<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21533
TEAM AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 31-1209872
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 EAST WILSON BRIDGE ROAD 43085
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (614) 848-3995
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
THE NUMBER OF SHARES OF REGISTRANT'S ONLY CLASS OF COMMON STOCK OUTSTANDING ON
APRIL 30, 1999 WAS 4,256,235.
<PAGE> 2
TEAM AMERICA CORPORATION AND SUBSIDIARIES
MARCH 31, 1999
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NO.
------
<S> <C>
Item 1. Financial Statements:
Consolidated Statements of Income -- Three-month periods
ended March 31, 1999 and 1998 (unaudited) - 3 -
Consolidated Balance Sheets -- March 31, 1999 (unaudited)
and December 31, 1998 - 4 -
Consolidated Statements of Cash Flows -- Three month periods
ended March 31, 1999 and 1998 (unaudited) - 6 -
Consolidated Statement of Changes in Shareholders' Equity-
Three-month period ended March 31, 1999 (unaudited) - 7 -
Notes to Consolidated Financial Statements - 8 -
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - 9 -
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K - 17 -
Signature - 18 -
Exhibit Index - 19 -
</TABLE>
- ----------------------
Note: Item 3 of Part I and Items 1 through 5 of Part II are omitted because they
are not applicable.
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
(unaudited)
<S> <C> <C>
REVENUES $ 90,654,188 $ 70,034,431
DIRECT COSTS:
Salaries and wages 76,819,026 59,128,465
Payroll taxes, workers' compensation premiums,
employee benefits and other 9,590,574 7,495,996
------------ ------------
Total direct costs 86,409,600 66,624,461
------------ ------------
Gross profit 4,244,588 3,409,970
EXPENSES:
Administrative salaries, wages and employment taxes 1,832,472 1,762,783
Other selling, general and administrative expenses 1,489,031 1,207,713
Depreciation and amortization 422,274 339,415
------------ ------------
Total operating expenses 3,743,777 3,309,911
------------ ------------
Income from operations 500,811 100,059
INTEREST INCOME (EXPENSE) (6,343) 43,359
------------ ------------
Income before income taxes 494,468 143,418
INCOME TAX EXPENSE 310,500 142,000
------------ ------------
NET INCOME $ 183,968 $ 1,418
============ ============
EARNINGS PER SHARE:
Basic $ 0.04 $ 0.00
============ ============
Diluted $ 0.04 $ 0.00
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 4,484,000 4,720,200
============ ============
Diluted 4,517,000 5,040,500
============ ============
</TABLE>
3
<PAGE> 4
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,595,029 $ 5,010,630
Short-term investments 250,000 250,000
Receivables:
Trade, net of allowance for doubtful accounts
of $50,000 each year 4,794,797 4,231,838
Unbilled revenues 11,737,224 8,586,671
Other 226,004 452,869
----------- -----------
Total receivables 16,758,025 13,271,378
Prepaid expenses 649,519 193,060
Deferred income tax asset 180,000 180,000
----------- -----------
Total current assets 19,432,573 18,905,068
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
AND AMORTIZATION 1,824,165 1,808,495
OTHER ASSETS:
Goodwill and non-compete agreements, net 25,974,169 26,059,333
Cash surrender value of life insurance policies 444,539 438,170
Mandated benefit/security deposits 262,873 259,073
Deferred income tax asset 23,000 23,000
Other assets 63,123 46,964
----------- -----------
Total other assets 26,767,704 26,826,540
----------- -----------
Total assets $48,024,442 $47,540,103
=========== ===========
</TABLE>
4
<PAGE> 5
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Trade accounts payable $ 1,140,494 $ 906,758
Notes payable and short-term borrowings 2,200,000 --
Accrued compensation 10,578,915 7,527,598
Accrued payroll taxes and insurance 2,017,041 4,139,945
Accrued workers' compensation costs 1,927,597 2,585,486
Federal and state income taxes payable 799,000 631,000
Other accrued expenses 303,778 386,482
Client deposits 712,229 637,135
Capital lease obligation 26,611 35,996
------------ ------------
Total current liabilities 19,705 665 16,850,400
CAPITAL LEASE OBLIGATION, net of current portion 9,907 9,907
DEFERRED RENT 53,778 62,997
DEFERRED COMPENSATION LIABILITY 455,555 439,715
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY Preferred Stock, no par value::
Class A, 500,000 shares authorized; -- --
none issued or outstanding
Class B, 500,000 shares authorized; -- --
none issued or outstanding
Common Stock, no par value:
Common Stock, 10,000,000 shares authorized
4,878,348 and 4,878,348 issued,respectively;
4,256,235 and 4,756,235 outstanding,respectively; 28,342,994 28,404,509
Excess purchase price (83,935) (83,935)
Retained earnings 2,424,976 2,241,008
------------ ------------
30,684,035 30,561,582
Less - Treasury stock, 622,113 and 122,113 shares
respectively, at cost (2,884,498) (384,498)
------------ ------------
Total shareholders' equity 27,799,537 30,177,084
------------ ------------
Total liabilities and shareholders' equity $ 48,024,442 $ 47,540,103
============ ============
</TABLE>
5
<PAGE> 6
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1999 1998
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 183,968 $ 1,418
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Depreciation and amortization 422,274 339,415
Deferred tax expense (benefit) -- --
(Increase) decrease in operating assets:
Receivables (3,486,647) (791,579)
Prepaid expenses (456,459) (561,152)
Mandated benefit/security deposits (3,800) 72,648
Other (16,160) (6,784)
Increase (decrease) in operating liabilities:
Accounts payable 233,736 90,173
Accrued expenses and other payables 355,820 1,534,065
Client deposits 75,094 (1,874)
Deferred liabilities 6,621 65,495
----------- -----------
Net cash provided by (used in) operating activities (2,685,553) 741,825
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (156,051) (339,518)
Increases in cash surrender value of life insurance policies (6,369) (69,438)
Non-compete agreements (170,000) --
Acquisition costs, net of cash obtained (26,728) (659,769)
----------- -----------
Net cash used in investing activities (359,148) (1,068,725)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (9,385) (4,532)
Short-term borrowings 800,000 --
Notes payable issued 1,700,000 --
Notes payable repaid (300,000) --
Purchase of treasury stock (2,500,000) --
Stock price guarantee payment (61,515) --
----------- -----------
Net cash used in financing activities (370,900) (4,532)
----------- -----------
Net decrease in cash and cash equivalents (3,415,601) (331,432)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,010,630 5,949,508
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,595,029 $ 5,618,076
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for Interest $ 21,399 $ 5,359
=========== ===========
Income Taxes $ 400,000 $ 34,685
=========== ===========
</TABLE>
6
<PAGE> 7
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Stock Treasury Stock Excess
------------ -------------- Purchase Retained
Number Value Number Value Price Earnings Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1998 4,878,348 $ 28,404,509 122,113 $ (384,498) $ (83,935) $ 2,241,008 $ 30,177,084
Net income -- -- -- -- -- 183,968 183,968
Shares repurchased -- -- 500,000 (2,500,000) -- -- (2,500,000)
Stock price guarantee
payment -- (61,515) -- -- -- -- (61,515)
----------------------------------------------------------------------------------------------------
Balance
March 31, 1999 4,878,348 $ 28,342,994 622,113 $ (2,884,498) $ (83,935) $ 2,424,976 $ 27,799,537
====================================================================================================
</TABLE>
7
<PAGE> 8
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Unaudited Interim Consolidated financial Statements
The accompanying interim consolidated financial statements as of March
31, 1999 and for the three-month period then ended are unaudited. However, in
the opinion of management, these interim statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows of
TEAM America Corporation.
NOTE 2 - Accounting Policies
The financial statements should be read in conjunction with the audited
financial statements contained in TEAM America Corporation's Form 10-K Annual
Report for the year ended December 31, 1998.
NOTE 3 - Earnings Per Share
Earnings per share were determined in accordance with SFAS No. 128.
There were no differences to reconcile to determine net income for basic and
diluted earnings per share purposes. The effects of dilutive common stock
equivalents were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
- ------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average shares outstanding 4,484,012 4,607,135
- ------------------------------------------------------------------------------------------------
Shares issuable upon the exercise of stock options,
- ------------------------------------------------------------------------------------------------
less shares repurchased from the proceeds - 320,349
- ------------------------------------------------------------------------------------------------
Shares earned but still in escrow
- ------------------------------------------------------------------------------------------------
from acquisitions 33,103 113,048
- -------------------------------------------------------------------------- ---------------------
Diluted shares outstanding 4,517,115 5,040,532
================================================================================================
- ------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto and the
other financial information included elsewhere in this Quarterly Report on Form
10-Q, as well as the factors set forth under the caption "Forward-Looking
Information" below.
The following table sets forth results of operations for the
three-month period ended March 31, 1999 and 1998 expressed as a percentage of
revenues:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
- ------------------------------------------------------------------------------------
1999 1998
---- ----
- ------------------------------------------------------------------------------------
<S> <C> <C>
Revenues 100% 100%
- ------------------------------------------------------------------------------------
Direct costs:
- ------------------------------------------------------------------------------------
Salaries and wages 84.7 84.4
- ------------------------------------------------------------------------------------
Payroll taxes, workers' compensation 10.6 10.7
- ------------------------------------------------------------------------------------
premiums, employee benefits and other
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Gross profit 4.7 4.9
- ------------------------------------------------------------------------------------
Operating Expenses:
- ------------------------------------------------------------------------------------
Administrative salaries, wages and
- ------------------------------------------------------------------------------------
employment taxes 2.0 2.5
- ------------------------------------------------------------------------------------
Other selling general and
- ------------------------------------------------------------------------------------
administrative expenses 1.6 1.7
- ------------------------------------------------------------------------------------
Depreciation and amortization 0.5 0.5
- ------------------------------------------------------------------------------------
Total operating expenses 4.1 4.7
- ------------------------------------------------------------------------------------
Interest income (expense) - 0.1
- ------------------------------------------------------------------------------------
Income before taxes 0.6 0.3
- ------------------------------------------------------------------------------------
Provision for income taxes 0.4 0.3
- ------------------------------------------------------------------------------------
Net income 0.2 0.0
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES
Revenues increased 29.4% to $90,654,000 in the three months ended March
31, 1999 from $70,034,000 in the three months ended March 31, 1998. Since March
1998, the Company completed three acquisitions in Utah, Oregon and California
that together accounted for approximately one-half of the increase in revenues.
The remainder of the increase came from generic growth.
-9-
<PAGE> 10
DIRECT COSTS/MARGIN
Direct costs increased 29.7% to $86,410,000 in the three months ended
March 31, 1999 from $66,624,000 in the three months ended March 31, 1998.
Salaries and wages for worksite employees rose 29.9% while the costs of taxes
and insurances increased only 28% primarily due to lower costs for unemployment
taxes. Gross profit increased 24.5% to $4,245,000 in the three months ended
March 31, 1999 from $3,410,000 in the three months ended March 31, 1998 and
declined to 4.7% of revenues in the first quarter of 1999 compared to 4.9% of
revenues in the first quarter of 1998. The lower margin in 1999 reflects the
lower fees charged in the acquired locations compared to the core business in
the Midwest. As revenues from the acquired locations have increased to more than
60% of total revenues, their lower fees have had a greater impact so as to
reduce margin as a percentage of revenues. The potential to increase fees
charged at the acquired locations remains as an opportunity for revenue and
margin expansion.
EXPENSES
Total operating expenses increased 13.1% to $3,744,000 in the three
months ended March 31, 1999 from $3,310,000 in the three months ended March 31,
1998. Salaries and wages rose only 4.0% to $1,833,000 in the first quarter of
1999 from $1,763,000 in the first quarter of 1998. Wages increased for the
personnel added as a result of the acquisitions in Utah and Oregon. In the San
Diego acquisition, only one employee, a commissioned salesperson was added which
demonstrates the operational and financial leverage attainable in "fold in"
acquisitions.
Offsetting wages added through acquisitions were decreases as a result
of reallocation or reductions in administrative positions as a result of the
consolidation of functions to the corporate headquarters in connection with, or
in anticipation of, the conversion to the Company's new operating software. At
March 31, 1999, approximately 60% of the Company's worksite employees were being
served by Company locations operating on the new software. Substantially all
locations are expected to be using the new software by the end of the second
quarter.
Reductions in executive level compensation have also had a significant
effect on salary expense. Effective January 1, 1999, Richard Schilg, the
Company's Chairman, CEO and founder resigned. The Company acquired 500,000
shares of common stock owned by Mr. Schilg at $5 per share, the fair market
value at that date, in lieu of any other payments that may have been required
under previous employment agreements with Mr. Schilg. Those payments would have
aggregated to nearly $1,000,000 over a three-year period. Also, effective March
1, 1999, two executives from the Oregon acquisition resigned their positions
with the Company's subsidiary, TEAM America West, Inc. They remain affiliated
with the Company as independent marketing agents. Also, in mid 1998, the
Company's Chief Administrative Officer left the Company. Those responsibilities
were re-assigned internally. The President of the Company's California
subsidiary also restructured his arrangement with the Company. He remains under
contract with the Company but now is on a fee for services basis providing legal
and consulting services to the Company.
-10-
<PAGE> 11
Other selling and general and administrative expenses rose 23.3% to
$1,489,000 in the three months ended March 31, 1999 from $1,208,000 in the three
months ended March 31, 1998. This increase in other operating expenses was in
line with the 29% growth in the business during the period.
Depreciation and amortization rose 24.4% to $422,000 in the
three-months ended March 31, 1999 from $339,000 in the three-months ended March
31, 1998. The increase comes from the amortization of goodwill from the three
acquisitions completed since March 1998 and the depreciation arising from the
additional hardware and software for the TEAM Direct(TM) operating system.
OPERATING INCOME
Primarily as a result of the lower salaries and wages, operating
expenses declined to 4.1% of total revenues in 1999 from 4.7% in 1998 and
operating income increased 400% to $501,000 in the three months ended March 31,
1999 from $100,000 in the three months ended March 31, 1998.
INTEREST INCOME (EXPENSE)
Net interest changed from income of $43,000 in the three months ended
March 31, 1998 to expense of $6,000 in the three months ended March 31, 1999.
The 1998 period had $5,000 of interest expense and $48,000 of interest income
that came from nearly $5,000,000 of invested funds remaining from the December
1996 IPO. The 1999 results reflect $21,000 of interest expense from the
$2,500,000 borrowed to acquire 500,000 shares of common stock. Interest income
was only $15,000 during the first quarter of 1999 as funds remaining from the
IPO had declined to approximately $1,500,000 at December 31, 1998 and $1,200,000
at March 31, 1999.
INCOME TAX EXPENSE
Income tax expense was $310,000 in the three months ended March 31,
1999 compared to $142,000 in the three months ended March 31, 1998. The
effective tax rate was 62.8% in 1999 compared to 100% in 1998. The effective tax
rate reflects the non-deductibility of goodwill amortization for income tax
purposes.
NET INCOME AND EARNINGS PER SHARE
Net income was $184,000 or $.04 per diluted share in the three months
ended March 31, 1999 compared to $1,000 or $.00 per diluted share in the three
months ended March 31, 1998. Average shares outstanding declined to 4,517,000 in
the first quarter of 1999 from 5,041,000 in the first quarter of 1998 as a
result of the repurchase by the Company of 500,000 shares in February 1999. The
purchase midway through the quarter had the effect of reducing average shares
outstanding by approximately 250,000 shares. The remainder of the decrease came
from common stock equivalents. There were no common stock equivalents in the
first quarter of 1999
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<PAGE> 12
because the option prices were less than the average price of the Company's
common stock during the period. In the first quarter of 1998, there were 320,000
shares from stock options included as common stock equivalents.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had a working capital deficit of
$273,000. At December 31, 1998, the working capital surplus was $2,055,000. The
change in working capital correlates with seasonal increases in taxes during the
first half of each year.
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 Company stock.
Net cash provided by (used in) operating activities was ($2,686,000)
and $742,000 for the three-month periods ended March 31, 1999 and 1998,
respectively. The change in cash provided by operating activities was due to an
increase in accounts receivable which occurred as a result of the timing of
payrolls and billings to clients at the end of the quarter. In 1999, more
Company locations have gone to a bi-weekly payroll and billing cycle whereas in
the past, the acquired locations had more clients on a semi-monthly payroll
cycle. On a semi-monthly payroll cycle, the end of the month payrolls are billed
and collected on the last day of the month thus providing less fluctuation in
receivables. In addition, accruals for taxes and insurances declined due to
payments made during the quarter.
Net cash used in investing activities was $359,000 in the three months
ended March 31, 1999 compared to $1,069,000 in the three months ended March 31,
1998. The 1998 period reflected increased acquisition activity and development
expenses and hardware acquisitions for TEAM Direct(TM). There were no
acquisitions in the first quarter of 1999 and the TEAM Direct(TM) investment
needs were less during the quarter as the activity shifted towards
implementation and away from new development. In the first quarter of 1999,
$170,000 was paid to two former executives of the Company's location in Oregon
for a covenant not to compete in connection with their resignation from the
Company.
Financing activities historically have not been significant for the
Company. However, during the first quarter of 1999, the Company acquired 500,000
shares of common stock from its former Chairman and founder. The Company
borrowed $800,000 on its line of credit with a bank. The borrowing bears
interest at LIBOR plus 2.25%. The ninety day fixed rate was 7.25% during the
period the borrowing was outstanding in the first quarter of 1999. The Company
also gave a $1,700,000 promissory note with a 5.75% interest rate to the former
chairman with $700,000 due upon demand, and $1,000,000 is due on February 19,
2000.
The Company did not make any other purchases of treasury stock during
the first quarter of 1999. In September 1998 the Company's Board of Directors
authorized a 200,000 share repurchase. Between September 1998 and December 1998,
60,000 shares were repurchased.
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<PAGE> 13
In connection with an acquisition in 1998, the Company guaranteed the
price of 68,468 shares at $10.25 per share. During the first quarter of 1999,
$61,515 was paid to one of the holders of the shares under this guarantee
arrangement.
Presently, the Company has no material commitments for capital
expenditures. Primary uses of cash may include acquisitions, the size and timing
of which cannot be predicted. However, the Company is limited in its ability to
continue to acquire other PEO companies unless it can raise additional capital
since most acquisitions involve the payment of cash and the issuance of stock
for the purchase price and may also require some additional working capital
following acquisition.
In July 1998, the Company obtained a $10,000,000 revolving credit
agreement with a bank. The credit agreement provides for borrowings at the prime
rate or LIBOR plus 2.25%. The credit agreement requires the Company to maintain
certain financial standards as to net worth, current ratio and cash position and
also requires the bank's consent to acquisitions. $800,000 was borrowed on
February 11, 1999 on this facility. The Company is in compliance with the
covenants or has obtained waivers from the lender.
The Company believes that the net proceeds from the sale of the common
shares in December 1996 which were invested in marketable securities, 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, excluding acquisitions of other PEO's for the
foreseeable future. To the extent that the Company needs additional capital
resources, the Company believes that it will have access to bank financing and
other alternative sources of capital. However, there can be no assurances that
additional financing will be available on terms favorable to the Company, or at
all.
The Company did not pay dividends in 1996, 1997, 1998, or thus far in
1999, and does not expect to pay a dividend in the foreseeable future.
INFLATION
The Company believes the effects of inflation have not had a
significant impact on its results of operations or financial condition.
YEAR 2000
STATE OF READINESS
The Company's primary business is the delivery of payroll and HR
services to a widely diverse and geographically dispersed small business
clientele. The Company's data processing systems are integral and critical to
the efficient and effective delivery of its services. More specifically, the
Company relies on these systems for preparing and processing client payrolls,
payroll tax filings, benefits plan activities, insurance costs and client
invoicing.
Beginning in 1996, the Company began developing a new system that would
better meet the needs of a rapidly growing company and that would also improve
client service and operational efficiency. This new system is TEAM Direct(TM).
Although this systems project was
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<PAGE> 14
not embarked upon to address the Year 2000 issue, the result of this project is
that TEAM Direct(TM) has been designed to be Year 2000 compliant. The Company
believes TEAM Direct(TM) is Year 2000 compliant in all respects. The Company has
not specifically tested the system for Year 2000 compliance, but intends to do
so later this year.
Since September 1997, the Company has acquired eight PEO's outside of
Ohio. These companies have operated on their own systems since being acquired.
Their systems have not been evaluated for Year 2000 compliance because they will
be converted to TEAM Direct(TM) before the year 2000.
As of April 30, 1999, all of the Company's original core business and
the acquired businesses in Idaho, Utah, Montana and Michigan have been converted
to the new system. All locations are expected to be on TEAMDirect(TM) by
mid-1999.
The Company believes it does not have any non-IT Systems that would
result in a material adverse impact to the Company if they are not Year 2000
compliant.
The Company relies upon large regional banks to process its electronic
and non-electronic banking and disbursement activities. It also contracts with
large well-known national and regional insurance carriers to provide and/or
administer its employee benefits plans and insurance programs. The Company has
not specifically approached these institutions about their ability to handle the
Company's business transactions in the Year 2000. If necessary, the Company
believes it will have adequate time to switch to Year 2000 compliant providers,
if there are any, prior to the end of 1999.
The Company's customer base is primarily small businesses located
throughout the mid-west, south and western regions of the United States. No one
client is material to the Company's operations. The Company has not evaluated
the extent of Year 2000 readiness by its customers.
The Company is exploring alternative energy sources, such as diesel
generators, at its main corporate facility where its TEAMDirect(TM) system is
based, in case of utility service disruption. The Company also has the ability
to process from remote backup locations over the Internet, if the Internet is
operational in the Year 2000. The Company has not yet obtained cost estimates
for the alternative energy sources. The Company believes that the disruption of
utility services at any of its locations outside of its main corporate office
would not have a material effect on its operations as long as Internet or phone
access is possible. The Company, however, has not addressed or evaluated the
effects that disruption of phone service or Internet service nationally or
regionally would have on its operations.
COSTS
The Company has not separately identified costs associated with Year
2000 compliance because it has not undertaken Year 2000 compliance as a specific
project and has not employed outside consultants, etc. to address Year 2000
compliance. The Company believes that its development of TEAMDirect(TM) will
result in its primary operating systems being Year 2000 compliant.
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<PAGE> 15
RISKS OF FAILURE
The Company believes that if its primary operating system is not Year
2000 compliant, or if its banking and insurance vendors are not Year 2000
compliant, there would be significant material adverse consequences. The Company
could have difficulty meeting its obligations to its clients to provide timely
payrolls and administer employee benefits and insurance programs. This could
result in lost business and/or significant increases in operating costs which
may not be recoverable through price increases to our clients. The potential
loss of business or increases in costs could have a material adverse effect on
the financial condition and results of operations of the Company.
CONTINGENCY PLAN
As of May 1999, the Company has not yet developed a contingency plan to
address needed actions in the event of failure of its systems or significant
vendor systems to be Year 2000 compliant.
QUARTERLY RESULTS
The following table sets forth certain unaudited operating results of
each of the nine consecutive quarters for the period ended March 31, 1999.
The information is unaudited, but in the opinion of management,
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations of such periods.
This information should be read in conjunction with the Company's Consolidated
Financial statements and the Notes thereto.
-15-
<PAGE> 16
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
QUARTER ENDED
- ---------------------------------------------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
- ---------------------------------------------------------------------------------------------------------
1997 1997 1997 1997
---- ---- ---- ----
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $25,542 $31,812 $36,697 $61,812
- ---------------------------------------------------------------------------------------------------------
Direct Costs 24,143 30,000 35,000 58,402
- ---------------------------------------------------------------------------------------------------------
Net Income 232 332 173 193
- ---------------------------------------------------------------------------------------------------------
Earnings Per Share:
- ---------------------------------------------------------------------------------------------------------
Basic $.07 $.10 $.05 $.04
- ---------------------------------------------------------------------------------------------------------
Diluted $.07 $.10 $.05 $.04
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
QUARTER ENDED
- ---------------------------------------------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
- ---------------------------------------------------------------------------------------------------------
1998 1998 1998 1998
---- ---- ---- ----
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $70,034 $84,107 $89,499 $96,318
- ---------------------------------------------------------------------------------------------------------
Direct Costs 66,624 79,777 85,184 91,606
- ---------------------------------------------------------------------------------------------------------
Net Income 1 246 233 202
- ---------------------------------------------------------------------------------------------------------
Earnings Per Share :
- ---------------------------------------------------------------------------------------------------------
Basic $.00 $.05 $.05 $.04
- ---------------------------------------------------------------------------------------------------------
Diluted $.00 $.05 $.05 $.04
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
QUARTER ENDED
- ---------------------------------------------------------------------------------------------------------
Mar. 31
- ---------------------------------------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Revenues $90,654
- ---------------------------------------------------------------------------------------------------------
Direct Costs 86,410
- ---------------------------------------------------------------------------------------------------------
Net Income 184
- ---------------------------------------------------------------------------------------------------------
Earnings Per Share:
- ---------------------------------------------------------------------------------------------------------
Basic $.04
- ---------------------------------------------------------------------------------------------------------
Diluted $.04
- ---------------------------------------------------------------------------------------------------------
</TABLE>
AMOUNTS IN $000'S EXCEPT PER SHARE AMOUNTS
FORWARD-LOOKING INFORMATION
Statements in the preceding discussion that indicate the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements.
-16-
<PAGE> 17
Additional information concerning factors that could cause actual results to
differ materially from those suggested in the forward-looking statements is
contained under the caption "Business-Risk Factors" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 filed with the
Securities and Exchange Commission, as the same may be amended from time to
time.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and shareholder
values of the Company may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict.
Shareholders are cautioned not to put undue reliance on forward-looking
statements. In addition, the Company does not have any intention or obligation
to update forward-looking statements after the date hereof, even if new
information, future events, or other circumstances have made them incorrect or
misleading. For those statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on form 8-K
None
(b) Exhibits:
27 Financial Data Schedule
-17-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to e signed on its behalf by the
undersigned hereunto duly authorized.
TEAM AMERICA CORPORATION
/s/ MICHAEL R. GOODRICH
-----------------------------
Chief Financial Officer and
Authorized Signing Officer
May 10, 1999
-18-
<PAGE> 19
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27* Financial Data Schedule
*In SEC EDGAR-filed document only
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000860235
<NAME> TEAM AMERICA CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-01-1999
<CASH> 1,595,029
<SECURITIES> 250,000
<RECEIVABLES> 16,808,025
<ALLOWANCES> 50,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,432,573
<PP&E> 2,870,690
<DEPRECIATION> 1,046,525
<TOTAL-ASSETS> 48,024,442
<CURRENT-LIABILITIES> 19,705,665
<BONDS> 0
0
0
<COMMON> 28,342,994
<OTHER-SE> (543,457)
<TOTAL-LIABILITY-AND-EQUITY> 48,024,442
<SALES> 0
<TOTAL-REVENUES> 90,654,188
<CGS> 0
<TOTAL-COSTS> 86,409,600
<OTHER-EXPENSES> 3,743,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,343
<INCOME-PRETAX> 494,468
<INCOME-TAX> 310,500
<INCOME-CONTINUING> 183,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,968
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
