to prevent
fraud and abuse. Other risk management programs of the Company include
effectively processing workers' compensation and unemployment claims and
aggressively contesting any suspicious or improper claims. The Company believes
that such risk
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<PAGE> 20
management efforts increase the profitability of the Company by reducing the
Company's liability exposure and by increasing the value of the Company's
services to its clients.
Workers' compensation costs include administrative costs and insurance
premiums related to the Company's workers' compensation coverage. With respect
to its worksite employees located in Ohio, the Company pays premiums into the
Ohio Bureau of Workers' Compensation state fund. With respect to its worksite
employees located outside of Ohio, the Company maintains workers' compensation
insurance generally with a private insurance company in accordance with the
applicable laws of each state in which the Company has worksite employees. The
cost of contesting workers' compensation claims is borne by the Company and is
not passed through directly to the Company's clients.
Worksite employees of the Company currently reside in approximately 30
states, resulting in the payment by the Company of unemployment taxes in each
of such states. Such taxes are based on rates which vary from state to state.
Employers are generally subject to established minimum rates, however, the
aggregate rates payable by an employer are affected by the employer's claims
history. The Company controls unemployment claims by aggressively contesting
unfounded claims and placing worksite employees with other clients whenever
possible.
The Company's primary operating expenses are administrative personnel
expenses, other general and administrative expenses, and advertising expenses.
Administrative personnel expenses include compensation, fringe benefits and
other personnel expenses related to internal administrative employees. Other
general and administrative expenses include rent, insurance, general office
expenses, legal and accounting fees and other operating expenses.
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RESULTS OF OPERATIONS
The following table sets forth results of operations for the years
ended December 31, 1996, 1995 and 1994 expressed as a percentage of revenues:
<TABLE>
<CAPTION>
AS A PERCENT OF REVENUES
------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Direct costs:
Salaries and wages 85.1 84.8 84.9
Payroll taxes, workers'
compensation premiums,
employee benefits and
other costs 9.2 10.1 9.9
----- ---- -----
Gross profit 5.7 5.1 5.2
----- ---- -----
Operating expenses:
Administrative salaries,
wages and employment
taxes 2.9 2.6 2.6
Other general and
administrative 1.3 1.4 1.5
Advertising 0.3 0.2 0.1
Depreciation and
amortization 0.1 0.1 0.1
----- ---- -----
Total operating expenses 4.6 4.3 4.3
----- ---- -----
Operating income 1.1 0.8 0.9
Other income (expense), net 0.1 (0.1) (0.1)
----- ---- -----
Income before taxes 1.2 0.7 0.8
Provision for income taxes 0.5 0.3 0.3
----- ---- -----
Net income 0.7% 0.4% 0.5%
===== ==== =====
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's revenues were $95.5 million for the year ended December
31, 1996,
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<PAGE> 22
compared to $74.9 million for the year ended December 31, 1995, representing an
increase of $20.5 million, or 27.4%. This increase was primarily due to an
increase in the number of clients and worksite employees. The Company had 241
clients and 3,646 worksite employees at December 31, 1996, compared to 184
clients and 3,141 worksite employees at December 31, 1995, representing an
increase of 31.0% in the number of clients and an increase of 16.1% in the
number of worksite employees.
Salaries and wages of worksite employees were $81.3 million for the
year ended December 31, 1996, compared to $63.5 million for the year ended
December 31, 1995, representing an increase of $17.8 million, or 28.0%,
consistent with revenue growth. Payroll taxes, workers' compensation premiums,
employee benefits and other direct costs amounted to $8.8 million for the year
ended December 31, 1996, compared to $7.6 million for the year ended December
31, 1995, representing an increase of $1.2 million, or 15.4%. Such expenses as
a percentage of revenues for the twelve month period decreased from 10.1% to
9.2% due primarily to lower workers' compensation and unemployment expenses.
Gross profit as a percentage of revenues for the year ended December
31, 1996 was 5.7%, compared to 5.1% for the year ended December 31, 1995,
primarily as a result of lower workers' compensation and unemployment expenses.
As part of the Company's risk management system, the Company has established
programs designed to effectively process workers' compensation and unemployment
claims and to aggressively contest any suspicious or improper claims. The
results for the year ended December 31, 1996, included a special 20% premium
credit of approximately $183,000 granted by the State of Ohio workers
compensation fund.
Administrative salaries, wages and employment taxes were $2.7 million
for the year ended December 31, 1996, compared to $2.0 million for the year
ended December 31, 1995, representing an increase of $728,000, or 36.1%. The
increase in these costs was due to discretionary year end bonuses and
administrative salaries, wages and employment taxes related primarily to the
hiring of additional administrative personnel as a result of actual and
anticipated increases in the number of clients and worksite employees. Other
general and administrative costs increased from $1,039,000 to $1,288,000
primarily due to the general growth of the Company.
The provision for income taxes decreased as a percentage of income
before income taxes to 42.3% for the year ended December 31, 1996, compared to
46.0% for the year ended December 31, 1995. Non deductible life insurance
premiums were less as a percent of pretax income in 1996 than in 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The Company's revenues were $74.9 million for the year ended December
31, 1995, compared to $56.1 million for the year ended December 31, 1994,
representing an increase of $18.8 million, or 33.6%. This increase was
primarily due to an increase in the number of
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<PAGE> 23
worksite employees. During the year ended December 31, 1995, the number of
clients increased from 168 to 184, or 9.5%. During the year ended December 31,
1995, the number of worksite employees increased from 2,748 to 3,141, or 14.3%.
Salaries and wages of worksite employees were $63.5 million for 1995,
compared to $47.6 million for 1994, representing an increase of $15.9 million,
or 33.4%. Payroll taxes, workers' compensation premiums, employee benefits and
other direct costs amounted to $7.6 million in 1995, compared to $5.6 million
in 1994, representing an increase of $2.0 million, or 36.1%. Such expenses as a
percentage of revenues for the years ended December 31, 1995 and 1994 were
comparable, at 9.9% and 10.1%, respectively.
Gross profit as a percentage of revenues in 1995 and 1994 was nearly
identical.
Administrative salaries, wages and employment taxes were $2.0 million
in 1995, compared to $1.4 million in 1994, representing an increase of
$585,000, or 41.0%. This increase was primarily due to the hiring of additional
administrative personnel as a result of actual and anticipated increases in the
number of worksite employees. Other general and administrative costs increased
from $857,000 to $1,039,000 primarily due to the general growth of the Company.
The provision for income taxes increased as a percentage of income
before taxes to 46.0% in 1995 from 40.2% in 1994 primarily due to the impact of
tax accounting for nondeductible life insurance premiums. See Note 10 of the
Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, 1995 and 1994, the Company had working capital
surplus (deficits) in the amounts of $13,484,000, $(73,000) and $(263,000),
respectively.
The Company's primary source of liquidity and capital resources has
historically been its internal cash flow from operations. In addition, in
December 1996 net cash of $13,314,000 was provided from an initial public
offering of the Company stock. Net cash provided by operating activities was
$820,000, $761,000 and $806,000 for the years ended December 31, 1996, 1995 and
1994, respectively. The Company recognizes as revenue and as unbilled
receivables, on an accrual basis, any such amounts which relate to services
performed by worksite employees as of the end of each accounting period which
have not yet been billed to the client because of timing differences between
the day the Company's accounting period ends and its billing dates. The amount
of unbilled receivables, as well as accrued liabilities and client deposits,
have increased with the general growth of the Company.
For work performed prior to the termination of a client agreement, the
Company may be obligated, as an employer, to pay the gross salaries and wages
of the client's worksite employees
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<PAGE> 24
and the related employment taxes and workers' compensation costs, whether or
not the Company's client pays the Company on a timely basis or at all. The
Company, however, historically has not incurred significant bad debt expenses
because the Company generally collects from its clients all revenues with
respect to each payroll period in advance of the Company's payment of the
direct costs associated therewith. The Company attempts to minimize its credit
risk by investigating and monitoring the credit history and financial strength
of its clients and by generally requiring payments to be made by wire transfer,
immediately available funds or ACH transfer. With respect to ACH transfers, the
Company is obligated to pay the client's worksite employees if there are
insufficient funds in the client's bank account on the payroll date. The
Company's policy, however, is only to permit clients with a proven credit
history with the Company to pay by ACH transfer. In addition, in the rare event
of nonpayment by a client, the Company has the ability to terminate immediately
its contract with the client. The Company also protects itself by obtaining
unconditional personal guaranties from the owners of each client and/or a cash
security deposit, bank letter of credit or pledge of certificates of deposit.
As of December 31, 1996 and December 31, 1995, the Company held cash security
deposits in the amounts of $470,000 and $427,000, respectively. Additional
sources of funds to the Company are advance payments of employment taxes and
insurance premiums which the Company holds until they are due and payable to
the respective taxing authorities and insurance providers.
Net cash used in investing activities was $7,945,000, $172,000 and
$92,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The
principal use of cash for investing activities was the purchase of short term
investments of $7,500,000 from the initial public offering and the purchase of
additional computer equipment and software to support the growth of the
business.
The Company's net cash provided by (used in) financing activities was
$13,288,000, $(7,000) and $(17,000) for the years ended December 31, 1996, 1995
and 1994, respectively. The primary source of cash provided by financing
activities is the result of the net proceeds from the initial public offering
of $13,314,000. Additionally, from time to time, the Company has used leasing
arrangements. The principal payments on notes payable for 1996 represented the
repayment in full of the Company's loan from a local bank.
Presently, the Company has no material commitments for capital
expenditures. Primary new uses of cash may include acquisitions, the size and
timing of which cannot be predicted. See Note 15 of Notes to Consolidated
Financial Statements for a discussion of an acquisition.
The Company has executed a $500,000 promissory note to a bank which,
at the bank's sole discretion, would allow the Company to obtain loans up to
such amount without negotiating or executing any further agreements. Borrowings
under this credit facility are payable upon demand and bear interest at the
bank's prime rate (8.25% at December 31, 1996). As of December 31, 1996 and
1995, no borrowings were outstanding under this credit facility.
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<PAGE> 25
The Company believes that the net proceeds from the sale of its common
shares in December 1996, which were invested in marketable securities and
certificates of deposit, together with existing cash, cash equivalents and
internally generated funds, will be sufficient to meet the Company's presently
anticipated working capital and capital expenditure requirements both for the
next twelve months and for the foreseeable future thereafter. To the extent
that the Company needs additional capital resources, the Company believes that
it will have access to both bank financing and capital leasing for additional
facilities and equipment. However, there can be no assurance that additional
financing will be available on terms favorable to the Company or at all.
INFLATION
The Company believes the effects of inflation have not had a
significant impact on its results of operations or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
TEAM America Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of TEAM AMERICA
CORPORATION (an Ohio corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
shareholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TEAM America Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Columbus, Ohio,
February 28, 1997 (except for
Note 15 as to which the date
is March 21, 1997). ARTHUR ANDERSEN LLP
26
<PAGE> 27
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents:
Cash $ 1,383,023 $ 1,938,253
Temporary cash investments 6,717,497 -
----------- -----------
Total cash and cash equivalents 8,100,520 1,938,253
Short-term investments 7,499,375 -
Receivables:
Trade, net of allowance for doubtful accounts of $0 and $3,266,
respectively 263,351 239,603
Related parties - 38,041
Employee advances 48,487 53,637
Unbilled revenues 2,550,854 1,968,760
----------- -----------
Total receivables 2,862,692 2,300,041
Prepaid expenses 267,784 95,912
Deferred income tax asset 120,000 23,000
----------- -----------
Total current assets 18,850,371 4,357,206
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization
492,335 261,025
----------- -----------
OTHER ASSETS:
Cash surrender value of life insurance policies 259,895 188,224
Mandated benefit/security deposits 129,500 83,429
Deferred income tax asset 102,000 49,000
Other assets 65,155 46,785
----------- -----------
Total other assets 556,550 367,438
----------- -----------
Total assets $19,899,256 $ 4,985,669
=========== ===========
</TABLE>
(Continued on next page)
27
<PAGE> 28
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
------------------------------------ ----------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable:
Trade $ 254,181 $ 46,081
Related parties 24,768 -
----------- ----------
Total accounts payable 278,949 46,081
Accrued compensation 2,440,708 1,586,366
Accrued payroll taxes 670,952 1,233,319
Accrued workers' compensation premiums 839,117 915,350
Federal and state income taxes payable 389,275 182,211
Other accrued expenses 265,433 16,903
Client deposits 470,135 427,152
Note payable - 14,000
Capital lease obligation, current portion 11,461 9,155
----------- ----------
Total current liabilities 5,366,030 4,430,537
CAPITAL LEASE OBLIGATION, net of current portion - 11,461
DEFERRED RENT 126,125 143,418
DEFERRED COMPENSATION LIABILITY 259,895 188,224
----------- ----------
Total liabilities 5,752,050 4,773,640
----------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock:
Class A, $0 and $100 par value, respectively; 500,000 and 1,380,000 shares
authorized, respectively; 0 and 39,192 issued, respectively; 0 and 36,432
outstanding, respectively (aggregate liquidation preference $0 and
$21,300, respectively) - 21,300
Class B, $0 and $100 par value, respectively; 500,000 and 0 shares
authorized, respectively; none outstanding - -
Common Stock, no par value:
Common Stock; 10,000,000 and 0 shares authorized respectively; 3,478,976 and
0 issued, respectively; 3,335,088 and 0 outstanding, respectively 13,629,005 -
Class A, 0 and 1,380,000 shares authorized, respectively; 0 and 1,008,320
issued, respectively; 0 and 875,472 outstanding, respectively - 234,194
Class B, 0 and 1,380,000 shares authorized, respectively; 0 and 1,181,464
issued and outstanding, respectively - 59,757
Excess purchase price (83,935) (83,935)
Retained earnings 629,251 5,228
----------- ----------
14,174,321 236,544
Less - Treasury stock, Common Class A shares of 0 and 132,848, respectively, - (23,340)
at cost
Less - Treasury stock, Preferred Class A shares of 0 and 2,760, respectively, - (1,175)
at cost
Less - Treasury stock, Common Stock shares of 143,888 and 0, respectively, (27,115) -
at cost
----------- ----------
Total shareholders' equity 14,147,206 212,029
----------- ----------
Total liabilities and shareholders' equity $19,899,256 $4,985,669
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
28
<PAGE> 29
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- -------------
<S> <C> <C> <C>
REVENUES $95,467,814 $74,921,316 $56,070,617
----------- ----------- -----------
DIRECT COSTS:
Salaries and wages 81,261,584 63,502,407 47,602,806
Payroll taxes, workers' compensation premiums, employee
benefits and other 8,763,075 7,594,264 5,578,069
----------- ----------- -----------
90,024,659 71,096,671 53,180,875
----------- ----------- -----------
Gross profit 5,443,155 3,824,645 2,889,742
----------- ----------- -----------
EXPENSES:
Administrative salaries, wages and employment taxes 2,741,253 2,013,481 1,427,432
Other general and administrative expenses 1,288,272 1,038,564 857,261
Advertising 271,839 116,319 66,258
Depreciation and amortization 124,538 42,721 49,975
----------- ----------- -----------
Total operating expenses 4,425,902 3,211,085 2,400,926
----------- ----------- -----------
Income from operations 1,017,253 613,560 488,816
OTHER INCOME (EXPENSE), net:
Interest income (expense), net 87,855 (11,745) (19,056)
Other, net (23,085) (65,380) (18,505)
----------- ----------- -----------
Other income (expense), net 64,770 (77,125) (37,561)
----------- ----------- -----------
Income before income taxes 1,082,023 536,435 451,255
INCOME TAX EXPENSE (458,000) (246,862) (181,477)
----------- ----------- -----------
Net income $ 624,023 $ 289,573 $ 269,778
=========== =========== ===========
Earnings per share $ 0.29 $ 0.14 $ 0.14
=========== =========== ===========
Weighted average shares outstanding 2,159,502 2,129,616 1,920,224
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
29
<PAGE> 30
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Class A Class B Class A
Common Stock Common Stock Common Stock Preferred Stock
------------------ ---------------- ------------------- ----------------
Number Value Number Value Number Value Number Value
-------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 624,312 $243,994 592,664 $ 9,857 -- $ -- -- $ --
Stock issued 423,200 11,500 588,800 49,900 -- -- -- --
Net income -- -- -- -- -- -- -- --
---------- --------- ---------- -------- --------- ----------- ------- --------
BALANCE, December 31, 1994 1,047,512 255,494 1,181,464 59,757 -- -- -- --
Class A common stock
exchanged for Class A
preferred stock (39,192) (21,300) -- -- -- -- 39,192 21,300
Stock repurchased as
treasury, 340 shares of
Class A common, at
cost and 15 shares of -- -- -- -- -- -- -- --
Class A preferred
stock, at cost
Subscriptions received in
cash subsequent to -- -- -- -- -- -- -- --
year-end
Net income -- -- -- -- -- -- -- --
---------- --------- ---------- -------- --------- ----------- ------- --------
BALANCE, December 31, 1995 1,008,320 234,194 1,181,464 59,757 -- -- 39,192 21,300
Stock repurchased as
treasury, 8,280 shares
of Class A common, at -- -- -- -- -- -- -- --
cost
Split by 184 to 1 and
conversion of Class A
common stock, Class B
common stock, Class A
preferred stock issued
and outstanding or held
as treasury to Common
Stock and issuance of
Common Stock (1,008,320) (234,194) (1,181,464) (59,757) 3,478,976 13,629,005 (39,192) (21,300)
Net income -- -- -- -- -- -- -- --
---------- --------- ---------- -------- --------- ----------- ------- --------
BALANCE, December 31, 1996 -- $ -- -- $ -- 3,478,976 $13,629,005 -- $ --
========== ========= ========== ======== ========= =========== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Tresury Stock
Retained Excess --------------------------------
Earnings Purchase Class A Class A Common Subscription
(Deficit) Price Common Preferred Stock Receivables Total
-------- ------- ------- --------- ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ (554,123) $(83,935) $(20,670) $ -- $ -- $ -- $ (404,877)
Stock issued -- -- -- -- -- (31,500) 29,900
Net income 269,778 -- -- -- -- -- 269,778
---------- -------- -------- --------- -------- -------- -----------
BALANCE, December 31, 1994 (284,345) (83,935) (20,670) -- -- (31,500) (105,199)
Class A common stock
exchanged for Class A
preferred stock -- -- -- -- -- -- --
Stock repurchased as
treasury, 340 shares of
Class A common, at
cost and 15 shares of
Class A preferred
stock, at cost -- -- (2,670) (1,175) -- -- (3,845)
Subscriptions received in
cash subsequent to
year-end -- -- -- -- -- 31,500 31,500
Net income 289,573 -- -- -- -- -- 289,573
---------- -------- -------- --------- -------- -------- -----------
BALANCE, December 31, 1995 5,228 (83,935) (23,340) (1,175) -- -- 212,029
Stock repurchased as
treasury, 8,280 shares
of Class A common, at
cost -- -- (2,600) -- -- -- (2,600)
Split by 184 to 1 and
conversion of Class A
common stock, Class B
common stock, Class A
preferred stock issued
and outstanding or held
as treasury to Common
Stock and issuance of
Common Stock -- -- 25,940 1,175 (27,115) -- 13,313,754
Net income 624,023 -- -- -- -- -- 624,023
---------- -------- -------- --------- -------- -------- -----------
BALANCE, December 31, 1996 $ 629,251 $(83,935) $ -- $ -- $(27,115) $ -- $14,147,206
========== ======== ======== ========= ======== ======== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
30
<PAGE> 31
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 624,023 $ 289,573 $ 269,778
Depreciation and amortization 124,538 42,721 49,975
Loss on disposal of assets -- 14,995 --
Deferred tax expense (benefit) (150,000) -- 144,000
(Increase) decrease in operating assets:
Receivables (562,651) (398,085) (556,271)
Prepaid expenses (171,872) (20,799) (6,512)
Mandated benefit/security deposits (46,071) (23,522) 8,350
Increase (decrease) in operating liabilities:
Accounts payable 232,868 (14,533) (67,137)
Accrued expenses and other payables 671,336 724,551 781,094
Client deposits 42,983 122,724 104,373
Deferred liabilities 54,378 23,146 78,379
----------- --------- ----------
Net cash provided by operating activities 819,532 760,771 806,029
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (355,848) (133,870) (15,950)
Increase in cash surrender value of life insurance
policies (71,671) (30,439) (75,672)
Increase in short-term investments (7,499,375) -- --
Increase in other assets (18,370) (8,000) --
----------- --------- ----------
Net cash used in investing activities (7,945,264) (172,309) (91,622)
----------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable (14,000) (12,000) (17,275)
Payments on capital lease obligation (9,155) (22,853) (29,444)
Class A and Class B common stock issued -- -- 29,900
Purchase of treasury stock (2,600) (3,845) --
Subscriptions received in cash subsequent to year-end
-- 31,500 --
Net proceeds from initial public offering of Common Stock
13,313,754 -- --
----------- --------- ----------
Net cash provided by (used in) financing
activities 13,287,999 (7,198) (16,819)
----------- --------- ----------
</TABLE>
(Continued on next page)
31
<PAGE> 32
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
INCREASE (DECREASE) IN CASH
(Continued)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Net increase in cash and cash equivalents $ 6,162,267 $ 581,264 $ 697,588
CASH AND CASH EQUIVALENTS, beginning of year 1,938,253 1,356,989 659,401
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 8,100,520 $ 1,938,253 $ 1,356,989
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,475 $ 16,689 $ 19,056
Income taxes $ 405,746 $ 87,403 $ 32,620
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During 1995 the Company converted 39,192 shares of Class A Common Stock, valued
at $21,300, into 39,192 shares of Class A Preferred Stock. The conversion was
made pursuant to a preferred stock offering made to all Class A Common
shareholders, and was made on a dollar for dollar basis.
During 1994 the Company issued 165,600 shares of Class B Common Stock in
exchange for a promissory note in the amount of $31,500 which is shown as a
reduction of shareholders' equity.
During 1994 the Company entered into a capital lease agreement for equipment in
the amount of $35,000.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
32
<PAGE> 33
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) NATURE AND SCOPE OF BUSINESS
TEAM America Corporation, an Ohio corporation (the Company), is the
largest professional employer organization (PEO) headquartered in Ohio
and one of the oldest PEOs in the United States, having been founded in
1986. The Company provides, through "partnering" agreements,
comprehensive and integrated human resource management services to small
and medium-sized businesses, thereby allowing such businesses to
outsource their human resource responsibilities. The Company offers a
broad range of services including human resource administration,
regulatory compliance management, employee benefits administration, risk
management services and employer liability protection, payroll and
payroll tax administration, and placement services. As of December 31,
1996, the Company provided professional employer services to 241 client
organizations and 3,646 worksite employees, substantially all of whom
were located in the midwestern United States, principally Ohio.
The Company provides such services by establishing an employment
relationship with the worksite employees of its clients, contractually
assuming substantial employer responsibilities with respect to worksite
employees, and instructing its clients regarding employment practices.
While the Company becomes the legal employer for most purposes, and
consequently assumes a level of liability for the employment practices
of its clients, each client remains in operational control of its
respective business. The Company's operations are affected additionally
by government regulations relating to labor, taxes, insurance, benefits
and employment matters. Thus, changes in these matters or unfavorable
interpretation or changes to such regulations, particularly in Ohio,
although not known or foreseen by management at this time, could cause
future results of operations to be materially different from the results
reported herein.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The Company's consolidated financial statements
are prepared on the accrual basis of accounting.
Principles of Consolidation - The consolidated financial statements
include TEAM America Corporation and its twenty (20) subsidiaries. All
significant inter-company accounts and transactions have been
eliminated.
33
<PAGE> 34
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition - Pursuant to the provisions of its standard client
agreement, the Company is the legal employer of the client's worksite
employees for most purposes and has the right, among others, to hire,
supervise, terminate and set the compensation of such worksite
employees. 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. In addition, each client must pay a one-time enrollment fee of $50
plus $10 per worksite employee.
The Company's average annual administrative fee is approximately $1,000
per employee. Such 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 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 arrangements and terms. Company
clients generally have the ability to terminate with 30 days notice.
The Company does not bill its clients for its actual workers'
compensation and unemployment costs, but rather bills for such costs at
rates which 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, the Company's
cost of contesting workers' compensation and unemployment claims, and
other related administrative costs and (ii) 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 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 which relates to changes in direct costs
is effective as of the date of the changes and all other changes require
thirty days' prior notice. There is no assurance that the Company will
be able to successfully pass through these increases in the future.
34
<PAGE> 35
Consistent with PEO industry practice, the Company recognizes all
amounts billed to its clients as revenue because the Company is at risk
for the payment of its direct costs, whether or not the Company's
clients pay the Company on a timely basis or at all. The Company also
recognizes as revenue and as unbilled receivables, on an accrual basis,
any such amounts which relate to services performed by worksite
employees as of the end of the accounting period which have not yet been
billed to the client because of timing differences between the day the
Company's accounting period ends and its billing dates.
Concentrations of Credit Risk - Financial instruments, which potentially
subject the Company to a concentration of credit risk, consist
principally of accounts receivable. The Company provides its services to
its clients based upon an evaluation of the client's financial
condition. Exposure to losses on receivables is principally dependent
on each client's financial condition. The Company mitigates such
exposure by requiring deposits, letters of credit or personal guarantees
as well as performing credit checks on the majority of its clients.
Exposure to credit losses is monitored by the Company, and allowances
for anticipated losses are maintained. It is possible that such exposure
to losses may increase for any number of reasons in the future such as
general economic conditions.
Cash and Cash Equivalents - Cash and cash equivalents consist of cash
and highly liquid investments with initial maturities of three months or
less.
Property and Equipment - Property and equipment is stated at cost with
depreciation and amortization computed on the straight-line method over
the estimated useful lives of the respective assets. Additions and
betterments to property and equipment over certain minimum dollar
amounts are capitalized. Repair and maintenance expenses are expensed as
incurred. The following is a summary of the Company's property and
equipment and the associated accumulated depreciation and amortization
at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Furniture and fixtures $419,628 $305,790
Computer hardware and software 379,148 141,078
Leasehold improvements 30,805 30,805
-------- --------
Total property and equipment 829,581 477,673
Less: Accumulated depreciation and amortization 337,246 216,648
-------- --------
Property and equipment, net $492,335 $261,025
======== ========
</TABLE>
35
<PAGE> 36
Depreciation and amortization is provided over the estimated useful
lives of the assets using the straight-line method. The Company
capitalizes and depreciates purchased software, and expenses as incurred
any software it develops. The estimated useful lives are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Furniture and fixtures 7
Computer hardware and software 5
Leasehold improvements 5
</TABLE>
Other Assets - Other assets primarily consist of investments in securities which
are stated at cost as no readily ascertainable market values are available.
Deferred Rent - The Company entered into the lease of its corporate headquarters
in 1990. This lease included inducements in the early periods of the lease,
including the first six months being rent free, with following years' payments
having scheduled increases. In accordance with generally accepted accounting
principles, rent expense is recognized on a straight-line basis over the life of
the lease. Consequently, a deferred credit has been generated, which will be
amortized over the remaining years of the lease (through the year 2000).
Advertising - Advertising expenses relate to promotional materials and are
expensed as incurred.
Fair Value of Financial Instruments - The carrying amount of current assets and
liabilities approximate their fair value because of the immediate or short-term
maturity of these financial instruments. Other assets principally include
investments in privately-held non-traded equity securities and real estate for
which there is no readily ascertainable market value.
Earnings Per Share - Earnings per share was computed by dividing net income by
the weighted average number of shares of common stock outstanding and common
stock equivalents outstanding during the respective periods, and has been
restated for the 184-to-1 stock split, as of the effective date of the initial
public offering of the Company's stock. In 1995 there were no common stock
equivalents. In 1994 and 1996 common stock equivalents were antidilutive, and
therefore, were not included in the weighted average number of common stock
shares.
Adoption of New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard (SFAS) No. 123
"Accounting for Stock Based Compensation" in 1996 which establishes a fair value
based method of accounting for stock based compensation plans. It encourages
entities to adopt that method in place of provisions of the Accounting
Principles Board (APB) Opinion
36
<PAGE> 37
No. 25, "Accounting for Stock Issued to Employees"(APB No. 25), for all
arrangements under which employees receive shares or other equity
instruments from the employer. The Company will comply with the specific
provisions of SFAS No. 123 that require pro forma disclosures concerning
compensation expense in the notes to the financial statements for 1996
(See Note 12). Accordingly, the adoption of SFAS No. 123 did not impact
the results of financial position or operating results of the Company.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128 "Earnings per Share (EPS)." This Statement simplifies the
standards for computing earnings per share previously found in APB. No.
15 "Earnings per Share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a
presentation of basic EPS, among other provisions. The Company will
adopt the Statement in 1997. The Company does not anticipate that the
adoption of the Statement will have a material impact on the earnings
per share calculations given the current capital structure of the
Company.
Reclassifications - Certain reclassifications have been made to the 1995
consolidated financial statements to conform with the 1996 presentation.
(3) INVESTMENTS
Investments at December 31, 1996 were as follows:
<TABLE>
<S> <C>
U.S. Government and Agency Obligations $3,999,375
State and Municipal Securities 1,500,000
One Year Certificates of Deposit 1,500,000
Corporate Debt Securities 500,000
----------
Total $7,499,375
==========
</TABLE>
The balances at December 31, 1996, consisted of securities with
contractual maturities of less than one year from the date of purchase
and are available for sale. Gross unrealized gains and losses were not
significant nor were there any sales of these securities in 1996.
(4) DEBT OBLIGATIONS
The Company had a demand note payable to a bank, bearing interest at the
prime rate plus 2% (10.5% at December 31, 1995). The note was secured by
all business assets and was guaranteed by an officer of the Company.
This note was repaid in full in 1996.
37
<PAGE> 38
The Company has a $500,000 credit facility with a bank, which at the
bank's sole discretion, allows the Company to obtain advances up to such
amount without negotiating or exercising any further agreements.
Borrowings under this credit facility are payable upon demand and bear
interest at the bank's prime rate (8.25% at December 31, 1996). The
credit facility is unsecured and, as of December 31, 1996, no borrowings
were outstanding under this credit facility.
(5) CAPITAL LEASE
The Company has a capitalized lease obligation for equipment.
Future minimum lease payments are due as follows:
<TABLE>
<S> <C>
1997 $12,399
Less: amount representing interest 938
-------
Less: current portion 11,461
-------
Capital lease obligation, net of
current portion $ -
=======
</TABLE>
The cost and related accumulated amortization of the asset capitalized
under the capital lease was $35,569 and $21,341 at December 31, 1996 and
$35,569 and $14,226 at December 31, 1995, respectively.
(6) COMMITMENTS
The Company leases office facilities, automobiles and certain office
equipment under long-term agreements expiring through 2000, which are
accounted for as operating leases. The following is a schedule of future
minimum lease payments due as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $166,000
1998 175,000
1999 175,000
2000 125,000
--------
$641,000
========
</TABLE>
Rent expense under all operating leases was $187,158, $166,337 and
$148,989 for the years ended December 31, 1996, 1995 and 1994,
respectively.
38
<PAGE> 39
The Company currently has agreements with certain officers and other
employees that call for payment of commissions on future revenues from
clients brought in by these employees. The amount of such payments is
determined by the achievement of certain sales goals while such
employees are employed with the Company, as well as the level of sales
from such employees' clients subsequent to termination for a certain
period, as defined. These commission agreements are subject to
compliance with non-compete agreements which are effective for one year
beyond an employee's termination date. The Company incurred no expense
relating to such agreements in 1996, 1995 or 1994.
(7) DEFERRED COMPENSATION LIABILITY
The Company has several deferred compensation agreements with certain
employees. The liabilities under these agreements are being accrued over
the participants' remaining periods of employment so that, on the payout
date, the then-present value of the payments will have been accrued.
These liabilities will be funded by life insurance policies. The cash
surrender value of such policies dictates the amount of the deferred
compensation benefits due, as defined by the respective agreements.
Expense for 1996, 1995 and 1994 related to deferred compensation was
$71,671, $30,439 and $75,672, respectively. The total face value of
related life insurance policies was $4,235,297 at December 31, 1996.
(8) EMPLOYMENT AGREEMENTS
In 1996 the Company executed employment agreements with two of its key
officers pursuant to which each officer will be employed by the Company
for a rolling three-year period and will receive a combined annual base
salary of $370,000, plus incentive compensation to be determined by the
Company's Board of Directors or the Compensation Committee thereof based
upon the Company's results of operations and financial position and
various other factors. In addition to such base salary and incentive
compensation, each officer will receive commissions on sales to clients
for which he is responsible pursuant to the terms and conditions to be
determined by the Compensation Committee.
(9) EMPLOYEE BENEFIT PROGRAMS
Cafeteria Plan - The Company sponsors a Section 125 cafeteria plan that
includes a fully insured health, dental, vision and prescription card
program. The plan is offered to full-time employees. Entrance to the
plan is the first day of the month following thirty days of service.
401(k) Retirement Plan - The Company sponsors a 401(k) retirement plan
that covers all full-time employees with at least one year of service.
The plan does not provide for Company contributions.
39
<PAGE> 40
Other Programs - Other available employee programs include health, life,
accidental death and dismemberment insurance, disability insurance and
dependent care assistance programs. Benefits under such programs are
funded by the Company's employees and clients.
(10) INCOME TAXES
In May 1992 the Company adopted SFAS No. 109 "Accounting for Income
Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities will result in taxable or deductible amounts in the
future. These taxable or deductible amounts are based on enacted tax
laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Income tax expense is the tax payable
or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
The components of the income tax expense for the years ended December
31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $516,800 $209,833 $ 31,855
State 91,200 37,029 5,622
Deferred:
(Increase) decrease in deferred
income tax asset (150,000) -- 144,000
-------- -------- --------
Total income tax expense $458,000 $246,862 $181,477
======== ======== ========
</TABLE>
A reconciliation of the statutory Federal tax rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate 34.0% 34.0% 34.0%
Adjustments to Federal statutory tax
rate:
State income tax expense, net 6.0 6.0 6.0
Other, primarily life insurance 2.3 6.0 0.2
---- ---- ----
Effective tax rate 42.3% 46.0% 40.2%
==== ==== ====
</TABLE>
40
<PAGE> 41
The Company pays state income tax on the greater of a net worth basis or
an income basis in a majority of the states in which it operates.
The significant items giving rise to the deferred income tax assets
(liabilities), as of December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred income tax assets (liabilities):
Deferred compensation $104,000 $ 71,000
Deferred rents 50,000 57,000
Accrued liabilities 120,000 --
Depreciation (52,000) (48,000)
Other, net -- (8,000)
-------- ----------
Total deferred Federal and state income tax
assets (liabilities), net $222,000 $ 72,000
======== ==========
</TABLE>
(11) RELATED PARTY TRANSACTIONS
The Company had accounts payable at December 31, 1996 and accounts
receivable at December 31, 1995 in the aggregate amounts of $24,768 and
$38,041, respectively, with related parties including several members
of the Board of Directors who are clients of the Company.
During the years ended December 31, 1996, 1995 and 1994, the Company
recorded sales to related parties in the amounts of $619,941, $417,127
and $388,105, respectively. During the years ended December 31, 1996,
1995 and 1994, the Company purchased services from related parties in
the amounts of $140,250, $147,109 and $98,411, respectively.
During 1996 the Company purchased stock of a client for approximately
$20,000.
An officer of the Company serves as the trustee of the 401k Retirement
Plan.
(12) INCENTIVE STOCK PLAN
Effective December 10, 1996, the Company established an Incentive Stock
Plan (the Plan) for employees which provides for the issuance of up to
350,000 shares of Common Stock. The maximum number of shares that may be
awarded during any calendar year may not exceed 10% of the total number
of issued and outstanding shares of Common Stock of the Company.
41
<PAGE> 42
On December 10, 1996, the Company granted 184,000 options to certain
officers, employees and directors of the Company to purchase shares of
the Company's Common Stock at a price of $12 per share, the market price
on that date. Options granted to officers and employees vest at 20% per
year over a five year period and options granted to directors vest 100%
after one year. All options expire ten years from the date of grant. As
of December 31, 1996, no options were exercisable. No options were
forfeited during 1996.
The Company accounts for options granted under the Plan under APB No.
25, under which no compensation expense has been recognized. Had
compensation cost for the Company's stock options been determined based
on fair values at the grant date for awards under the Plan consistent
with SFAS No. 123, the Company's net income and net income per share for
1996 would have been reduced to the pro forma amounts of $613,416 and
$0.28, respectively.
The fair values of the options granted are estimated on the date of
grant using the Black-Scholes option pricing model with assumptions of a
risk-free interest rate of 6%, expected lives of 2-6 years and expected
volatility of 56%.
(13) SHAREHOLDERS' EQUITY
On December 10, 1996, the Company completed an initial public offering
of its Common Stock by issuing 1,250,000 shares at $12 per share,
which net of commissions and expenses, resulted in net proceeds of
$13,313,754 to the Company.
Effective December 10, 1996, the Company is authorized to issue
11,000,000 shares of Common Stock, no par value, of which 500,000 are
designated as Class A voting preferred shares, 500,000 shares are
designated as Class B nonvoting preferred shares and 10,000,000 are
authorized shares of Common Stock. None of the preferred shares are
issued or outstanding. Also on December 10, 1996, the Company converted
all Class A common stock, Class B common stock, Class A preferred stock
issued and outstanding and held in treasury into a single class of
Common Stock with no par value, and split all shares of Common Stock 184
to 1, which has been retroactively effected for all periods presented.
During 1995 the Company converted 39,192 Class A common shares (valued
at the original purchase price of $21,300), into 39,192 Class A
preferred shares. The Class A preferred shares were later reconverted to
common shares by Board of Director actions. During 1994 the Company
issued 165,600 shares to an officer in exchange for a promissory note in
the amount of $31,500 which had been shown as a reduction in
shareholders' equity. This note, which included interest at 5% per
annum, was paid in cash in 1996, and, accordingly, is not shown as a
reduction in shareholders' equity as of December 31, 1996 or 1995.
In 1994 a total of 1,012,000 shares were sold to Company officers,
pursuant to previous option arrangements.
42
<PAGE> 43
The Company has no plan to pay cash dividends in the foreseeable future
and sales of a substantial amount of shares of the Company's Common
Stock could have a material adverse effect at any time in the open
market.
(14) CONTINGENCIES
Representatives of the IRS have publicly stated that a Market Segment
Study Group established by the IRS is examining whether PEOs are the
employers of worksite employees under Code provisions applicable to
employee benefit plans and consequently able to offer to worksite
employees benefit plans that qualify for favorable tax treatment and
whether client company owners are employees of PEOs under Code
provision applicable to employee benefit plans. The Company has limited
knowledge of the nature, scope and status of the Market Segment Study
because it is not a part thereof and the IRS has not publicly released
any information regarding the study to date. In addition, the Company's
401(k) plan was audited for the year ended December 31, 1992, and as a
part of that audit, the IRS regional office has asked the IRS national
office to issue a TAM regarding whether or not the Company is the
employer for benefit plan purposes. The Company has stated its position
in a filing with the IRS that it is the employer for benefit plan
purposes. The Company is unable to predict the timing or nature of the
findings of the Market Segment Study Group, the timing or conclusions of
the TAM, or the ultimate outcome of such conclusions or findings.
If the IRS study were to conclude that a PEO is not an employer of its
worksite employees for plan purposes, then worksite employees could not
continue to make contributions to the Company's 401(k) plans or
cafeteria plan. The Company believes that, although unfavorable to the
Company, a prospective application by the IRS of an adverse conclusion
would not have a material adverse effect on its financial position and
results of operations. If such conclusion were applied retroactively,
then employees's vested account balances could become taxable
immediately, the Company would lose its tax deduction for deposits to
the plan trust which would become a taxable trust, and penalties
could be assessed. In such a scenario, the Company would face the risk of
client dissatisfaction as well as potential litigation. A retroactive
application by the IRS of an adverse conclusion could have a material
adverse effect on the Company's financial position and results of
operations. While the Company believes that a retroactive
disqualification is unlikely, there can be no assurance as to the
ultimate resolution of these issues.
(15) EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT
On March 21, 1997, the Company completed the acquisition of a PEO
organization with approximately 650 worksite employees. The purchase will
be effected pursuant to the merger of a wholly-owned subsidiary of the
Company with and into the acquired company, which merger will become
effective on April 1, 1997. The purchase price consisted of $75,000 in
cash and $395,996 in Common Stock of the Company, representing 40,615
shares at the closing price of $9.75 per share. Additionally, the Company
entered into non-compete agreements with the four shareholders of the
acquired company for which the Company paid a total of $186,000. The
acquisition will be accounted for by the purchase method of accounting.
43
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 10 is incorporated by reference to the
Company's Definitive Proxy Statement, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to Regulation 14A of the General Rules
and Regulations under the Securities Exchange Act of 1934 (the "Exchange Act"),
relating to the Company's Annual Meeting of Shareholders (the "Annual Meeting")
under the captions "NOMINATION AND ELECTION OF DIRECTORS," "EXECUTIVE
OFFICERS," AND "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE."
ITEM 11. EXECUTIVE COMPENSATION.
In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 11 is incorporated by reference to the
Company's Definitive Proxy Statement, to be filed with the SEC pursuant to
Regulation 14A of the General Rules and Regulations under the Exchange Act,
relating to the Company's Annual Meeting under the caption "EXECUTIVE
COMPENSATION." The information set forth under the captions "REPORT OF
COMPENSATION COMMITTEE" AND "PERFORMANCE GRAPH" is expressly not incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 12 is incorporated by reference to the
Company's Definitive Proxy Statement, to be filed with the SEC pursuant to
Regulation 14A of the General Rules and Regulations under the Exchange Act,
relating to the Company's Annual Meeting under the caption "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 13 is incorporated by reference to the
Company's Definitive Proxy Statement, to be filed with the SEC pursuant to
Regulation 14A of the General Rules and Regulations under the Exchange Act,
relating to the Company's Annual Meeting under the captions "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and "CERTAIN TRANSACTIONS."
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of the Company, are
included in Item 8 of this report:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31, 1996, 1995
and 1994
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedule for the Company is filed as
part of this report:
Report of Independent Public Accountants on Financial Statement
Schedule.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because the required information is
either presented in the financial statements or notes thereto, or is not
applicable, required or material.
44
<PAGE> 45
(a)(3) Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Amended Articles of Incorporation of the Company(1)
3.2 Amended Code of Regulations of the Company(1)
10.1 Company's 1996 Incentive Stock Plan(1)*
10.2 Executive employment agreement between the Company and Mr. Richard C.
Schilg, CEO and President(1)*
10.3 Executive employment agreement between the Company and Mr. Kevin T.
Costello, COO and Executive Vice President(1)*
10.4 Lease for Cascade Corporate Center dated June 22, 1990 between EastGroup
Properties and the Company, as amended(1)
21.1 Subsidiaries of the Registrant(1)
27.1 Financial Data Schedules
</TABLE>
- -------------------------------------------------
(1) Included as an exhibit to the registrant's Registration Statement on Form
S-1 (File No. 333-13913) Form S-1 and incorporated herein by reference.
* Management contract or compensation plan or arrangement.
(b) No reports on Form 8-K were filed in 1996.
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TEAM AMERICA CORPORATION
Date: March 28, 1997 By: /s/ RICHARD C. SCHILG
------------------------------------
Richard C. Schilg, CEO and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard C. Schilg
- --------------------------- CEO, President and Director March 28, 1997
Richard C. Schilg (Principal Executive Officer)
/s/ Kevin T. Costello
- --------------------------- COO, Executive Vice President March 28, 1997
Kevin T. Costello Director
/s/ Michael R. Goodrich
- --------------------------- CFO and Vice President March 28, 1997
Michael R. Goodrich (Principal Financial and
Accounting Officer)
/s/ Paul M. Cash
- --------------------------- Director March 28, 1997
Paul M. Cash
/s/ Charles F. Dugan II
- --------------------------- Director March 28, 1997
Charles F. Dugan II
/s/ William W. Johnston
- --------------------------- Director March 28, 1997
William W. Johnston
/s/ M. R. Swartz
- --------------------------- Director March 28, 1997
M. R. Swartz
</TABLE>
46
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
TEAM America Corporation and Subsidiaries:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of TEAM America Corporation and subsidiaries
included in this Form 10-K, and have issued our report thereon dated February
28, 1997. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the index is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Columbus, Ohio,
February 28, 1997. ARTHUR ANDERSEN LLP
47
<PAGE> 48
SCHEDULE II
TEAM AMERICA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Years Ended December 31, 1996, 1995 and 1994
Balance Balance
Beginning of Charged to at End
Period Expense Write-Offs of Period
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Description
- -------------
December 31, 1994
Allowance for doubtful accounts $ 15,135 $ 40,773 $ 50,502 $ 5,406
December 31, 1995
Allowance for doubtful accounts $ 5,406 $ 35,653 $ 37,793 $ 3,266
December 31, 1996
Allowance for doubtful accounts $ 3,266 $ - $ 3,266 $ -
</TABLE>
48
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,100,520
<SECURITIES> 0
<RECEIVABLES> 2,862,692
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,850,371
<PP&E> 829,581
<DEPRECIATION> 337,246
<TOTAL-ASSETS> 19,899,256
<CURRENT-LIABILITIES> 5,366,030
<BONDS> 0
0
0
<COMMON> 13,629,005
<OTHER-SE> 518,201
<TOTAL-LIABILITY-AND-EQUITY> 19,899,256
<SALES> 0
<TOTAL-REVENUES> 95,467,814
<CGS> 0
<TOTAL-COSTS> 90,024,659
<OTHER-EXPENSES> 4,448,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,855
<INCOME-PRETAX> 1,082,023
<INCOME-TAX> 458,000
<INCOME-CONTINUING> 624,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 624,023
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
