<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 SEPTEMBER 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-21533
TEAM AMERICA CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
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
OCTOBER 31, 2000 WAS 4,350,999.
<PAGE> 2
TEAM AMERICA CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 2000
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NO.
---
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - September 30, 2000 (unaudited)
and December 31, 1999...................................................................................... 3
Condensed Consolidated Statements of Operations -- Three-month and nine-
month periods ended September 30, 2000 (unaudited) and 1999 (unaudited and restated)...................... 5
Condensed Consolidated Statements of Cash Flows - Nine-month periods
ended September 30, 2000 (unaudited) and 1999 (unaudited and restated).................................... 6
Condensed Consolidated Statement of Changes in Shareholders' Equity-
Nine-month period ended September 30, 2000 (unaudited).................................................... 7
Notes to Condensed 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.................................................................... 14
Signature..................................................................................................... 15
</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
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
($ in 000's)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- ---------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $ 3,294 $ 3,087
Receivables:
Trade, net of allowance for doubtful accounts of $150 and $200, respectively 4,027 4,413
Unbilled revenues 10,172 10,515
Refundable income taxes 248 851
Employee advances 146 130
--------------- ---------------
Total receivables 14,593 15,909
Prepaid expenses 228 450
Deferred income tax asset 246 246
--------------- ---------------
TOTAL CURRENT ASSETS 18,361 19,692
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION 1,332 1,645
--------------- ---------------
OTHER ASSETS:
Goodwill and non-compete agreements, net 24,932 25,715
Cash surrender value of life insurance policies 774 596
Mandated benefit/security deposits 171 174
Other assets 79 64
--------------- ---------------
TOTAL OTHER ASSETS 25,956 26,549
--------------- ---------------
TOTAL ASSETS $ 45,649 $ 47,886
=============== ===============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE> 4
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
($ in 000's)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- ---------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Trade accounts payable $ 133 $ 688
Line of credit 1,800 1,500
Note payable to related party -- 900
Accrued compensation 8,498 8,947
Accrued payroll taxes and insurance 4,205 5,006
Accrued workers' compensation costs 1,795 1,476
Other accrued expenses 256 999
Client deposits 249 456
--------------- ---------------
TOTAL CURRENT LIABILITIES 16,936 19,972
--------------- ---------------
LONG-TERM LIABILITIES:
Deferred rent 26 26
Deferred compensation liability 744 593
Deferred taxes 23 23
--------------- ---------------
TOTAL LONG-TERM LIABILITIES 793 642
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value:
Common stock, 10,000,000 shares authorized 4,976,515 and 4,967,515
issued and outstanding, respectively 28,795 28,755
Excess purchase price (84) (84)
Retained earnings 2,053 1,483
--------------- ---------------
30,764 30,154
Less - Treasury stock, 625,516 and 615,343 shares respectively, at cost (2,844) (2,882)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 27,920 27,272
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 45,649 $ 47,886
=============== ===============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE> 5
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
($ in 000's)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
---------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
(Unaudited (Unaudited
(Unaudited) Restated) (Unaudited) Restated)
<S> <C> <C> <C> <C>
REVENUES $ 108,542 $ 102,678 $ 312,247 $ 294,711
--------------- --------------- --------------- ---------------
DIRECT COSTS:
Salaries and wages 96,037 89,600 273,024 255,642
Payroll taxes, workers' compensation
and other direct costs 8,433 9,118 26,783 27,855
--------------- --------------- --------------- ---------------
Total direct costs 104,470 98,718 299,807 283,497
--------------- --------------- --------------- ---------------
GROSS PROFIT 4,072 3,960 12,440 11,214
--------------- --------------- --------------- ---------------
EXPENSES:
Administrative salaries 1,969 1,814 5,972 5,596
Other selling, general and
administrative expenses 1,069 1,620 3,425 4,497
Depreciation and amortization 460 440 1,378 1,310
--------------- --------------- --------------- ---------------
Total operating expenses 3,498 3,874 10,775 11,403
--------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS) 574 86 1,665 (189)
Interest (expense) (11) (34) (75) (71)
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE TAXES 563 52 1,590 (260)
Income tax (expense) (343) (105) (1,020) (196)
--------------- --------------- --------------- ---------------
NET INCOME(LOSS) $ 220 $ (53) $ 570 $ (456)
=============== =============== =============== ===============
EARNINGS (LOSS) PER SHARE:
Basic $ 0.05 $ (0.01) $ 0.13 $ (0.10)
Diluted $ 0.05 $ (0.01) $ 0.13 $ (0.10)
SHARES OUTSTANDING:
Basic 4,343 4,346 4,337 4,389
Diluted 4,384 4,346 4,374 4,389
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
($ in 000's)
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
--------------- ---------------
(Unaudited
(Unaudited) Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 570 $ (456)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,378 1,310
(Increase) decrease in operating assets:
Trade receivables 386 144
Unbilled receivables 343 (5,034)
Prepaid expenses 222 (157)
Other 470 (140)
Increase (decrease) in operating liabilities:
Accounts payable (555) 309
Accrued expenses and other payables (1,166) 2,066
Accrued compensation (449) 4,163
Client deposits and other (56) 216
--------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,143 2,421
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (158) (390)
Increases in cash surrender value of life insurance policies (178) (137)
Non-compete agreements and other 0 (237)
--------------- ---------------
NET CASH (USED IN) INVESTING ACTIVITIES (336) (764)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowing 300 2,800
Proceeds from notes payable issued 0 1,700
Notes payable and short-term borrowing repaid (900) (2,400)
Purchase of treasury stock 0 (2,500)
Stock price guarantee payment 0 (240)
--------------- ---------------
NET CASH (USED IN) FINANCING ACTIVITIES (600) (640)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 207 1,017
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,087 5,010
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,294 $ 6,027
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 112 $ 140
Cash paid during the period for income taxes $ 431 $ 1,050
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 7
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
($ in 000's)
<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, 1999 4,968 $ 28,755 635 $ (2,882) 84 $ 1,483 27,272
Shares issued 9 40 (9) 38 0 0 78
Net income 0 0 0 0 0 570 570
-------- ---------- ---------- ---------- -------- --------- ----------
Balance
September 30, 2000 4,977 $ 28,795 626 ($ 2,844) 84 $ 2,053 $ 27,920
======== ========== ========== ========== ======== ========= ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying interim condensed consolidated financial statements as of
September 30, 2000 and for the three-month and nine-month periods 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. The interim condensed
consolidated financial statements as of September 30, 1999 have been restated to
reflect a $596,000 increase in direct costs for the three months ended September
31, 1999, and a $2,096,000 increase in direct costs for the nine months ended
September 30, 1999 to reflect the timing of additional costs in 1999 as
described in the Company's Form 10-K for the year ended December 31, 1999. These
adjustments reduced net income as previously reported from $311,000, or $.07 per
share, to a loss of $(53,000), or $(.01) per share for the three months ended
September 30, 1999 and from $802,000, or $.18 per share, to a loss of
$(456,000), or ($.10) per share for the nine months ended September 30, 1999.
NOTE 2 - ACCOUNTING POLICIES
The financial statements should be read in conjunction with the audited
financial statements contained in TEAM America Corporation's Annual Report on
Form 10-K for the year ended December 31, 1999.
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 (loss) for basic and diluted
earnings per share purposes. The effects of dilutive common stock equivalents
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 4,343,075 4,345,526 4,336,866 4,388,563
Dilutive shares from stock options 40,562 0 36,722 0
------------ ------------ ------------ -------------
Diluted shares outstanding 4,383,637 4,345,526 4,373,588 4,388,563
============ ============ ============ =============
</TABLE>
NOTE 4-MERGER
On February 7, 2000 the Company signed a definitive Agreement and Plan of Merger
to be acquired by Global Employment Solutions, Inc. On April 13, 2000, this
agreement was terminated. Subsequently, Mucho.com, Inc., ("Mucho.com") a
corporation controlled by a former officer and director of the Company, made an
offer to purchase all of the outstanding common stock of TEAM America at a price
of $6.75 per share, or approximately $29.4 million. On April 14, 2000, the
Company entered into a letter of intent with Mucho.com whereby Mucho.com agreed
to purchase for cash up to 50% of Team America's common stock at $6.75 per share
and give shares of Mucho.com to the remaining shareholders of TEAM America,
subject to the execution of a definitive agreement.
On June 16, 2000, the Company entered into an Agreement and Plan of Merger with
Mucho.com. Under the terms of the definitive merger agreement, a newly formed
subsidiary of the Company will merge with and into Mucho.com, and Mucho.com will
be the surviving entity and a wholly owned subsidiary of the Company. In
connection with the merger, the Mucho.com shareholders will receive up to
5,925,925 shares of the Company's common stock in exchange for their shares of
Mucho.com, subject to an escrow agreement for 2,222,222 shares. As part of the
merger, the Company's shareholders will be entitled to tender their shares for
$6.75 per share in cash through a self-tender offer for up to 50% of the
Company's outstanding common stock. The merger will be subject to certain
conditions, including regulatory and shareholder approval of both companies.
Upon consummation of the merger, the Company will change its name to TEAM Mucho,
Inc.
8
<PAGE> 9
NOTE 5 - PREFERRED STOCK
The Company is authorized to issue 11,000,000 shares of capital stock, no par
value, of which 500,000 are designated as Class A voting preferred shares,
500,000 are designated as Class B nonvoting preferred shares, and 10,000,000 are
shares of common stock. None of the preferred shares are issued or outstanding.
NOTE 6 - BANK LINE OF CREDIT
The Company has borrowed $1,800,000 against an original line of credit of
$3,500,000. Currently, the line is under review by the bank and the Company
while the Company continues its merger activities and its efforts to obtain new
debt and/or equity.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the condensed
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 and
nine-month periods ended September 30, 2000 and 1999 expressed as a percentage
of revenues. The September 30, 1999 results have been restated to reflect a
$596,000 increase and a $2,096,000 increase in direct costs for the three months
and nine months then ended. See Note 1 to Notes to Condensed Consolidated
Financial Statements:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
2000 1999 2000 1999
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue 100.00% 100.00% 100.00% 100.00%
Direct costs:
Salaries and wages 88.5 87.2 87.4 86.7
Payroll taxes, workers' compensation
and other direct costs 7.8 8.9 8.6 9.5
------------- ------------- ------------ ------------
Total direct costs 96.3 96.1 96.0 96.2
------------- ------------- ------------ ------------
Gross profit 3.7 3.9 4.0 3.8
Operating Expenses:
Administrative payroll and payroll other 1.8 1.8 1.9 1.9
Other selling general and administrative
expenses 1.0 1.6 1.1 1.5
Depreciation and amortization 0.4 0.4 0.5 0.5
------------- ------------- ------------ ------------
Total operating expenses 3.2 3.8 3.5 3.9
------------- ------------- ------------ ------------
Operating income (loss) 0.5 0.1 0.5 (0.1)
Interest income (expense) 0.0 0.0 0.0 0.0
------------- ------------- ------------ ------------
Income (loss) before taxes 0.5 0.1 0.5 (0.1)
Provision for income taxes (0.3) (0.1) (0.3) (0.1)
------------- ------------- ------------ ------------
Net income (loss) 0.2 (0.0) 0.2 (0.2)
============= ============= ============ ============
</TABLE>
9
<PAGE> 10
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES
Revenues increased 5.7%, to $108,542,000, in the three months ended September
30, 2000 from $102,678,000 in the three months ended September 30, 1999. The
increase was caused by normal growth from period to period; however, the Company
did terminate some marginal accounts at the close of the fourth fiscal quarter
of 1999. This caused a reduction in the rate of growth of revenue from the third
quarter of 1999 to the third quarter of 2000.
DIRECT COSTS/GROSS PROFIT
Direct costs increased 5.8%, to $104,470,000, in the three months ended
September 30, 2000 from $98,718,000 in the three months ended September 30,
1999. Salaries and wages for worksite employees rose 7.2%, while the costs of
taxes and insurances decreased 7.5% primarily due to lower costs for workers'
compensation and for other direct costs. Gross profit increased 2.8% to
$4,072,000 in the three months ended September 30, 2000 from $3,960,000 in the
three months ended September 30, 1999 and decreased to 3.7% of revenues in the
third quarter of 2000 compared to 3.9% of revenues in the third quarter of 1999.
The decline in the percent of revenue in the third quarter of 2000 was due to
slightly higher state unemployment insurance margins in 1999. The margin in the
third quarter of 2000 continues to reflect the lower fees charged in the
acquired locations compared to the core business in the Midwest.
OPERATING EXPENSES
Total operating expenses decreased 9.7%, to $3,498,000, in the three months
ended September 30, 2000 from $3,874,000 in the three months ended September 30,
1999. Salaries and wages increased 8.5% to $1,969,000 in the third quarter of
2000 from $1,814,000 in the third quarter of 1999 due to additions to corporate
staff in management and technical positions and to normal increases for existing
employees. These additions have helped to improve both direct and administrative
cost controls in 2000.
Other selling, general and administrative expenses decreased 34.0%, to
$1,069,000, or 1.0% of revenue, in the three months ended September 30, 2000
from $1,620,000, or 1.6% of revenue, in the three months ended September 30,
1999. The decreases were due to reductions in commissions, professional fees,
printing, bank charges and settlement expenses.
Depreciation and amortization rose 4.6%, to $460,000, in the three-months ended
September 30, 2000 from $440,000 in the three-months ended September 30, 1999.
The increase comes from the depreciation arising from the additional hardware
and software purchases for the TEAM Direct(TM) operating system.
OPERATING INCOME
Operating income in the quarter ended September 30, 2000 increased to $574,000,
or 0.5% of revenue, from an operating income of $86,000, or 0.1% of revenue, in
the third quarter of 1999. The $488,000 improvement in 2000 over 1999 was due to
the $112,000 improvement in gross margin and the $376,000 decrease in selling,
general and administrative expenses.
INTEREST INCOME (EXPENSE)
Net interest expense decreased to $11,000 in the three months ended September
30, 2000 compared to expense of $34,000 in the three months ended September 30,
1999. Interest rates were higher in 2000, while the average debt outstanding was
lower. Interest income increased in the third quarter of 2000 through
institution of a new sweep account in cash management.
10
<PAGE> 11
INCOME TAX EXPENSE
Income tax expense was $343,000 for the three months ended September 30, 2000,
compared to $105,000 in the three months ended September 30, 1999. The tax
expense includes approximately $90,000 per quarter for the non-deductibility of
goodwill amortization for income tax purposes.
NET INCOME (LOSS) AND EARNINGS PER SHARE
Net income was $220,000, or $.05 per share, in the three months ended September
30, 2000 compared to a loss of $(53,000), or $(.01) per share, in the three
months ended September 30, 1999. The increase was due primarily to the
improvement in operating income, net of taxes.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES
Revenues increased 6.0%, to $312,247,000, in the nine months ended September 30,
2000 from $294,711,000 in the nine months ended September 30, 1999. The increase
was caused by normal growth from period to period; however, the Company did
terminate some marginal accounts at the close of the fourth fiscal quarter of
1999. This caused a reduction in the rate of growth of revenue from the first
nine months of 1999 to the first nine months of 2000.
DIRECT COSTS/GROSS PROFIT
Direct costs increased 5.8%, to $299,807,000, in the nine months ended September
30, 2000 from a restated $283,497,000 in the nine months ended September 30,
1999. Salaries and wages for worksite employees rose 6.8% while the costs of
taxes and insurances decreased 3.8% primarily due to lower costs for workers'
compensation and for other direct costs. Gross profit increased 10.9% to
$12,440,000 in the nine months ended September 30, 2000 from a restated
$11,214,000 in the nine months ended September 30, 1999 and increased to 4.0% of
revenues in the first nine months of 2000 compared to a restated 3.8% of
revenues in the first nine months of 1999. The lower margin in 1999 reflects the
impact of the restatement of $2,096,000 in direct costs. The margin in the first
nine months of 2000 continues to reflect the lower fees charged in the acquired
locations compared to the core business in the Midwest.
OPERATING EXPENSES
Total operating expenses decreased 5.5%, to $10,775,000, or 3.5% of revenue, in
the nine months ended September 30, 2000 from $11,403,000 or 3.9% of revenue in
the nine months ended September 30, 1999. Salaries and wages rose 6.7% to
$5,972,000 in the first nine months of 2000 from $5,596,000 in the first nine
months of 1999. The increases are due to additions to corporate staff in
management and technical positions during the latter part of 1999 and to normal
increases for existing employees. These additions have helped to improve both
direct and administrative cost controls.
Other selling, general and administrative expenses decreased 23.8%, to
$3,425,000, or 1.1% of revenue, in the nine months ended September 30, 2000 from
$4,497,000 or 1.5% of revenue, in the nine months ended September 30, 1999. This
decrease in other operating expenses was due to substantial reductions in
increased spending for 1999 printed materials in the first quarter of 1999 to
establish the TEAM America brand name, to reduced commissions, to reductions in
other office supplies and to reductions in professional fees.
Depreciation and amortization rose 5.2%, to $1,378,000, in the nine months ended
September 30, 2000 from $1,310,000 in the nine months ended September 30, 1999.
The increase comes from the depreciation arising from the additional hardware
and software purchases for the TEAM Direct(TM) operating system.
11
<PAGE> 12
OPERATING INCOME
Operating income in the nine months ended September 30, 2000 increased to
$1,665,000, or 0.5% of revenue, from a restated net operating loss of
$(189,000), or (0.1)% of revenue, in the first nine months of 1999. The
$1,854,000 improvement was due to the $1,226,000 improvement in gross margin and
the net reduction of $628,000 in selling, general and administrative costs.
INTEREST INCOME (EXPENSE)
Net interest expense increased slightly to $75,000 in the nine months ended
September 30, 2000 compared to expense of $71,000 in the nine months ended
September 30, 1999. The 1999 results reflect interest expense, net of interest
income, from the $2,500,000 borrowed to acquire 500,000 shares of common stock
in February of 1999.
INCOME TAX EXPENSE
Income tax expense was $1,020,000 for the nine months ended September 30, 2000,
compared to a restated $196,000 in the nine months ended September 30, 1999. The
tax expense includes approximately $90,000 per quarter for the non-deductibility
of goodwill amortization for income tax purposes.
NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE
Net income was $570,000, or $.13 per share, in the nine months ended September
30, 2000 compared to a restated loss of $(456,000), or $(.10) per share, in the
nine months ended September 30, 1999. The increase was due primarily to the
improvement in operating income, net of taxes. Average shares outstanding
declined to 4,337,000 in the first nine months of 2000 from 4,389,000 in the
first nine months of 1999 as a result of the repurchase by the Company of
500,000 shares in February 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had a working capital balance of $1,425,000,
a $1,705,000 improvement over the December 31, 1999 working capital deficit of
$280,000. The Company's primary source of liquidity and capital resources has
historically been its internal cash flow from operations and its EBITDA
(Earnings before Interest, Taxes, Depreciation and Amortization). For the nine
months ended September 30, 2000, EBITDA was $3,043,000 compared to a restated
$1,121,000 for the nine months ended September 30, 1999.
Net cash provided by operating activities was $977,000 and $2,421,000 in the
nine months ended September 30, 2000 and 1999, respectively. For the nine months
ended September 30, 2000, the increase was due to improvements in net income and
a decrease in trade receivables, net of decreases in accounts payable and
accrued expenses. During the same nine-month period in 1999, the increase in
unbilled receivables, net of the increase in accrued compensation and other
accrued expenses, caused the increase in cash from operations.
Net cash used in investing activities was $336,000 in the nine months ended
September 30, 2000, compared to $764,000 in the nine months ended September 30,
1999. In 1999, $237,000 was paid to former executives of the Company for a
covenant not to compete in connection with their resignation from the Company
and for a cancellation of their employment agreements.
During the first quarter of 1999, the Company acquired 237,000 shares of common
stock from its former Chairman and founder for $2,500,000. The Company financed
this stock acquisition by borrowing $800,000 on its line of credit with a bank
and issuing a $1,700,000 promissory note with a 5.75% interest rate to the
former Chairman, with $700,000 due upon demand; $650,000 of this loan was repaid
during the first nine months of 1999. During the first nine months of 2000, the
note to the former Chairman was reduced from $900,000 to $0.
During the first nine months of 1999 the Company borrowed from and repaid to a
bank $2,000,000. During the second quarter of 2000, the Company increased its
bank line to $1,800,000 by borrowing $300,000. Currently, the line is under
review by the bank and the Company while the Company continues its merger
activities and its efforts to obtain new debt and/or equity.
12
<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 nine months of 1999,
$240,000 was paid to one of the holders of the shares under this guarantee
agreement.
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.
The Company believes that 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 has not paid dividends in 1996 through September 30, 2000, 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.
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.
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, 1999 filed with the
Securities and Exchange Commission and 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.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the
third quarter ending September 30, 2000:
NONE
(b) Exhibits:
27 Financial Data Schedule
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEAM AMERICA CORPORATION
/s/ Thomas L. Gerlacher
---------------------------------
Chief Financial Officer and
Authorized Signing Officer
November 14, 2000
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
27* Financial Data Schedule
* In SEC EDGAR-filed document only
15
