UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
FORM 10-KFOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)Mark One)
 | | |
 þ | | ANNUAL REPORT PURSUANT TO SECTION 13 ONOR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006
OR |
For the fiscal year ended September 30, 2009
For the transition period fromto
Commission File No. 0-18492 TEAMSTAFF, INC.
(Exact
nameName of
registrantRegistrant as
specifiedSpecified in
its charter) | | | |
NEW JERSEYNew Jersey | | | 22-1899798 |
| | |
(State or other jurisdiction of
incorporation or organization) | | | (I.R.S. Employer
Identification No.) |
1545 PEACHTREE STREET, N.E., SUITE 340,
ATLANTA, GEORGIA | | | 30309 |
(Address of principal executive offices) | | | (Zip Code) |
|
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE (755) 352-5304
SECURITIES REGISTERED PURSUANT TO SECTION
1 Executive Drive, Somerset, NJ 08873, Suite 130
(Address of principal executive offices) (Zip Code)
Issuer’s telephone number, including area code(877) 523-9897
Securities registered pursuant to Section 12(b)
OF THE ACT: | | | |
| | | | NAME OF EACH EXCHANGE ONName of Each Exchange on |
TITLE OF EACH CLASSTitle of Each Class | | | WHICH REGISTEREDWhich Registered |
| | THE NASDAQ STOCK MARKET, LLC |
NONE
SECURITIES REGISTERED PURSUANT TO SECTION
Securities registered pursuant to Section 12(g)
OF THE ACT:COMMON STOCK, $.001 PAR VALUE PER SHARE
(Title of class)
the Securities Exchange Act: NONE
Indicate by check mark if the registrant is a
well knownwell-known seasoned issuer, as defined in Rule 405 of the Securities
ActAct.Yes 
o No
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
section 15d15 (d) of the
Securities Exchange Act.
Yes o No
þ
Indicate by check mark whether the
Registrantregistrant (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 þ No
o
Indicate by check mark whether the
Registrant is an accelerated filer (as defined inregistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
12b-2405 of
Regulation S-T during the
Exchange Act)preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes o No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(ss.229.405 of this chapter) 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.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (check one):
| | | | | | |
| Large accelerated filero | | Accelerated filero | | Non-accelerated filero | | Smaller reporting companyþ |
| | | | (do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange
Act Rule 12b-2)Act).
Yes o No
At the close of our most recently completed second quarter, March 31, 2006,þ
State the aggregate market value of the voting stock of TeamStaff, Inc. (consisting of Common Stock, $.001 par value per share)and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the Registrant was approximately $26,241,000 based upon the closing sales price of $1.65 for such Common Stock on March 31, 2006 as reported by Nasdaq National Market. At the close of our fiscal year, September 30, 2006, the aggregate market valuelast business day of the voting stockregistrant’s most recently completed second fiscal quarter (March 31, 2009): $4,586,028.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of
TeamStaff, Inc. (consisting of Common Stock, $.001 par value per share) held by non-affiliates of the Registrant was approximately $20,266,000 based upon the closing sales price of $1.28 for such Common Stock on said date as reported on the Nasdaq National Market. On December 19, 2006 there were 19,278,266 shares outstanding of
Common Stockeach of the
registrant’s classes of common stock, as of the latest practicable date: On January 5, 2010 there were 4,940,982 shares outstanding of common stock of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (e) under the Securities Act of 1933.
None
None
PART I
| | |
| ITEM 1. | | BUSINESS |
General
TeamStaff, Inc. and its subsidiaries (“TeamStaff” or the “Company”, also referred to as “we,” “us” and “our”), provide staffing services to the United States Department of Veterans Affairs (“DVA”) and other US governmental entities. TeamStaff’s primary operations are located in Loganville, Georgia and its principal executive office is located at 1 Executive Drive, Suite 130, Somerset, New Jersey 08873 where its telephone number is (877) 523-9897.
Company History
TeamStaff, Inc., a New Jersey corporation, (‘‘TeamStaff’’ or the ‘‘Company’’), was founded in 1969 as a payroll service company and evolved into a national provider of payroll and temporarycontract and permanent medical and administrative staffing services. Its principal operations are conducted through its subsidiary, TeamStaff has offices locatedGovernment Solutions, (“TeamStaff GS”), a wholly-owned subsidiary of TeamStaff, Inc. TeamStaff GS changed its name from RS Staffing Services, Inc on February 12, 2008 to reflect the subsidiary’s expanding service offerings.
As described in
Clearwater, Florida; Memphis, Tennessee; Monroe, Georgia; Atlanta, Georgia; and Somerset, New Jersey.When we use the term ‘‘TeamStaff,’’ or the ‘‘Company’’ we meangreater detail below, on December 28, 2009, TeamStaff and its subsidiaries. Currently, we operate only through the parent corporation, TeamStaff, Inc., and our TeamStaff Rx, Inc. (including its Nursing Innovations division)(“TeamStaff Rx”), our wholly-owned subsidiary, entered into a definitive Asset Purchase Agreement with Advantage RN, LLC, an Ohio limited liability company (“Advantage RN”), providing for the sale of substantially all of the operating assets of TeamStaff Rx related to TeamStaff Rx’s business of providing travel nurse and RS Staffing Services, Inc. wholly-owned subsidiaries. allied healthcare professionals for temporary assignments to Advantage RN. The closing of this transaction occurred on January 4, 2010. The Asset Purchase Agreement provides that the purchased assets were acquired by Advantage RN for a purchase price of up to $425,000, of which (i) $350,000 in cash was paid at the closing, and (ii) $75,000 is subject to an escrowed holdback as described in the Asset Purchase Agreement. Additionally, Advantage RN will make rent subsidy payments to TeamStaff Rx totaling $125,000, consisting of (i) $25,000 payable at closing, and (ii) an additional $100,000 payable in 10 equal monthly installments beginning on March 1, 2010. Under the terms of the Asset Purchase Agreement, Advantage RN did not assume any debts, obligations or liabilities of TeamStaff Rx nor did it purchase any accounts receivable outstanding as of the closing date.
TeamStaff’s other wholly-owned subsidiaries include DSI Staff ConnXions Northeast, Inc., DSI Staff ConnXions Southwest, Inc., TeamStaff Solutions, Inc., TeamStaff I, Inc., TeamStaff II, Inc., TeamStaff III, Inc., TeamStaff IV, Inc., TeamStaff
V, Inc., TeamStaff VI, Inc., TeamStaff Insurance Services, Inc., TeamStaff VIII,
Inc., Employer Support Services, Inc., TeamStaff IX, Inc., Digital Insurance Services, Inc., HR2, Inc. and BrightLane.com, Inc. As a result of the sale of our Professional Employer Organization
(‘‘PEO’’) business in fiscal year 2004 and other Company business changes, these
‘‘other’’“other” subsidiaries are not actively operating.
Governmental Services
Following the disposition of its TeamStaff provides specialized medical, nursingRx business, TeamStaff’s operations are concentrated in the governmental staffing segment. TeamStaff, through its TeamStaff GS subsidiary, is a staffing provider specializing in providing healthcare, logistical, information technology and office administration personnel to U.S. government entities. The staffing services offered by TeamStaff GS are provided through independent Federal Supply Schedule (“FSS”) contracts through the United States General Services Administration (“GSA”). The provision of logistical and administrative personnel is accomplished through the Logistics Worldwide Schedule and medical personnel are supplied through the Professional and Allied Healthcare Staffing Services Schedule. TeamStaff also provides its staffing services to federal government agencies through competitively bid contracts and has a GSA schedule contract to provide information technology professional services. TeamStaff provides allied healthcarethese services to the DVA, the US Department of Defense and nursing professionalsother US governmental agencies and administrative personnel through three staffing units. The Company’s TeamStaff Rx subsidiary operates throughout the United States and specializes in providing allied medical employees and nurses, especially ‘‘travel’’ staff (typically on a thirteen-week assignment basis). Allied medical staff includes MRI technicians, mammographers, dosimetrists, ultrasound staff and physicists. TeamStaff Rx places temporary employees for over 200 client facilities. TeamStaff Rx’s Nursing Innovations unit provides travel nursing, per diem nursing, temporary-to-permanent nursing and permanent nursing placement services. Nursing Innovations places temporaryplaced contract employees at over 130 client facilities. The Company’s RS Staffing40 facilities during the 2009 fiscal year.
1
Description of Services
TeamStaff, through its TeamStaff GS subsidiary,
specializesis a staffing provider specializing in
providing medicalhealthcare, logistical, information technology and office
administration/technical professionals through nationwide Schedule contracts with bothadministration personnel that has been serving the
General Services AdministrationFederal Government for over a decade. Providing quality staffing solutions and
Veterans Affairs. RS Staffing places temporaryfacility management services, TeamStaff GS is committed to providing on-time delivery of multi-disciplined employees
at over 75 facilities.who possess the necessary experience, expertise, and dedication required to meet contract specifications. TeamStaff Inc. was organized underGS’ vision is to become the lawspreferred partner of the State of New Jersey on November 25, 1969 and maintains its principal executive office at 1545 Peachtree Street, N.E., Suite 340, Atlanta, Georgia 30309 where its telephone number is (866) 352-5304.
RECENT DEVELOPMENTS
Sale of DSI Payroll Services assets to CompuPay, Inc.
Effective May 31, 2006, the Company sold substantially all of the assets of its DSI Payroll Services division to CompuPay, Inc. for $9.0 million. The general terms of the transaction were an all-cash sale for $9.0 million, subject to an escrow of $250,000 for potential post-closing contingencies. On November 30, 2006, CompuPay released $125,000 of the escrow to TeamStaff and is scheduled to release the remaining escrow on May 31, 2007. The agreement called for minimum working capital requirements that resulted in a purchase price adjustment of $248,677, which was paid to TeamStaff on September 11, 2006. The sale also included a transition agreement whereby CompuPay would sublease certain office space at DSI’s current location from TeamStaff, Inc., among other standard agreements.
SERVICES
As a part of its continuing operations, TeamStaff provides staffing services through its wholly-owned subsidiaries, TeamStaff Rx, Inc. (including its Nursing Innovations division) and RS Staffing Services, Inc.
Table of ContentsStaffing Services
TeamStaff provides allied healthcare and nursing professionals and administrative staffing through three distinct staffing units. The Company’s TeamStaff Rx subsidiary operates throughout the United States and specializes in the supply of allied medical employees and nurses, especially ‘‘travel’’ staff (typically on thirteen-week assignments). Allied medical staff includes MRI technicians, mammographers, dosimetrists, ultrasound staff and physicists. The Nursing Innovations unit of TeamStaff Rx provides travel nursing, per diem nursing, temporary-to-permanent nursing and permanent nursing placement services. TeamStaff’s RS Staffing Services, Inc. subsidiary specializes in providing medical and office administration/technical professionals through nationwide Schedule contracts with both the General Services Administration and Veterans Affairs, among other customers.
TeamStaff Rx has more than 25 years of experience in placing temporary and permanent employees with specialized skills and talents to regional and national medical facilities. Temporary medical staffing enables clients to attain management and productivity goals by matching highly trained professional and technical personnel to specific staffing requirements. During the fiscal year ended September 30, 2006, this unit generated $21.1 million of revenue.
TeamStaff Rx focuses its allied health and nurse staffing services in all national markets, and seeks to place employees on temporary long-term assignments or on a permanent basis. TeamStaff Rx employs radiological technologists, diagnostic sonographers, cardiovascular technologists, radiation therapists, registered nurses and other medical professionals, and places these professionals in hospitals, clinics and therapy centers throughout the United States.
Through its Nursing Innovations division, TeamStaff Rx provides travel nursing, per diem nursing, temporary-to-permanent nursing and permanent nursing placement services. The continued shortage of nurses combined with an increasing demand for clinical healthcare services in hospitals, is creating a need forfederal government facilities to turn to agency nurses as a means to fill open positions. Nursing Innovations provides a full complement of specialized nurses to fill the needs of its clients – on both a short and long term basis. Clients whose staff requirements vary dramatically depending on patient census levels are therefore able to secure the services of qualified individuals on an interim basis, while better managing ‘cost-to-hire’ and ‘time-to-hire’ criteria. During the fiscal year ended September 30, 2006, this unit generated $10.5 million of revenue.
TeamStaff Rx’s clients are dependent on temporary staffing to supplement various internal departments for staffing shortages due to vacations, medical leaves and other causes. Our Company’s operating units fill our clients’ needs by providing reliable services and qualified personnel on a weekly, monthly, quarterly or longer basis, depending upon a client’s particular staffing objectives.that deliver exceptional results. TeamStaff Rx alsoGS provides targeted recruitingnationwide service and placement for clients for permanent employees. Additionally, if an employee on temporary assignment is hired byhas several remote offices and branches across the client on a permanent basis, continental United States.
TeamStaff
Rx usually receives a recruitment fee from that client.RS Staffing Services, Inc.’sGS’s primary client has been the United States governmentGovernment and its various agencies. RS Staffing Services, Inc.TeamStaff GS provides contract staffing solutions for government agencies in the categories of medical, professional, office administration, general services support, facility management and logistics support. Through its nationwide scheduleFSS contracts with both the General Services AdministrationGSA and Veterans Affairs, RS Staffingthe DVA, TeamStaff GS offers the ease of ordering directly through one of its multiple-award contracts and through multiple procurement vehicles and schedules. These schedulesprocurement vehicles include Temporary and Professional Service schedules,the Logistics World schedule, Title 38 programsthe Professional and VA (FSS)Allied Healthcare and Information Technology schedules, as well as on the government E-Buyability to order through the GSA’s e-Buy system. RS Staffing Services, Inc.TeamStaff GS also provides technology for online timesheets, reporting, ordering and invoicing as well as a provision of qualified personnel which can be based on any term assignment or contract.
RS Staffing also attempts to generate revenue opportunities through the use of ‘teaming partners’ that provide personnel to fill positions secured by RS Staffing. These teaming partners sometimes represent small business and ‘‘8(a)’’ designations. Many of these teaming partners are sought out for the benefits of our client’s need to meet government goals in relationship to veteran or service disabled veteran
Table of Contentsowned businesses, minority and woman owned businesses, native American owned and hub zone businesses spends. RS Staffing also sometimes supports its partners in the fulfillment of their contracts with front office, back office or technology and reporting support. During the fiscal year ended September 30, 2006,2009, this subsidiary generated $46.0 million in revenues.
Teamstaff GS’ variety of services, nationwide presence and broad depth of experience enables the company to provide staffing services to a wide range of Federal Government agencies. Some of these clients include: United States Forestry Service, United States Fish and Wildlife Service, Army Corps of Engineers, Army Medical Centers, Veterans Affairs Medical Centers, National Naval Medical Centers, General Services Administration, United State Air Force, Bureau of Land Management, Center for Disease Control, Naval Construction Battalion, Federal Bureau of Prisons and the Equal Employment Opportunity Commission. TeamStaff GS also is seeking to develop and maintain a nationwide network of teaming partners, including small businesses, Service Disabled Veteran Owned Small Businesses and other small-businesses certified under Section 8(a) of the Small Business Administration in order to expand and diversify its service offerings.
Healthcare Staffing
For over a decade TeamStaff GS has been serving the United States Veteran’s Affairs Department and Department of Defense by providing qualified medical and non-medical professionals. TeamStaff GS healthcare professionals are highly skilled clinicians who are licensed and credentialed, experienced and knowledgeable. TeamStaff GS provides assignments ranging from short to long-term positions.
TeamStaff GS has an expansive pool of allied health and nursing professionals, which includes many carefully screened and dedicated professionals experienced in a large number of modalities. Our allied health professionals include persons trained as: MRI Technologists; CRNA; Diagnostic Sonographers; Respiratory Therapists; Phlebotomists; Radiologic Technologists; Mammographers; Administration; Physicists; Medical Laboratory Technicians; Dosimetrists; PA/Nurse Practitioners; Radiation Therapists; Speech Therapists; Pharmacists; Pharmacy Technicians; Physical Therapists and Occupational Therapists. Our nursing professionals are experienced in the following areas: ICU; Emergency Room; CAN; Critical Care; Neonatal Intensive Care Unit; Medical Assistants; Medical/Surgical; Post Partum; NP; Pediatrics; Labor and Delivery; CRNA; Dialysis; LPN Long Term Care; Telemetry; Nursery; PACU; and PICU.
Relationship with DVA
The DVA’s mission is one of service to the 27 million veterans who have served their country. To accomplish this mission, the VA provides products and services to veterans by working closely with various industry sectors. TeamStaff GS is a pre-qualified vendor under Schedule 621 I, and offers professional and medical personnel in the healthcare field, including nursing, pharmacists and pharmaceutical personnel. TeamStaff GS helps its clients bridge gaps in professional clinical staffing in a variety of locations on a short or long-term basis.
Since 1999, TeamStaff GS has provided the DVA with contract staffing services at its consolidated pharmacy distribution facilities. These services include pharmacists, pharmacy technicians and shipping packers and are performed at six of the seven DVA-operated locations. In January 2008 Teamstaff GS was issued purchase orders for all sites from the DVA’s consolidated pharmacy national contracting office, which allowed for standardization of labor categories as well as implementation of correct Department of Labor Wage Determinations. Although, the current task orders expired on December 31, 2009, a six month continuation of services extension for all six locations serviced by TeamStaff GS was awarded on December 14, 2009.
2
Previously, DVA had issued a new contract solicitation in June 2008 for these services, which was cancelled in October 2008. We anticipate that the DVA may release new requests for proposals related to staffing services at its pharmacy distribution facilities early in 2010. In such an event, the Company intends to submit a proposal to address any such solicitation. Although the Company believes it is well positioned to continue its relationship with the DVA, no assurances can be given that in the event the DVA issues such a solicitation, that any purchase orders would be awarded to the Company or if it is granted subsequent orders, that such orders would be of a scope comparable to the services that the Company has provided to date.
Logistics
TeamStaff GS is also a staffing provider of logistics and administrative professionals to the federal government. TeamStaff GS specializes in proving personnel for logistics, office administration, IT, and facilities/warehouse management through Federal Service Schedules. TeamStaff GS’ project managers range from career government support employees to retired military veterans with extensive experience. The experience of TeamStaff GS’ project managers is diverse from operational unit
generated $43.8 millionlevel to systems command/headquarters program office experience. More recently, TeamStaff GS has entered into several teaming agreements with Service Disabled Veteran Owned Small Businesses. These agreements allow the Company to aid these companies, which typically support Department of
revenue.Defense requirements, and more specifically Defense Logistics Agency, in having the ability to draw from our human resources and account administration expertise. In particular, TeamStaff GS is experienced in providing personnel with supply chain distribution as well as inventory and warehouse management expertise. TeamStaff GS is moving forward to expand its service offering, especially within the Department of Defense.
TeamStaff GS’ full spectrum of logistics and technical expertise is available to the government and other authorized agencies through its LOGWORLD contract, which allows agencies to select service providers that meet their needs for personnel, management, supplies, services, materials, equipment, facilities and transportation. Staffing of logistics personnel includes the following: Logistics Support, Office Administration, Information Technologies and Facilities Management.
Our Strategy
TeamStaff’s entire complement of staffing services
provide clients the ability to ‘‘right size;’’ that is, to expand or reduce their workforces in response to changing business conditions. The Company believes that these services provideprovides numerous benefits to
its clients, such as saving the costs of salary and benefits of a permanent employee whose services are not needed throughout the year. The clients also avoid the costs, uncertainty and delays associated with searches for qualified interim employees.customers in managing their workforces. TeamStaff’s
temporarycontract staffing services
also allow a client to avoid administrative responsibility for payroll, payroll taxes, workers’ compensation, unemployment and medical benefits for interim employees.
The Company believes that its
temporarycontract staffing services provide a client with an increased pool of qualified personnel. Since TeamStaff’s
temporarycontract staffing employees have access to a wide array of benefits, such as paid time off, health and life insurance
and Section 125 premium conversion
plans and 401(k) retirement savings plans, TeamStaff believes it is able to attract a sufficient pool of
qualified personnel to grow this business. These benefits provide
temporarycontract employees with the motivation of permanent workers without additional benefit and administrative costs to the client.
TeamStaff GS has achieved positive results in expanding its penetration of DVA facilities through vertical expansion of previously awarded contracts. The
current shortage in the availability of certain allied health and nursing personnel, along with the advent of certain patient protection measures, has, in management’s opinion, created an improving market opportunity for TeamStaff Rx andCompany is also expanding its
Nursing Innovations division. TeamStaff believes that both divisions are in a pivotal position to increase its market share based on its reputation and experience in the temporary medical staffing industry. RS Staffing Services continues to seek further opportunities inreach within the government sector
beyond VA opportunities by bidding on Department of Defense (“DOD”) staffing contracts afforded to large businesses and
the GSA’se-Buyportal, an electronic Request for Quote (RFQ) / Request for Proposal (RFP) system, which is designed to
grow further where it has previously enjoyedallow Federal buyers to request information, find sources, and prepare RFQs/RFPs, online, for various services offered through GSA’s Multiple Award Schedule. Additionally, TeamStaff GS is evaluating opportunities to satisfy the staffing needs of other government agencies in addition to the DVA and DOD as a
strong market position. RS Staffing also has significant revenue opportunities through the usemeans of
teaming partners that provide personnel to fill positions secured by RS Staffing.TeamStaff’s goal is to build on its reputation and to become a leading one-stop providerhorizontal expansion of its clients’ temporary travel medicalclient base.
3
Customers
As of September 30, 2009, TeamStaff’s combined customer base consisted of approximately 40 government clients. Substantially all of the business of our TeamStaff GS subsidiary is accomplished through contracts with various agencies of the United States Government. In fiscal 2009, through its FSS contracts primarily with the DVA, TeamStaff GS had independent task–orders with four DVA-related facilities which comprised 31%, 23%, 12% and 11%, or 77% in the aggregate, of the Company’s overall consolidated revenue. In fiscal 2009, TeamStaff GS had five task-orders that each individually comprised greater than 5% of the subsidiary’s revenue. As described in greater detail above, we are currently providing these services under extended task orders, which are scheduled to expire on or around June 30, 2010 and we anticipate that the DVA may release new requests for proposals related to staffing
nursing and government sector personnel. Theservices at its pharmacy distribution facilities in early 2010. In such an event, the Company
believes it can achieve this goal throughintends to submit a
combination of: 1) organic growth; 2) establishing and building a network of alliances with complementary staffing organizations; and 3) completing acquisitions of complementary staffing organizationsproposal to
increase its product offerings and achieve operational scale. The Company’s acquisition of certain temporary nurse staffing assets of Nursing Innovations and RS Staffing Services, Inc. during the last fiscal year is part of its acquisitive growth strategy. We have not entered into any definitive agreements to acquire any further businesses, and there can be no assurance that we will be able to identifyaddress any such
businesses, or that even once identified, we will be able to acquire them on terms acceptable to us.solicitation.
The U.S. Government is the primary customer to our
RS Staffing Services, Inc.TeamStaff GS subsidiary. Many of the U.S. Government programs in which we participate as a contractor or subcontractor may extend for several years. However, such programs are normally funded on an annual basis. All U.S. Government contracts and subcontracts may be modified, curtailed or terminated at the convenience of the government for any reason, including if program requirements or budgetary constraints change. If a contract is terminated for convenience, we would generally be reimbursed for our allowable costs through the date of termination and
arewould be paid a proportionate amount of the stipulated profit or fee attributable to the work actually performed. Although contract and program modifications, curtailments or terminations have not had a material adverse effect on the business of
RS Staffing Services, Inc.TeamStaff GS in the past, no assurance can be given that such modifications, curtailments or terminations will not have a material adverse effect on our financial condition or results of operations in the future. In addition, the U.S. Government may terminate a contract for default. Although the U.S. Government has never terminated any of
RS Staffing Service’sTeamStaff GS’s contracts for default, such a termination could have a significant impact on our business. If a contract is terminated for default, we
Table of Contentsmay be unable to recover amounts billed or billable under the contract and may be liable for other costs and damages. The U.S. Government contract bid process is complex and sometimes lengthy. Once a bid is won and a contract awarded, there still is the possibility of a bid protest or numerous delays in implementation. There can be no assurance that such protest process or implementation delays will not have a material adverse effect on our financial condition, or results of operations or cash flows in the future.
CUSTOMERS
As of September 30, 2006, TeamStaff’s combined customer base consisted of over 400 staffing clients. Substantially all of the customers of our TeamStaff Rx, Inc.
Sales and Nursing Innovations subsidiary are engaged in the healthcare industry. Substantially all of the business of RS Staffing Services, Inc. is accomplished through contracts with the United States Government. RS Staffing has one customer who individually comprises more than 10% of the Company’s overall consolidated revenue and three customers who each individually comprise more than 10% of the division’s revenue. TeamStaff Rx (including its Nursing Innovations division) has 4 clients who each individually comprise greater than 5% of the staffing unit’s revenue. RS Staffing Services has 6 clients who each individually comprise greater than 5% of the subsidiary’s revenue.SALES AND MARKETING
Marketing
TeamStaff maintains
health carehealthcare and government staffing sales, service and marketing personnel in
Memphis, Tennessee; Monroe, Georgia; Atlanta,Tucson, Arizona; Loganville, Georgia; Hines, Illinois; Leavenworth, Kansas; Boston, Massachusetts;
Baltimore, Maryland; Washington, DC; Biloxi, Mississippi;
Murfreesboro, Tennessee; and
Clearwater, Florida.Charleston, South Carolina.
Through our
3 business units, TeamsStaffoperating subsidiary, TeamStaff continues to build sales through
telephonicboth the GSA’se-Buy portal, an electronic system designed to allow Federal buyers to request information, find sources, and
a direct toprepare RFQs/RFPs, online and face-to-face client
sales force. The acquisition of RS Staffing in June 2005 offered TeamStaff the opportunity to use RS Staffing accounts and on site locations as well as nearby RS offices for the further marketing of its general and government services offerings.Recent effortsinteractions. Efforts to build marketing presence include the launching of new TeamStaff GS and corporate websites, implementing a print advertisement campaign, and revising our website, a Health Journal Television segment,strategic marketing communications plan in an effort to attract allied medical and revised marketing planning. Additionallynurse travelers. During the year, we havealso added additionalseveral marketing events participationto our tradeshow calendar in order to increase our brand recognition. This added exposure is allowing us to introduce our suite of offerings to an expanded market. We continue to focus on our sales and marketing efforts in order to increase our contact with current and prospective clients. During fiscal 2008 we completed a corporate branding campaign. TeamStaff GS gives us a strong presence in the commercialgovernment sector and government sectors and introduced new and expanded service offerings in the healthcare sector.
TeamStaff implemented quarterly sales and services meetingsprovides us with an opportunity to align supply to demand and to enable faster communication of sales focus. We have implemented software enabling our sales force to share information across the company. We also implementedbid on awards for large multi-year contracts with the sales team a market based territory focus versus the former state or national focus on designated territories for increased service capabilities.
COMPETITION
Thefavorable operating margins.
Competition
Our primary competitors in ourgovernment staffing business are AMN Healthcare Services,solutions include Top Echelon Management, Inc., Cross Country Healthcare, Inc., CHG Healthcare Services,Total Management, Inc., Medical Staffing Network Holdings, Inc., Maxim Healthcare Services Inc,Kforce, Inc. and InteliStafMaxim Healthcare Services, Inc. TeamStaff competes with these companies by offering customized products, such as TeamStaff Rx’s Vendor Integration Program, personalized service, competitive prices and specialized personnel to satisfy a client’s particular requirements. Many of these companies have greater name-recognition and financial resources than we do. The Company believes that its broad scope of services and its commitment to quality service differentiate it from its competition. Further, the Company believes that RS Staffing Services Inc.’sTeamStaff GS’s knowledge and processes with respect to government contract bidding represents a competitive advantage. In addition, we may face additional competition from other larger staffing companies that do not focus on the government staffing sector.
INDUSTRY/GOVERNMENT REGULATION4
Introduction
Industry/Government Regulation
Introduction
Federal and state laws materially affect TeamStaff’s operations. These laws relate to labor, tax and employment matters. As an employer, TeamStaff is subject to all federal statutes and regulations
Table of Contentsgoverning its employer-employee relationships. The development of additional statutes and regulations and interpretation of existing statutes and regulations with respect to the alternative staffing industry can be expected to evolve over time. TeamStaff cannot predict with certainty the nature or direction of the development of federal, state and local statutes and regulations.
Federal and State Employment Taxes TeamStaff 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 its
temporarycontract staffing employees. There are essentially three types of federal employment tax obligations: (i) withholding of income tax requirements; (ii) obligations under
FICA;the Federal Insurance Contribution Act (“FICA”); and, (iii) obligations under the Federal Unemployment Tax Act. Under these statutes, employers have the obligation to withhold and remit the employer portion and, where applicable, the employee portion of these taxes.
TeamStaff offers various employee benefit plans to its full-time
employees and temporary staffingcorporate (non-worksite) employees. These plans include a 401(k) Plan (a profit-sharing plan with a cash or deferred arrangement, or
CODA)“CODA”), under
Internal Revenue Code
(“IRC”) Section 401(k)), a Section 125 plan, group health plans, group dental insurance, vision insurance, a group life insurance plan and a group disability insurance plan.
Contract staffing employees are offered various employee benefit plans that include a Section 125 plan, group health plans, group dental insurance and group life insurance. Generally, employee benefit plans are subject to provisions of both the Code and the Employee Retirement Income Security
Act.Act of 1974 (“ERISA”). TeamStaff also makes a variety of voluntary insurance products available to its employees, which its employees may purchase through payroll deductions.
In order to qualify for favorable tax treatment under the
Code,IRC, the plans must be established and maintained by an employer for the exclusive benefit of its employees. In addition to the employer/employee threshold, pension and profit-sharing plans, including plans that offer CODAs under
CodeIRC Section 401(k) and matching contributions under
CodeIRC Section 401(m), must satisfy certain other requirements under the
Code.IRC. 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.
Employee pension and welfare benefit plans are also governed by ERISA. ERISA defines
‘‘employer’’“employer” as
‘‘any“any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan.
’’” ERISA defines the term
‘‘employee’’“employee” as
‘‘any“any individual employed by an employer.
’’”
As an employer, TeamStaff is subject to all federal, state and local statutes and regulations governing the employer-employee relationship. Additionally, an increasing number of states have adopted or are considering adopting licensing or registration requirements that affect TeamStaff’s
temporarycontract medical staffing and permanent placement business. These license and registration requirements generally provide for an evaluation of the operator’s background and integrity and periodic or ongoing monitoring of the medical staffing firm’s policies and practices.
TeamStaff Rx is licensed or registered for its temporary allied healthcare staffing services in the following jurisdictions: Florida, Massachusetts, North Carolina and Rhode Island and has license applications pending in Illinois and New Jersey. TeamStaff Rx is licensed or registered for its temporary nursing business in California, Kentucky, Maine, Maryland, Massachusetts Minnesota, North Carolina and Washington. TeamStaff Rx is licensed or registered for its permanent placement business in the District of Columbia and New Jersey. The Company continues to review applicable statutes and regulations and prepare appropriate applications for filing.Information and Technology SystemsThe Company believes that it continued to improve its IT operations during
Throughout the 2009 fiscal year,
2006. The Company began analyzing and documenting the needs and processes of our staffing units in
Table of Contentspreparation for platform consolidation during fiscal year 2007. These efforts will also aid the Company as it pursues certification fromhas made technology related strategic improvements. Previously, the Joint Commission on Accreditationinfrastructure and IT support at TeamStaff GS’s Loganville, GA headquarters was outsourced. In an effort to reduce cost and increase network response time, the Company has moved all aspects of Healthcare Organizations (‘‘JCAHO’’) and Sarbanes-Oxley compliance. We also installed a better phone system to make our associates more productiveIT in their call activities and to enable better and cheaper communications among our disparate locations. Efforts for 2007house; improving overall support, while reducing the Company’s IT-related expenditures by approximately $75,000 per year.
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Looking forward, the Company will continue to focus on waysthe government division. The Company has analyzed and documented the requirements needed to improvereplace the aged TeamStaff GS operating system, which, while functional and compliant, will not efficiently meet the growth strategy of the division. The new enterprise resource planning (“ERP”) system that will replace the current payroll system has been identified and implementation will start in the first fiscal quarter of 2010 with an expected activation with the first payroll cycle of the 2010 calendar year. This new ERP system will open the doors to much larger government contracts that are unattainable with the current solution due to the cost accounting system requirements of the Defense Contract Audit Agency. In addition to the new ERP system, the Company will implement a new staffing database module that will allow the division to more easily source open positions. Both the new ERP and staffing solutions will integrate seamlessly with each other and Microsoft Outlook, streamlining business processes and efficiency.
Disposition of Assets
On December 28, 2009, TeamStaff, Inc. and TeamStaff Rx entered into a definitive Asset Purchase Agreement, dated as of December 28, 2009 with Advantage RN that provides for the sale of substantially all of the operating assets of TeamStaff Rx related to TeamStaff Rx’s business of providing travel nurse and allied healthcare professionals for temporary assignments to Advantage RN. The closing was held on January 4, 2010. The Asset Purchase Agreement provided for the purchase of the purchased assets by Advantage RN for a purchase price of up to $425,000, of which (i) $350,000 in cash was paid at the closing, and (ii) $75,000 is subject to an escrowed holdback under certain terms and conditions as described in the Asset Purchase Agreement. The holdback consists of (i) $50,000 that will be held back subject to the number of travel nurses and allied healthcare professionals associated with and working in the business on a full-time basis for the week ending January 24, 2010, and (ii) $25,000 that will be held back until appropriate releases have been obtained from certain third parties by TeamStaff Rx and no encumbrances on the purchased assets remain outstanding. As described in greater detail in Note 4 to the Company’s consolidated financial statements, management anticipates that the Company will (i) report a net loss from discontinued operations through the effective date of the sale to Advantage RN, which will include an estimated charge of $0.2 million for severance to certain TeamStaff Rx employees and (ii) incur a loss on the disposal of TeamStaff Rx approximating $0.3 million principally from recognition of the remaining unfunded operating lease payments.
Under the terms of the Asset Purchase Agreement, Advantage RN did not assume any debts, obligations or liabilities of TeamStaff Rx nor did it purchase any accounts receivable outstanding as of the closing date. Following the closing, Advantage RN will have the right to use, through February 28, 2011, the premises located in Clearwater, Florida that is currently used by TeamStaff Rx for its principal executive offices of the Business. In connection with such use, Advantage RN will make rent subsidy payments to TeamStaff Rx totaling $125,000, consisting of (i) $25,000 payable at the closing, and (ii) an additional $100,000 payable in 10 equal monthly installments of $10,000 payable on the first day of each calendar month beginning on March 1, 2010 until December 1, 2010. Effective with the closing of this transaction, the President of our
capabilitiesTeamStaff Rx subsidiary, Dale West, ceased her employment with TeamStaff. Ms. West will receive severance payments and
reduce expenses.benefits as provided for in the employment agreement we entered into with her in December 2008. See the discussion of these payments and benefits under the section of this annual report captioned “Employment Agreements with Named Executive Officers”.
Loan Facility
On March 28, 2008, we entered into an Amended and Restated Loan and Security Agreement dated as of March 28, 2008 (the “Loan Agreement”) with Business Alliance Capital Company (“BACC”), a division of Sovereign Bank (“Sovereign” or “Lender”). Effective April 1, 2008, BACC changed its name to Sovereign Business Capital. Under the Loan Agreement, the Lender agreed to provide a revolving credit facility to the Company in an aggregate amount of up to $3,000,000, subject to the further terms and conditions of the Loan Agreement. The loan is secured by a first priority lien on all of the Company’s assets. Previously in 2005, the Company and PNC Bank, National Association (“PNC”) had entered into an $8,000,000 revolving credit facility (“PNC Loan Facility”). Pursuant to the Loan Agreement, the Lender (i) acquired by assignment from PNC all right, title and interest of PNC under the PNC Loan Facility, the PNC note and related loan documentation, and (ii) restructured the PNC Loan Facility into a $3,000,000 revolving credit facility with a 3 year term. The Company’s IT groupability to request loan advances under the Loan Agreement is subject to computation of the Company’s advance limit and compliance with the covenants and conditions of the loan. The facility is for a term of 36 months and matures on March 31, 2011. Interest on amounts due accrues on the daily unpaid balance of the loan advances at a per annum rate of 0.25% percentage point above the Prime Rate in effect from time to time, but not less than 5.5% per annum.
The facility is subject to certain restrictive covenants, including minimum debt service coverage ratio and restrictions on the Company’s ability to, among other things, dispose of certain assets, engage in certain transactions, incur indebtedness and pay dividends. The Loan Agreement also provides for customary events of default following which, the Lender may, at its option, accelerate the amounts outstanding under the Loan Agreement.
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In connection with the disposition of the assets of our TeamStaff Rx subsidiary, we were required to obtain the consent of Sovereign. On January 12, 2010 we received such consent. As a condition to such consent, however, Sovereign reduced the maximum amount available under such loan facility from $3.0 million to $2.0 million. As of September 30, 2009, there was also involvedno debt outstanding under the Loan Agreement and unused availability (as defined) totaled $1.7 million, net of required collateral reserves per the Loan Agreement for certain payroll and tax liabilities. As of September 30, 2009, TeamStaff had working capital of $0.9 million. Accordingly, management does not believe that the reduction in the availability under the Loan Agreement will have a material adverse impact on the Company’s operations and financial condition.
In addition, on January 11, 2010, we determined that as of September 30, 2009, we were not in compliance with the debt service coverage ratio covenant of the Loan Agreement. The Loan Agreement provides that following an event of default, Sovereign may, among other remedies provided for in the Loan Agreement, accelerate the amounts outstanding under the Loan Agreement, take such actions as it deems necessary to protect its security interest in the collateral, and terminate the Loan Agreement. In connection with its consent to the sale of the
DSI Payroll Services divisionTeamStaff Rx assets and loan modification, Sovereign waived such non-compliance for the period ended September 30, 2009. Sovereign, however, reserved its rights under the Loan Agreement with respect to
CompuPay. Post-transaction efforts included helpingany future non-compliance with the
new owner understand the infrastructuredebt service coverage ratio for any future period or any other provision of the
business unit and assistingLoan Agreement. If covenant violations were to occur in the
transition of operationalfuture and
development responsibilities, while ensuring continuous servicethe lender does not agree to
DSI’s clients.The Company will also continue to improvemodify the efficienciescovenants or waive such violations, it could result in the acceleration of the corporate infrastructure, through IT system consolidationsmaturity date of all of our debt under this loan facility. In both of these circumstances it could have a material adverse impact on our business and process and platform improvements.
financial condition. See “Risk Factors – Risks Relating to our Revolving Credit Line”.
As of September 30,
2006,2009, TeamStaff employed
12245 corporate (non worksite) employees, both full-time and part-time, including executive officers, a decrease from
14964 during the previous fiscal
year, due mainly to the sale of our DSI Payroll Services division to CompuPay, Inc. during fiscal 2006.year. As of September 30,
2006,2009, TeamStaff also employed approximately
1,160 temporary911 contract employees on client assignments. TeamStaff believes its relationship with its current employees is satisfactory. None of TeamStaff’s
corporate employees
isare covered by a collective bargaining agreement.
RISK FACTORS
You should carefully consider
Available Information
We file annual, quarterly and current reports and other information with the risks described belowSecurities and Exchange Commission (“SEC”). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are available free of charge in the “Investor Relations” section of our website at www.teamstaff.com. Our Internet website and the information contained on that website, or accessible from our website, is not intended to be incorporated into this Annual Report on Form 10-K or any other filings we make with respectthe SEC. These reports, and any amendments to these reports, are made available on our website as soon as reasonably practicable after such reports are filed with or furnished to the SEC. Such reports are also available, free of charge, from the SEC’s EDGAR database at www.sec.gov.
As provided for under the Private Securities Litigation Reform Act of 1995 (“1995 Reform Act”), we wish to caution shareholders and investors that the following important factors, among others discussed throughout this Annual Report on Form 10-K for the fiscal year ended September 30, 2009, have affected, and in some cases could affect, our actual results of operation and cause our results to differ materially from those anticipated in forward looking statements made herein. Our business, results of operations business, industry,and financial condition may be materially and stock.adversely affected due to any of the following risks. The risks and uncertainties described below are not the only ones facing us. Otherwe face. Additional risks and uncertaintieswe are not presently aware of or that we have not predicted or assessedcurrently believe are immaterial may also adversely affect us. Someimpair our business operations. The trading price of our common stock could decline due to any of these risks. In assessing these risks, you should also refer to the other information contained or incorporated by reference in this filing contains forward-lookingAnnual Report on Form 10-K, including our consolidated financial statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as ‘‘may,’’ ‘‘will,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘intend,’’ ‘‘estimate,’’ and ‘‘continue’’ or other similar words. You should read statements that contain these words carefully for the following reasons:related notes.
| |
— | the statements may discuss our future expectations; |
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— | the statements may contain projections of our future earnings or of our financial condition; and |
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— | the statements may state other ‘‘forward-looking’’ information. |
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Certain statements contained herein constitute
‘‘forward-looking statements’’“forward-looking statements” within the meaning of the
Private Securities Litigation1995 Reform
Act of 1995.Act. TeamStaff desires to avail itself of certain
‘‘safe harbor’’“safe harbor” provisions of the 1995 Reform Act and is therefore including this special note to enable it to do so. Forward-looking statements included in this Report on Form 10-K
for fiscal year ended September 30, 2009 involve known and unknown risks, uncertainties, and other factors which could cause TeamStaff’s actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon management’s best estimates based upon current conditions and the most recent results of operations. These risks include, but are not limited to, the risks identified below.
We believe it is important to communicate our expectations to our shareholders and potential shareholders. There may be events in the future, however, that we are not accurately able to predict or over which we have no control. The risk factors listed below, as well as any cautionary language in this filing, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of any of the events described in the risk factors below, elsewhere in this filing and other events that we have not predicted or assessed could have a material adverse effect on our earnings, financial condition, cash flows or business. In such case, the price of our securities could decline.
Table of ContentsRisks Relating to Our Business and Our Industry
If we fail to execute our acquisitions or investments, our business could suffer.
We have supplemented our internal growth through acquisitions and may do so in the future through acquisitions, investments or joint ventures. We evaluate potential acquisitions, investments and joint ventures on an ongoing basis. Our acquisitions and investments pose many risks, including:
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| • | We may not be able to compete successfully for available acquisition candidates, complete future acquisitions or investments or accurately estimate their financial effect on our business; |
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| • | Future acquisitions, investments or joint ventures may require us to issue additional common stock, spend significant cash amounts or decrease our operating income; |
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| • | We may have trouble integrating the acquired business and retaining its personnel; |
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| • | Acquisitions, investments or joint ventures may disrupt our business and distract our management from other responsibilities; and |
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| • | If our acquisitions or investments fail, our business could be harmed |
We may acquire additional companies, which may result in adverse effects on our earnings.
We may at times become involved in discussions with potential acquisition candidates. Any acquisition that we may consummate may have an adverse effect on our liquidity and earnings and may be dilutive to our earnings. In the event that we consummate an acquisition or obtain additional capital through the sale of debt or equity to finance an acquisition, our shareholders may experience dilution in their equity. We have previously obtained growth through acquisitions of other companies and businesses. Under Statements of Financial Accounting Standards No.141, Business Combinations (SFAS No.141) and No. 142 Goodwill and Other intangible Assets (SFAS No. 142) implemented in June 2001, we
TeamStaff GS’s revenue are required to periodically review goodwill and indefinite life intangible assets for possible impairment. In the event that we are required to write down the value of any assets under these pronouncements, it may materially and adversely affect our earnings. See the more detailed discussion appearing as part of our Management Discussion and Analysis.Our management may be unable to effectively integrate acquisitions and to manage our growth, and we may be unable to fully realize any anticipated benefits of these acquisitions.
Our business strategy includes growth through both acquisitions and internal development. We are subject to various risks associated with our growth strategy, including the risk that we will be unable to identify and recruit suitable acquisition candidates in the future or to integrate and manage the acquired companies. Acquired companies’ histories, geographical locations, business models and business cultures can be different from our own in many respects. Our directors and senior management may face significant challenges in their efforts to integrate our businesses and the business of the acquired companies or assets, and to effectively manage our continued growth. There can be no assurance that our efforts to integrate the operations of any acquired assets or companies acquired in the future will be successful, that we can manage our growth or that the anticipated benefits of these proposed acquisitions will be fully realized. The dedication of management resources to these efforts may detract attention from our day-to-day business. There can be no assurance that there will not be substantial costs associated with these activities or of the success of our integration efforts, either of which could have a material adverse effect on our operating results.
A substantial percentage of RS Staffing Services Inc.’s revenue isderived from U.S. Government customers.
We derive a substantial portion of our revenues in our
RS Staffing Services, Inc.TeamStaff GS subsidiary from the U.S. Government as a prime contractor or a subcontractor. Revenues from the U.S. Government represented approximately
92%98% of the total revenues of
RS Staffing Services, Inc.TeamStaff GS for each of the 2009 and 2008 fiscal years. Further, in fiscal
year 20062009, through its FSS contracts primarily with the DVA, TeamStaff GS had independent task-orders with four DVA-related facilities that comprised 31%, 23%, 12% and
94%11% of the Company’s overall consolidated revenue, or 77% in
each of fiscal years 2005 and 2004. Ourthe aggregate. Accordingly, our consolidated revenues could be
materially adversely impacted by a reduction in the overall level of U.S. Government spending and by changes in its spending priorities
Table of Contentsfrom year to year.
We are particularly dependent on the continuation of our relationship with DVA. As discussed above, in January 2008 Teamstaff GS was issued purchase orders for the DVA’s consolidated pharmacy distribution centers from the DVA national contracting office. Although the current task orders expired on December 31, 2009, a six month continuation of services extension for all six locations serviced by TeamStaff GS was awarded on December 14, 2009. We anticipate that the DVA may release new requests for proposals related to staffing services at its pharmacy distribution facilities in early 2010. In such an event, the Company intends to submit a proposal to address any such solicitation. Although the Company believes it is well positioned to continue its relationship with the DVA, no assurances can be given that the DVA would further extend our current service order or that the Company will successfully bid for new contract solicitations which may by published by DVA or that even if the Company is granted subsequent orders, that such orders would be of a scope comparable to the services that the Company has provided to date. If the DVA does not further extend the Company’s current service contract or the Company is not successful in its efforts to obtain contract awards pursuant to new solicitations, the Company’s results of operations and financial condition would be materially adversely affected.
Furthermore, even if the overall level of U.S. Government spending does increase or remains stable, the budgets of the government agencies with whom we do business may be decreased or our projects with them may not be sufficiently funded, particularly because Congress usually appropriates funds for a given project on a fiscal-year basis even though contract performance may take more than one year. In
the event the budgets of the U.S. Government entities with which we do business, particularly the DVA, are decreased or underfunded, our consolidated revenues and results of operations could be adversely affected. In addition, obtaining U.S. Government contracts remains a highly competitive process and this has led to a greater portion of our revenue base being associated with contracts providing for a lower amount of reimbursable cost than we have traditionally been able to recover.
We are heavily dependent upon the U.S. Government as the primary customer to our RS Staffing Services, Inc.TeamStaff GS subsidiary. In light of the recent disposition of our TeamStaff Rx business, our dependence on the results of operations of TeamStaff is significantly increased as compared to prior periods. Our future success and revenue growth will depend in part upon our ability to continue to expand our customer base.
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We face risks relating to U.S. Government contracts because these contracts may be terminated at will.The Government may modify, curtail or terminate our contracts.
Many of the U.S. Government programs in which we participate as a contractor or subcontractor may extend for several years. However, these programs are normally funded on an annual basis. The U.S. Government may modify, curtail or terminate its contracts and subcontracts at its convenience.
Modification,Due to our increasing dependence on these relationships, the modification, curtailment or termination of our major programs or contracts
couldwould have a material adverse effect on our results of operations and financial condition.
Our business is subject to potential Government inquiries and investigations. We are from time to time subject to certain U.S. Government inquiries and investigations of our business practices due to our participation in government contracts. We cannot assure you that any such inquiry or investigation will not have a material adverse effect on our results of operations and financial condition.
Our contract costs are subject to audits and investigations by U.S. Government agencies.agencies and unfavorable government audit results could force us to refund previously recognized revenues and could subject us to a variety of penalties and sanctions.
From time to time, U.S. Government representatives may audit
our performance on and costs incurred on our U.S. Government contracts, including allocated indirect costs.
Further, federal agencies can also audit and review our compliance with applicable laws, regulations and standards. These audits may result in adjustments to our contract costs. In the event that it is determined that our payments from
governmentGovernment agencies was in excess of contractual costs, we could be assessed for these excess payments. We would expect that we would normally negotiate with U.S. Government representatives before settling on final adjustments to our contract costs. However, we do not know the outcome of any future audits and adjustments and we may be required to reduce our revenues or profits upon completion and final negotiation of these audits.
Further, an audit of our work, including an audit of work performed by companies we have acquired or may acquire, or subcontractors we have hired or may hire, could force us to refund previously recognized revenues. Similarly, we are from time to time subject to inquiries and investigations of our business practices by the U.S. Government due to our participation in government contracts. We cannot assure you that any such inquiry or investigation will not have a material adverse effect on our results of operations and financial condition.
If a government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with federal government agencies. In addition, we could suffer serious harm to our reputation if allegations of impropriety were made against us, whether or not true. If we were suspended or debarred from contracting with the federal government generally or with any specific agency, if our reputation or relationships with government agencies were impaired, or if the government otherwise were to cease doing business with us or were to significantly decrease the amount of business it does with us, our revenue, cash flows and operating results would be materially adversely affected.
The U.S. Government contract bid process is complex and sometimes lengthy, subject to protest and implementation delays.
The U.S. Government contract bid process is complex and sometimes lengthy. Once a bid is won and a contract awarded, there still is the possibility of a bid protest or numerous delays in implementation. There can be no assurance that such protest process or implementation delays will not have a material adverse effect on our financial condition or results of operations in the future.
Our failure to comply with complex federal procurement laws and regulations could cause us to lose business, incur additional costs, and subject us to a variety of penalties.
We must comply with complex laws and regulations relating to the formation, administration, and performance of federal government contracts. These laws and regulations create compliance risk and affect how we do business with our federal agency clients, and may impose added costs on our business. If a government review or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, harm to our reputation, suspension of payments, fines, and suspension or debarment from doing business with federal government agencies. The government may in the future reform its procurement practices or adopt new contracting rules and regulations, including cost accounting standards, that could be costly to satisfy or that could impair our ability to obtain new contracts. A failure to comply with applicable laws and regulations could result in contract termination, price or fee reductions, or suspension or debarment from contracting with the federal government, each of which could lead to a material reduction in our revenues, cash flows and operating results.
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Our government services business is dependent upon maintaining our reputation, our relationships and our performance.
The reputation and relationships that we have established and currently maintain with government personnel and agencies are important to maintaining existing business and identifying new business. If our reputation or relationships were damaged, it could have a material adverse effect on our ability to maintain or expand our business relationship with U.S. Government entities. In addition, if our performance does not meet agency expectations, our revenue and operating results could be materially harmed.
Competition is intense in the government services business.
There is often intense competition to win federal agency contracts. If we are unable to successfully compete for new business or win competitions to maintain existing business, our revenue growth and margins may decline. Many of our competitors are larger and have greater resources than we do, larger client bases, and greater brand recognition. Our larger competitors also may be able to provide clients with different or greater capabilities or benefits than we can provide.
Loss of our General Services Administration (“GSA”) schedule contracts or other contracting vehicles could impair our ability to win new business.
GSA schedule contracts constitute a significant percentage of revenue from our federal agency clients. Due to our dependence on providing staffing services to U.S. government entities, if we were to lose one or more of these contracts or other contracting vehicles, we could lose a significant revenue source and our operating results and financial condition would be materially and adversely affected. These contracts typically have an initial term with multiple options that may be exercised by our government agency clients to extend the contract for successive periods of one or more years. We can provide no assurance that our clients will exercise these options.
Our failure to obtain and maintain necessary security clearances may limit our ability to perform classified work for government clients, which could cause us to lose business.
Some government contracts require us to maintain facility security clearances and require some of our employees to maintain individual security clearances. If our employees lose or are unable to timely obtain security clearances, or we lose a facility clearance, a government agency client may terminate the contract or decide not to renew it upon its expiration.
Our employees may engage in misconduct or other improper activities, which could harm our business.
Like all government contractors, we are exposed to the risk that employee fraud or other misconduct could occur. Misconduct by our employees could include intentional failures to comply with federal government procurement regulations, engaging in unauthorized activities, seeking reimbursement for improper expenses, or falsifying time records. Employee misconduct could also involve the improper use of our clients’ sensitive or classified information, which could result in regulatory sanctions against us and serious harm to our reputation. It is not always possible to deter employee misconduct, and precautions to prevent and detect this activity may not be effective in controlling such risks or losses, which could adversely affect our business.
Security breaches in sensitive government information systems could result in loss of our clients and cause negative publicity.
Many of the systems we develop, install, and maintain involve managing and protecting information used in intelligence, national security, and other sensitive or classified government functions. A security breach in one of these systems could cause serious harm to our business, damage our reputation, and prevent us from being eligible for further work on sensitive or classified systems for federal government clients. We could incur losses from such a security breach that could exceed the policy limits under our insurance. Damage to our reputation or limitations on our eligibility for additional work resulting from a security breach in one of our systems could materially reduce our revenue.
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The failure by Congress to approve budgets on a timely basis for the federal agencies we support or changes in the budget priorities of such agencies could delay or reduce spending and cause us to lose revenue.
On an annual basis, Congress must approve budgets that govern spending by each of the federal agencies we support. When Congress is unable to agree on budget priorities and is unable to pass the annual budget on a timely basis, Congress typically enacts a continuing resolution. A continuing resolution allows government agencies to operate at spending levels approved in the previous budget cycle. When government agencies must operate under a continuing resolution, it may delay funding we expect to receive from clients on work we are already performing and will likely result in any new initiatives being delayed, and potentially cancelled. Changes in federal government fiscal or spending policies could adversely affect our government agency business. The occurrence of either scenario would adversely impact our results of operations.
We are dependent upon certain of our management personnel. Our success to date has resulted in part from the significant contributions of our executive officers. Our executive officers are expected to continue to make important contributions to our success. The loss of our key personnel could materially affect our operations.
Other than withCurrently, our CEO,
CFO and
CFO, we generally dothe President of TeamStaff GS are under employment contracts. The Company does not
have long-term employment contracts with our key personnel, nor do we maintain
‘‘key person’’“key person” life insurance policies on any of our key personnel.
Our medicalcurrent President and Chief Executive Officer intends to resign from such positions at the end of January 2010. If we do not employ a new President and Chief Executive Officer by the time of his departure, we will not have an executive officer to perform important managerial and oversight functions.
As previously disclosed, our President and Chief Executive Officer, Rick J. Filippelli, has informed the Board of his intent to resign from such positions effective at the end of January 2010. Our Board has established a search committee to identify candidates for Chief Executive Officer and has developed a short-list of candidates from which it anticipates being able to select the new President and Chief Executive Officer. However, no assurances can be given that we will be able select and employ our new President and Chief Executive Officer prior to the time that Mr. Filippelli intends to depart our company. In such an event, we would need to appoint a person to perform such responsibilities on an interim basis. If we are not able to employ a new President and Chief Executive Officer by the time of Mr. Filippelli’s departure, we will not have an executive officer to perform the important managerial and oversight functions customarily performed by a Company’s chief executive. If this condition persists for an extended period, our business, financial condition and results of operations could be materially adversely affected.
Demand for staffing business mayservices could be adverselysignificantly affected if there is a renewalby the general level of the past economic downturnactivity and unemployment or by factors beyond our control (i.e.; hurricanes, weather conditions, acts of war, etc.) in the healthcare industry.Our medical staffing business is concentrated entirely in the healthcare industry. The economic downturn in the last four years caused a reduction in our clients’ utilization of our services. Any continued, concentrated or renewed economic weakness generally, or in the healthcare industry specifically, could have an adverse impact on our results of operations.
United States.
Table of ContentsUnfavorable economic conditions could harm our business.
Our business, financial condition and results of operations may be affected by various economic factors. Unfavorable economic conditions may make it more difficult for us to maintain and continue our revenue growth. In an economic recession or under other adverse economic conditions, customers and vendors may be more likely to be unable to meet contractual terms or their payment obligations. When economic activity increases, contract employees are often added before full-time employees are hired. However, as economic activity slows, many companies, including our hospital and healthcare facility clients, reduce their use of contract employees before laying off full-time employees. In addition, we experience more competitive pricing pressure during periods of economic downturn. A decline in economic conditions may have a material adverse effect on our business.
The current recession and the continuation or intensification of any continued volatility in the financial markets may have an adverse impact on the availability of credit to our customers and businesses generally and could lead to a further weakening of the U.S. and global economies. To the extent that disruption in the financial markets continues and/or intensifies, it has the potential to materially affect our customers’ ability to tap into debt and/or equity markets to continue their ongoing operations, have access to cash and/or pay their debts as they come due, all of which could reasonably be expected to have an adverse impact on the number of open positions for healthcare staff they request, as well as their ability to pay for our staffing services. Continued economic weakness is likely to adversely impact our results of operations.
The disruptions that the financial markets are currently undergoing have led to unprecedented governmental intervention on an emergency basis. The results of these actions have been unclear, resulting in confusion and uncertainty which in itself has been materially detrimental to the efficient functioning of the markets. It is impossible to predict what, if any, additional interim or permanent governmental restrictions may be imposed on the markets and/or the effect of such restrictions on us, our customers and the operations of corporate entities generally in the United States.
11
Table of Contentsloss adjustment expenses under the Program and the Program Extension, and $835,596 in premiums and losses under the Exposure Buyback Policy. The CNA Entities projected that TeamStaff would be liable for an additional $1,181,301 of losses under the Program and the Program Extension, and an additional $556,176 of losses under the Exposure Buyback Policy. The aggregate amounts totaled $4,398,048.
The settlement fully and completely resolved, without litigation, all of the issues addressed above on the material terms described below and in the Agreement, without admitting and, in fact, expressly denying, the allegations and claims each party could have made against the other. Under the settlement, TeamStaff agreed to pay the CNA Entities the sum of $2,050,000, plus interest at a rate of 6.0%, as follows: (1) $300,000 upon execution of the Agreement; (2) $250,000 every 90 days thereafter, plus interest on the unpaid sum at a rate of 6.0% from the date of the preceding payment, for a total of eight (8) payments. TeamStaff made the first $250,000 payment on or about January 20, 2006. The $300,000 payment made at execution was in settlement of the outstanding premiums, deductibles, claims services fees, losses and allocated loss adjustment expenses due and owing under the Program, the Program Extension and the Exposure Buyback Policy. The second through eighth payments were in settlement of liabilities that become due and/or may become due under the Program, the Program Extension and the Exposure Buyback Policy, including but not limited to, premiums, deductibles, claims services fees, losses and allocated loss adjustment expenses. It was also agreed that the payment schedule would be accelerated by and in the amount of any and all payments TeamStaff receives from Zurich North American in settlement of the receivable TeamStaff is carrying from its prior years’ workers’ compensation insurance programs, up and to the then outstanding balance due the CNA Entities.
As a result of the release of $2.25 million by Zurich on March 3, 2006, TeamStaff satisfied its remaining obligation to CNA under the settlement agreement by paying the remaining settlement amount of $1.5 million plus accrued interest in full.
Employee Pension PlanEffective October 1, 2000, TeamStaff adopted a non-qualified Supplemental Retirement Plan (SERP) covering certain TeamStaff corporate officers. TeamStaff’s former President and Chief Executive Officer and its former Chief Financial Officer were the only SERP participants. No current employees are covered under the SERP. SERP participants also were provided with a split dollar life insurance policy, insuring the life of the participant. Each participant collaterally assigned his policy to TeamStaff to secure repayment of policy premiums. In connection with the change in their employment status, TeamStaff engaged in negotiations with its former President and Chief Executive Officer and the former Chief Financial Officer regarding the payment of certain severance benefits and the satisfaction of TeamStaff’s obligations to each of them under the SERP and the split dollar life insurance arrangements.
On December 31, 2003, TeamStaff executed an agreement with its former President and Chief Executive Officer pursuant to which TeamStaff agreed to, among other things, release the collateral assignment of the split dollar life insurance policy as of December 31, 2003 and to accelerate the payment of certain agreed upon payments under the SERP in complete satisfaction of TeamStaff’s obligations under the SERP.
TeamStaff entered into a similar agreement with its former Chief Financial Officer effective as of December 30, 2003 in complete satisfaction of TeamStaff’s obligations under the SERP. That agreement also provided for the payment of severance and other benefits over time in complete satisfaction of TeamStaff’s obligations to its former Chief Financial Officer under his severance agreement effective May 22, 2002.
Cash payments aggregating $0.3 million have been made to the former President and Chief Executive Officer and the former Chief Financial Officer during the fiscal year ended September 30, 2006.
Income Taxes
TeamStaff accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, ‘‘Accounting for Income Taxes.’’the “liability” method. Under
SFAS No. 109,this method, deferred tax assets and liabilities are
Table of Contentsdetermined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized. SFAS No. 109This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized.
At
In the fiscal year ended September 30, 2006, after an assessment of all available evidence (including historical and forecasted operating results), management concluded that realization of the Company’s net operating loss carryforwards (which includes those amounts acquired in previous years’ business combinations, collectively “NOLs”), tax credits and other deferred tax assets, could not be considered more likely than not. Accordingly, for the fiscal years ended September 30, 2009, 2008 and 2007, the Company provideddid not record a tax benefit for NOLs.
Based on an assessment performed as of September 30, 2009 and 2008, the Company has maintained a full valuation allowance against remaining NOLs and other deferred tax assets; as the realization of such amounts, at that date, could not be considered more likely than not. In prospective periods, there may be reductions to the valuation allowance of approximately $16.9 million. In assessingto the need for a valuation allowance,extent that the Company historically has considered all positive and negative evidence, including scheduled reversals of deferred tax liabilities, prudent and feasible tax planning strategies and recent financial performance. The Company determined that negative evidence, including historic and current taxable losses, as well as uncertainties related to the ability to utilize certain Federal and state net loss carryforwards, outweighed any objectively verifiable positive factors, and as such, concluded that a valuation allowance was necessary. The Company is providing a 100% valuation allowanceconcludes that it is more likely thanthat not that it will not be able to realize the full benefitall or a portion of the deferred tax asset. The establishmentassets can be utilized (subject to annual limitations and prior to the expiration of such NOLs), to offset future periods’ taxable income.
In the deferred tax asset allowance does not precludefiscal year ended September 30, 2009, the Company recognized a tax benefit of $28,000 related to a refund from reversing any or all ofa state. In the allowance in future periods iffiscal year ended September 30, 2008 the Company believesrecorded tax expense of $60,000 related to certain estimated state taxes due which could not be offset by an NOL from those specific states.
At September 30, 2009 the
positive evidenceCompany had net operating losses of approximately $30.4 million, $15.1 million and $.7 million for U.S, New Jersey and other states’ tax return purposes, respectively, and unutilized tax credits approximate $1.1 million. As a result of previous business combinations and changes in its ownership, there is
sufficient enough to utilize the deferred tax asset, nor does it limit the ability to utilize losses for tax purposes,a substantial amount of U.S. NOLs that are subject to
loss carry forwardannual limitations
on utilization. The U.S. NOLs begin to expire in 2021 and
periods permitted by law.continue to expire through 2029.
Allowance for doubtful accountsDoubtful Accounts TeamStaff maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to pay. However, if the financial condition of TeamStaff’s customers were to deteriorate rapidly, resulting in nonpayment, TeamStaff’s accounts receivable balances could grow and TeamStaff could be required to provide for additional allowances, which would decrease net income in the period that such determination was made. For example, TeamStaff currently maintains an allowance of approximately .5%less than 1% of billed accounts receivable. If, for example,receivable due to the allowance grew to 2%fact that a significant portion of accounts receivable are from the Federal Government which historically have had little, if any, write-offs for non-payment.
Overview
Business Description
TeamStaff, through its TeamStaff GS subsidiary, is a healthcare, logistical, information technology and office administration staffing provider which has been serving the Federal Government for over a decade. TeamStaff GS’s primary client has been the United States Government and its various agencies. TeamStaff GS is committed to providing on-time delivery of multi-disciplined employees who possess the necessary experience, expertise, and dedication required to meet contract specifications. The staffing services offered by TeamStaff GS are provided through independent FSS contracts through the GSA. The provision of logistical and administrative personnel is accomplished through the Logistics Worldwide Schedule and medical personnel are supplied through the Professional and Allied Healthcare Staffing Services Schedule. TeamStaff also provides its staffing services to federal government agencies through competitively bid contracts and has a GSA schedule contract to provide information technology professional services. TeamStaff provides these services to the DVA, the US Department of Defense and other US governmental agencies and placed contract employees at over 40 facilities during the 2009 fiscal year.
26
As described in greater detail below, on December 28, 2009, TeamStaff and TeamStaff Rx entered into a definitive Asset Purchase Agreement with Advantage RN, LLC, an Ohio limited liability company, providing for the sale of substantially all of the operating assets of TeamStaff Rx related to TeamStaff Rx’s business of providing travel nurse and allied healthcare professionals for temporary assignments to Advantage RN. The closing of this transaction occurred on January 4, 2010. The Asset Purchase Agreement provides that the purchased assets were acquired by Advantage RN for a purchase price of up to $425,000, of which (i) $350,000 in cash was paid at the closing, and (ii) $75,000 is subject to an escrowed holdback as described in the Asset Purchase Agreement. Additionally, Advantage RN will make rent subsidy payments to TeamStaff Rx totaling $125,000, consisting of (i) $25,000 payable at closing, and (ii) an additional $100,000 payable in 10 equal monthly installments beginning on March 1, 2010.
Management anticipates that the Company will report a net income would have been reducedloss from discontinued operations through the effective date of the sale to Advantage RN, which will include an estimated charge of $0.2 million for severance to certain TeamStaff Rx employees. Although there are certain conditions on the collection of amounts that are held in escrow, the Company expects to settle such matters in the second quarter of the fiscal year ending September 30, 2010. In addition, management estimates that the Company will incur a loss on the disposal of TeamStaff Rx approximating $0.3 million principally from recognition of the remaining unfunded operating lease payments. The measurement date for recording this liability is December 31, 2009. These amounts are preliminary and subject to change based on future events; the ultimate amount could significantly differ from these current estimates.
Following the disposition of our TeamStaff Rx business, TeamStaff provides staffing services through TeamStaff GS.
As described in greater detail in Note 4 to our consolidated financial statements, the results of operations, cash flows and related assets and liabilities of our TeamStaff Rx business was reclassified in the accompanying consolidated financial statements from those of our continuing businesses to discontinued operations.
Recent Business Trends
TeamStaff GS is expanding its reach within the government sector beyond DVA opportunities by $131,000.bidding on Department of Defense staffing contracts afforded to large businesses and GSA’se-Buy portal, an electronic Request for Quote (RFQ) / Request for Proposal (RFP) system designed to allow Federal buyers to request information, find sources, and prepare RFQs/RFPs, online, for various services offered through GSA’s Multiple Award Schedule. Effective April 6, 2009, TeamStaff GS was awarded an Information Technology (“IT”) Schedule Contract for professional services by the GSA As an IT schedule holder, TeamStaff GS is also now eligible, along with a select number of companies, to participate in bid opportunities and requests for quotes for the Federal government’s IT staffing needs. Additionally, TeamStaff GS is evaluating opportunities to satisfy the staffing needs of other government agencies in addition to the DVA and DOD as a means of horizontal expansion of its client base. TeamStaff GS is also seeking to develop and maintain a nationwide network of teaming partners, including small businesses, Service Disabled Veteran Owned Small Businesses and other small-businesses certified under Section 8(a) of the Small Business Administration in order to expand and diversify its service offerings.
We believe demand will be strong in fiscal 2010 and beyond as the government maintains or improves social services provided to our returning veterans, as well as funding to other federal agencies that TeamStaff GS provides services to. In addition, we believe the government staffing business is stable in an economic downturn due to the longer term duration of its contracts. Management believes that, under the current administration, there will not be a reduction in government spending supporting social programs that benefit military personnel and veterans.
27
Results of Operations
Fiscal Year 20062009 as Compared to Fiscal Year 2005-Continuing Operations2008 The following table summarizes, for the periods indicated, selected consolidated statements of operations data expressed as a percentage of revenue:
| | | | | | | | | |
| | | Fiscal Year | | | Fiscal Year | |
| | | Ended | | | Ended | |
| | | September 30, | | | September 30, | |
| | | 2009 | | | 2008 | |
Condensed Consolidated Statement of Operations: | | | | | | | | |
| |
| Revenues | | | 100.0 | % | | | 100.0 | % |
| Direct Expenses | | | 84.8 | % | | | 84.7 | % |
| | | | | | | |
| Gross Profit | | | 15.2 | % | | | 15.3 | % |
| Selling, general and administrative | | | 14.1 | % | | | 10.1 | % |
| Depreciation and amortization expense | | | 0.3 | % | | | 0.3 | % |
| | | | | | | |
| Income from operations | | | 0.8 | % | | | 4.9 | % |
| Other income (expense) | | | -0.1 | % | | | 0.7 | % |
| | | | | | | |
| Income from continuing operations before taxes | | | 0.7 | % | | | 5.6 | % |
| Income tax (expense) benefit | | | 0.1 | % | | | -0.1 | % |
| | | | | | | |
| Income from continuing operations | | | 0.8 | % | | | 5.5 | % |
| Loss from discontinued operations | | | -10.3 | % | | | -3.5 | % |
| | | | | | | |
| Net income | | | -9.5 | % | | | 2.0 | % |
| | | | | | | |
Operating revenues from TeamStaff’s continuing operations for the fiscal years ended September 30, 2009 and 2008 were $46.0 million and $47.7 million, respectively, which represents a decrease of $1.7 million or 3.6% over the prior fiscal year. The decrease in operating revenues from continuing operations is due primarily to the impact of reduced overtime and net reductions in headcount at certain Government facilities. TeamStaff’s total revenues for the fiscal years ended September 30, 20062009 and 20052008 were $75.0$46.0 million and $51.2$58.5 million, respectively, which represents an increasea decrease of $23.8$12.5 million or 46.5%21.4% over the prior fiscal year. RevenuesIncluded in revenues for the fiscal year 2006 and 2005 include $43.8ended September 30, 2008 is $10.8 million and $13.0 million, respectively, relatedin non-recurring retroactive billings to the acquisition of RS Staffing Services, a Monroe, Georgia-based provider of medical and office administration/technical professionals effective as of June 4, 2005 (See Note 3 of NotesDVA.
TeamStaff GS is seeking approval from the Federal government for gross profit on retroactive billing rate increases associated with certain government contracts at which it has employees staffed on contract assignments. These adjustments are due to
Consolidated Financial Statements.) This acquisition helped offset a decrease of $6.7 million in revenueschanges in the
travel alliedcontracted wage determination rates for these contract employees. A wage determination is the listing of wage rates and
nursing portionfringe benefit rates for each classification of
our staffinglaborers whom the Administrator of the Wage and Hour Division of the U.S. Department of Labor (“DOL”) has determined to be prevailing in a given locality. Contractors performing services
division from fiscal year 2005for the Federal government under certain contracts are required to
fiscal year 2006. The decreasepay service employees in various classes no less than the wage rates and fringe benefits found prevailing in these localities. An audit by the DOL at one of the facilities revealed that notification, as required by contract, was
driven by continued weak demand for radiological technologists in our allied division and the largest nurse per diem client joining an association thus reducing our billing rates. The Company’s travel allied and nursing divisions continuednot provided to
under perform the market in fiscal 2006. During fiscal 2006, the Company led several initiatives to position these divisions for growth in fiscal 2007. Actions include expanding its sales force and recruiting efforts in the allied segment into more active modalities such as physical and respiratory therapy and sales personnel changes including changes at both the TeamStaff
Rx and Nursing Innovations business leader level. Subsequent to the September 30, 2006 balance sheet date, the Company consolidated the Nursing Innovations travel platform into TeamStaff Rx’s Clearwater, Florida location.Longer term, we continue to believe the demand for temporary medical personnel will increase. Key drivers in our major business segments include an aging population, an improving employment environment and growth in hospital admissions. We believe demand will also increase as more states introduce legislation for mandatory minimum nurse to patient ratios and overtime limitations. The acquisition of Nursing Innovations provides TeamStaff with the opportunity to benefit from these industry changes that, we believe, impact our temporary nurse staffing business most significantly. Our
Table of Contentsacquisition of RS Staffing completed in early June 2005 gives us a strong presence in the government sector and provides us with an opportunity to bid on awards for large multi-year contracts with solid operating margins. We continue to focus on our sales and marketing efforts throughout the divisionsGS in order to increaseeffectuate the wage increases in a timely manner. Wages for contract employees currently on assignment have been adjusted prospectively to the prevailing rate and hourly billing rates to the DVA have been increased accordingly. During the fiscal year ended September 30, 2008, TeamStaff recognized nonrecurring revenues of $10.8 million and direct costs of $10.1 million, based on amounts that are contractually due under its arrangements with the Federal agencies. At September 30, 2009, the amount of the remaining accounts receivable with the DVA approximates $9.3 million. The Company has been and continues to be in discussions with representatives of the DVA regarding the matter and anticipates resolution during fiscal 2010. In addition, TeamStaff is in the process of negotiating a final amount related to gross profit on these adjustments. As such, there may be additional revenues recognized in future periods once the approval for such additional amounts is obtained. The ranges of additional revenue and gross profit are estimated to be between $0.4 million and $0.6 million. At present, the Company expects to collect such amounts during fiscal 2010 based on current discussions and collection efforts. Because these amounts are subject to government review, no assurances can be given that we will receive any additional billings from our contact with current and prospective clients.
Directgovernment contracts or that if additional amounts are received, that the amount will be within the range specified above.
Operating direct expenses from continuing operations for the fiscal years ended September 30, 20062009 and 20052008 were $62.5$39.0 million and $42.1$39.5 million, respectively which represents an increasea decrease of $20.4$0.5 million or 48.5%.1.2% over the prior fiscal year. This increasedecrease is primarily a direct result of increasedlower revenues. As a percentage of revenue,Total direct expenses for the fiscal years ended September 30, 20062009 and 20052008 were 83.3%$39.0 million and 82.2%,$49.6 million, respectively. This increaseIncluded in direct expenses for the year ended September 30, 2008 is the result of a higher volume of teaming partner (subcontractor) costs due$10.1 million related to non-recurring retroactive billings to the inclusionDVA. As a percentage of RS Staffingoperating revenue from continuing operations, operating direct expenses were 84.8% and 82.7%, respectively, for the full fiscal year 2006. Teaming isyears ended September 30, 2009 and 2008. As a business practice expected by government entities who prefer their suppliers to provide morepercentage of a master vendor service wheretotal revenue, direct expenses were 84.8% and 84.7%, respectively, for the supplier looks to outside sources when needed to fill open staffing positions.years ended September 30, 2009 and 2008.
Gross profits28
Operating gross profit from continuing operations for the fiscal years ended September 30,
20062009 and
20052008 were
$12.5$7.0 million and
$9.1$8.3 million, respectively which represents
an increasea decrease of
$3.4$1.3 million or
37.1%. This increase is attributable to15.1% over the
growth by acquisition of our staffing business. Gross profits,prior fiscal year. Operating gross profit from continuing operations, as a percentage of
operating revenue,
decreased to 16.7% from 17.8%was 15.2% and 17.3%, for the fiscal years ended September 30,
20062009 and
2005,2008, respectively.
This decreaseOperating gross profit is
primarilylower as compared to the prior year due to
the inclusion of RS Staffingincreased health benefit expenses, lower overtime at certain government facilities and lower turnover among our government contract employees resulting in higher vacation expense. Total gross profit for the
fullfiscal years ended September 30, 2009 and 2008 were $7.0 million and $8.9 million, respectively, which represents a decrease of $1.9 million, or 21.7%. Gross profit, as a percentage of total revenue, was 15.2% and 15.3%, for the fiscal years ended September 30, 2009 and 2008, respectively. Included in gross profit for the fiscal year
2006 andended September 30, 2008 is $0.7 million related to non-recurring retroactive billings to the
lower gross profit associated with staffing teaming partners.DVA.
Selling, general and administrative (‘‘(“SG&A’’&A”) expenses for the fiscal years ended September 30, 20062009 and 20052008 were $14.0$6.5 million and $12.9$5.9 million, respectively, which represents an increase of $1.1$0.6 million, or 8.5%9.7%. Included in fiscal year 2006this increase is $3.0$0.1 million of SG&A expenses related to RS Staffing. Included in fiscal year 2005 is $0.5 million of workers’ compensation receivable write-offs related to adverse claims development for the period April 1, 2002 through November 17, 2003 (the date of sale of the discontinued PEO operation), $0.2 from certain loan forgiveness related to TeamStaff’s acquisition of BrightLane in 2001 and $1.0 million of SG&A expenses related to RS Staffing from the date of acquisition in June 2005 to the end of the fiscal year September 30, 2005. After adjusting for SG&A expenses in fiscal 2005 and 2006 related to RS Staffing and the write-offsmanagement consulting fees related to the worker’s compensation receivable write-offstrategic business review of our government business, $0.5 million in increased new business expense for additional sales related headcount and TeamStaff’s acquisitionmarketing expense at TeamStaff GS and $0.2 million in legal settlement expense. The Company continues with its cost saving initiatives, which have resulted in reduced headcount in non-revenue generating departments and G&A costs. The Company seeks continued elimination of BrightLane in 2001, expenses for the fiscal year decreased 2.6% from 2005overhead costs deemed to 2006. SG&A expenses, as a percentage of revenue, were 18.7%be non-essential to growth or infrastructure.
Depreciation and
25.3%,amortization expense was approximately $111,000 and $150,000 for the fiscal years ended September 30,
20062009 and
2005,2008, respectively.
Depreciation
Income from operations for the fiscal year ended September 30, 2009 was $0.4 million as compared to income from operations for the fiscal year ended September 30, 2008 of $2.9 million. This represents a decline of $2.5 million in results from operations from fiscal 2008 to 2009. The decrease is primarily due to lower operating gross profit earned in fiscal 2009 as a result of increased health benefit expenses, lower overtime at certain government facilities and amortizationlower turnover among our government contract employees resulting in higher vacation expense, higher SG&A expenses, as well as $0.7 million profit reported in fiscal 2008 related to the non-recurring retroactive billings to the DVA.
Other income was $0.2 million and $0.8 million, for the fiscal years ended September 30,
20062009 and
2005 was approximately $381,000 and $422,000,2008, respectively.
This decrease is due toIn fiscal 2009, the Company received a
reduction in depreciation expense caused by several asset groups becoming fully depreciated duringnotification from the
fiscal year.Other income, which is comprisedstate of interest income and late fee income,Florida regarding a refund of $151,000 for the fiscal years ended September 30, 2006 and 2005 was approximately $236,000 and $228,000, respectively, representing an increase of $8,000. This is primarily a result of increased interest earned on the proceeds of the sale of DSI Payroll Services offset by decreased late fee income due to a reduction in accounts receivablevarious taxes. Such amount has been recognized in the allied healthcare division.
related periods’ statement of operations as a change in estimate. In fiscal 2008, based on an assessment of periods settled and the status of open periods under review by the IRS regarding notices the Company received related predominantly to its former PEO operations, the Company reduced its estimated liability for payroll tax contingencies by $0.7 million and recorded such adjustment as a component of other income.
Interest expense for the fiscal years ended September 30, 20062009 and 20052008 was approximately $539,000$0.2 million and $211,000, respectively, representing an increase of $328,000. This$0.1 million, respectively. The increase is primarily a result ofdue to additional interest expenseaccruals related to the revolving credit facility effective asestimated liability for payroll tax contingencies.
The Company recorded other expense of June 8, 2005, as well as interest$21,000 and $218,000, for the fiscal years ended September 30, 2009 and 2008, respectively representing a decrease of $197,000. This expense from the notes payableis related to legal representation and investigation costs incurred in connection with the acquisitionFederal Grand Jury subpoena issued to our subsidiary formerly known as RS Staffing Services on April 17, 2007. The subpoena requested production of certain documents dating back to 1997. The Company acquired RS Staffing effective as of June 4, 2005. These expenses are classified as non-operating expenses because the subpoena relates to activity prior to the acquisition.
Income tax expense from continuing operations for29
Beginning in fiscal
year ended September 30, 2006,
was $16.0 million. As a component of this tax expense,the Company provided a
100% deferred tax valuation allowance
because it believes that it cannot be considered more likely than not that it will be able to realize the full benefit of
approximately $16.9 million. In assessing the
need for a valuation allowance, the Company historically has considered all positive and negative evidence, including scheduled reversals of deferred tax
liabilities, prudent and feasible tax planning strategies and recent financial performance.asset. The Company determined that negative evidence, including historic and current taxable losses, as well as uncertainties related to the ability to utilize certain Federal and state net loss carry forwards, outweighed any objectively verifiable positive factors, and as such, concluded that a
Table of Contentsvaluation allowance was necessary. The Company is providingIn assessing the need for a 100% valuation allowance, that it is more likely than not that it will not be able to realize the full benefitCompany historically has considered all positive and negative evidence, including scheduled reversals of the deferred tax asset. Incomeliabilities, prudent and feasible tax benefit from continuing operations forplanning strategies and recent financial performance. In the fiscal year ended September 30, 2005 was $1.6 million.
Loss2009, the Company recognized a tax benefit of $28,000 related to a refund from a state. For fiscal 2008, the Company did not record a Federal tax provision or benefit but recorded tax expense of $60,000 related to certain estimated states’ taxes due.
Income from continuing operations for the fiscal year ended September 30,
20062009 was
$18.2$0.4 million, or
$(0.95)$0.08 per
fullybasic share and $0.07 per diluted share, as compared to
lossincome from continuing operations
of $3.2 million, or $0.66 per basic and diluted share, for the fiscal year ended September 30,
2005 of $2.6 million, or $(0.14) per fully diluted share.Income2008.
Loss from discontinued operations,
net of tax, for the fiscal year ended September 30, 2006 was $5.0 million, or $0.26 per fully diluted share, as compared to income from discontinued operations, net of tax, for the fiscal year ended September 30, 2005 of $0.1 million, or $0.0 per fully diluted share. Income from operations from the discontinued business unit, net of tax, for the fiscal years ended September 30,
20062009 was $4.7 million, or ($0.97) per basic share and
2005 was $0.4($0.93) per diluted share. This includes a loss of $2.4 million
and $0.1 million, respectively. In fiscal 2006, this income includes income from
operations, net of tax,the operating results of the discontinued
DSI Payroll ServicesTeamStaff Rx business
unitand the write-down to fair value of
$0.8 million offset by lossTeamStaff Rx intangible assets of $2.3 million. Loss from
discontinued operations
offor the
discontinued PEO business unit, net of tax, of $0.4 million, which primarily consists of legal fees and settlement expenses related to the settlement of the Atomic Fusion suit. Income from disposal, net of tax, of $4.6 million is related to the net gain on the sale of the DSI Payroll Services division (See Note 4 of Notes to Consolidated Financial Statements). There was virtually no activity from disposal of the discontinued business unit for fiscal year
2005.ended September 30, 2008 was $2.0 million, or ($0.42) per basic and diluted share.
Net loss for the fiscal year ended September 30,
20062009 was
$13.2$4.4 million, or ($
0.69)0.89) per
fullybasic share and ($0.86) per diluted share, as compared to
a net
lossincome of
$2.5$1.1 million, or
$(0.14)$0.24 per
fullybasic and diluted share, for the fiscal year ended September 30,
2005.Fiscal Year 2005 as Compared2008. This represents a decline of $5.5 million in net income from fiscal 2008 to Fiscal Year 2004-Continuing Operations
TeamStaff’s revenues for the fiscal years ended September 30, 20052009.
Liquidity and 2004 were $51.2 millionCapital Resources; Commitments
Our principal sources of cash to fund our working capital needs are cash generated from operating activities and
$32.9 million, respectively, which represents an increase of $18.3 million, or 55.8% over the prior fiscal year. All continuing operations revenues were derived from the staffing services segment. Revenues for fiscal 2005 include $12.8 million related to the acquisition of Nursing Innovations, a Memphis, Tennessee-based provider of travel and per diem nurses effective as of November 14, 2004 (See Note 3 of Notes to Consolidated Financial Statements) and $13.0 million related to the acquisition of RS Staffing Services, a Monroe, Georgia-based provider of medical and office administration/technical professionals effective as of June 4, 2005 (See Note 3 of Notes to Consolidated Financial Statements.) These acquisitions helped offset a decrease in the revenues of the allied healthcare portion ofborrowings under our
Staffing Services division for fiscal 2005 of $7.4 million.We believe that during the first half of fiscal 2005, hospitals continued to focus on cost efficiencies by placing greater reliance on existing full time staff. This, in turn, led to less demand for temporary health care professionals. We also believe that some healthcare providers who once traveled for temporary assignments took full time jobs, specifically because they viewed them as more stable or secure. This trend also provided facilities with a greater pool of full time staff on which to rely. We also believe that the continued lack of growth in hospital admissions nationwide may have had an adverse impact on demand for our temporary medical staffing services for this period.
We did see increases in demand as well as increases in applicants entering the field for traveling nurses during the second half of fiscal 2005. For our Nursing Innovations division, this translated into an 11 percent sequential quarterly increase in revenues for the last two quarters of fiscal 2005, from $3.6 million for quarter ended June 30, 2005 to $4.0 million for quarter ended September 30, 2005. Recovery in our allied segment still continued to be slower than expected, however, as hospitals sought to contain costs by limiting temporary staff in higher health care professional payroll areas. For our allied health division, this resulted in a 2.8% sequential quarterly increase in billable hours and a 3.7% sequential quarterly increase in revenues, not including permanent placement revenues, for the last two quarters of fiscal 2005. We believe that since the business fundamentals of allied health are similar to those in the nursing segment, that the allied sector will eventually experience a sustained rebound.
Longer term, we believe the demand for temporary medical personnel will increase. Key drivers in our major business segments include an aging population, an improving employment environment and
Table of Contentsgrowth in hospital admissions. We believe demand will also increase as more states introduce legislation for mandatory minimum nurse to patient ratios and overtime limitations. The acquisition of Nursing Innovations provides TeamStaff with the opportunity to benefit from these industry changes that, we believe, impact our temporary nurse staffing business most significantly. Our acquisition of RS Staffing completed in early June 2005 gives us a strong presence in the government sector and provides us with an opportunity to cross sell to our nursing and allied divisions. We continue to expand our sales and marketing efforts throughout the divisions in order to increase our contact with current and prospective clients.
Direct expenses for the fiscal years ended September 30, 2005 and 2004 were $42.1 million and $26.9 million, respectively, which represents an increase of $15.2 million, or 56.4%. This increase is a direct result of increased revenues. As a percentage of revenue, direct expenses for the fiscal years ended September 30, 2005 and 2004 were 82.2% and 81.8%, respectively.
Gross profits for the fiscal years ended September 30, 2005 and 2004 were $9.1 million and $6.0 million, respectively, which represents an increase of $3.1 million, or 52.7%. This increase is attributable to the growth by acquisition of our staffing business as well as more prudent expense management and selected price increases in the Medical Staffing division. Gross profits, as a percentage of revenue, decreased to 17.8% from 18.2%, for the fiscal years ended September 30, 2005 and 2004, respectively. This decrease is primarily due to the inclusion of RS Staffing in the last four months of fiscal 2005 and costs related to staffing teaming partners.
Selling, general and administrative (‘‘SG&A’’) expenses for the fiscal years ended September 30, 2005 and 2004 were $12.9 million and $10.3 million, respectively, which represents an increase of $2.6 million, or 26.2%. This increase includes $0.5 million of workers’ compensation receivable write-offs related to adverse claims development for the period April 1, 2002 through November 17, 2003 (the date of sale of the discontinued PEO operation) and $0.2 from certain loan forgiveness related to TeamStaff’s acquisition of BrightLane in 2001. SG&A expenses related to Nursing Innovations, since the date of acquisition effective November 14, 2004, were $1.8 million. SG&A expenses related to RS Staffing, since the date of acquisition effective June 4, 2005 were $1.0 million. After adjusting for SG&A expenses in fiscal 2005 related to Nursing Innovations and RS Staffing and the write-offs related to the worker’s compensation receivable write-off and TeamStaff’s acquisition of BrightLane in 2001, expenses for the fiscal year decreased 8% from 2004 to 2005. SG&A expenses, as a percentage of revenue, were 25.3% and 31.2%, for the fiscal years ended September 30, 2005 and 2004, respectively.
Depreciation and amortization for the fiscal years ended September 30, 2005 and 2004 was $422,000 and $342,000, respectively. This increase is due to additional depreciation related to capital leases as well as fixed assets acquired as part of the acquisitions of Nursing Innovations and RS Staffing.
Other income, which is comprised of interest income and late fee income, for the fiscal years ended September 30, 2005 and 2004 was $228,000 and $270,000, respectively, representing a decrease of $42,000.
Interest expense for the fiscal years ended September 30, 2005 and 2004 was $211,000 and $81,000, respectively, representing an increase of $130,000. This increase is primarily a result of interest expense related to the revolving credit facility effective as of June 8, 2005, as well as interest expensefacility.
Cash from the notes payable related to the acquisition of RS Staffing effective as of June 4, 2005.Income tax benefit from continuing operations for fiscal years ended September 30, 2005 and 2004 was $1.6 million and $1.7 million, respectively. These tax benefits are a result of losses from operations. Management believes that due to the acquisitions of RS Staffing and Nursing Innovations, two historically profitable companies, coupled with an improving business climate for temporary staffing, the Company will be able to utilize the recorded deferred tax asset.
Loss from continuing operationsoperating activities
Net cash used in operating activities for the fiscal year ended September 30,
20052009 was
$2.6$2.1 million
or $(0.14) per fully diluted share, as compared to
loss from continuing operationsnet cash provided by operating activities of $4.6 million for the fiscal year ended September 30,
2004 of $2.7 million, or $(0.18) per fully diluted share.Income from discontinued operations,2008. This decrease in net of tax, forcash was primarily driven by the fiscal year ended September 30, 2005 was $127,000, or $0.00 per fully diluted share, as compared to loss from discontinued operations net of
Table of Contentstax, for the fiscal year ended September 30, 2004 of $1.3 million, or $(0.08) per fully diluted share. Income from operations from the discontinued business unit, net of tax, for the fiscal year ended September 30, 2005 was $126,000. Loss from operations from the discontinued business unit, net of tax, for the fiscal year ended September 30, 2004 was $0.4 million. There was virtually no activity from disposal of the discontinued TeamStaff Rx business unitof $2.3 million, a net decrease in accounts payable of $1.0 million, of which $1.1 million was for fiscal year 2005. Loss on disposal, net of tax, for the fiscal year ended September 30, 2004, was $0.9 million. In fiscal 2005, the loss was due to previously unbilled legal fees, non-cancelable software licenses relatedpayments made to the PEO discontinued business unit and additional reserves postedIRS for a settlement with CNA related to PEO workers’ compensation for periods prior to March 31, 2002,previously recorded payroll tax liabilities, offset by incomea decrease in days sales outstanding (“DSO”) from approximately 17 days to 13 days during fiscal 2009 as a result of improved payment processing by the DSI Payroll Services discontinued business unit. In the first nine months of fiscal 2004, TeamStaff generated revenue from the PEO discontinued business unit for only the first six weeks, while certain costs associated with the operation of that business unit continued throughout the period. For fiscal 2004, the loss is attributable to the write-down of goodwill and fixed assets, salary, severance and stay bonus payouts to affected employees, accruals for losses from lease obligations in offices no longer used by TeamStaff’s continuing operations net of estimated sublease of unoccupied office space, investment banking fees and other expenses required to dispose of the PEO discontinued business unit, offset by income from the DSI Payroll Services discontinued business unit
Net loss for the fiscal year ended September 30, 2005 was $2.5 million, or ($0.14) per fully diluted share, as compared to a net loss of $4.1 million, or $(0.26) per fully diluted share, for the fiscal year ended September 30, 2004.
Liquidity and Capital Resources
government. Net cash provided by operating activities for the fiscal year ended September 30, 20062008 was $8.7 million comparedprimarily driven by a decrease in DSO from approximately 40 days to 17 days during fiscal 2008 due to an enhanced and more efficient payment processing system implemented by the government. This decrease in DSOs increased our cash used inposition by approximately $3 million. Also contributing to net cash provided by operating activities is net income of $2.2$1.1 million forand $0.35 million in cash received from Zurich related to the fiscal year ended September 30, 2005. On March 3, 2006, Zurich reduced thereduction in collateral requirements on outstanding workers’ compensation claims and released $2.25 million in trust account funds back to TeamStaff. As a result of this, TeamStaff satisfied its remaining obligation to CNA under the settlement agreement by paying the remaining settlement amount of $1.5 million plus accrued interest in full. On May 31, 2006, the Company sold substantially all of the assets of its DSI Payroll Services division to CompuPay, Inc. for $9.0 million inclaims.
Cash from investing activities
Net cash
$0.25 million of which has been placed in escrow for potential post-closing contingencies. On November 30, 2006, CompuPay released $125,000 of the escrow to TeamStaff and is scheduled to release the remaining $125,000 on May 31, 2007. There were also working capital requirements and further determinations that resulted in a purchase price adjustment of $248,677 on September 11, 2006. Losses from continuing operations contributed to the other uses of cash during the fiscal year ended September 30, 2006. Use of cash in the fiscal year ended September 30, 2005 includes increased accounts receivable of $1.8 million primarily due to the operations of Nursing Innovations subsequent to its acquisition in November 2004 and RS Staffing subsequent to its acquisition in June 2005, increased accrued payroll and other accrued expenses of $1.2 million and losses in continuing operations, offset by a decrease of $1.8 million in restricted cash related to the release of the letter of credit requirement from Zurich for TeamStaff’s workers’ compensation policy.Cash used in investing activities for the fiscal year ended September 30, 20062009 was $1.8$0.1 million. We continue to have relatively low capital investment requirements. The Company spent $0.1 million compared to $5.0 millionduring fiscal 2009 for the purchase of equipment. Net cash provided by investing activities for the fiscal year ended September 30, 2005. Use2008 was $0.2 million as a result of proceeds from the sale of our Per Diem division, offset in part by cash in fiscal 2006 was primarilyused for the one-year earn outpurchases of $2.0 millionfurniture, technology equipment and software related to Roger Staggs and Barry Durham, former ownersthe relocation of RS Staffing Services as part of the acquisition. Use ofTeamStaff GS administrative offices to Loganville, Georgia.
Cash from financing activities
Net cash
in fiscal 2005 was primarily for the purchase of certain of the assets of Nursing Innovations for $1.9 million including acquisition expenses and the capital stock purchase of RS Staffing Services for $3.25 million plus acquisition expenses, less acquired cash of $0.7 million.Cash used in financing activities for the fiscal year ended September 30, 20062009 was $6.0$0.1 million compared toprimarily as a result of repayment of capital lease obligations for continuing and discontinued operations. Net cash provided byused in financing activities of $5.4 million for the fiscal year ended September 30, 2005. Use2008 was $0.2 million, primarily as a result of cash for fiscal 2006 includes payment of $1.5 million plus accrued interest
Table of Contentsof $150,000repayments on capital lease obligations and fees related to the former ownersnew credit facility with Sovereign Business Capital and capital lease obligations.
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Loan Facility
On March 28, 2008, TeamStaff and its wholly-owned subsidiaries, TeamStaff Rx and TeamStaff GS entered into an Amended and Restated Loan and Security Agreement dated as of
RS Staffing Services in satisfactionMarch 28, 2008 (the “Loan Agreement”) with Business Alliance Capital Company, a division of
a note payable as part ofSovereign Bank. Pursuant to the
acquisition and payment ofLoan Agreement, the
outstanding balance onLender (i) acquired by assignment from the
revolving line of credit withCompany’s prior lender, PNC Bank,
inNational Association, all right, title and interest of PNC under the
amount of $4.0 million.Effective June 8, 2005, TeamStaff, Inc. entered$8.0 million PNC Credit Facility, the PNC note and related loan documentation, and (ii) restructured the PNC Credit Facility into a $7.0$3.0 million revolving credit facility provided bywith a three year term. Effective April 1, 2008, BACC changed its name to Sovereign Business Capital. The outstanding principal and interest balance under the PNC Bank to (i) provide for the acquisition of RS Staffing; (ii) refinance an outstanding senior loan facility;Credit Facility, related fees and (iii) provide ongoing working capital. Effective February 13, 2006, TeamStaff entered into an amendmentcertain expenses related to the revolving credit note, increasingexecution and closing of the Loan Agreement were paid in full with $0.6 million in proceeds drawn from the Loan Agreement on April 2, 2008. Fees associated with this facility approximate $150,000, which are amortized over the life of the Loan Agreement.
Under the Loan Agreement, the Lender agreed to provide a revolving credit facility to
$8.0 million. Revolving credit advances bear interest at either the
Prime Rate plus 25 basis points or LIBOR plus 275 basis points, whichever is higher. The facility has a three-year life and contains term and lineCompany in an aggregate amount of
credit borrowing options. The facility isup to $3.0 million subject to
certain restrictive covenants. For the
period ended September 30, 2006, PNC Bank amendedfurther terms and conditions of the
covenants to replace the debt service coverage ratio withLoan Agreement. The loan is secured by a
minimum combined cash and line availability requirement. For the fiscal year ended September 30, 2006, TeamStaff was in compliance with all loan covenants. The facility is subject to acceleration upon non-payment or various other standard default clauses. In addition, the Company granted PNC afirst priority lien
and security interest on all of
itsthe Company’s assets.
There is currently no debt outstanding under the Loan Agreement. In connection with the disposition of the operating assets of our TeamStaff Rx subsidiary, we were required to obtain the consent of Sovereign. On January 12, 2010 we were granted such consent. As a condition to such consent, however, Sovereign reduced the maximum amount available under such loan facility from $3.0 million to $2.0 million. As of
fiscal year ended September 30,
2006,2009, there was no debt outstanding under the
Credit FacilityLoan Agreement and
$5.5unused availability (as defined) totaled $1.7 million,
net of
unusedrequired collateral reserves per the Loan Agreement for certain payroll and tax liabilities. The average daily outstanding balance on the facility for fiscal 2009 was $0.3 million. As of September 30, 2009, we had working capital of $0.9 million. Accordingly, management does not believe that the reduction in the availability under the
line, basedLoan Agreement will have a material adverse impact on
billed accounts receivable.our operations and financial condition.
The Company’s ability to request loan advances under the Loan Agreement is subject to computation of the Company’s advance limit and compliance with the covenants and conditions of the loan. The loan is for a term of 36 months and matures on March 31, 2011. Interest on advances accrues on the daily unpaid balance of the loan advances at a per annum rate of one-quarter (.25%) percentage points above the Prime Rate in effect from time to time, but not less than five and one-half percent (5.5%) per annum. The interest rate on the facility at September 30, 2009 was 5.5%.
The Loan Agreement requires compliance with certain customary covenants including a debt service coverage ratio and imposes restrictions on the Company’s ability to, among other things, dispose of certain assets, engage in certain transactions, incur indebtedness and pay dividends. The Loan Agreement also provides for customary events of default following which, Sovereign may, at its option, accelerate the amounts outstanding under the Loan Agreement.
On January 11, 2010, we determined that as of September 30, 2009, we were not in compliance with the debt service coverage ratio covenant of the Loan Agreement. The Loan Agreement provides that following an event of default, Sovereign may, among other remedies provided for in the Loan Agreement, accelerate the amounts outstanding under the Loan Agreement, take such actions as it deems necessary to protect its security interest in the collateral, and terminate the Loan Agreement. In connection with its consent to the sale of the TeamStaff Rx assets and loan modification, Sovereign waived such non-compliance for the period ending September 30, 2009. The Lender, however, reserved its rights under the Loan Agreement with respect to any future non-compliance with the debt service coverage ratio for any future period or any other provision of the Loan Agreement. If covenant violations were to occur in the future and the lender does not agree to modify the covenants or waive such violations, it could result in the acceleration of the maturity date of all of our debt under this loan facility. In both of these circumstances it could have a material adverse impact on our business and financial condition. See “Risk Factors – Risks Relating to our Revolving Credit Line”.
Availability under the PNC line of creditLoan Agreement is directly related to the successful assignment of certain accounts receivable. Certain government accounts of RS Staffing ServicesTeamStaff GS are required to execute ‘‘Acknowledgements“Acknowledgements of Assignment’’. As of September 30, 2006 approximately 97% were executed.Assignment.” There can be no assurance that the remaining 3% of RS Staffingevery TeamStaff GS government accountsaccount will execute the documentation to effectuate the assignment and secure availability. The failure of government third parties to sign the required documentation could result in a decrease in availability under the Loan Agreement.
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As of September 30,
2006, these accounts represented only 0.75% of the total availability under the line of credit.During the first fiscal quarter of 2005,2009, TeamStaff entered into Securities Purchase Agreements with several accredited investors for the private sale under Section 4(2) of the Securities Act of 1933 and/or Regulation D of securities for an aggregate purchase price of $4.3 million. TeamStaff received net proceeds of approximately $4.0 million, after payment of commissions and related offering expenses.
As of September 30, 2006, TeamStaff had unrestricted cash and cash equivalents of $2.2$3.0 million and net accounts receivable of $8.7$11.4 million. TeamStaff also had $5.5At September 30, 2009, the amount of the accounts receivable associated with the DVA retroactive billings approximates $9.3 million of unused availability under the revolving credit facility provided by PNC Bank.and was unbilled at September 30, 2009. As of September 30, 2006,2009, there was no debt outstanding under the Loan Agreement and defined unused availability totaled $1.7 million, net of required collateral reserves per the Loan Agreement for certain payroll and tax liabilities. As of September 30, 2009, TeamStaff had working capital of $4.4$0.9 million. ManagementThe Company believes its existing cash,that it has adequate liquidity provided by the Company’s revolving line of credit and funds generated byresources to fund operations will be sufficient to support cash needs for at leastover the next twelve months.
| | | | | | | | | | | | | | | | | | | | | | | | |
Obligations
(Amounts in thousands) | | | Payments Due By Period |
| | | | Total | | | Less than
1 year | | | 1-3 years | | | 4-5 years |
| Long-term debt (1) | | | | $ | 1,808 | | | | | $ | 1,561 | | | | | $ | 198 | | | | | $ | 49 | |
| Operating leases (2) | | | | | 1,860 | | | | | | 523 | | | | | | 1,141 | | | | | | 196 | |
| Pension liability (3) | | | | | 598 | | | | | | 210 | | | | | | 351 | | | | | | 37 | |
| Total Obligations | | | | $ | 4,266 | | | | | $ | 2,294 | | | | | $ | 1,690 | | | | | $ | 282 | |
|
As described in greater detail in the notes to the consolidated financial statements, TeamStaff had received notices from IRS claiming taxes, interest and penalties due related to payroll taxes predominantly from its former PEO operations which were sold in fiscal 2003. TeamStaff has also received notices from the IRS reporting overpayments of taxes. Management believes that these notices are predominantly the result of misapplication of payroll tax payments between its legal entities. If not resolved favorably, the Company may incur interest and penalties. To date, TeamStaff has been working with the IRS to resolve these discrepancies and has had certain interest and penalty claims abated. TeamStaff has also received notices from the Social Security Administration claiming variances in wage reporting compared to IRS transcripts. TeamStaff believes the notices from the Social Security Administration are directly related to the IRS notices received. TeamStaff believes that after the IRS applies all the funds correctly, any significant interest and penalties will be abated; however, there can be no assurance that each of these matters will be resolved favorably. In settling various years for specific subsidiaries with the IRS, the Company has received refunds for those specific periods; however, as the process of settling and concluding on other periods and subsidiaries is not yet completed and the potential exists for related penalties and interest, the remaining liability ($1.1 million at September 30, 2009) has been recorded in accounts payable. In fiscal 2009, the Company paid $1.1 million, related to this matter. Based on an assessment of periods settled and the status of open periods under review by the IRS, management reduced its estimated liability by $0.7 million in 2008. Such amount, accounted for as a change in estimate, is included as a component of other income (expense) in the accompanying 2008 statement of operations. Management believes that the ultimate resolution of these remaining payroll tax matters will not have a significant adverse effect on its financial position or future results of operations.
Contractual Obligations
| | | | | | | | | | | | | | | | | |
| | | | | | | Payments Due By Period | |
| Obligations | | | | | | Less than | | | 1-3 | | | 4-5 | |
| (Amounts in thousands) | | Total | | | 1 Year | | | Years | | | Years | |
| Long Term Debt (1) | | $ | 1,630 | | | $ | 1,564 | | | $ | 66 | | | $ | — | |
| Operating Leases (2) | | | 1,124 | | | | 474 | | | | 502 | | | | 148 | |
| Severence Liabilities (3) | | | 108 | | | | 108 | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total Obligations | | $ | 2,862 | | | $ | 2,146 | | | $ | 568 | | | $ | 148 | |
| | | | | | | | | | | | | |
| | |
| (1) | | Represents bank line of credit, the maximum amount of notes payable related to the acquisition of RS StaffingTeamStaff GS, and capital lease obligations. |
| |
| (2) | | Represents lease payments net of sublease income.income, including those of discontinued operations. |
| |
| (3) | | Represents pension liability for theseverance payments related to former CEO and former CFO.President of TeamStaff Rx. |
Employment Agreements
As described in greater detail under the caption “Executive Compensation and Related Information – Employment Agreements with Named Executive Officers”, during fiscal 2008, we entered into employment agreements with our Chief Executive Officer and Chief Financial Officer and during fiscal 2009, we entered into employment agreements with our President of TeamStaff GS and with our President of TeamStaff Rx. Subsequent to September 30, 2009, we have entered into new employment agreements with our Chief Executive Officer and Chief Financial Officer. The material terms and conditions of each of these employment agreements are summarized in greater detail under the caption “Executive Compensation and Related Information – Employment Agreements with Other Executive Officers”. The summaries of each of the foregoing agreements are incorporated herein by reference.
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Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources. We have entered into various agreements by which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification provisions are included in contracts arising in the normal course of business under which we customarily agree to hold the indemnified party harmless against losses arising from a breach of representations related to such matters as intellectual property rights. Payments by us under such indemnification clauses are generally conditioned on the other party making a claim. Such claims are generally subject to challenge by us and to dispute resolution procedures specified in the particular contract. Further, our obligations under these arrangements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, we have not made any payments under these agreements that have been material individually or in the aggregate. As of our most recent fiscal year end we were not aware of any obligations under such indemnification agreements that would require material payments.
Effects of Inflation
Inflation and changing prices have not had a material effect on TeamStaff’s net revenues and results of operations, as TeamStaff has been able to modify its prices and cost structure to respond to inflation and changing prices.
Recently Issued Accounting Pronouncements Affecting the CompanyEffective October 1, 2005,
In June 2006, the
Company’s 2000 Employee Stock Option Plan and 2000 Non-Executive Director Stock Option Plan are accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards
(‘‘FAS’’Board (“FASB”)
No. 123 (revised 2004),
Tableissued authoritative guidance that clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold of ContentsShare-Based Payment (‘‘FAS 123(R)’’), which replaces FAS No. 123, Accounting for Stock-Based Compensation, and supercedes Accounting Principles Board Opinion (‘‘APB’’) No. 25, Accounting for Stock Issued to Employees, and related interpretations. FAS 123 (R) requires compensation costs related to share-based payment transactions, including employee stock options,more-likely-than-not to be recognizedsustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has been met. This Interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. TeamStaff conducts business solely in the financial statements.U.S. and, as a result, files income tax returns for U.S., New Jersey and various other states and jurisdictions. In addition,the normal course of business the Company adheresis subject to examination by taxing authorities. The Company’s tax returns for years subsequent to fiscal 2005 are open, by statute, for review by authorities. However, at present, there are no ongoing income tax audits or unresolved disputes with the various tax authorities that the Company currently files or has filed with. Given the Company’s substantial net operating loss carryforwards, which are subject to a full valuation allowance, as well as the historical operating losses in prior periods, the adoption of this guidance set forth within Securities and Exchange Commission (‘‘SEC’’) Staff Accounting Bulletin (‘‘SAB’’) No. 107, which provides the Staff’s views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies.
Prior toon October 1, 2005, the Company accounted for similar transactions in accordance with APB No. 25 which employed the intrinsic value method2007 did not have any effect on our financial position, results of measuring compensation cost. Accordingly, compensation expense was not recognized for fixed stock options if the exercise price of the option equaledoperations or exceeded the fair value of the underlying stock at the grant date.
While FAS No. 123 encouraged recognition of the fair value of all stock-based awards on the date of grant as expense over the vesting period, companies were permitted to continue to apply the intrinsic value-based method of accounting prescribed by APB No. 25 and disclose certain pro-forma amounts as if the fair value approach of SFAS No. 123 had been applied. In December 2002, FAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123, was issued, which, in addition to providing alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation, required more prominent pro-forma disclosures in both the annual and interim financial statements. The Company complied with these disclosure requirements for all applicable periods prior to October 1, 2005.
In adopting FAS 123(R), the Company applied the modified prospective approach to transition. Under the modified prospective approach, the provisions of FAS 123 (R) are to be applied to new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstandingcash flows as of the required effectiveadoption date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro-forma disclosures under FAS 123.
subsequent periods.
In September 2006, the
SEC staffFASB issued
Staff Accounting Bulletin No. 108, ‘‘Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.’’ SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements.Traditionally, there have been two widely recognized methods for quantifying the effects of financial statement misstatements: the ‘‘roll-over’’ method and the ‘‘iron curtain’’ method. The rollover method focuses primarily on the impact of a misstatement on the income statement – including the reversing effect of prior year misstatements – but its use can lead to the accumulation of misstatements in the balance sheet. The iron-curtain method, on the other hand, focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement.
In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company’s financial statements and the related financial statement disclosures. This model is commonly referred to as a ‘‘dual approach’’ because it requires quantification of errors under both the iron curtain and the rollover methods.
SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if the ‘‘dual approach’’ had always been used or (ii) recording the cumulative effect of initially applying the ‘‘dual approach’’ as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings.
Table of ContentsWe will adopt the provisions of SAB 108 in connection with the preparation of our annual financial statements for the year ending after December 31, 2006. We are in the process of evaluating the impact, if any, on our financial statements of initially applying the provisions of SAB 108.
On September 15, 2006, the Financial Accounting Standard Board issued SFAS 157 ‘‘Fair Value Measurement’’, that provides enhanced guidance for usingstandard which defines fair value, to measure assets and liabilities. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use ofestablished a framework for measuring fair value in any new circumstances.
accordance with accounting principles generally accepted in the United States, and expanded disclosures about fair value measurements. This Statement isstandard was effective for financial statements issued for fiscal years beginning after November 15, 2007, with earlier application encouraged. Any amounts recognized upon adoption as a cumulative effect adjustment will be recorded to the opening balance of retained earnings in the year of adoption. In February 2008, the FASB issued supplemental guidance in the form of a staff position, which delayed the effective date of the initial standard for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company will adoptadopted this pronouncementstandard on October 1, 2008 with no effect on its financial position, results of operations and cash flows.
In February 2007, the FASB issued a standard that permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported in earnings at each reporting date. This standard was effective for fiscal
yearyears beginning
October 1, 2008. We are currently evaluatingafter November 15, 2007, the
impactprovisions of
adopting this pronouncement on our financial statements.In September 2006, the Financial Accounting Standards Board issued SFAS 158 ‘‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132(R).’’ SFAS 158 requires an employer and sponsors one or more single employer defined benefit plans to recognize the funded status of a benefit plan; recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that may arise during the period; measure defined benefit plan assets and obligations as of the employer’s fiscal year; and, enhances footnote disclosure.
For fiscal years ending after December 15, 2006 employers with equity securities that trade on a public marketwhich are required to initially recognizebe applied prospectively. The Company adopted this standard on October 1, 2008 with no effect on its financial position, results of operations and cash flows.
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In March 2008, the
funded statusFASB issued a standard which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable users of
a defined benefit postretirement planthe financial statements to better understand the effects on an entity’s financial position, financial performance, and
to provide the enhanced footnote disclosures. For fiscal years endingcash flows. It is effective for financial statements issued for interim periods beginning after
DecemberNovember 15, 2008,
employers are required to measure plan assets and benefit obligations. We are currently evaluating the impactwith early application encouraged. The adoption of
adopting this
pronouncementstandard did not have a material effect on our
consolidated financial statements.
FSP FAS 123(R)-5 was
In June 2009, the FASB issued on October 10, 2006. The FSP provides that instruments that were originally issued as employee compensation and then modified, and that modification is made toa standard which stipulated the terms of the instrument solely to reflect an equity restructuring that occurs when the holders are no longer employees, no change in the recognition or the measurement (due to a change in classification) of those instruments will result if both of the following conditions are met: (a). There is no increase in fair value of the award (or the ratio of intrinsic value to the exercise price of the award is preserved, thatFASB Accounting Standards Codification™ is the holder is made whole), orsource of authoritative U.S. GAAP recognized by the antidilution provision is not addedFASB to the terms of the award in contemplation of an equity restructuring; and (b). All holders of the same class of equity instruments (for example, stock options) are treated in the same manner. The provisions in this FSP shall be applied in the first reporting period beginningby nongovernmental entities. This standard is effective for financial statements issued for interim and annual periods ended after the date the FSP is posted to the FASB website. We will adoptSeptember 15, 2009. The implementation of this FSP from its effective date. We currently dostandard did not believe that its adoption will have anya material impact on ourthe Company’s financial statements.position, results of operations and cash flows.
| | |
ITEM 7a Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | Quantitative and Qualitative Disclosures About Market Risk |
TeamStaff does not undertake trading practices in securities or other financial instruments and therefore does not have any material exposure to interest rate risk, foreign currency exchange rate risk, commodity price risk or other similar risks, which might otherwise result from such practices. TeamStaff is not materially subject to fluctuations in foreign exchange rates, commodity prices or other market rates or prices from market sensitive instruments. TeamStaff has a material interest rate risk with respect to our prior workers’ compensation programs. In connection with TeamStaff’s prior workers’ compensation programs, prepayments of future claims were deposited into trust funds for possible future payments of these claims in accordance with the policies. The interest income resulting from these prepayments is for the benefit of TeamStaff, and is used to offset workers’ compensation expense. If interest rates in these
periods’periods decrease, TeamStaff’s workers’ compensation expense would increase because TeamStaff would be entitled to less interest income on the deposited funds. Further, and as discussed elsewhere in this filing, TeamStaff, Inc. has,
an $8.0effective in January 2010, a $2.0 million revolving credit facility by
PNC Bank.Sovereign Business Capital. Revolving credit advances bear interest at
either the Prime Rate plus 25 basis
points or
Table of ContentsLIBOR plus 275 basis points, whichever is higher.points. The facility has a three-year life and contains term and line of credit borrowing options. The facility is subject to certain restrictive covenants, including minimum combined cash and line availability.a fixed charge coverage ratio. The facility is subject to acceleration upon non-payment or various other standard default clauses. Material increases in the Prime or LIBOR rate could have a material adverse effect on our results of operations, the status of the Revolving Credit Facilityrevolving credit facility as well as interest costs.
| | |
ITEMItem 8. | FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA | Financial Statements and Supplemental Data |
See attached Financial Statements beginning on page F-1 attached to this reportReport on Form 10-K.
| | |
ITEMItem 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Not applicable.
| | |
ITEM 9A. Item 9A(T). | CONTROLS AND PROCEDURES | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures:The Company maintainsProcedures
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, have concluded that,
are designedbased on the evaluation of these controls and procedures, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed
by us in the
Company’sreports that we file or submit under the Exchange Act
reports is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to
the Company’sour management, including
itsour Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of ‘‘disclosure controls and procedures’’ in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures.Based on their evaluation, as of September 30, 2006,disclosure. Management does not view the Company’s Chief Executive Officer and Chief Financial Officer have concludedinability to timely file its annual report on Form 10-K as evidence that the Company’s disclosure controls and procedures were not effective as the delay experienced by the Company in completing its annual report was caused by the timing of the closing of the Company’s disposition of the assets of its TeamStaff Rx business. Due to the timing of this transaction, the Company’s management was not able to complete its preparation of this annual report prior to the required filing date.
34
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Our management, however, believes our disclosure controls and procedures are in fact effective to ensureprovide reasonable assurance that allthe objectives of the control system are met.
Management’s Report on Internal Control over Financial Reporting
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The company’s internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material information requiredeffect on the financial statements.
Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2009. In making this evaluation, management used the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control—Integrated Framework, our management has concluded that our internal control over financial reporting was effective as of September 30, 2009.
This annual report does not include an attestation report of our independent registered public accounting firm regarding our internal control over financial reporting. Management’s report was not subject to be filedattestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K has been made knownannual report.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
them.future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls:Control over Financial Reporting
There
have beenwas no
changeschange in
the Company’sour system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that occurred during the
Company’sfourth fiscal quarter of our fiscal year
ended September 30, 2009 that
havehas materially affected, or
areis reasonably likely to materially affect,
the Company’sour internal control over financial reporting.
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ITEM 9B. | OTHER INFORMATION |
On September 1, 2006, pursuant to our Non-Executive Director Stock Option Plan, we granted our non-executive directors options to purchase shares of our common stock at an exercise price of $1.29 per share, which represents the closing selling price per share of our common stock on the NASDAQ National Market on September 1, 2006. Six non-executive directors were each granted 5,000 options. The options are governed by our standard form stock option agreement, a copy of which is filed as an exhibit to this Annual Report on Form 10-K, and the terms of our Non-Executive Director Stock Option Plan, as amended. The options vest after one year, are exercisable for a period of five years (subject to earlier termination under certain circumstances) and were granted on a non-discretionary basis pursuant to our Non-Executive Director Stock Option Plan.
The staff of the Securities and Exchange Commission (the ‘‘Staff’’) completed a review of the Company’s periodic reports and issued a letter (the ‘‘Comment Letter’’) dated July 11, 2006,
Table of Contentscommenting on certain aspects of the Company’s Annual Report on Form 10-K for the year ended September 30, 2005 and Quarterly Reports on Form 10-Q for the quarters ended December 31, 2005 and March 31, 2006. The Company responded to the Staff’s Comment Letter on August 8, 2006. The Company received a response from the Staff dated August 24, 2006 with additional comments related to its response. The Company responded on September 20, 2006. The Company received a response from the Staff dated September 20, 2006 stating that they completed their review and do not have any further comments.
Table of ContentsPART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of TeamStaff as of December 19, 2006 are as follows:
| | | | | | | | | |
NAMEItem 9B. | | |
None.
35
PART III
| AGE | | | OFFICE |
T. Stephen JohnsonItem 10. | | | | | 56 | | | | Chairman of the Board of Directors Class 1 |
Karl W. Dieckmann | | | | | 78 | | | | Vice-Chairman Class 2 |
Ron Aldrich | | | | | 63 | | | | Director Class 2 |
Peter Black | | | | | 34 | | | | Director Class 1 |
Martin Delaney | | | | | 63 | | | | Director Class 3 |
Ben J. Dyer | | | | | 58 | | | | Director Class 1 |
T. Kent Smith | | | | | 50 | | | | President, Chief Executive Officer, Director Class 2 |
Rick J. Filippelli | | | | | 50 | | | | Vice President, Finance, Chief Financial Officer |
James D. Houston | | | | | 47 | | | | Vice President, General Counsel |
| |
|
Directors and Executive Officers
Our Board
is presently comprised of
DirectorsOur boardseven members and is classified into three classes, which are each elected in staggered three-year terms. Class 1 consists of T. Stephen Johnson Ben J. Dyer and Peter Black, and the term expires in 2009;2012; Class 2 consists of Karl Dieckmann, T. Kent SmithFrederick G. Wasserman and Ron Aldrich,William H. Alderman, and the term expires in 20072010 and Class 3 consists of Martin Delaney and Rick J. Filippelli, and the term expires in 2008.2011. In July 2009, Mr. Johnson notified us that he decided to resign as our Chairman, effective immediately. Following his resignation, Mr. Wasserman was appointed to serve as our Chairman. Mr. Johnson continues to serve as a director. No family relationship exists among any of our directors or executive officers.
The charts below list our directors and executive officers as of January 5, 2010 and are followed by biographic information about them.
Directors
| | | | | | | | | | | |
| Name | | Age | | Positions | | Class |
| | | | | | | | | | | |
| Frederick G. Wasserman | | | 55 | | | Chairman of the Board of Directors | | | 2 | |
| | | | | | | | | | | |
| Karl W. Dieckmann | | | 81 | | | Vice Chairman | | | 2 | |
| | | | | | | | | | | |
| William H. Alderman | | | 47 | | | Director | | | 2 | |
| | | | | | | | | | | |
| Peter Black | | | 37 | | | Director | | | 1 | |
| | | | | | | | | | | |
| Martin Delaney | | | 66 | | | Director | | | 3 | |
| | | | | | | | | | | |
| Rick J. Filippelli | | | 53 | | | President, Chief Executive Officer and Director | | | 3 | |
| | | | | | | | | | | |
| T. Stephen Johnson | | | 59 | | | Director | | | 1 | |
Executive Officers
| | | | | | |
| Name | | Age | | Positions |
| | | | | | |
| Rick J. Filippelli | | | 53 | | | President, Chief Executive Officer and Director |
| | | | | | |
| Cheryl Presuto | | | 45 | | | Chief Financial Officer, Controller |
| | | | | | |
| Kevin Wilson | | | 44 | | | President, TeamStaff Government Solutions, Inc. |
We reported on November 3, 2009, that Mr. Rick J. Filippelli, who has served as our President and Chief Executive Officer since January 2007, has informed the Board of his intent to resign from such positions in connection with the our strategic shift in our current business plan. Mr. Filippelli’s resignation as President and Chief Executive Officer will become effective at the end of January 2010. Mr. Filippelli has agreed to assist us with our transition to a new Chief Executive Officer. Our Board has established a search committee to identify candidates for Chief Executive Officer; however, we have not yet appointed a new President and Chief Executive Officer.
Ron Aldrich 36
Biographical Information – Board of Directors
William H. Aldermanjoined the Board of Directors in
May 2005.January 2007. Mr.
AldrichAlderman has
more than thirty-sevenover 15 years
of leadership experience
providing investment banking services across multiple industries, with a particular expertise in
health care organizations throughoutfinancings, and mergers and acquisitions in the
United States. He served for nineteen years asaerospace and defense industry. Since March 2001, Mr. Alderman has been the President
and CEO of
three multi-hospital Catholic Systems (a 3400 bed system based in Aston Pennsylvania,Alderman & Company, a
regional system located in Urbana, Illinois and a regional system based in Melville, Long Island, New York). He was also President and CEO of Mercy Hospital in Urbana, Illinois for five years from 1977 to 1982. Mr. Aldrich was instrumentalsecurities broker specializing in the
formation of Catholic Health Initiatives which integrated three large Catholic Systems (including Franciscan Health System)aerospace and defense industries. Mr. Alderman started his career at Bankers Trust Company and has held senior positions in
1996. With 126 Health Care Organizations in 21 states, it was the largest not-for-profit health care merger to occur in the United States. Mr. Aldrich has also served on the Boards of Directors of five Catholic Health Systems. From 1992 to 1993 he servedinvestment management and corporate development at GE Capital, Aviation Sales Company, and most recently as
ChairpersonManaging Director of the
Catholic Health Associationaviation investment banking practice of
the United States. He currently serves on the BoardsFieldstone Investments. Mr. Alderman received a MBA from J.L. Kellogg Graduate School of
Bon Secours Health System, Franciscan Ministries Foundation, St. Vincent’s Hospital Foundation,Management in 1989 and is also a graduate of Kenyon College and the
BoardTaft School. Mr. Alderman is currently a director of
Trustees of the University of Florida Foundation.Breeze-Eastern Corp. a publicly traded company and ZAN Alpha Fund, a private company.
Peter Blackjoined the Board of Directors in March 2005. For the past
sixnine years, Mr. Black has been an Investment Analyst and Portfolio Manager at Wynnefield Capital, Inc., where he is responsible for researching and identifying small-cap value investments. Mr. Black has initiated investments on Wynnefield’s behalf that span multiple industries. Prior to joining Wynnefield, Mr. Black was an investment banker in the mergers and acquisition departments of UBS Securities and SG Cowen & Co. Mr. Black is a graduate of Boston College and received his MBA from Fordham University. Wynnefield Capital, Inc., through certain of its investment funds, is the owner of approximately
12%14% of our outstanding shares of common stock.
Mr. Black is currently a director of Underground Solutions, Inc.
Martin J. Delaneyjoined the Board of Directors in July 1998. Mr. Delaney was hired as a Senior Vice-President of TeamStaff effective January 5, 2005. Mr. Delaney is an attorney and a prominent healthcare executive who began his hospital management career in 1971 as an Assistant Administrator at Nassau County Medical Center. He has been a director of a large regional Health Maintenance Organization on Long Island, the Hospital Association of New York State, the Greater New York Hospital Association, and chairman of the Nassau-Suffolk Hospital Council. He has been President, CEO and a director of Winthrop University Hospital, Winthrop South Nassau University Health Care Systems, and the Long Island Health Network. He has a graduate degree in health care management from The George Washington University and a law degree from St. John’s University. He has been admitted to practice in New York State and federal courts.
Table of ContentsKarl W. Dieckmann, a Director of TeamStaff since April 1990, had been Chairman of the Board from November 1991 until September 2001 and has been Vice Chairman since September 2001. From 1980 to 1988, Mr. Dieckmann was the Executive Vice President of Science Management Corporation and managed the Engineering, Technology and Management Services Groups. From 1948 to 1980, Mr. Dieckmann was employed by the Allied Signal Corporation (now Honeywell Corporation) in various capacities including President, Semet Solvay Division; Executive Vice President, Industrial Chemicals Division; Vice President Technical −– Fibers Division; Group General Manager −– Fabricated Products Division; and General Manager −– Plastics Division, as well as various positions with the Chemicals Division.
Ben
Rick J. Dyer joined theFilippelliwas appointed as our Chief Executive Officer, President and a member of our Board of Directors in
December 2002.January 2007. Mr.
Dyer is currently President of investment banking firm Jackson Capital, a General Partner of the early stage technology fund Cordova Intellimedia Ventures LP, and President of Innovations Publishing, LLC, an Atlanta based research company which provides a subscription-based online catalog of emerging private ventures across the Southeastern US. In the 1980s Mr. DyerFilippelli also served as
chairmanVice President from September 2003 to January 2007 and
CEOas Chief Financial Officer of
Comsell, Inc.TeamStaff from September 2003 to October 2007. Prior to joining TeamStaff, Mr. Filippelli spent approximately two years as Chief Financial Officer of Rediff.com, a publicly traded global information technology company. From 1985 through 2001, Mr. Filippelli held various financial positions including that of Chief Financial Officer with Financial Guaranty Insurance Company (“FGIC”), a
pioneering multimedia developmentsubsidiary of GE Capital. Prior to joining FGIC, Mr. Filippelli spent six years in public accounting including three years with the Big 4 firm
of Ernst and
was president andYoung. Mr. Filippelli holds a
directorBachelor of
the de novo Enterprise National Bank. Mr. Dyer founded Intellimedia Sports, Inc.Science degree in
1992 to create the ESPN-branded sports instruction category in the CD-ROM industry. He was earlier a founder of Peachtree Software, Inc. and served as its PresidentAccounting from
1977 to September 1983. He currently serves on a number of private boards including FundRaisingInfo.com and Atlanta Bancorporation. He has concentrated his community activities on higher education and has been president of the Georgia Tech Alumni Association, a director of the Georgia Tech Foundation, chairman of the Alumni Advisory Board for Tech’s School of Industrial & Systems Engineering, and chairman of the Georgia Tech Research Corporation. He is currently a Senior Fellow of the Center for Entrepreneurship and Corporate Growth at Emory University’s Goizueta Business SchoolBrooklyn College and is
a Certified Public Accountant as well as a member of the
External Advisory CouncilAmerican Institute of
the Georgia Tech Research Institute. Mr. Dyer is one of twenty-four members of the Georgia Technology Hall of Fame. Mr. Dyer holds a Bachelors degree in Industrial Engineering from Georgia Tech and an MBA in finance from Georgia State University.Certified Public Accountants.
T. Stephen Johnsonhas been
Chairman of the Boarda director of TeamStaff since September 2001.
He served as our Chairman from September 2001 until July 2009. He has served as Chairman of T. Stephen Johnson & Associates, Inc., financial services consulting firm, and its related entities since inception in 1986. Mr. Johnson is a long-time banking consultant and Atlanta entrepreneur who has advised and organized dozens of community banks throughout the Southeast. He is Chairman Emeritus of Netbank, the largest and most successful Internet-only bank, as well as Chairman and principal owner of Bank Assets, Inc., a provider of benefit programs for directors and officers of financial institutions. Mr. Johnson is Chairman of the Board of Directo, Inc. a company specializing in providing financial services for un-banked individuals and Chairman of Atlanta Financial Corporation.
T. Kent Smith
Frederick Wassermanjoined the Board of Directors in January 2007 and was appointed as our
Chairman in July 2009. Mr. Wasserman is currently a financial management consultant. Until December 31, 2006, Mr. Wasserman was the Chief
ExecutiveOperating/Financial Officer
Presidentfor Mitchell & Ness Nostalgia Co., a privately-held manufacturer and
a memberdistributor of
our Board of Directors on June 18, 2003. From January 2000licensed sportswear and authentic team apparel. Prior to
January 2003,Mitchell & Ness, Mr.
SmithWasserman served as the President of
HoneyBaked Ham Company and Chief Executive OfficerGoebel of North America, a U.S. subsidiary of the
Heavenly Ham Company. From 1998German specialty gift maker, from 2001 to
1999,2005. Mr.
Smith wasWasserman also served as the
Senior Vice President of Organization Serv. Prior to that, Mr. Smith served in various executive positions for Norrell Corporation from 1987 to 1998, including Senior Vice President, Service Operations, Vice President and Chief Information Officer and Vice President, Finance & Strategic Planning. Mr. Smith received a Masters in Business Administration from the University of Virginia and is a graduate of Vanderbilt University.Other Executive Officers
Rick J. Filippelli assumed his current position as Vice President and Chief Financial Officer of TeamStaffGoebel North America in September 2003.2001. Prior to Goebel, Mr. Wasserman served as both the Interim President and full-time Chief Financial Officer of Papel Giftware from 1995 to 2001. Mr. Wasserman spent the first 13 years of his career in the public accounting profession. Mr. Wasserman also serves as a director of Acme Communications, Inc., Allied Defense Group, Inc., Breeze Eastern Corporation, Gilman + Ciocia, Inc., Crown Crafts, Inc. and AfterSoft Group, Inc.
37
Biographical Information – Other Executive Officers
Cheryl Presuto was appointed to the position of Chief Financial Officer in October 2007. She also serves as the Company’s Controller, a position she has held since August 2004. Ms. Presuto previously served as TeamStaff’s Accounting Manager since January 2002. Prior to joining TeamStaff, Mr. FilippelliMs. Presuto spent approximately twofour years with the newspaper division of Gannett, Inc., where she served as Chief Financial Officer of Rediff.com, a publicly traded global information technology company. From 1985 through 2001 Mr. Filippelli held various financial positions including that of Chief Financial Officer with Financial Guaranty Insurance Company (‘‘FGIC’’), a subsidiary of GE Capital.Accounting Manager and Assistant Controller. Prior to joining FGIC,Gannett, Ms. Presuto held various accounting and consulting positions. Ms. Presuto holds a Bachelor of Science degree in Accounting from Fairleigh Dickinson University where she graduated summa cum laude.
Kevin Wilson was appointed as the President of TeamStaff GS in October 2008. Previously, Mr.
Filippelli spent six yearsWilson served as the Director of TeamStaff GS from June 2007 through September 2008. From January 2004 to June 2007, Mr. Wilson served as the Director of Strategic Alliances of Varec, Inc., where he was responsible for business development in
public accounting including three yearsthe domestic and foreign defense markets. Prior to his tenure at Varec, Inc., from March 1997 to January 2004, Mr. Wilson was the Program Manager for a multiyear defense services contract with
Endress Hauser Systems & Gauging. Mr. Wilson also worked at Tracer Research Corporation from January 1990 to March 1997, where he was Project Manager for the
Big 4
Table of Contentsfirm of Ernst and Young.United States Air Force, Air Combat Command professional services contract. Mr. FilippelliWilson holds a BS in AccountingBusiness Marketing from Brooklyn College and is a Certified Public Accountant as well as a member of the American Institute of Certified Public Accountants.
James D. Houston has been Vice President, Business and Legal Affairs, General Counsel and Northwest Missouri State University.
Corporate Secretary of TeamStaff since May, 2005. Mr. Houston has spent most of his career acting as the chief legal officer for several public and private companies. From 1999 through 2005, several companies engaged Mr. Houston through his own independent consulting firm. Mr. Houston was general counsel for SITA and division counsel for the Strategic and Global Licensing Division of SAS Institute, Inc. from 1997 through 1999. Prior to joining SAS Institute, Mr. Houston spent six years as an independent legal consultant after having worked as an associate for the national law firms Adams, Duque and Hazeltine and Keck, Mahin and Cate from 1987 through 1991. Mr. Houston holds a Juris Doctorate from Boston University School of Law and a B.A. in Political Science and Philosophy from Long Island University. He is admitted to practice law in New York and California.Management Resources and Compensation Committee Interlocks and Insider Participation in Compensation Decisions
Karl W. Dieckmann (Chair), Rocco Marano and Steven Johnson, served on the Management Resources and Compensation Committee during the fiscal year commencing October 1, 2005 until April 27, 2006. Mr. Marano resigned his position on the Committee effective April 27, 2006. Mr. Ron Aldrich replaced Mr. Marano on the Committee. There are no interlocks between TeamStaff’s Directors and Directors of other companies and at all times members of the Management Resources and Compensation Committee satisfied the independence requirements of Section 4200(a) (15) of the NASDAQ Marketplace Rules.
Governance
Meetings of the Board of DirectorsDirectors; Independence and Committees During the fiscal year ended September 30,
2006,2009, the Board of Directors met on
9 occasions, 68 occasions. Our Board of
which were by telephone conference call. Our board of directorsDirectors determined that
from October 1, 2005 to January 1, 2006as of September 30, 2009, Messrs.
Aldrich,Alderman, Black,
Dyer,Delaney, Dieckmann, Johnson and
MaranoWasserman satisfied the independence requirements within the meaning of
Section 4200(a) (15) of the NASDAQ Marketplace Rules.
From January 1, 2006 to April 27, 2006 Messrs. Aldrich, Black, Dyer, Dieckmann, Marano and Johnson satisfied the independence requirements within the meaning of Section 4200(a) (15) of the NASDAQ Marketplace Rules. From and after April 27, 2006, to the end of the Company’s 2006 fiscal year, Messrs. Aldrich, Black, Dyer, Dieckmann and Johnson satisfied the independence requirements within the meaning of Section 4200(a) (15) of the NASDAQ Marketplace Rules. As of September 30, 2006 through and including the date of this filing, Messrs. Aldrich, Black, Dyer, Dieckmann and Johnson satisfied the independence requirements within the meaning of Section 4200(a) (15) of the NASDAQ Marketplace Rules.The Board of Directors has
fourfive standing committees: Audit
Committee, Management Resources and Compensation
Committee, Executive
andCommittee, Nominating and Corporate Governance
Committees.Committee and Strategic Planning Committee. Each of these committees has a written charter approved by the Board of Directors. Other than the charter of the Strategic Planning Committee, all of the charters of our Board committees, as well as the Company’s corporate governance guidelines, are available at the Company’s website,www.teamstaff.com (click on Investors, then on Corporate Governance).
For the fiscal year ended September 30,
2006, the members of the committees, and2009, a
general description of the duties of the Committees,
their members and number of times each Committee met were as follows:
Audit Committee.A copy of the Audit Committee’s Amended and Restated Charter may be viewed on our website atwww.teamstaff.com. TeamStaff’s Audit Committee acts to:(i) review with management the finances, financial condition and interim financial statements of TeamStaff; (ii) review with TeamStaff’s independent auditors the year-end financial statements; and (iii) review implementation with the independent auditors and management any action recommended by the independent auditors and
(iv) the retention and termination of TeamStaff’s independent auditors.
During the fiscal year ended September 30, 2006, the Audit Committee met on 5 occasions, all of which were by telephone conference call.The Audit Committee adopted a written charter governing its actions effective June 14, 2000. Effective May 27, 2003, the Audit Committee adopted an Amended and Restated Charter which was filed as an exhibit to our Proxy Statement prepared in connection with our Annual Meeting of
Table of ContentsShareholders held on August 12, 2003. A copy of the Audit Committee’s Amended and Restated Charter may be reviewed on our website at www.teamstaff.com. From October 1, 2005 through April 27, 2006,2008 to the present, members of our Audit Committee was comprised of Rocco J. Marano (Chair & Financial Expert)were and are Mr. Wasserman (Chair), PeterMr. Black Karl W. Dieckmann and Ben J. Dyer. On April 27, 2006, Mr. Marano announced his resignationDieckmann. Mr. Wasserman is also designated as a member of the Board of Directors of TeamStaff, Inc. From April 27, 2006 to September 30, 2006, our Audit Committee was comprised of Ben J. Dyer (Chair & Financial Expert), Peter Black, Karl Dieckmann and Ron Aldrich. At all times duringExpert. During the 2009 fiscal year, all of the members of our Audit Committee were ‘‘independent’’“independent” within the definition of that term as provided by Rule 4200(a)(15) of the NASDAQNasdaq Marketplace Rules. FromDuring the end of fiscal year toended September 30, 2009, the present, all of the members of our Audit Committee are ‘‘independent’’ within the meaning of Rule 4200(a)(15) of the NASDAQ Marketplace Rules.met on 5 occasions.
38
Management Resources and Compensation Committee.The charter governing the activities of the Management Resources and Compensation Committee (sometimes referred to as the “Compensation Committee”) may be viewed online on our website atwww.teamstaff.com.The Management Resources and Compensation Committee functions include negotiation and review of all employment agreements of executive officers of TeamStaff and administration of TeamStaff’s
2006 Long Term Incentive Plan, its 2000 Employee Stock Option Plan and Non-Executive Director Stock Option Plan.
Karl W. Dieckmann is the chairman of the Committee. From October 1,
20052008 to
April 27, 2006,the present, the members of the Management Resources and Compensation
Committee’s membersCommittee were
Karl W.and are Mr. Black (Chair), Mr. Dieckmann
(Chair), Rocco Marano and
T. StephenMr. Johnson.
From April 27, 2006 to the present, the members are Karl W. Dieckmann (Chair), T. Stephen Johnson and Ron Aldrich. At all times members of the Management Resources and Compensation Committee satisfied the independence requirements
within the meaning of Section 4200(a) (15) of the
NASDAQNasdaq Marketplace Rules. During the fiscal year ended September 30,
2006, the2009, this committee met on
23 occasions.
Nominating and Corporate Governance Committee. The
Nominating and Corporate Governance Committee functions include the review of all candidates for a position on the board of directors including existing directors for renomination and reports its findings with recommendations to the Board.. The Nominating and Corporate Governance Committee solicits candidates on behalf of TeamStaff to fill any vacancy on the Board. The Nominating and Corporate Governance Committee performs such other duties and assignments as directed by the Chairman or the Board but shall have no power to add or remove a director without the approval of the Board. Our Board of Directors has adopted a charter governing the activities of the Nominating and Corporate Governance Committee which may be viewed online on our Web sitewebsite at www.teamstaff.com.www.teamstaff.com. Pursuant to its charter, the Nominating and Corporate Governance Committee’s tasks include reviewing and recommending to the Board issues relating to the Board’s composition and structure; establishing criteria for membership and evaluating corporate policies relating to the recruitment of Board members; implementing and monitoring policies regarding principles of corporate governance in order to ensure the Board’s compliance with its fiduciary duties to the company and its shareholders; and making recommendations regarding proposals submitted by shareholders. From October 1, 2005The Nominating and Corporate Governance Committee functions also include the review of all candidates for a position on the board of directors including existing directors for re-nomination and reports its findings with recommendations to April 27, 2006,the Board. The Nominating and Corporate Governance Committee solicits candidates on behalf of TeamStaff to fill any vacancy on the Board. The members of the Nominating and Corporate Governance Committee members were Ben J. Dyerare Mr. Alderman (Chair), Karl W.Mr. Delaney, Mr. Dieckmann and Ron Aldrich. From and after April 27, 2006, the Nominating and Corporate Governance Committee members were and are Ron Aldrich (Chair), Karl W. Dieckmann and Martin Delaney. At all times Messrs. Dyer, Dieckmann and Aldrich satisfiedMr. Johnson, each of whom satisfy the independence requirements within the meaning of Section 4200(a) (15) of the NASDAQNasdaq Marketplace Rules. Mr. Delaney was appointed to this Committee in April 2009. During the fiscal year ended September 30, 2006, the2009, this committee met once.
Strategic Planning Committee. The Board of Directors established a Strategic Planning Committee in July 30, 2009. Members of this Committee are Messrs. Alderman, Black, Delaney and Wasserman. Mr. Alderman serves as the Chairman of this committee. The Strategic Planning Committee was created in order to confirm the strategic decisions of the Company and, as necessary, engage the services of outside professionals to assess the market for the Company’s products and services, and confirm or suggest modifications to, the Company’s business plans. During the 2009 fiscal year, the Strategic Planning Committee met on
3 occasions, all of which were by telephone conference call.2 occasions.
Executive Committee.Committee. The Board of Directors created an Executive Committee effective September 4, 2001. Executive
committeeCommittee members are
currently Mr. Karl W. Dieckmann
T. Stephen Johnson and
T. Kent Smith. T. Stephen JohnsonMr. Rick Wasserman. Mr. Wasserman replaced Mr. Johnston on this committee at the time of his appointment as our Chairman. Mr. Wasserman serves as its chairman. This committee did not meet during the fiscal year ended September 30,
2006.2009.
No member of the Board of Directors or any committee failed to attend at least, or participateparticipated in fewer than, 75% of the meetings of the Board or anyof a committee on which such member serves.
Management Resources and Compensation Committee Interlocks and Insider Participation in Compensation Decisions
TableMr. Peter Black (Chair), Mr. Karl W. Dieckmann and Mr. T. Stephen Johnson served on the Management Resources and Compensation Committee for the fiscal year ended September 30, 2009. There are no interlocks between TeamStaff’s Directors and directors of Contentsother companies.
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Nominating and Corporate Governance Matters
Our Nominating and Corporate Governance Committee considers candidates for election to our Board of Directors, whether recommended by security holders or otherwise, in accordance with the following criteria. The Nominating and Corporate Governance Committee applies the following general criteria to all candidates:
| • | | Nominees shall have a reputation for integrity, honesty and adherence to high ethical standards. |
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| • | | Nominees should have demonstrated business acumen, experience and the ability to exercise sound judgment in matters that relate to current and long term objectives of the Company and should be willing and able to contribute positively to TeamStaff’s decision-making process. |
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| • | | Nominees should have a commitment to understand the Company and its industries and to regularly attend and participate in meetings of the Board and its committees. |
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| • | | Nominees should have the interest and ability to understand the sometimes conflicting interests of the various constituencies of the Company, which include shareholders, employees, customers, governmental units, creditors and the general public, and to act in the interests of all shareholders. |
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| • | | Nominees should not have, nor appear to have, a conflict of interest that would impair the nominees’ ability to represent the interests of all the Company’s shareholders and to fulfill the responsibilities of a director. |
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| • | | Nominees shall not be discriminated against on the basis of race, religion, national origin, sex, disability or any other basis proscribed by applicable law. |
The re-nomination of existing directors is not to be viewed as automatic, but is based on continuing qualification under the various criteria set forth above. In addition, the Nominating and Corporate Governance Committee considers the existing director’s performance on the Board and any committee thereof. The Nominating and Corporate Governance Committee also considers the backgrounds and qualifications of the directors considered as a group. The Nominating and Corporate Governance Committee strives to ensure that the Board, when taken as a whole, provides a significant breadth of experience, knowledge and abilities that shall assist the Board in fulfilling its responsibilities.
Procedure to be Followed by Shareholders in Submitting Director Candidate Recommendations
Any shareholder who desires the Nominating and Corporate Governance Committee to consider one or more candidates for nomination as a director should, either by personal delivery or by United States mail, postage prepaid, deliver a written recommendation addressed to the Chairman, TeamStaff, Inc. Nominating and Corporate Governance Committee at 1 Executive Drive, Suite 130, Somerset, New Jersey 08873, not later than (i) with respect to an election to be held at an annual meeting of shareholders, 90 days prior to the anniversary date of the immediately preceding annual meeting or if an annual meeting has not been held in the preceding year, 90 days prior the first Tuesday in April; and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to shareholders. Each written recommendation should set forth: (a) the name and address of the shareholder making the recommendation and of the person or persons recommended; (b) the consent of such person(s) to serve as a director(s) of the Company if nominated and elected; and (c) a description of how the person(s) satisfy the General Criteria for consideration as a candidate referred to below in the section entitled “Nominating and Corporate Governance Matters.”
Additional Criteria for Notice of Shareholder Nominees
In accordance with our By-Laws, any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice of such shareholder’s intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company in accordance with the terms described in the preceding paragraph. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission (“SEC”); and (e) the consent of each nominee to serve as a director of the Company if so elected.
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Shareholder Communications with the Board
Any shareholder may communicate with the Board of Directors in writing through the Company’s Corporate Secretary (at TeamStaff, Inc., 1 Executive Drive, Suite 130, Somerset, New Jersey 08873) provided that the communication identifies the shareholder and the number and type of securities held by that shareholder. The Secretary reviews such communications, and forwards them to the Board of Directors unless the Secretary, in consultation with the Chief Executive Officer, determines that the communication is inappropriate for the Board’s consideration (for example, if it relates to a personal grievance or is unrelated to Company business). The Secretary maintains a permanent written record of all such shareholder communications received by the Secretary. This process was unanimously approved by the Nominating and Corporate Governance Committee of the Board of Directors (which is comprised of independent directors).
On June 20, 2003, TeamStaff distributed a company-wide Code of Ethics and Business Conduct and Code of Ethics for
our Chief Executive Officer, Chief Financial Officer and Controller. Additionally, both the Codes were posted on TeamStaff’s internal intranet website and are available on TeamStaff’s Internet web address,
www.teamstaff.com.www.teamstaff.com. These Codes were adopted by TeamStaff’s Board of Directors, and provide employees with a confidential method of reporting suspected Code violations.
ITEM 11. EXECUTIVE COMPENSATION
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own, directly or indirectly, more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities we issue. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. Based solely on a review of the copies of such reports received by us, we believe that all Section 16(a) filing requirements applicable to our officers, directors and 10% shareholders were complied with during the 2009 fiscal year.
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| Item 11. | | Executive Compensation and Related Information |
This section provides information, in tabular and narrative formats specified in applicable SEC rules, regarding the amounts of compensation paid to our Named Executive Officers and related information. As a smaller reporting company, the Company has presented such information in accordance with the scaled disclosure requirements permitted under applicable SEC regulations.
Summary Compensation Table
The following providestable sets forth certain summary information concerning all cash and non-cash compensation awarded to, earned by or paid to our each of our named executive officers during the yearstwo year period ended September 30, 2006, 2005, and 20042009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Change in Pension | | | | | | | |
| | | | | | | | | | | | | | | | | | | Value and | | | | | | | |
| | | | | | | | | | | | | | | | | | | Nonqualified Deferred | | | | | | | |
| | | | | | | | | | | | | | | Stock | | | Compensation | | | All Other | | | | |
| Name and Principal | | | | | | Salary | | | Bonus | | | Awards | | | Earnings | | | Compensation | | | | |
| Position | | Year | | | ($)(1) | | | ($)(2) | | | ($)(3) | | | ($) | | | ($)(4) | | | Total ($) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rick J. Filippelli,
President and Chief
Executive Officer | | | 2009 | | | $ | 290,000 | | | $ | — | | | $ | 44,625 | | | $ | — | | | $ | 4,169 | | | $ | 338,794 | |
| | | | 2008 | | | $ | 280,000 | | | $ | 196,000 | | | $ | 100,796 | | | $ | — | | | $ | 4,495 | | | $ | 581,291 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cheryl Presuto,
Chief Financial Officer | | | 2009 | | | $ | 181,000 | | | $ | — | | | $ | 25,500 | | | $ | — | | | $ | 2,501 | | | $ | 209,001 | |
| | | | 2008 | | | $ | 175,000 | | | $ | 87,500 | | | $ | 57,433 | | | $ | — | | | $ | 3,394 | | | $ | 323,327 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dale West, President, TeamStaff Rx (5) | | | 2009 | | | $ | 200,000 | | | $ | — | | | $ | 50,500 | | | $ | — | | | $ | 990 | | | $ | 251,490 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kevin Wilson, President, TeamStaff GS | | | 2009 | | | $ | 200,000 | | | $ | — | | | $ | 25,500 | | | $ | — | | | $ | — | | | $ | 225,500 | |
| | |
| (1) | | “Salary” is comprised of the cash salary paid to the Named Executive Officers during fiscal 2009 and 2008. |
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| (2) | | “Bonus” is comprised of cash awards made to the Named Executive Officers in the discretion of the Company’s Board of Directors as recommended by the Management Resources and Compensation Committee, subject to certain performance and EBITDA requirements. |
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| (3) | | “Stock Awards” reflect the portion of restricted stock grants awarded to Named Executives Officers under the Company’s 2006 Long Term Incentive Plan that was recognized by the Company as a compensation expense in fiscal year 2009 and 2008 in accordance with the provisions of revised Statement of Financial Accounting Standards (“SFAS”) No. 123, (“FAS 123R”) Share-Based Payment. |
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| (4) | | “All Other Compensation” consists of compensation received from employer matching contributions to the Company’s 401(k) Plan, long term disability insurance premiums and life insurance premiums paid by the Company for each Named Executive Officer. |
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| (5) | | As previously reported, Ms. West’s employment was terminated on January 4, 2010 in connection with the closing of the Company’s disposition of assets of TeamStaff Rx. |
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Additional Information.The Summary Compensation Table above quantifies the amount or
value of the different forms of compensation earned by
TeamStaff’s Chiefor awarded to our Named Executive
OfficerOfficers in fiscal 2009 and
eachprovides a dollar amount for total compensation. Descriptions of the
executive officers of TeamStaff who received in excess of $100,000 in compensation during the last fiscal year. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | ANNUAL COMPENSATION | | | LONG TERM COMPENSATION |
NAME AND
PRINCIPAL POSTION | | | YEAR | | | SALARY | | | BONUS | | | OTHER | | | OPTIONS | | | RESTRICTED STOCK |
| T. Kent Smith | | | | | 2006 | | | | | $ | 250,000 | | | | | $ | 50,000 | | | | | | -0- | | | | | | -0- | | | | | | 60,000 | |
| Chief Executive Officer | | | | | 2005 | | | | | $ | 250,000 | | | | | $ | 170,000 | | | | | | -0- | | | | | | 100,000 | | | | | | -0- | |
| | | | | | 2004 | | | | | $ | 250,000 | | | | | $ | 100,000 | | | | | | -0- | | | | | | -0- | | | | | | -0- | |
| Rick J. Filippelli | | | | | 2006 | | | | | $ | 224,988 | | | | | $ | 50,000 | | | | | | -0- | | | | | | -0- | | | | | | 50,000 | |
| | | | | | 2005 | | | | | $ | 224,988 | | | | | $ | 138,000 | | | | | | -0- | | | | | | -0- | | | | | | -0- | |
| | | | | | 2004 | | | | | $ | 224,988 | | | | | $ | 70,000 | | | | | | -0- | | | | | | 50,000 | | | | | | -0- | |
| James Houston | | | | | 2006 | | | | | $ | 180,000 | | | | | $ | 30,000 | | | | | | -0- | | | | | | -0- | | | | | | 30,000 | |
| | | | | | 2005 | | | | | $ | 48,461 | | | | | $ | 14,700 | | | | | | -0- | | | | | | -0- | | | | | | -0- | |
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TeamStaff provides normal and customary life and health insurance benefits to all of its employees including executive officers. TeamStaff has a 401(k) plan that is voluntary.
Compensation of Directors
Effective commencing as of January 1, 2004, the Chairman, Vice Chairman and Chairman of the Audit Committee each receive $3,000 per month. The Chairman of the Nominating and Corporate Governance Committee receives $2,500 per month. All other non-employee directors receive $1,667 per month. All non-employee Board members receive $1,500 for each in-person Board meeting attended and $750 for each telephonic Board meeting in which they participate. All committee members receive $600 for each in-person meeting attended and $300 for each telephonic committee meeting in which they participate. The Chairman of each committee receives $1,000 for each in-person committee meeting attended and $500 for each telephonic meeting in which he participates. Non-employee Directors also receive $1,000 for each in-person meeting with Company executives that do not constitute Board or Committee meetings. On November 18, 2004 the non-employee director cash compensation terms were amended to provide that non-committee members would be compensated in the same manner as committee members for any committee meeting they attend or telephonic meeting in which they participate at the written request of the committee Chairman. Additionally non-employee directors will receive $1,000 per day for their attendance at continuing education or other seminars they attend in connection with their service as a TeamStaff director. Non-employee Board members also receive reimbursement of their Board-related travel, cell phone and similar expenses.
Under the Company’s Non-Executive Director Stock Option Plan, directors 1) receive 5,000 options upon joining the Board; 2) receive 5,000 options on September 1st of each year thereafter (subject to downward adjustment for less than a full year’s service); and 3) for one year after joining the Board are entitled to purchase restricted stock from TeamStaff at a price equal to 80% of the closing bid price on the date of purchase up to an aggregate purchase price of $50,000. Our shareholders previously approved this option plan.
Table of ContentsEmployment Agreements
On June 30, 2005 TeamStaff entered into a two-year employment agreement with Mr. T. Kent Smith, its President and Chief Executive Officer. The term of the agreement commenced on October 1, 2005 and terminates on September 30, 2007. The material terms of Mr. Smith’seach Named Executive Officer’s employment agreement and related information is provided under “Employment Agreements with Named Executive Officers” below. The agreements provide the general framework and some of the specific terms for the compensation of the Named Executive Officers. Approval of the Management Resources and Compensation Committee and/or the Board of Directors is required prior to our entering into employment agreements with its executive officers or amendments to those agreements. However, many of the decisions relating to compensation for a base salary of $250,000 per annum and standard Company executive benefits as provided under his prior agreement. In addition, Mr. Smith is eligible to receive a bonus equal to up to 70% of his base salary upon satisfaction of performance-based criteria. Mr. Smith will be considered for future salary increases as may be determinedspecific year are made by the Management Resources and Compensation Committee and are implemented without changes to the general terms of employment set forth in those agreements.
During the 2009 fiscal year, the Company granted restricted stock awards to its Named Executive Officers as follows. An aggregate of 70,000 shares of restricted stock were granted to Mr. Filippelli, with 35,000 shares vesting on January 2, 2010 and the balance vesting on January 2, 2011. Per Mr. Filippelli’s employment agreement, any unvested shares will immediately vest upon termination. An aggregate of 40,000 shares were granted to each of Ms. Presuto, Mr. Wilson and Ms. West. Of these grants, 20,000 shares vested January 2, 2010 and the balance vests on January 2, 2011. Following Ms. West’s departure, however, the vesting conditions applicable to the remaining 20,000 shares will not occur and such shares were cancelled following the closing of the Boarddisposition of Directors. Mr. Smith will be eligiblethe operating assets of TeamStaff Rx. Ms. West was also granted an aggregate of 16,612 shares of restricted stock during 2009 pursuant to participateher employment agreements. These shares were vested as of the grant date. For information regarding the effect on the vesting and treatment of these stock awards on the death, disability or termination of employment of a Named Executive Officer or a change in control of our company, see “Employment Agreements with Named Executive Officers” below. Each award of Restricted Stock to our Named Executive Officers in fiscal 2009 represents an award of Common Stock that is subject to certain restrictions, including restrictions on transferability. These Restricted Stock Awards were granted under our 2006 Plan. The restrictions lapse in accordance with the terms of the award agreement. Holders of shares of Restricted Stock have voting power and the right to receive dividends, if any, that are declared on those shares which are vested. The grants of Restricted Stock made to our Named Executive Officers vest as described in the Company’s incentive stock ownership plan as may be determinedfootnotes to the above table. The 2006 Plan is administered by the Management Resources and Compensation CommitteeCommittee. The committee has authority to interpret the plan provisions and make all required determinations under those plans. This authority includes making required proportionate adjustments to outstanding awards upon the occurrence of the Board of Directors. The agreement also includes provisions for payment of all compensation otherwise payablecertain corporate events such as reorganizations, mergers and stock splits. Awards granted under the agreement2006 Plan are generally only transferable to a beneficiary of a Plan participant upon his or her death. However, the committee may establish procedures for the transfer of awards to other persons or entities, provided that such transfers comply with applicable laws.
Outstanding Equity Awards at End of 2009
The following table sets forth certain information with respect to outstanding equity awards at September 30, 2009 with respect to the Named Executive Officers.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
| (a) | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | | | (i) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity Incentive | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Equity Incentive | | | Plan Awards: | |
| | | | | | | | | | | | | | | | | | Number | | | Market | | | Plan Awards: | | | Market or | |
| | | Number of | | | Number of | | | | | | | | | | | of Shares | | | Value of | | | Number of | | | Payout Value of | |
| | | Securities | | | Securities | | | | | | | | | | | or Units | | | Shares or | | | Unearned | | | Unearned | |
| | | Underlying | | | Underlying | | | | | | | | | | | of Stock | | | Units of | | | Shares, Units or | | | Shares, Units or | |
| | | Unexercised | | | Unexercised | | | Option | | | | | | | That | | | Stock That | | | Other Rights | | | Other Rights | |
| | | Options | | | Options | | | Exercise | | | Option | | | Have Not | | | Have Not | | | That Have Not | | | That Have Not | |
| | | (#) | | | (#) | | | Price | | | Expiration | | | Vested | | | Vested | | | Vested | | | Vested | |
| Name | | Exercisable | | | Unexercisable | | | ($) | | | Date | | | (#)(1) | | | ($)(2) | | | (#)(3) | | | ($)(2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rick Filippelli | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 70,000 | | | $ | 105,000 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 13,750 | | | $ | 20,625 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cheryl Presuto | | | 4,500 | | | | — | | | $ | 7.84 | | | | 11/04/09 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 40,000 | | | $ | 60,000 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 10,000 | | | $ | 15,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dale West | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 40,000 | | | $ | 60,000 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 30,000 | | | $ | 45,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kevin Wilson | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 40,000 | | | $ | 60,000 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 20,000 | | | $ | 30,000 | |
| | |
| (1) | | Represents unvested portion of stock award granted on January 2, 2009 with a two year vesting schedule. |
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| (2) | | The market or payout value of stock awards reported in Columns (g) and (i) is computed by multiplying the number of shares of stock reported in Column (f) and (h) by the closing market price of our Common Stock on the last trading day of fiscal 2009. |
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| (3) | | Represents unvested portion of stock award granted to Mr. Filippelli on April 27, 2008, Ms. Presuto on July 30, 2008, Ms. West on December 3, 2008 and Mr. Wilson on October 3, 2008 as part of their employment agreements. These unvested shares are subject to certain performance criteria for the fiscal year ended September 30, 2009 for Mr. Filippelli and Ms. Presuto and for the fiscal years ended September 30, 2009 and 2010 for Ms. West and Mr. Wilson. It was subsequently determined that the performance criteria for fiscal year 2009 was not met and 13,750 shares for Mr. Filippelli, 10,000 shares for Ms. Presuto, 15,000 shares for Ms. West and 10,000 shares for Mr. Wilson were cancelled. As a result of the sale of the operating assets of TeamStaff Rx, the remaining 15,000 shares for Ms. West will not vest and were cancelled on the closing date of such transaction. |
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Additional Information.Each stock option grant reported in the
eventtable above was granted under, and is subject to, our 2000 Employee Plan. The option expiration date shown above is the normal expiration date, and the last date that
Mr. Smith is terminated without cause and one yearthe options may be exercised. For each Named Executive Officer, the unexercisable options shown above are also unvested. Unvested shares are generally forfeited if the Named Executive Officer’s employment terminates, except to the extent otherwise provided in an employment agreement. For information regarding the effect on vesting of
severance in all circumstances other than foroptions on the death, disability or termination
‘‘for cause.’’ In the event that there isof employment of a
change of control of TeamStaff and Mr. Smith’s employment is terminated (or his position is changed), Mr. Smith will be entitled to acceleration of all incentive compensation, all compensation otherwise due under the agreement and an additional twelve (12) months of his then in-effect base salary. A ‘‘change of control’’ is defined generally to constitute a change of 20% of more of the beneficial ownership of the Company’s outstanding Common Stock,Named Executive Officer or a change in
two thirdscontrol of our company, see “Employment Agreements with Named Executive Officers” below. If a Named Executive Officer’s employment is terminated by us for cause, options (including the vested portion) are generally forfeited. The exercisable options shown above, and any unexercisable options shown above that subsequently become exercisable, will generally expire earlier than the normal expiration date if the Named Executive Officer’s employment terminates, except as otherwise specifically provided in the Named Executive Officer’s employment agreement. For a description of the
Boardmaterial terms of
Directors, subject to certain exceptions.the Named Executive Officer’s employment agreements, see “Employment Agreements with Named Executive Officers” below. Restricted Stock Awards granted our Named Executive Officers were granted under the 2006 Plan. This table does not reflect prior grants of restricted stock awards that are fully vested.
Employment Agreements with Named Executive Officers
The following are summaries of the employment agreements with our Named Executive Officers. The agreements provide the general framework and the specific terms for the compensation of the Named Executive Officers.
Rick J. Filippelli
On June 30, 2005 TeamStaff entered into a twenty seven month employment agreement with Mr. Rick J. Filippelli, its Vice President and Chief Financial Officer. The term of the agreement commenced on June 30, 2005 and terminateswas scheduled to terminate on September 30, 2007. TheTeamStaff entered into a formal letter agreement dated and effective as of February 14, 2007 with Mr. Filippelli following his appointment on January 10, 2007 as President and Chief Executive Officer, which modified certain terms of his 2005 employment agreement. On April 17, 2008, we entered into a new employment agreement with Mr. Filippelli which expired as of September 30, 2009.
On November 3, 2009, we announced that Mr. Rick J. Filippelli has informed the Board of his intent to resign from such positions in connection with our strategic shift in our current business plan. Mr. Filippelli’s resignation as President and Chief Executive Officer will become effective at the end of January 2010. Mr. Filippelli has agreed to assist us with our transition to a new Chief Executive Officer. In connection with the foregoing, on November 2, 2009, we entered into a new employment agreement with Mr. Filippelli, the material terms of Mr. Filippelli’swhich are summarized below. The following description of this employment is qualified in its entirety by reference to the full text of such agreement. The new employment agreement provide forsupersedes and replaces the employment agreement that the Company entered into with Mr. Filippelli on April 17, 2008.
• The new employment agreement is dated November 2, 2009, is effective as of October 1, 2009 and expires January 31, 2010, unless both parties agree to extend the term. Under the employment agreement, Mr. Filippelli will receive a base salary of $225,000 per annum,$290,000 and may receive a potential bonus of up to 70% and standard Company executive benefits, upon substantially the same terms as provided for Mr. Smith. The Management Resources and Compensation Committee of the Board of Directors will consider Mr. Filippelli for future compensation increases as may be determined. Mr. Filippelli will be eligible to participate in the Company’s incentive stock ownership plan as may be determined bysole discretion of the Management Resources and Compensation Committee of the Board of Directors.
• Under the new employment agreement, Mr. Filippelli was granted options to purchase 30,000 shares of common stock. The options are exercisable for five years from the date of grant and vest upon the termination date, as defined in the new employment agreement, also includes provisionsprovided he complies with the obligations described therein. The exercise price of the options was equal to closing price of our common stock on the execution date of the new employment agreement.
• In the event of a termination of his employment by him for paymentgood reason (as defined in the employment agreement), (a) Mr. Filippelli’s right to purchase shares of all compensation otherwise payable undercommon stock pursuant to any stock option or stock option plan shall immediately fully vest and become exercisable, (b) the agreementexercise period in which he may exercise his options to purchase common stock shall be extended to the duration of their original term, as if he remained an employee of the Company, and (c) the terms of such options shall be deemed amended to reflect the foregoing provisions. Further, in the event thatof a termination of the Mr. Filippelli is terminated withoutFilippelli’s employment for cause, options granted and one yearnot exercised as of severancethe termination date shall terminate immediately and be null and void. In the event of a termination of his employment due to his death or disability, Mr. Filippelli’s (or his estate’s or legal representative’s) right to exercise any stock option, to the extent vested as of the termination date, shall remain exercisable for a period of twelve (12) months following the termination date, but in all circumstancesno event after the expiration of the exercise period. In the event of a termination of his employment other than for good reason, his right to exercise the stock options, to the extent vested as of the termination ‘‘date, shall remain exercisable for cause.’’a period of three months following the termination date, but in no event after the expiration of the exercise period.
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• The employment agreement further provides that in the event of a change in control (as defined in the employment agreement), or termination without cause by us or for good reason (as defined in the employment agreement) by Mr. Filippelli, the conditions to the vesting of any outstanding restricted stock awards granted to Mr. Filippelli shall be deemed void and all such shares shall be immediately and fully vested and delivered to him. Mr. Filippelli agreed not sell 35,000 restricted shares of the Company’s Common Stock originally scheduled to vest in January 2011, and the shares of Common Stock underlying the option granted pursuant to the new employment agreement until the earlier of a Change of Control or January 31, 2011.
• In the event of the termination of employment by us without “cause” or by him for “good reason,” as those terms are defined in the employment agreement, or in the event his employment is terminated due to his disability, Mr. Filippelli would be entitled to: (a) a severance payment of 12 months of base salary; (b) continued participation in our health and welfare plans for a period not to exceed 18 months from the termination date; and (c) all compensation accrued but not paid as of the termination date. In the event of the termination of his employment due to his death, Mr. Filippelli’s estate would be entitled to receive all compensation accrued but not paid as of the termination date and continued participation in our health and welfare plans for a period not to exceed 18 months from the termination date. If his employment is terminated by us for “cause” or by him without “good reason,” he is not entitled to any additional compensation or benefits other than his accrued and unpaid compensation.
• In the event that there iswithin 180 days of a change of control of TeamStaff and“Change in Control”, as defined in the employment agreement, (a) Mr. Filippelli’s employment is terminated, (oror (b) his status, title, position is changed),or responsibilities are materially reduced and he terminates his employment, the Company shall pay and/or provide to him, the following compensation and benefits:
(A) we shall pay him, in lieu of any other payments due hereunder, (i) the accrued compensation; (ii) the continuation benefits; and (iii) as severance, base salary for a period of 12 months, payable in one lump sum following the termination date; and
(B) The conditions to the vesting of any outstanding incentive awards (including restricted stock, stock options and granted performance shares or units) granted to Mr. Filippelli under any of our plans, or under any other incentive plan or arrangement, shall be deemed void and all such incentive awards shall be immediately and fully vested and exercisable. Further, any such options shall be deemed amended to provide that in the event of termination after a change of control, the options shall remain exercisable for the duration of their term.
• Notwithstanding the foregoing, if the payments due in the event of a change in control would constitute an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the aggregate of such credits or payments under the employment agreement and other agreements shall be reduced to the largest amount as will result in no portion of such aggregate payments being subject to the excise tax imposed by Section 4999 of the Code. The priority of the reduction of excess parachute payments shall be in the discretion of Mr. Filippelli.
• Pursuant to the employment agreement, Mr. Filippelli is subject to customary confidentiality, non-solicitation of employees and non-competition obligations that survive the termination of such agreement.
44
Cheryl Presuto
On July 30, 2008, we entered into an employment agreement with our Chief Financial Officer, Cheryl Presuto, which expired as of September 30, 2009. On January 14, 2010, we entered into a new employment agreement with Ms. Presuto, the terms of which are summarized below. The following description of our new employment agreement with Ms. Presuto is qualified in its entirety by reference to the full text of such agreement.
• The employment agreement is for an initial term expiring September 30, 2010. Under the employment agreement, Ms. Presuto will receive a base salary of $181,000. The term of the agreement is effective as of October 1, 2009. Upon any termination of the Employee’s employment on or after the expiration date, other than cause (as defined in the employment agreement), Ms. Presuto will be entitled to acceleration of all incentive compensation, all compensation otherwise due under the agreement and an additional twelve (12) months of his then in-effect base salary. A ‘‘change of control’’ is defined generally to constituteseverance payment described below.
• Ms. Presuto may receive a
change of 20% of more of the beneficial ownership of the Company’s outstanding Common Stock, or a change in two thirds of the Board of Directors, subject to certain exceptions.Change in Control Agreement
On October 31, 2006, TeamStaff entered into a Change in Control Agreement with James D. Houston, its Vice President of Business and Legal Affairs and General Counsel. The Change in Control Agreement supplemented and amended Mr. Houston’s Severance Agreement dated October 11, 2005. The severance agreement includes provisions for payment of all compensation otherwise payable pursuant to Mr. Houston’s employmentbonus in the event that Mr. Houston is terminated without cause and six monthssole discretion of severance in all circumstances other than for termination ‘‘for cause.’’ In the event that there is a change of control of TeamStaff and Mr. Houston’s employment is terminated (or his position is changed), Mr. Houston will be entitled to acceleration of all incentive compensation, all compensation otherwise due pursuant to his employment and an additional twelve (12) months of his then in-effect base salary. A ‘‘change of control’’ is defined generally to constitute a change of 30% of more of the beneficial ownership of the Company’s outstanding Common Stock, or a change in two thirds of the Board of Directors, subject to certain exceptions.
Table of ContentsManagement Resources and Compensation Committee Report on Executive Compensation
This report is submitted by the Management Resources and Compensation Committee of the Board of Directors of TeamStaff, Inc. (‘‘TeamStaff’’). During theup to 50% of her base salary for each fiscal year ended September 30, 2006, the Management Resourcesof employment. The bonus will be based on performance targets and Compensation Committee was responsible for reviewing TeamStaff’s stock option and long term incentive plans and reviewing and approving compensation matters concerning the executive officers and senior management of TeamStaff. Further, the Management Resources and Compensation Committee balances compensation among TeamStaff’s executive officers and senior management.
Overview and Philosophy. TeamStaff uses its compensation program to achieve the following objectives:
| | |
| • | To provide compensation, as determined by the Management Resources and Compensation Committee, that attracts, motivates and retains the talented, high caliber officers and employees necessary to achieve TeamStaff’s strategic objectives; |
| | |
| • | To align the interest of officers with the success of TeamStaff; |
| | |
| • | To align the interest of officers with stockholders by including long-term equity incentives; and |
| | |
| • | To increase the long-term profitability of TeamStaff and, accordingly, increase stockholder value. |
Compensation under the executive compensation program is comprised of cash compensation in the form of base salary and bonus compensation. Executives are also granted severance plans providing various benefits upon termination of employment without cause and, in some cases (including the Chief Executive Officer), a change of control of TeamStaff. In addition, the compensation program includes various other benefits, including medical and insurance plans and TeamStaff’s 401(k) Plan. These plans are generally available to all employees of TeamStaff.
The principal factors that the Management Resources and Compensation Committee considered with respect to each officer’s compensation package for fiscal year ended September 30, 2006 are summarized below. The Management Resources and Compensation Committee may apply different or additional factors in making decisions with respect to executive compensation in future years, at its discretion.
Base Salary. Compensation levels for each of TeamStaff’s officers, including the Chief Executive Officer, are generally set within the range of salaries that the Management Resources and Compensation Committee believes is paid to officers with comparable qualifications, experience and responsibilities at similar companies. In setting compensation levels, the Management Resources and Compensation Committee takes into account such factors as (i) TeamStaff’s past performance and future expectations, (ii) individual performance and experience and (iii) past salary levels. The Management Resources and Compensation Committee does not assign relative weights or ranking to these factors, but instead makes a determination based upon the consideration of all of these factors as well as the progress made with respect to TeamStaff’s long-term goals and strategies. Base salary, while reviewed annually, is only adjusted as deemed necessarykey objectives established by the Management Resources and Compensation CommitteeCommittee.
• Grant of options to purchase 75,000 shares of common stock under the Company’s 2006 Long Term Incentive Plan. The vesting schedule applicable to the options is as follows: 50% of the options shall vest on the date of the agreement and the balance shall vest on September 30, 2010, provided Ms. Presuto is an employee as of such date. The options are exercisable for a period of five years at a per share exercise price equal to the closing price of the Company’s common stock on the date of execution of the employment agreement.
In the event of the termination of her employment, the Options will be governed by the terms of the 2006 Plan, except that the following provisions shall apply:
| (i) | | in the event Ms. Presuto’s employment is terminated for cause, options granted and not exercised as of the termination date shall terminate immediately and be null and void; |
|
| (ii) | | in the event her employment with the Company is terminated due to her death, or disability, her (or her estate’s or legal representative’s) right to purchase shares of common stock pursuant to any stock option or stock option plan to the extent vested as of the date of termination shall remain exercisable for a period of 12 months, but in no event after the expiration of the option; |
|
| (iii) | | in the event Ms. Presuto elects to terminate her employment other than for good reason (as defined in the agreement), her right to purchase shares of common stock of the Company pursuant to any stock option or stock option plan to the extent vested as of the date of termination shall remain exercisable for a period of three months following such termination date, but in no event after the expiration of option; and |
|
| (iv) | | In the event of (A) a Change of Control, as defined in the agreement, (B) employee’s termination by the Company without cause or; (C) termination by employee for good reason, the conditions to the vesting of any outstanding restricted stock awards or options granted under the agreement shall be deemed void and all such shares and options shall be immediately and fully vested and delivered to the employee and all outstanding options shall remain exercisable for a period of 24 months following the date of termination, but in no event after the expiration date of any such option. |
45
• In the event of the termination of employment by us without “cause” or by Ms. Presuto for “good reason,” as those terms are defined in determining totalthe employment agreement, or in the event her employment is terminated due to her disability, she would be entitled to: (a) a severance payment of 12 months of base salary; (b) continued participation in our health and welfare plans for a period not to exceed 12 months from the termination date; and (c) all compensation accrued but not paid as of the termination date. In addition, in the event of termination for each officer. Basedisability, she would also receive a pro-rata bonus, as described below.
• In the event of the termination of her employment due to her death, Ms. Presuto’s estate would be entitled to receive: (a) all compensation accrued but not paid as of the termination date; (b) continued participation in our health and welfare plans for a period not to exceed 12 months from the termination date; and (c) payment of a “Pro Rata Bonus”, which is defined as an amount equal to the maximum bonus Ms. Presuto had an opportunity to earn multiplied by a fraction, the numerator of which shall be the number of days from the commencement of the fiscal year to the termination date, and the denominator of which shall be the number of days in the fiscal year in which she was terminated.
• If Ms. Presuto’s employment is terminated by us for “cause” or by her without “good reason,” she is not entitled to any additional compensation or benefits other than her accrued and unpaid compensation.
• In the event that within 180 days of a “Change in Control” as defined in the employment agreement, (a) Ms. Presuto is terminated, or (b) her status, title, position or responsibilities are materially reduced and she terminates her employment, the Company shall pay and/or provide to her, the following compensation and benefits:
(A) The Company shall pay Ms. Presuto, in lieu of any other payments due hereunder, (i) the accrued compensation; (ii) the continuation benefits; and (iii) as severance, base salary levels for a period of 12 months, payable in equal installments on each of TeamStaff’s officers, other than the Chief Executive Officer, are also based in part upon evaluationsCompany’s regular pay dates for executives during the twelve months commencing on the first regular executive pay date following the termination date; and recommendations made by
(B) The conditions to the
Chief Executive Officer.Equity Incentives. The Management Resources and Compensation Committee believes thatvesting of any outstanding incentive awards (including restricted stock, participation aligns officers’ interests with those of the stockholders. In addition, the Management Resources and Compensation Committee believes that equity ownership by officers helps to balance the short-term focus of annual incentive compensation with a longer-term view and may help to retain key executive officers. Long-term incentive compensation, generally granted in the form of stock options and grantsgranted performance shares or units) granted to Ms. Presuto under any of restricted stock, allows the officersCompany’s plans, or under any other incentive plan or arrangement, shall be deemed void and all such incentive awards shall be immediately and fully vested and exercisable. Further, any such options shall be deemed amended to share in any appreciationprovide that in the valueevent of TeamStaff’s common stock.termination after a change of control, the options shall remain exercisable for the duration of their term.
• Upon the effective date of an event constituting a change of control, the Company shall pay Ms. Presuto, in one lump sum upon the first day of the month immediately following such event, an amount equal to her then current base salary. Ms. Presuto shall be entitled to such payment whether or not her employment with the Company continues after the change of control.
• If the payments due in the event of a change in control would constitute an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the aggregate of such credits or payments under the employment agreement and other agreements shall be reduced to the largest amount as will result in no portion of such aggregate payments being subject to the excise tax imposed by Section 4999 of the Code. The priority of the reduction of excess parachute payments shall be in the discretion of Ms. Presuto.
• Pursuant to the employment agreement, Ms. Presuto is subject to customary confidentiality, non-solicitation of employees and non-competition obligations that survive the termination of such agreements.
In making stock option and restricted stock grants,46
Kevin Wilson
On October 3, 2008, we entered into an employment agreement with Mr. Kevin Wilson, the
Management Resources and Compensation Committee considers general corporate performance, individual contributions to TeamStaff’s financial,
TablePresident of Contentsoperational and strategic objectives, the Chief Executive Officer’s recommendations, level of seniority and experience, existing levels of stock ownership, previous grants of restricted stock or options, vesting schedules of outstanding restricted stock or options and the current stock price. During the fiscal year endedour TeamStaff GS subsidiary. The employment agreement is for an initial term expiring September 30, 2006,2010. Under the Management Resources and Compensation Committee did not grant any stock options, and made grants of restricted stock as further described in the section entitled ‘‘Restricted Stock Grants in Last Fiscal Year.’’
Other Benefits. TeamStaff also has various broad-based employee benefit plans. Executive officers participate in these plans on the same terms as eligible, non-executive employees, subject to any legal limits on the amounts that may be contributed or paid to executive officers under these plans. TeamStaff offers a 401(k) plan, which allows employees to invest in a wide array of funds on a pre-tax basis. TeamStaff also maintains insurance and other benefit plans for its employees, including the executive officers of TeamStaff.
Chief Executive Officer Compensation.
In the fiscal year ended September 30, 2006, T. Kent Smith, TeamStaff’s Chief Executive Officer, receivedemployment agreement, Mr. Wilson will receive a base salary atof $200,000. The term of the annual rateagreement is effective as of $250,000, which was the same as his base salary during the prior fiscal year. TeamStaff employed Mr. Smith as its Chief Executive Officer in June 2003 and paid an aggregate amount of $250,000 to him as base salary for his services as Chief Executive Officer during the period October 1, 2004 through September 30, 2005.2008. Mr. Smith’s compensation is determined pursuant to an employment agreement dated June 18, 2003, which provides for base compensation of $250,000 per annum andWilson may receive a bonus in the sole discretion of the Management Resources and Compensation Committee, of up to 50 % of his base salary. Pursuant to his employment agreement, Mr. Smith also was awarded options to purchase 400,000 shares of Common Stock exercisable at $3.00 per share and subject to certain vesting requirements. Mr. Smith’s base salary is believed by the Management Resources and Compensation Committee to be consistent with the range of salary levels received by executives in a similar capacity in companies of comparable size. During the period between October 1, 2004 and September 30, 2005, Mr. Smith was awarded a bonus of $70,000 in light of the success he achieved inclosing the favorable acquisition of RS Staffing Services, Inc. In accordance with the terms of his employment agreement, Mr. Smith was awarded a total bonus of $170,000 for the fiscal year ended September 30, 2005 (including the $70,000 previously mentioned). Mr. Smith was awarded options to purchase 100,000 shares of Common Stock exercisable at $2.08 per share and subject to certain vesting requirements during the fiscal year ended September 30, 2005. During the period between October 1, 2005 and September 30, 2006, Mr. Smith was awarded a bonus of $50,000 in light of the success he achieved in closing the sale of the DSI Payroll Services division. Mr. Smith was not awarded any other additional bonus for the fiscal year ended September 30, 2006. Mr. Smith was awarded 60,000 shares of restricted stock with a market value of $1.70 per share on the grant date of April 27, 2006. The restricted stock is subject to a certain vesting requirements.
On June 30, 2005 TeamStaff, Inc. (‘‘TeamStaff’’) entered into a two-year employment agreement with Mr. T. Kent Smith, its President and Chief Executive Officer. The Compensation Committee and the Board determined that the Company desired to retain Mr. Smith’s services and desired to set the terms of his new agreement in advance of the termination of the then-existing agreement. The term of the new agreement commenced on October 1, 2005. The material terms of Mr. Smith’s employment agreement provide for a base salary of $250,000 per annum and standard Company executive benefits. In addition, Mr. Smith is eligible to receive a bonus equal to up to 70% of his base salary upon satisfaction of performance-based criteria. Mr. Smith will be considered for future salary increases as may be determined by the Management Resources and Compensation Committee of the Board of Directors. Mr. SmithDirectors and will have an opportunity to earn a cash bonus of up to 70% of his base salary for each fiscal year of employment. The bonus will be eligiblebased on performance targets and other key objectives established by the Chief Executive Officer. Thirty percent of the bonus shall be based on achieving revenue targets, sixty percent shall be based on achieving EBITDA targets, and ten percent shall be based on achieving corporate goals established by the Chief Executive Officer. Additional terms of his agreement are as follows:
• Grant of 30,000 shares of restricted common stock. The vesting schedule applicable to participatethe restricted stock is as follows: one-third of the restricted shares vest on the date of the agreement; one-third vest on September 30, 2009, upon satisfaction of performance targets and other key objectives established by the Chief Executive Officer for fiscal 2009; and one-third vest on September 30, 2010, upon the satisfaction of the performance targets determined for fiscal 2010. However, in the event of a change in control (as defined in the employment agreement), the conditions to the vesting of the restricted stock awards shall be deemed void and all such shares shall be immediately and fully vested.
• In the event of the termination of employment by us without “cause” or by Mr. Wilson for “good reason,” as those terms are defined in the employment agreement, or in the event his employment is terminated due to his disability, he would be entitled to: (a) a severance payment of 6 months of base salary; (b) continued participation in our health and welfare plans for a period not to exceed 6 months from the termination date; and (c) all compensation accrued but not paid as of the termination date. In addition, in the event of termination for disability, he would also receive a pro-rata bonus, as described below.
• In the event of the termination of his employment due to his death, Mr. Wilson’s estate would be entitled to receive: (a) all compensation accrued but not paid as of the termination date; (b) continued participation in our health and welfare plans for a period not to exceed 6 months from the termination date; and (c) payment of a “Pro Rata Bonus”, which is defined as an amount equal to the lesser of (i) $75,000, and (ii) the Targeted Bonus multiplied by a fraction, the numerator of which shall be the number of days from the commencement of the fiscal year to the termination date, and the denominator of which shall be the number of days in the fiscal year in which his employment was terminated. If his employment is terminated by us for “cause” or by him without “good reason,” he is not entitled to any additional compensation or benefits other than his accrued and unpaid compensation.
• In the event that within 90 days of a “Change in Control” as defined in the employment agreement, (a) Mr. Wilson is terminated, or (b) his status, title, position or responsibilities are materially reduced and he terminates his employment, we shall pay and/or provide to him the following compensation and benefits: (A) (i) the accrued compensation; (ii) the continuation benefits; and (iii) as severance, base salary for a period of 6 months, payable in equal installments on each of the Company’s regular pay dates for executives during the six months commencing on the first regular executive pay date following the termination date; and (B) The conditions to the vesting of any outstanding incentive awards (including restricted stock, ownership planstock options and granted performance shares or units) granted to Mr. Wilson shall be deemed void and all such awards shall be immediately and fully vested.
47
• In addition, in the event the Company serves a “Notice of Retention” and Mr. Wilson diligently performs his duties during the “Retention Period” (as those terms are defined in the employment agreement), the Company shall pay him, in one lump sum on the first day of the month immediately following the month in which the Retention Period ends, an amount equal to 50% of his then current base salary. In the event the Company fails to serve a Notice of Retention, the Company shall pay him in one lump sum on the first day of the month immediately following the change of control, an amount equal to 50% of his then current base salary.
• Notwithstanding the foregoing, if the payments due in the event of a change in control would constitute an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the aggregate of such credits or payments under the employment agreement and other agreements shall be reduced to the largest amount as will result in no portion of such aggregate payments being subject to the excise tax imposed by Section 4999 of the Code.
• Pursuant to the employment agreement, Mr. Wilson is subject to customary confidentiality, non-solicitation of employees and non-competition obligations that survive the termination of such agreements.
Dale West
On December 3, 2008, we entered into an employment agreement with Ms. Dale West, the President of our TeamStaff Rx subsidiary. The employment agreement is for an initial term expiring September 30, 2010.
However, as reported above, Ms. West’s employment with TeamStaff terminated in connection with the closing of the sale of the operating assets of TeamStaff Rx to Advantage RN, which occurred January 4, 2010. Ms. West will receive severance payments and benefits as provided for in this agreement. Under the employment agreement, Ms. West received a base salary of $200,000. The term of the agreement is effective as of October 1, 2008. Ms. West may be determined byreceive a bonus in the sole discretion of the Management Resources and Compensation Committee of the Board of Directors.Directors and will have an opportunity to earn a cash bonus (“Targeted Bonus”) of up to 70% of her base salary for each fiscal year of employment. The bonus will be based on performance targets and other key objectives established by the Chief Executive Officer. Thirty percent (30%) of the bonus shall be based on achieving revenue targets, sixty percent (60%) shall be based on achieving EBITDA targets, and ten percent (10%) shall be based on achieving corporate goals established by the Chief Executive Officer. Additional terms of her agreement also includes provisionsare as follows:
• Grant of 30,000 shares of restricted common stock. The vesting schedule applicable to the restricted stock is as follows: one-half vest on September 30, 2009, upon satisfaction of performance targets and other key objectives established by the Chief Executive Officer for payment2009; and one-half vest on September 30, 2010, upon the satisfaction of all compensation otherwise payable under the agreementperformance targets determined for 2010. However, in the event of a change in control (as defined in the employment agreement), the conditions to the vesting of the restricted stock awards shall be deemed void and all such shares shall be immediately and fully vested.
• Ms. West was eligible to receive a quarterly stock bonus equal to $12,500 of the Company’s common stock at the end of each calendar quarter of employment for satisfaction of performance criteria and other key objectives established by the Chief Executive Officer, provided that Mr. Smiththe first two quarterly bonuses were deemed earned if she is continuously employed by the Company during such quarters and shall not be conditioned on the achievement of any other performance criteria. Such shares of common stock were valued on the last trading day of each quarter and were deemed vested and earned on the first business day following the close of the quarter.
• In the event of the termination of employment by us without “cause” or by Ms. West for “good reason,” as those terms are defined in the employment agreement, or in the event her employment is terminated due to her disability, she would be entitled to: (a) a severance payment of 6 months of base salary; (b) continued participation in our health and welfare plans for a period not to exceed 6 months from the termination date; and (c) all compensation accrued but not paid as of the termination date. In addition, in the event of termination for disability, she would also receive a pro-rata bonus, as described below.
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• In the event of the termination of her employment due to her death, Ms. West’s estate would be entitled to receive: (a) all compensation accrued but not paid as of the termination date; (b) continued participation in our health and welfare plans for a period not to exceed 6 months from the termination date; and (c) payment of a “Pro Rata Bonus”, which is defined as an amount equal to the lesser of (i) $75,000, and (ii) the Targeted Bonus multiplied by a fraction, the numerator of which shall be the number of days from the commencement of the fiscal year to the termination date, and the denominator of which shall be the number of days in the fiscal year in which she was terminated. If her employment is terminated by us for “cause” or by her without cause and one year of severance in all circumstances“good reason,” she is not entitled to any additional compensation or benefits other than for termination ‘‘for cause.’’her accrued and unpaid compensation.
• In the event that
there iswithin 90 days of a
change of control of TeamStaff and Mr. Smith’s“Change in Control” as defined in the employment agreement, (a) Ms. West’s employment is terminated,
(or hisor (b) her status, title, position
is changed), Mr. Smith will be entitledor responsibilities are materially reduced and she terminates her employment, the Company shall pay and/or provide to
accelerationher, the following compensation and benefits: (A) (i) the accrued compensation; (ii) the continuation benefits; and (iii) as severance, base salary for a period of
all incentive compensation, all compensation otherwise
Table of Contentsdue under the agreement and an additional twelve (12)6 months, of his then in-effect base salary. A ‘‘change of control’’ is defined generally to constitute a change of 20% of more of the beneficial ownershippayable in equal installments on each of the Company’s regular pay dates for executives during the six months commencing on the first regular executive pay date following the termination date; and (B) the conditions to the vesting of any outstanding Common Stock,incentive awards (including restricted stock, stock options and granted performance shares or units) granted to Ms. West shall be deemed void and all such awards shall be immediately and fully vested.
• In addition, in the event the Company serves a
change“Notice of Retention” and Ms. West diligently performs her duties during the “Retention Period” (as those terms are defined in
two thirdsthe employment agreement), the Company shall pay her, in one lump sum on the first day of the
Boardmonth immediately following the month in which the Retention Period ends, an amount equal to 50% of
Directors, subjecther then current base salary. In the event the Company fails to
certain exceptions. The termserve a Notice of Retention, the Company shall pay her in one lump sum on the first day of the
agreement commences on October 1, 2005 and terminates on September 30, 2007.Compensationmonth immediately following the Change in Control, an amount equal to 50% of Executive Officers Other Thanher then current base salary.
• Notwithstanding the
CEO During Fiscal Year 2006Forforegoing, if the fiscal year ended September 30, 2006, executive officers other than the Chief Executive Officer received base salaries and bonuses which the Management Resources and Compensation Committee believes reflected industry standards, prevailing compensation practices in similar companies with which TeamStaff competes for executive talent, the seniority and skill level of the executive officer, TeamStaff’s performance, and each executive officer’s contribution thereto. Base salaries and bonuses paid to our named executive officers for the fiscal year ended September 30, 2006 are as set forthpayments due in the table provided under the heading ‘‘Executive Compensation − Summary Compensation Table.’’
The Management Resources and Compensation Committee periodically reviews the numberevent of vested and unvested options held by executive officers and makes stock grants to these executives to provide greater incentives to continue employment with TeamStaff and to strive to increase stockholder value. Stock options typically have been granted to executive officers when the executive first joins TeamStaff,a Change in connection with a significant changeControl would constitute an “excess parachute payment” as defined in responsibilities and, occasionally, to achieve equity within a peer group. During the fiscal year ended September 30, 2006, the Management Resources and Compensation Committee made grants of restricted stock to executive officers, as described in the section entitled ‘‘Executive Compensation − Restricted Stock Grants in Last Fiscal Year.’’ The primary factors upon which specific grants made by the Management Resources and Compensation Committee during fiscal year 2006 were based are the executive’s past performance, anticipated future contribution, consistency within the executive’s peer group, prior option grants to the executive officer, the percentage of outstanding equity owned by the executive, the level of vested and unvested options, competitive market practices and the executive’s responsibilities and performance. The Management Resources and Compensation Committee does not set specific target levels for options or restricted stock granted to named executive officers or for the CEO but seeks to be competitive with similar companies.
Tax Deductibility of Executive Compensation.Section 162(m)280G of the Code, limits the aggregate of such credits or payments under the employment agreement and other agreements shall be reduced to the largest amount as will result in no portion of such aggregate payments being subject to the excise tax deduction to TeamStaff to $1 million for compensation paid to anyimposed by Section 4999 of the executive officers unless certain requirements are met. The Management Resources and Compensation Committee has considered these requirements and the regulations. It is the Management Resources and Compensation Committee’s present intention that, so long as it is consistent with its overall compensation objectives, substantially all executive compensation be deductible for United States federal income tax purposes. The Management Resources and Compensation Committee believes that any compensation deductions attributable to options or restricted stock granted under the employee stock option plans currently qualify for an exceptionCode.
• Pursuant to the
disallowance under Section 162(m). | By the Management Resources and
Compensation Committee of the
Board of Directors of TeamStaff, Inc. |
employment agreement, Ms. West is subject to customary confidentiality, non-solicitation of employees and non-competition obligations that survive the termination of such agreements. In addition, Ms. West was provided an advance to reimburse her for living expenses not to exceed $3,200 in any month or $36,000 in the aggregate. | Karl W. Dieckmann
T. Stephen Johnson
Rocco Marano (October 1, 2005 − April 27, 2006)
Ron Aldrich (April 27, 2006 − September 30, 2006) |
This report of the Management Resources and Compensation Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent we specifically incorporate this report by reference therein.
Table of ContentsOption/SAR Grants in Last Fiscal Year
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | | No. of Securities
Underlying
Options Granted | | | Percentage of
Total Options
Granted in Fiscal
Year | | | Exercise of Base
Price Per Share | | | Expiration Date |
| T. Kent Smith | | | | | 0 | | | | | | 0 | | | | | $ | — | | | | | | — | |
| Rick J. Filippelli | | | | | 0 | | | | | | 0 | | | | | | — | | | | | | — | |
| James Houston | | | | | 0 | | | | | | 0 | | | | | | — | | | | | | — | |
|
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following table sets forth information with respect to the named executive officers concerning exercise of stock options and SARs during the last fiscal year and the value of unexercised options and SARs held as of the year ended September 30, 2006.
| | | | | | | | | | | | | | | | | | | | | | | | |
| NAME | | | SHARES
ACQUIRED
ON
EXERCISE | | | VALUE
REALIZED | | | NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS/SARS AS OF
SEPTEMBER 30, 2006
EXERCISABLE/
UNEXERCISABLE | | | VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS AS OF
SEPTEMBER 30, 2006
EXERCISABLE/
UNEXERCISABLE(1) |
| T. Kent Smith | | | | | 0 | | | | | $ | 0 | | | | | | 500,000/0 | | | | | $ | 0/$0 | |
| Rick J. Filippelli | | | | | 0 | | | | | $ | 0 | | | | | | 100,000/0 | | | | | $ | 0/$0 | |
| James Houston | | | | | 0 | | | | | $ | 0 | | | | | | 0/0 | | | | | $ | 0/$0 | |
|
| |
| (1) Based upon a closing sales price of the Common Stock at $1.28 per share on September 30, 2006. |
Restricted Stock Grants in Last Fiscal Year
On April 27, 2006, following the approval of the Company’s 2006 Long Term Incentive Plan by the Company’s shareholders, the Compensation Committee of the Board of Directors made the following recommendations with respect to awards of restricted stock, which were ratified and approved by the Board. As of and at April 27, 2006, the closing price of TeamStaff Common Stock was $1.70.
| | | | | | | | | | | | | | | |
| | | | Shares | | | Vesting Period | | | Fair Market Value |
| T. Kent Smith | | | | | 60,000 | | | | 3 years | | | $102,000 |
| Rick Filippelli | | | | | 50,000 | | | | 3 years | | | $ 85,000 |
| James D. Houston | | | | | 30,000 | | | | 3 years | | | $ 51,000 |
| Peter Rosen | | | | | 20,000 | | | | 3 years | | | $34,000 |
| Tim Nieman | | | | | 20,000 | | | | 3 years | | | $ 34,000 |
| Greg Haygood | | | | | 20,000 | | | | 3 years | | | $ 34,000 |
| Cheryl Presuto | | | | | 20,000 | | | | 3 years | | | $ 34,000 |
|
Stock Option Plans
2000 Employee Stock Option Plan In the fiscal year 2000, the Board of Directors and shareholders approved the adoption of the 2000 Employees Stock OptionEmployee Plan (the ‘‘2000 Plan’’) to provide for the grant of options to purchase up to 1,714,286 shares of TeamStaff’s common stock to all employees, including senior management. The 2000 Employee Plan replacesreplaced the 1990 Employee Plan and Senior Management Plans, both of which expired. Under the terms of the approved 2000 Employee Plan, options granted there under may be designated as options which qualify for incentive stock option treatment (‘‘ISOs’’(“ISOs”) under Section 422A of the Code, or options which do not so qualify (‘‘Non-ISO’s’’(“Non-ISOs”). As of September 30, 2006,2009, there were 753,0004,500 options outstanding under the 2000 Employee Plan.
Table of ContentsThe 2000 Employee Plan is administered by the Management Resources and Compensation Committee designated by the Board of Directors. The Management Resources and Compensation Committee has the discretion to determine the eligible employees to whom, and the times and the price at which, options will be granted; whether such options shall be ISOs or Non-ISOs; the periods during which each option will be exercisable; and the number of shares subject to each option. The Committee has full authority to interpret the 2000 Employee Plan and to establish and amend rules and regulations relating thereto.
49
Under the 2000
Employee Plan, the exercise price of an option designated, as an ISO shall not be less than the fair market value of the common stock on the date the option is granted. However, in the event an option designated as an ISO is granted to a ten percent (10%) shareholder (as defined in the 2000
Employee Plan), such exercise price shall be at least 110% of such fair market value. Exercise prices of Non-ISO options may be less than such fair market value.
The aggregate fair market value of shares subject to options granted to a participant, which are designated as ISOs and which become exercisable in any calendar year shall not exceed $100,000.
The Management Resources and Compensation Committee may, in its sole discretion, grant bonuses or authorize loans to or guarantee loans obtained by an optionee to enable such optionee to pay the exercise price or any taxes that may arise in connection with the exercise or cancellation of an option. The Management Resources and Compensation Committee can also permit the payment of the exercise price in the common stock of the
CorporationCompany held by the optionee for at least six months prior to exercise.
2000 Non-Executive Director Option Plan In fiscal
year 2000, the Board of Directors and stockholders approved the adoption of the 2000 Non-Executive Director
Stock Option Plan (the
‘‘“2000 Non-Executive Director
Plan’’Plan”) to provide for the grant of options to non-employee directors of TeamStaff. Under the terms of the
2000 Non-Executive Director Plan, each non-executive director is automatically granted an option to purchase 5,000 shares upon joining the Board and each September lst, pro rata, based on the time the director has served in such capacity during the previous year. The
Directors’2000 Non-Executive Director Plan also provides that directors, upon joining the Board, and for one (1) year thereafter, will be entitled to purchase restricted stock from TeamStaff at a price equal to 80% of the closing bid price on the date of purchase up to an aggregate purchase price of $50,000. The
2000 Non-Executive Director Plan replaced the previous
Director Plandirector plan that expired in April 2000.
Under the
2000 Non-Executive Director Plan, the exercise price for options granted under the
2000 Non-Executive Director Plan shall be 100% of the fair market value of the common stock on the date of grant. Until otherwise provided in
the Stock Optionsuch Plan, the exercise price of options granted under the
2000 Non-Executive Director Plan must be paid at the time of exercise, either in cash, by delivery of shares of common stock of TeamStaff or by a combination of each. The term of each option commences on the date it is granted and unless terminated sooner as provided in the
2000 Non-Executive Director Plan, expires five (5) years from the date of grant. The
Compensation Committee has no discretion to determine which non-executive director or advisory board member will receive options or the number of shares subject to the option, the term of the option or the exercisability of the option. However, the
Compensation Committee will make all determinations of the interpretation of the
2000 Non-Executive Director Plan. Options granted under the
2000 Non-Executive Director Plan are not qualified for incentive stock option treatment. As of September 30,
2006,2009, there were
140,00010,625 options held by directors outstanding under the
2000 Non-Executive Director Plan.
Effective January 19, 2007, the 2000 Non-Executive Director Plan was suspended due to a change in the compensation terms for non-employee Board members. For additional information regarding our director compensation policy, see below under the caption “Director Compensation”.
2006 Long Term Incentive Plan The Board of Directors adopted the 2006 Long-Term Incentive Plan
(the ‘‘2006 Plan’’) on January 17, 2006. The shareholders approved the 2006
Long Term Incentive Plan at the annual meeting on April 27, 2006. The Company reserved an aggregate of 5,000,000 shares of common stock for issuance under the 2006
Long Term Incentive Plan. The maximum number of shares of common stock that may be delivered to participants under the 2006 Long-Term Incentive Plan equals the sum of: (a) 5,000,000 shares of common stock; (b) any shares subject to awards granted under the 2000 Employee
Stock Option Plan and the 2000
Table of ContentsNon-Executive Director Stock Option Plan (collectively, the ‘‘2000 Plans’’“2000 Plans”), which are forfeited, expired, canceled or settled in cash without delivery of such shares to the participant or otherwise is terminated without a share issuance; (c) any shares tendered by participants or withheld in payment of the exercise price of options or to satisfy withholding taxes under the 2000 Plans; and (d) any shares repurchased with the proceeds of options exercised under the 2000 Plans. As of September 30, 2009, there were 545,778 shares of common stock granted pursuant to awards under the 2006 Long Term Incentive Plan.
Administration.50
Administration. The 2006
Long Term Incentive Plan is administered by the
Management Resources and Compensation
Committee (the ‘‘committee’’).Committee. The 2006
Long Term Incentive Plan authorizes the
committeeCompensation Committee to select those participants to whom awards may be granted, to determine whether and to what extent awards are granted, to determine the number of shares of common stock or other considerations to be covered by each award, to determine the terms and conditions of awards, to amend the terms of outstanding awards, and to take any other action consistent with the terms of the 2006
Long Term Incentive Plan as the
committeeCommittee deems appropriate.
Terms and Conditions of Awards.Awards. The
committeeCompensation Committee is authorized to make any type of award to a participant that is consistent with the provisions of the Plan. Awards may consist of options, stock appreciation rights, restricted stock, restricted stock units, performance shares, cash awards or any combination of these types of awards.
Subject to the terms of the
2006 Long Term Incentive Plan, the
committeeCompensation Committee determines the provisions, terms and conditions of each award. The
committeeCommittee may grant awards subject to vesting schedules or restrictions and contingencies in the company’s favor. However, the awards may be subject to acceleration such that they become fully vested, exercisable and released from any restrictions or contingencies upon the occurrence of a change of control (as defined in the Plan). The
committeeCommittee may provide that stock-based awards earn dividends or dividend equivalents, which may be paid in cash or shares or may be credited to an account designated in the name of the participants. Participants may also be required or permitted to defer the issuance of shares or cash settlements under awards including under other deferred compensation arrangements of the company. Each option granted under the Plan will be designated as either an incentive stock option or a non-statutory stock option. No option or stock appreciation right may be granted with a term of more than 10 years from the date of grant.
Performance shares or cash awards will depend on achievement of performance goals based on one or more performance measures determined by the
committeeCommittee over a performance period as prescribed by the
committeeCommittee of not less than one year and not more than five years. Performance goals may be established on a corporate-wide basis or as to one or more business units, divisions or subsidiaries, and may be in either absolute terms or relative to the performance of one or more comparable companies on an index covering multiple companies.
‘‘Performance measures’’“Performance measures” means criteria established by the
committeeCommittee from time to time prior to granting the performance shares or cash awards.
Exercise Price.Price. The Plan authorizes the
committeeCompensation Committee to grant options and stock appreciation rights at an exercise price of not less than 100% of the fair market value of the shares on the date of grant. The
committeeCommittee has the right to provide post-grant reduction in exercise price to reflect any floating index as specified in an award agreement. The exercise price is generally payable in cash, check, surrender of pre-owned shares of common stock, broker-dealer exercise and sale, or by such other means determined by the
committee.Committee.
Option Repricing Prohibited.Prohibited. The exercise price for any outstanding option or stock appreciation right may not be decreased after the date of grant, nor may any outstanding option or stock appreciation right be surrendered as consideration for the grant of a new option or stock appreciation right with a lower exercise price.
Director Compensation
Effective as of October 1, 2007, our Board determined to reinstitute a cash compensation policy for non-executive directors. Accordingly, our non-executive directors are compensated as follows.
The annual director fee for our non-executive directors is $15,000;
the Chairman of Board and the Audit Committee Chairman shall receive an additional $3,500 per year;
the Vice Chairman of the Board, Chairman of the Management Resources and Compensation Committee and Chairman of the Nominating and Corporate Governance Committee shall each receive an additional $2,500 per year;
Shareholder Return Performance Presentation51
Set forth herein is a line graph comparing the total returns (assuming reinvestment
each non-executive director shall be awarded an annual grant of dividends)3,750 shares of TeamStaff’srestricted common stock pursuant to the Standard and Poor Industrial Average, and an industry composite consistingCompany’ 2006 Long Term Incentive Policy following the Company’s annual meeting of a groupshareholders held in 2008, provided that such award shall vest as follows: (A) 50% of four peer issuers selected in good faith by TeamStaff. TeamStaff’sthe Award shall vest when the volume-weighted average share price over any 20 consecutive trading days exceeds the price per share of common stock is listedon the date of grant by 20%; and (B) 50% of the Award shall vest one year from the vesting specified in (A) above;
each non-executive director shall be eligible for tradingan additional annual grant of 1,250 shares of restricted stock for each committee membership held by a non-executive director following the Company’s annual meeting to be held in 2008, with such under the Company’s 2006 Long Term Incentive Plan, with such additional award to be fully vested on the date of grant;
Reasonable and customary expenses incurred in attending the board and committee meetings are reimbursable.
In addition, on February 12, 2009, our Board approved an increase in the NASDAQ National Market andcash fees payable to our non-executive directors from $15,000 to $20,000 per annum, effective as of such date. A summary of non-executive director compensation for the year ended September 30, 2009 is traded under the symbol ‘‘TSTF’’.as follows:
TableSummary of ContentsNon-Executive Director Compensation| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Change in | | | | | | | |
| | | | | | | | | | | | | | | | | | | Pension Value | | | | | | | |
| | | | | | | | | | | | | | | | | | | and Nonqualified | | | | | | | |
| | | Fees Earned | | | | | | | | | | | Non-Equity | | | Deferred | | | | | | | |
| | | or Paid in | | | Stock | | | Option | | | Incentive Plan | | | Compensation | | | All Other | | | | |
| | | Cash | | | Awards | | | Awards | | | Compensation | | | Earnings | | | Compensation | | | Total | |
| Name (1) (3) (4) | | ($) | | | ($) (2) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
T. Stephen Johnson | | $ | 21,250 | | | $ | 8,375 | | | | | | | | | | | | | | | $ | — | | | $ | 29,625 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Karl W. Dieckmann | | $ | 20,833 | | | $ | 11,725 | | | | | | | | | | | | | | | $ | 1,557 | | | $ | 34,115 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
William H. Alderman | | $ | 20,833 | | | $ | 8,375 | | | | | | | | | | | | | | | $ | 1,762 | | | $ | 30,970 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Peter Black | | $ | 20,833 | | | $ | 10,050 | | | | | | | | | | | | | | | $ | — | | | $ | 30,883 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Martin J. Delaney | | $ | 18,333 | | | $ | 8,375 | | | | | | | | | | | | | | | $ | 698 | | | $ | 27,406 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Frederick G. Wasserman | | $ | 22,417 | | | $ | 10,050 | | | | | | | | | | | | | | | $ | — | | | $ | 32,467 | |
NOTES
| | |
| (1) | Assumes that the value | As of the investment in TeamStaff’s Common Stock and each index was $100 on September 30, 2001 and that dividends were reinvested at years ended September 30th.2009, each director had the following number of Director Plan options outstanding: Mr. Johnson — 3,750; Mr. Dieckmann — 3,750; Mr. Alderman — 0; Mr. Black — 3,125; Mr. Delaney — 2,500; Mr. Wasserman — 0 |
| |
| (2) | Industry composite for ‘‘Peer Group’’, which includes companies related | No restricted stock awards were granted to both our medical staffingnon-executive directors during the 2009 fiscal year. Following the end our 2009 fiscal year, on October 13, 2009, we granted an aggregate of 42,500 shares of restricted stock to our non-executive directors as follows: Mr. Johnson — 6,250 shares; Mr. Dieckmann — 8,750 shares; Mr. Alderman — 6,250 shares; Mr. Black — 7,500 shares; Mr. Delaney — 6,250 shares; and office administration/technical professional staffing, includes Cross Country Healthcare, Medical Staffing Network Holdings, On Assignment, ATC Healthcare, AMN Healthcare Services and KForce.Mr. Wasserman — 7,500 shares. The industry composite has been determined in good faith by management to represent entities that compete with TeamStaff in certainclosing price of its significant business segments. Management does not believe there are any publicly held entities that compete with all TeamStaff’s business segments.our common stock on such date was $1.34. |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
52
| | |
| Item 12. | | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
The following table sets forth certain information as of December 19, 2006January 5, 2010 with respect to each director, each of the named executive officers as defined in Item 402(a) (3), and directors and executive officers of TeamStaff as a group, and to the persons known by TeamStaff to be the beneficial owner of more than five percent of any class of TeamStaff’s voting securities. At December 19, 2006,January 5, 2010, TeamStaff had 19,278,2664,940,982 shares of common stock outstanding. The figures stated below are based upon Schedule 13G,13Ds, Schedule 13G/A,13D/As, Form 3,3s, and Form 4’s4s filed with the Securities and Exchange Commission by the named persons.
| | | | | | | | | |
| | | Number of Shares | | | Percent of Company’s | |
| Name | | Currently Owned (1) | | | Outstanding Stock | |
| |
| William H. Alderman (2) | | | 11,938 | | | | * | |
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873 | | | | | | | | |
| | | | | | | | | |
| Peter Black (3)(12) | | | 22,000 | | | | * | |
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873 | | | | | | | | |
| | | | | | | | | |
| Martin J. Delaney (4) | | | 22,432 | | | | * | |
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873 | | | | | | | | |
| | | | | | | | | |
| Karl W. Dieckmann (5) | | | 42,731 | | | | * | |
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873 | | | | | | | | |
| | | | | | | | | |
| Rick J. Filippelli (6) | | | 147,500 | | | | 2.89 | % |
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873 | | | | | | | | |
| | | | | | | | | |
| T. Stephen Johnson (7) | | | 82,877 | | | | 1.64 | % |
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873 | | | | | | | | |
| | | | | | | | | |
| Frederick G. Wasserman (8) | | | 16,563 | | | | * | |
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873 | | | | | | | | |
| | | | | | | | | |
| Cheryl Presuto (9) | | | 45,000 | | | | * | |
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873 | | | | | | | | |
| | | | | | | | | |
| Kevin Wilson (10) | | | 30,000 | | | | * | |
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873 | | | | | | | | |
| | | | | | | | | |
| Bernard J. Korman (11) | | | 729,146 | | | | 14.48 | % |
2129 Chestnut Street
Philadelphia, PA 19103 | | | | | | | | |
| | | | | | | | | |
| Wynnefield Partners Small Cap Value LP (12)(13) | | | 332,097 | | | | 6.59 | % |
450 Seventh Ave
New York, NY 10123 | | | | | | | | |
| | | | | | | | | |
| Wynnefield Partners Small Cap Value LP I (12)(14) | | | 428,850 | | | | 8.52 | % |
450 Seventh Ave
New York, NY 10123 | | | | | | | | |
| | | | | | | | | |
| Wynnefield Partners Small Cap Value Offshore Fund, Ltd. (12)(15) | | | 428,072 | | | | 8.5 | % |
450 Seventh Ave
New York, NY 10123 | | | | | | | | |
Table of Contents
| | | | | | | | | |
| | | Number of Shares | | | Percent of Company’s | |
| Name | | Currently Owned (1) | | | Outstanding Stock | |
| | | | | | | | | |
| Wynnefield Capital Profit Sharing Plan (12)(16) | | | 92,563 | | | | 1.84 | % |
450 Seventh Ave
New York NY 10123 | | | | | | | | |
| | | | | | | | | |
| Channel Partnership II, LP (12)(17) | | | 12,500 | | | | * | |
450 Seventh Ave
New York NY 10123 | | | | | | | | |
| | | | | | | | | |
| Hummingbird Value Fund (11) | | | 145,060 | | | | 2.88 | % |
460 Park Avenue, 12th Flr.
New York NY 10022 | | | | | | | | |
| | | | | | | | | |
| Hummingbird Microcap Value Fund (11) | | | 129,340 | | | | 2.57 | % |
460 Park Avenue, 12th Flr.
New York NY 10022 | | | | | | | | |
| | | | | | | | | |
| All officers and directors as a group (9) persons (2, 3, 4, 5, 6, 7, 8, 9, 10, 12) | | | 1,715,123 | | | | 33.45 | % |
| | | | | | | | | | | | |
| Name | | | Number of Shares
Currently Owned (1) | | | Percent of Company’s
Outstanding Stock |
Ronald Aldrich (2)
c/o TeamStaff, Inc.
1545 Peachtree Street, NE
Atlanta, GA 30309 | | | | | 7,500 | | | | | | | |
Peter Black (3)(13)(14)
c/o TeamStaff, Inc.
1545 Peachtree Street, NE
Atlanta, GA 30309 | | | | | 7,500 | | | | | | | |
Martin J. Delaney (4)
c/o TeamStaff, Inc.
1545 Peachtree Street, NE
Atlanta, GA 30309 | | | | | 57,235 | | | | | | | |
Karl W. Dieckmann (5)
c/o TeamStaff, Inc.
1545 Peachtree Street, NE
Atlanta, GA 30309 | | | | | 105,924 | | | | | | | |
Ben J. Dyer (6)
c/o TeamStaff, Inc.
1545 Peachtree Street, NE
Atlanta, GA 30309 | | | | | 43,126 | | | | | | | |
Rick J. Filippelli (7)
c/o TeamStaff, Inc.
1545 Peachtree Street, NE
Atlanta, GA 30309 | | | | | 100,000 | | | | | | | |
James D. Houston (8)
c/o TeamStaff, Inc.
1545 Peachtree Street, NE
Atlanta, GA 30309 | | | | | 0 | | | | | | | |
T. Stephen Johnson (9)
c/o TeamStaff, Inc.
1545 Peachtree Street, NE
Atlanta, GA 30309 | | | | | 284,011 | | | | 1.47% |
T. Kent Smith (10)
c/o TeamStaff, Inc.
1545 Peachtree Street, NE
Atlanta, GA 30309 | | | | | 500,000 | | | | 2.59% |
Bernard J. Korman (11)
2129 Chestnut Street
Philadelphia, PA 19103 | | | | | 2,300,000 | | | | 11.93% |
Nationwide Financial Services (12)
One Nationwide Plaza
Mail Stop 01-12-13
Columbus, OH 43215 | | | | | 2,256,488 | | | | 11.70% |
|
Table of Contents
| | | | | | | | | | | | |
| Name | | | Number of Shares
Currently Owned (1) | | | Percent of Company’s
Outstanding Stock |
Wynnefield Capital Management, LLC (13)
450 Seventh Ave
New York, NY 10123 | | | | | 1,740,875 | | | | 9.03% |
Wynnefield Capital Inc. (14)
450 Seventh Ave
New York NY 10123 | | | | | 599,625 | | | | 3.11% |
Hummingbird Value Fund (15)
460 Park Avenue, 12th Flr.
New York NY 10022 | | | | | 698,995 | | | | 3.63% |
Hummingbird Microcap Value Fund (16)
460 Park Avenue, 12th Flr.
New York NY 10022 | | | | | 636,115 | | | | 3.30% |
All officers and directors as a group
(9) persons (2, 3, 4, 5, 6, 7, 8, 9, 10, 13, 14) | | | | | 3,445,796 | | | | 17.87% |
|
| |
| * | | Less than 1 percent. |
| |
| 1. | | Ownership consists of sole voting and investment power except as otherwise noted. |
| |
| 2. | | Includes 4,063 unvested shares of restricted stock which may vest within 60 days. Excludes 4,063 shares of restricted stock which are unvested and subject to vesting requirements. Includes 7,500 shares of restricted stock that are vested. |
|
| 3. | | Includes options to purchase 7,5003,125 shares of TeamStaff’s common stock and excludesstock. Includes 4,375 unvested options to purchase 5,000 shares of TeamStaff’s common stock. |
| |
3. | Includes options to purchase 7,500restricted stock which may vest within 60 days. Excludes 4,375 shares of TeamStaff’s commonrestricted stock which are unvested and excludes unvested optionssubject to purchase 5,000vesting requirements. Includes 10,000 shares of TeamStaff’s common stock.restricted stock that are vested. Mr. Black is a member of the Company’s Board of Directors and is an Investment Analyst and Portfolio Manager at Wynnefield Capital, Inc. Mr. Black expressly disclaims beneficial ownership of the securities owned by Wynnefield Capital and its affiliates. |
| |
| 4. | | Includes options to purchase 15,0001,250 shares of TeamStaff’s common stock. Includes 4,375 unvested shares of restricted stock which may vest within 60 days. Excludes 4,375 shares of restricted stock which are unvested and subject to vesting requirements. Includes 6,250 shares of restricted stock that are vested. |
|
| 5. | | Includes options to purchase 2,500 shares of TeamStaff’s common stock. Includes 5,000 unvested shares of restricted stock which may vest within 60 days. Excludes 5,000 shares of restricted stock which are unvested and subject to vesting requirements. Includes 13,750 shares of restricted stock that are vested. |
|
| 6. | | Includes options to purchase 30,000 shares of TeamStaff’s common stock and excludes unvested options to purchase 5,000which may vest within 60 days. Includes 82,500 shares of TeamStaff’s common stock. |
| |
5. | Includes options to purchase 20,000 shares of TeamStaff’s common stock and excludes unvested options to purchase 5,000 shares of common stock. |
| |
6. | Includes options to purchase 20,000 shares of TeamStaff’s common stock and excludes unvested options to purchase 5,000 shares of TeamStaff’s common stock. |
| |
| 7. | Includes options to purchase 100,000 shares of TeamStaff’s common stock. Excludes 50,000 unvested shares of restricted stock. |
| |
8. | Excludes 30,000 unvested shares of restricted stock. |
| |
9. | Includes an aggregate of 147,79036,947 shares owned by or on behalf of certain of the holder’s family members and as to which shares the listed holder expressly disclaims beneficial ownership. Includes options to purchase 20,000 shares of TeamStaff’s common stock, and excludes unvested options to purchase 5,000 shares of TeamStaff’s common stock. |
| |
10. | Includes options to purchase 500,0002,500 shares of TeamStaff’s common stock. Excludes 60,000Includes 4,375 unvested shares of restricted stock.stock which may vest within 60 days. Excludes 4,375 shares of restricted stock which are unvested and subject to vesting requirements. Includes 10,000 shares of restricted stock that are vested. |
|
| 8. | | Includes 4,063 unvested shares of restricted stock which may vest within 60 days. Excludes 4,063 shares of restricted stock which are unvested and subject to vesting requirements. Includes 8,750 shares of restricted stock that are vested. |
|
| 9. | | Includes 45,000 shares of restricted stock which are vested. Excludes 20,000 shares of restricted stock which are unvested and subject to vesting requirements. |
|
| 10. | | Includes 30,000 shares of restricted stock which are vested. Excludes 30,000 shares of restricted stock which are unvested and subject to vesting requirements. |
|
| 11. | | Beneficial ownership is based on Schedule 13D filed with the Securities and Exchange Commission.SEC. |
| |
| 12. | Nationwide Financial Services obtained these shares in connection with the acquisition of BrightLane completed as of August 31, 2001. |
| |
13. | Beneficial ownership is based upon Schedule 13G,13D, Schedule 13G/A,13D/As, Form 3, and Form 4’s4s filed |
Table of Contents | |
| with the Securities and Exchange Commission.SEC. Mr. Peter Black, one of our directors, is an affiliate of Wynnefield Capital and its affiliated entities. Mr. Black expressly disclaims beneficial ownership of the securities owned by Wynnefield Capital and its affiliates. |
|
| 13. | | Listed shares are directly beneficially owned by Wynnefield Partners Small Cap Value, L.P., as members of a group under Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Wynnefield Capital Management, LLC, as the sole general partner of Wynnefield Partners Small Cap Value, L.P., has an indirect beneficial ownership interest in the shares of Common Stock that Wynnefield Partners Small Cap Value L.P. directly beneficially owns. Nelson Obus and Joshua Landes, as co-managing members of Wynnefield Capital Management, LLC, have an indirect beneficial ownership interest in such shares of Common Stock. |
|
| 14. | Beneficial ownership is based upon Schedule 13G, Schedule 13G/A, Form 3, and Form 4’s filed with | Listed shares are directly beneficially owned by Wynnefield Partners Small Cap Value, L.P. I, as members of a group under Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Wynnefield Capital Management, LLC, as the sole general partner of Wynnefield Partners Small Cap Value, L.P. I, has an indirect beneficial ownership interest in the shares of Common Stock that Wynnefield Partners Small Cap Value L.P. I directly beneficially owns. Nelson Obus and Exchange Commission. Mr. Peter Black, one of our directors, is an affiliateJoshua Landes, as co-managing members of Wynnefield Capital and its affiliated entities. Mr. Black expressly disclaimsManagement, LLC, have an indirect beneficial ownership interest in such shares of the securitiesCommon Stock. |
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| | |
| 15. | | Listed shares are directly beneficially owned by Wynnefield Small Cap Value Offshore Fund, Ltd., as members of a group under Section 13(d) of the Exchange Act. Wynnefield Capital, Inc. as the sole investment manager of Wynnefield Small Cap Value Offshore Fund, Ltd., has an indirect beneficial ownership interest in the shares of Common Stock that Wynnefield Small Cap Value Offshore Fund, Ltd. directly beneficially owns. Mr. Obus and its affiliates. |
| |
15. | Beneficial ownership is based upon Schedule 13D filed with the Securities and Exchange Commission. Includes 118,750 shares issuable upon exercise of warrants to purchase common stock. |
| |
| 16. | Beneficial | Wynnefield Capital Inc. Profit Sharing Plan directly beneficially owns 92,563 shares of common stock of TeamStaff. Mr. Obus has the power to vote and dispose of Wynnefield Capital, Inc. Profit Sharing Plan’s investments in securities and has an indirect beneficial ownership is based upon Schedule 13D filed withinterest in the Securities and Exchange Commission. Includes 118,750 shares issuable upon exercise of warrants to purchase common stock. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than ten percent of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely on our review of copies of such reports and representations from our executive officers and directors, we believe that our executive officers and directors complied with all Section 16(a) filing requirements during the fiscal year ended September 30, 2006, except for the following Form 4’s, which were filed late:
| | |
|
| 17. | 1. | With respect to certain grants of restricted stock made on April 27, 2006, which filings were made on or about July 12, 2006: Mr. Smith (grant of 60,000Listed shares of restricted stock); Mr. Filippelli (grantCommon Stock are directly beneficially owned by Channel Partnership II, L.P., as members of 50,000a group under Section 13(d) of the Exchange Act. Nelson Obus, as the sole general partner of Channel Partnership II, L.P., has an indirect beneficial ownership interest in the shares of restricted stock); Mr. Houston (grant of 30,000 shares of restricted stock); andCommon Stock that Channel Partnership II, L.P. directly beneficially owns. |
| | |
| Item 13. | 2. | With respect to certain grants of options to purchase 5,000 shares each relative to annual director option grants made on September 1, 2006, which filings were made on or about September 14, 2006: Mr. Aldrich, Mr. Black, Mr. Delaney, Mr. Dieckmann, Mr. DyerCertain Relationships and Mr. Johnson.Related Transactions |
The Company does not believe the late filings to constitute material events, since in the case of restricted stock the price of Company stock on the date of filing ($1.26) did not exceed the market price on the grant date ($1.70). Further, in the case of board options, the price of Company stock on the date of filing ($1.33) did not materially exceed the market price on the grant date ($1.29). Moreover, board options are granted annually on September 1. The Company has instituted additional controls to ensure timely Form 4 filings as well as Sarbanes-Oxley compliance in the future with respect to such Form 4 filings.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning employment and severance agreements with, and compensation of, the Corporation’sCompany’s present executive officers and directors, see ‘‘Executive“Executive Compensation.’’” The Directors’ Plan provides that directors, upon joining the Board, and for one year thereafter, will be entitled to purchase restricted stock from TeamStaff at a price equal to 80% of the closing bid price on the date of purchase up to an aggregate purchase price of $50,000.
Approval for Related Party Transactions
Although we have not adopted a formal policy relating to the approval of proposed transactions that we may enter into with any of our executive officers, directors and principal stockholders, including their immediate family members and affiliates, our Audit Committee, all of the members of which are independent, reviews the terms of any and all such proposed material related party transactions. The results of this review are then communicated to the entire Board of Directors, which has the ultimate authority as to whether or not we enter into such transactions. We will not enter into any material related party transaction without the prior consent of our Audit Committee and our Board of Directors. In approving or rejecting the proposed related party transaction, our Audit Committee and our Board of Directors shall consider the relevant facts and circumstances available and deemed relevant to them, including, but not limited to the risks, costs and benefits to us, the terms of the transaction, the availability of other sources for comparable services or products, and, if applicable, the impact on a director’s independence. We shall approve only those agreements that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as our Audit Committee and our Board of Directors determine in the good faith exercise of their discretion.
Independence of our Board of Directors and its Committees
The listing rules established by the Nasdaq Stock Market, LLC require that a majority of the members of a listed company’s board of directors qualify as “independent” as affirmatively determined by the board, meaning that each independent director has no direct or indirect material relationship with a company other than as a director and/or a stockholder. Our Board of Directors consults with legal counsel to ensure that our Board’s determination with respect to the definition of “independent” is consistent with current Nasdaq listing rules.
Our Board of Directors reviewed all relevant transactions or relationships between each director, or any of his family members, and our company and has affirmatively determined that each of our directors, other than Rick Filippelli (our Chief Executive Officer) are independent directors under the applicable guidelines noted above. Our Board of Directors has five committees: the Audit Committee, the Management Resources and Compensation Committee, the Nominating and Corporate Governance Committee, the Strategic Planning and the Executive Committee. All of the members of our Audit, Nominating and Corporate Governance and Management Resources and Compensation Committees meet the standards for independence required under current Nasdaq Stock Market listing rules, SEC rules, and applicable securities laws and regulations.
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| | |
| Item 14. | | Principal Accountant Fees and Services |
The following table presents the total fees
paidbilled for professional audit and non-audit services rendered by our independent auditors for the audit of our annual financial statements
as of and for the years ended September 30,
20062009 and September 30,
2005,2008, and fees billed for other services rendered by our independent auditors during those periods.
| | | | | | | | | | |
| | | | | | | | | | | | | Fiscal Years Ended September 30, | |
| | | Fiscal Years Ended September 30, | | 2009 | | 2008 | |
| | | 2006 | | 2005 | |
| Audit Fees (1) | | $ | 180,000 | | | $ | 132,000 | | | $ | 175,000 | | $ | 170,000 | |
| | | |
| Audit-Related Fees (2) | | | 1,000 | | | | 94,000 | | | — | | — | |
| | | |
| Tax Fees (3) | | | 149,000 | | | | 198,000 | | | 103,000 | | 106,000 | |
| | | |
| All Other Fees (4) | | | 10,000 | | | | 1,000 | | | 15,500 | | 13,000 | |
| | | | | | | |
| | | |
| Total | | | $ | 340,000 | | | | $ | 425,000 | | | $ | 293,500 | | $ | 289,000 | |
| | | | | |
| | |
| (1) | | Audit services consist of audit work performed in the examination of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards. |
| |
| (2) | | Audit-related services consist of assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions and special procedures required to meet certain regulatory requirements. |
| |
| (3) | | Tax services consist of all services performed by the independent auditor’s tax personnel, except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice. |
| |
| (4) | | Other services consist of those service not captured in the other categories.categories, principally audit services for the Company’s 401(k) plan. |
Our Audit Committee has determined that the services provided by our independent auditors and the fees paid to them for such services has not compromised the independence of our independent auditors.
Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor. Prior to engagement of the independent auditor for the next year’s audit, management will submit a detailed description of the audit and permissible non-audit services expected to be rendered during that year for each of four categories of services provided by the independent auditor to the Audit Committee for approval. The four categories of services provided by the independent auditor are as defined in the footnotes to the fee table set forth above. In addition, management will also provide to the Audit Committee for its approval a fee proposal for the services proposed to be rendered by the independent auditor. Prior to the engagement of the independent auditor, the Audit Committee will approve both the description of audit and permissible non-audit services proposed to be rendered by the independent auditor and the budget for all such services. The fees are budgeted and the Audit Committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service.
During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires separate pre-approval before engaging the independent auditor. To ensure prompt handling of unexpected matters, the Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report any pre-approval decisions to the Audit Committee at its next scheduled meeting.
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PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements and schedules of TeamStaff are included in Part II, Item 8 of this report beginning on page F-1 and including page S-1.
2. All other schedules have been omitted since the required information is not applicable or because the information required is included in the Consolidated Financial Statements or the notes thereto.
3. Exhibit List
The exhibits designated with an asterisk (*) are filed herewith. All other exhibits have been previously filed with the Commission and, pursuant to 17 C.F.R. Secs. 20l.24 and 240.12b-32, are incorporated by reference to the document referenced in brackets following the descriptions of such exhibits.
EXHIBIT NO. DESCRIPTION
| | | |
| ITEM 15. | | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K |
| (a)(1) | | Financial Statements |
|
| | The financial statements and schedules of TeamStaff are included in Part II, Item 8 of this report beginning on page F-1 and including page S-1. |
|
| (a)(2) | | Financial Statement Schedule |
|
| | Valuation of qualifying accounts. See Schedule I annexed to the financial statements. All other schedules have been omitted since the required information is not applicable or because the information required is included in the Consolidated Financial Statements or the notes thereto. |
|
| (a)(3) | | Exhibits |
|
| | The exhibits designated with an asterisk (*) are filed herewith. All other exhibits have been previously filed with the Commission and, pursuant to 17 C.F.R. Secs. 20l.24 and 240.12b-32, are incorporated by reference to the document referenced in brackets following the descriptions of such exhibits. The exhibits designated with a number sign (#) indicate a management contract or compensation plan or arrangement. |
| | | | |
| Exhibit No. | | Description |
| | | | |
| 2.1 | | | —Agreement and Plan of Merger by and among TeamStaff, Inc., TeamSub, Inc and BrightLane.com, Inc., dated as of March 6, 2001, as amended by Amendment No. 1 dated as of March 21, 2001 and Amendment No. 2 dated as of April 6, 2001 (filed as Appendix A to the Proxy Statement/prospectus filed on August 7, 2001, SEC File no. 333-61730, as part of Registrant’s Registration Statement on Form S-4). |
| | | | |
| 2.2.1 | | | —Form of Asset Purchase Agreement between TeamStaff, Inc and Gevity HR, Inc. dated as of November 14, 2003 (filed as Exhibit 2 to Form 8-K dated November 14, 2003). |
| | | | |
| 2.3 | | | Asset Purchase Agreement, dated as of January 29, 2008, by and among Temps, Inc., TeamStaff, Inc. and TeamStaff Rx, Inc. (previously filed as Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on February 5, 2008). |
| | | | |
| 2.4 | | | Asset Purchase Agreement, dated as of December 28, 2009, by and among Advantage RN, LLC, TeamStaff, Inc. and TeamStaff Rx, Inc. (previously filed as Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on December 30, 2009). |
| | | | |
| 3.1 | | | —Amended and Restated Certificate of Incorporation (filed as Exhibit A to Definitive Proxy Statement dated May 1, 2000 as filed with the Securities and Exchange Commission). |
| | | | |
| 3.2 | | | —Form of Form of Certificate of Designation of Series A Preferred Stock (filed as Exhibit 3.1 to Form 8-K dated April 6, 2001). |
| | | | |
| 3.3 | | | —Amended By-Laws of Registrant adopted as of May 15, 2001 (filed as Exhibit 3.4 to the Registration Statement on Form S-4 File No. 333-61730). |
| | | | |
| 3.4 | | | —Amended and restated by-lawsBy-Laws of Registrant adopted as of August 29, 2001 (filed as Exhibit 3.5 to the Registrant’s Form S-3 filed on December 19,27, 2001). |
4.1 | | | — | |
| 3.5 | | | Amendment to By-Laws of Registrant adopted November 8, 2007 (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 13, 2007). |
57
| | | | |
| Exhibit No. | | Description |
| | | | |
| 3.6 | | | Amendment to Amended and Restated Certificate of Incorporation of the Common Stock Certificate (Exhibit 4.1Company (filed as Exhibit B to RegistrationDefinitive Proxy Statement on Form S-18, File No. 33-46246-NY)dated March 13, 2008 as filed with the Securities and Exchange Commission). |
4.2 | | | — | |
| 4.1 | # | | 2000 Employee Stock Option Plan (filed as Exhibit B to the Proxy Statement dated as of March 8, 2000 with respect to the Annual meeting of Shareholders held on April 13, 2000). |
4.3 | | | — | |
| 4.2 | # | | 2000 Non-Executive Director Stock Option Plan (filed as Exhibit B to the Proxy Statement dated as of March 8, 2000 with respect to the Annual meeting of Shareholders held on April 13, 2000). |
| | | | |
| 4.3 | # | | 2006 Long Term Incentive Plan (filed as Exhibit 10.1 to the Form 10-Q filed on May 15, 2006). |
| | | | |
| 10.1 | | | —Lease dated May 30, 1997 for office space at 300 Atrium Drive, Somerset, New Jersey (Exhibit 10.6.1 to Form 10-K for the fiscal year ended September 30, 1997). |
| | | | |
| 10.2 | | | —Form of Stock Purchase Agreement dated as of April 6, 2001 between TeamStaff, Inc. and BrightLane.com, Inc. with respect to purchase of Series A Preferred Stock (filed as Exhibit 10.1 to Form 8-K dated April 6, 2001). |
|
Table of Contents
| | | | |
| 10.3 | | | —Form of Escrow Agreement between TeamStaff, Inc. and BrightLane Shareholders with respect to the placement of 150,000 shares into escrow by the BrightLane shareholders (filed as Appendix B to the proxy statement/prospectus filed on August 7, 2001 SEC File No. 333.61730). |
10.4 | | | —Form of Severance Agreement dated as of May 22, 2002 between the Registrant and Donald Kappauf (filed as Exhibit 10.12 to the Form 10-K filed on February 10, 2003). | |
10.5 | | | —Form of Severance Agreement dated as of May 22, 2002 between the Registrant and Donald Kelly (filed as Exhibit 10.13 to the Form 10-K filed on February 10, 2003). |
10.6 | | | —Form of Employment Agreement made as of June 18, 2003 between TeamStaff, Inc. and T. Kent Smith (filed as Exhibit 10.16 to the Form 10-K filed on December 23, 2004). |
10.7 | | | —Form of Securities Purchase Agreement dated as of November 5, 2004 including Form of Warrant (filed as Exhibit 10.1 to the Form 8-K filed on November 12, 2004). |
10.8 | | | — | |
| 10.5 | | | Form of Asset Purchase Agreement by and among Nursing Innovations, Inc., Vitriarc, Inc., and William L. Booth and TeamstaffTeamStaff Rx, Inc. dated as of November 5, 2004 (filed as Exhibit 10.1 to the Form 8-K filed on November 18, 2004). |
10.9 | | | — | |
| 10.6 | | | Form of Agreement for Sale of Goodwill dated as of November 5, 2004 by and between William Lee Booth and TeamStaff Rx, Inc. (filed as Exhibit 10.2 to the Form 8-K filed on November 18, 2004). |
10.10 | | | — | |
| 10.7 | | | Form of Client Transfer Agreement as of November 14, 2004, by and among Nursing Innovations, Inc., Vitriarc, Inc., and William L. Booth and TeamStaff Rx Inc. (filed as Exhibit 10.3 to the Form 8-K filed on November 18, 2004). |
10.11 | | | — | |
| 10.8 | # | | Form of Employee Incentive Stock Option Certificate and Agreement (filed as Exhibit 10.13 to the Form 10-K filed on December 23, 2004). |
10.12 | | | — | |
| 10.9 | # | | Form of Employee Non-Qualified Stock Option Certificate and Agreement (filed as Exhibit 10.14 to the Form 10-K filed on December 23, 2004). |
10.13 | | | — | |
| 10.10 | # | | Form of 2000 Director Plan Non-Qualified Stock Option Agreement (filed as Exhibit 10.15 to the Form 10-K filed on December 23, 2004). |
10.14 | | | —Form of Employee Incentive Stock Option Certificate and Agreement dated as of June 18, 2003 between TeamStaff, Inc. and T. Kent Smith. (filed as Exhibit 10.16 to the Form 10-K filed on December 23, 2004). | |
10.15 | | | — | Form of Lease for our business premises located at 18167 U.S. Highway 19N, Suite 400, Clearwater, Fl 33764 (filed as Exhibit 10.1 to Form 8-K dated February 29, 2005). |
10.16 | | | — | |
| 10.12 | | | Form of Stock Purchase Agreement among TeamStaff, Inc. and the Shareholders of RS Staffing Services, Inc. dated as of May 26, 2005 (filed as Exhibit 10.1 to Form 8-K dated June 8, 2005). |
10.16.1 | | | — | |
| 10.12.1 | | | Form of Note dated June 8, 2005 issued by TeamStaff, Inc. to Roger Staggs (filed as Exhibit 10.2 to the Form 10-Q filed on August 12, 2005). |
10.16.2 | | | — | |
| 10.12.2 | | | Form of Note dated June 8, 2005 issued by Team Staff, Inc. to Barry Durham (filed as Exhibit 10.2 to the Form 10-Q filed on August 12, 2005). |
58
10.16.3 | | | —Form of Employment Agreement between TeamStaff, Inc. and Roger Staggs, dated as of June 8, 2005 | |
10.16.4Exhibit No. | | | —Form of Employment Agreement between TeamStaff, Inc. and Barry Durham, dated as of June 8, 2005.Description |
|
Table of Contents
| | | | |
10.17 | | | — | Form of Revolving Credit Agreement, Promissory Notes and related documents between TeamStaff, Inc. and PNC Bank, NA, dated as of June 8, 2005 (filed as Exhibits 10.4 and 10.5 to the Form 10-Q filed on August 12, 2005). |
10.18 | | | —Form of Employment Agreement between TeamStaff, Inc. and T. Kent Smith, dated as of June 30, 2005 (filed as Exhibit 10.1 to the Form 8-K filed on July 14, 2005). | |
10.19 | | | — | Form of Employment Agreement between TeamStaff, Inc. and Rick J. Filippelli, dated as of June 30, 2005 (filed as Exhibit 10.2 to the Form 8-K filed on July 14, 2005). |
10.20 | | | — | |
| 10.15 | | | Form of Settlement Agreement between TeamStaff, Inc. and the CNA Entities dated as of October 10, 2005 (filed as Exhibit 10.1 to the Form 8-K filed on October 20, 2005). |
10.21 | | | — | |
| 10.16 | | | Form of Lease dated as of November 18, 2005 between TeamStaff, Inc. and One Peachtree Pointe Associates, LLC (file as Exhibit 10.1 to the Form 10-Q filed on February 14, 2006). |
10.22 | | | —TeamStaff, Inc. 2006 Long Term Incentive Plan (filed as Exhibit 10.1 to the Form 10-Q filed on May 15, 2006). | |
10.23 | | | — | Form Notice of Restricted Stock Bonus Award and Restricted Stock Agreement (filed as Exhibit 10.2 to the Form 10-Q filed on May 15, 2006). |
10.24 | | | — | |
| 10.18 | | | Form of Asset Purchase Agreement, Exhibits and Schedules re: sale of DSI Payroll Services to CompuPay, Inc. (filed as Exhibit 10.1 to the Form 8-K filed on June 1, 2006). |
10.25 | | | — | |
| 10.19 | | | Form of Settlement Agreement and Exhibits (Stock Purchase Agreement and Lock-Up Agreement re: |
| | | | TeamStaff, Inc. and Atomic Fusion filed as Exhibit 10-1 to the Form 8-K filed on June 6, 2006). |
10.26* | | | — | |
| 10.20 | # | | Form of Director Stock Option Agreement for options granted September 1, 2006. (filed as Exhibit 10.26 to the Company’s Form 10-K filed on December 21, 2006). |
10.27* | | | — | |
| 10.21 | | | Form of Change in ControlAmendment to Revolving Credit and Security Agreement dated December 13, 2006 between TeamStaff, Inc. and PNC Bank, N.A. (filed as Exhibit 10.1 to the Form 10-Q filed on February 14, 2007). |
| | | | |
| 10.22 | | | Lease, dated as of December 4, 2006, for our business premises located at 6555 Quince Road, Suite 303, Memphis, Tennessee (filed as Exhibit 10.2 to the Form 10-Q filed on February 14, 2007). |
| | | | |
| 10.23 | # | | Separation Agreement with T. Kent Smith dated as of January 19, 2007 (filed as Exhibit 99.1 to the Form 8-K filed on February 1, 2007). |
| | | | |
| 10.24 | # | | Form of Letter of Agreement with Rick Filippelli dated as of January 10, 2007 (filed as Exhibit 99.1 to the Form 8-K filed on February 20, 2007). |
| | | | |
| 10.25 | # | | Form of Letter of Agreement with James D. Houston dated October 31, 2006as of January 10, 2007 (filed as Exhibit 99.2 to the Form 8-K filed on February 20, 2007). |
21.0* | | | — | |
| 10.26 | # | | Form of Agreement and Release with James Houston dated as of May 11, 2007 (filed as Exhibit 10.29 to the Form 10-Q filed on May 15, 2007). |
| | | | |
| 10.27 | | | Lease, dated as of April 13, 2007, for our business premises located at 1 Executive Drive, Suite 130, Somerset, New Jersey (filed as Exhibit 10.1 to the Form 10-Q filed August 14, 2007). |
| | | | |
| 10.28 | | | Lease dated as of March 27, 2008 between TeamStaff Government Solutions, Inc. and West Walton Properties, Inc. (filed as Exhibit 10.1 to the Form 10-Q filed May 15, 2008). |
| | | | |
| 10.29 | | | Amended and Restated Loan and Security Agreement dated March 28, 2008 between TeamStaff, Inc. and Business Alliance Capital Company, a division of Sovereign Bank. (filed as Exhibit 10.2 to the Form 10-Q filed May 15, 2008). |
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| | | | |
| Exhibit No. | | Description |
| | | | |
| 10.30 | | | Amended and Restated Revolving Credit Master Promissory Note dated March 28, 2008 between TeamStaff, Inc. and Business Alliance Capital Company, a division of Sovereign Bank. (filed as Exhibit 10.3 to the Form 10-Q filed May 15, 2008). |
| | | | |
| 10.31 | # | | Employment Agreement between the Company and Rick Filippelli dated as of April 17, 2008 (filed as Exhibit 10.1 to Current Report on Form 8-K filed on April 22, 2008). |
| | | | |
| 10.32 | # | | Employment Agreement between the Company and Cheryl Presuto dated as of July 30, 2008 (filed as Exhibit 10.1 to Current Report on Form 8-K filed on August 4, 2008). |
| | | | |
| 10.33 | # | | Employment Agreement between the Company and Kevin Wilson dated October 3, 2008 (filed as Exhibit 10.1 to Current Report on Form 8-K filed on October 8, 2008). |
| | | | |
| 10.34 | # | | Employment Agreement between the Company and Dale West dated December 3, 2008 (filed as Exhibit 10.1 to Current Report on Form 8-K filed on December 9, 2008). |
| | | | |
| 10.35 | #* | | Employment Agreement between the Company and Rick Filippelli dated as of November 2, 2009. |
| | | | |
| 10.36 | * | | Modification Agreement dated as of January 8, 2010 between TeamStaff, Inc. and Sovereign Business Capital, Division of Sovereign Bank. |
| | | | |
| 10.37 | * | | Amended and Restated Revolving Credit Master Promissory Note dated January 8, 2010 between TeamStaff, Inc. and Sovereign Business Capital, Division of Sovereign Bank. |
| | | | |
| 14 | | | Code of Ethics (Exhibit 14.1 to Annual Report on Form 10-K for the fiscal year ended September 30, 2003). |
| | | | |
| 21 | * | | Subsidiaries of Registrants. |
23.1* | | | — | |
| 23.1 | * | | Consent of Lazar Levine and Felix LLP.WithumSmith+Brown, PC |
31.1* | | | — | |
| 31.1 | * | | Certification of Chief Executive Officer pursuant to Section17Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a). |
31.2* | | | — | |
| 31.2 | * | | Certification of Chief Financial Officer pursuant to Section17Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a). |
32.1* | | | — | |
| 32.1 | * | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 17 CFR 240.13a-14(b) or 17 CFR 240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code |
(c) | | | Exhibits. See Item (a)(3) above. |
(d) | | | Valuation of qualifying accounts. See Schedule I annexed to the financial statements. |
|
60
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.
TEAMSTAFF, INC.
| | | | |
| TEAMSTAFF, INC. | |
|
| By: | /s/ T. Kent Smith
T. Kent Smith
President and Rick J. Filippelli | |
| | Rick J. Filippelli | |
| | Chief Executive Officer
(Principal Executive Officer) | |
Dated: January 19, 2010
| /s/ Rick Filippelli
Rick Filippelli
Vice President, Finance and Chief Financial Officer |
Dated: December 19, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934, this Reportreport has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
indicated: | | | | |
| Signature | | Capacity | | Date |
| | | | |
/s/ T. Stephen JohnsonFrederick G. WassermanFrederick G. Wasserman | | Chairman of the Board | | DecemberJanuary 19, 20062010 |
| | | | |
T. Stephen Johnson |
|
/s/ Karl W. Dieckmann Karl W. Dieckmann | | Vice-Chairman of the Board | | DecemberJanuary 19, 20062010 |
| | | | |
Karl W. Dieckmann/s/ T. Stephen JohnsonT. Stephen Johnson | | Director | | January 19, 2010 |
| | | | |
/s/ Ron Aldrich | | Director | | December 19, 2006 |
|
Ron Aldrich |
|
/s/ Peter Black Peter Black | | Director | | DecemberJanuary 19, 20062010 |
| | | | |
Peter Black |
|
/s/ Martin J. Delaney | | Director | | December 19, 2006 |
|
| Martin J. Delaney | | Director | | January 19, 2010 |
| | | | |
/s/ Ben J. DyerWilliam H. AldermanWilliam H. Alderman | | Director | | DecemberJanuary 19, 20062010 |
| | | | |
Ben/s/ Rick J. Dyer |
|
/s/ T. Kent SmithFilippelliRick J. Filippelli | | President, Chief Executive Officer,
President and Director | | DecemberJanuary 19, 20062010 |
| | | | |
T. Kent Smith |
|
/s/ Rick FilippelliCheryl PresutoCheryl Presuto | | Chief Financial Officer and
Principal Accounting Officer | | DecemberJanuary 19, 2006 |
|
Rick Filippelli |
|
61
TeamStaff, Inc. and Subsidiaries Index to Consolidated Financial StatementsF-1
REPORT OF INDEPENDENT REGISTERED INDEPENDENT PUBLIC ACCOUNTANTSACCOUNTING FIRM To the Board of Directors and Shareholders of
TeamStaff, Inc.
Somerset, NJWe have audited the accompanying consolidated balance sheets of TeamStaff, Inc. and Subsidiaries as of September 30,
20062009 and
2005,2008, and the related consolidated statements of operations and comprehensive
loss,income (loss), shareholders’ equity and cash flows for
each of the
three years
in the period ended September 30, 2006.then ended. Our audits also included the
consolidated financial statement schedule
as listed in
Part IV, Item 15.the index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We
performedconducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TeamStaff, Inc. and Subsidiaries as of September 30, 20062009 and 2005,2008, and the consolidated results of its operations and its cash flows for each of the three years in the periodthen ended, September 30, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the relatedconsolidated financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
| /s/ Lazar Levine & Felix LLP
Lazar Levine & Felix LLP |
/s/ WithumSmith+Brown, PCWithumSmith+Brown, PC
Morristown, New Jersey
January 19, 2010
New York, NY
December 15, 2006
F-2
Table of ContentsTEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2006 AND 2005
(AMOUNTS IN THOUSANDS)
| | | | | | | | | | |
| | | | September 30, | | September 30, | |
| | | | | | | | | | | | | 2009 | | 2008 | |
| ASSETS | | September 30,
2006 | | September 30,
2005 | |
| | | | | | | | | | |
| CURRENT ASSETS: | | | | | | | | | |
| Cash and cash equivalents | | $ | 2,157 | | | $ | 1,304 | | | $ | 2,992 | | $ | 5,213 | |
| Accounts receivable, net of allowance for doubtful accounts of $44 and $8 as of September 30, 2006 and September 30, 2005, respectively | | | 8,712 | | | | 8,890 | | |
| Deferred tax asset | | | — | | | | 634 | | |
| Accounts receivable, net of allowance for doubtful accounts of $0 as of September 30, 2009 and 2008 | | | 11,427 | | 11,881 | |
| Prepaid workers’ compensation | | | 1,094 | | | | 1,461 | | | 517 | | 562 | |
| Other current assets | | | 923 | | | | 1,146 | | | 257 | | 505 | |
| Assets from discontinued operations | | | 1,418 | | 3,878 | |
| | | | | | | |
| Total current assets | | | 12,886 | | | | 13,435 | | | 16,611 | | 22,039 | |
| | | | | | | |
| | | |
| EQUIPMENT AND IMPROVEMENTS: | | | | | | | | | |
| Furniture and equipment | | | 3,333 | | | | 2,723 | | | 2,262 | | 2,262 | |
| Computer equipment | | | 556 | | | | 516 | | | 255 | | 249 | |
| Computer software | | | 898 | | | | 1,250 | | | 788 | | 725 | |
| Leasehold improvements | | | 177 | | | | 177 | | | 9 | | 9 | |
| | | | 4,964 | | | | 4,666 | | | | | | |
| | | | 3,314 | | 3,245 | |
| | | |
| Less accumulated depreciation and amortization | | | (4,085 | | | | (3,819 | | | | (3,054 | ) | | | (2,945 | ) |
| | | | | | | |
| Equipment and improvements, net | | | 879 | | | | 847 | | | 260 | | 300 | |
| DEFERRED TAX ASSET, net of current portion | | | — | | | | 17,848 | | |
| | | | | | | |
| | | |
| TRADENAME | | | 4,569 | | | | 4,569 | | | 3,924 | | 3,924 | |
| | | |
| GOODWILL | | | 11,986 | | | | 9,911 | | | 8,595 | | 8,595 | |
| OTHER ASSETS: | | | | | | | | | |
| Prepaid workers’ compensation, net of current portion | | | 350 | | | | 2,200 | | |
| Other assets | | | 106 | | | | 236 | | |
| Total other assets | | | 456 | | | | 2,436 | | |
| ASSETS HELD FOR SALE | | | — | | | | 1,008 | | |
| | | |
OTHER ASSETS | | | 267 | | 136 | |
| | | | | | | |
| | | |
| TOTAL ASSETS | | | $ | 30,776 | | | | $ | 50,054 | | | $ | 29,657 | | $ | 34,994 | |
| | | | | |
The accompanying notes
to consolidated financial statementsare an integral part of these consolidated balance sheets
Table of ContentsTEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2006 AND 2005
(AMOUNTS IN THOUSANDS)
| | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EUQITY | | | September 30,
2006 | | | September 30,
2005 |
| | | | | | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | | | | | |
| Bank line of credit | | | | $ | — | | | | | $ | 4,006 | |
| Notes payable | | | | | 1,500 | | | | | | 1,543 | |
| Current portion of captial lease obligations | | | | | 61 | | | | | | 70 | |
| Accrued workers’ compensation | | | | | — | | | | | | 2,050 | |
| Accrued payroll | | | | | 1,687 | | | | | | 1,463 | |
| Accrued pension liability | | | | | 210 | | | | | | 294 | |
| Accounts payable | | | | | 3,207 | | | | | | 1,537 | |
| Accrued expenses and other current liabilities | | | | | 1,818 | | | | | | 1,866 | |
| Total current liabilities | | | | | 8,483 | | | | | | 12,829 | |
| CAPITAL LEASE OBLIGATIONS, net of current portion | | | | | 247 | | | | | | 72 | |
| NOTES PAYABLE, net of current portion | | | | | — | | | | | | 1,500 | |
| ACCRUED PENSION LIABILITY, net of current portion | | | | | 388 | | | | | | 578 | |
| LIABILITIES FROM DISCONTINUED OPERATIONS | | | | | 454 | | | | | | 763 | |
| Total liabilities | | | | | 9,572 | | | | | | 15,742 | |
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY: | | | | | | | | | | | | |
| Preferred stock, $.10 par value; authorized 5,000 shares; 0 issued and outstanding | | | | | — | | | | | | — | |
| Common Stock, $.001 par value; authorized 40,000 shares; issued 19,285 at September 30, 2006 and September 30, 2005; outstanding 19,278 at September 30, 2006 and September 30, 2005 | | | | | 19 | | | | | | 19 | |
| Additional paid-in capital | | | | | 68,684 | | | | | | 68,615 | |
| Accumulated deficit | | | | | (47,387 | | | | | | (34,140 | |
| Accumulated comprehensive loss | | | | | (88 | | | | | | (158 | |
| Treasury stock, 7 shares at cost at September 30, 2006 and September 30, 2005 | | | | | (24 | | | | | | (24 | |
| Total shareholders’ equity | | | | | 21,204 | | | | | | 34,312 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | $ | 30,776 | | | | | $ | 50,054 | |
|
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets
Table of ContentsTEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
| | | | | | | | | | | | | | | | | | |
| | | For the Years Ended September 30, |
| | | 2006 | | | 2005 | | | 2004 |
REVENUES | | | | $ | 74,968 | | | | | $ | 51,179 | | | | | $ | 32,856 | |
DIRECT EXPENSES | | | | | 62,457 | | | | | | 42,053 | | | | | | 26,880 | |
Gross profit | | | | | 12,511 | | | | | | 9,126 | | | | | | 5,976 | |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | | | | 14,037 | | | | | | 12,941 | | | | | | 10,258 | |
DEPRECIATION AND AMORTIZATION | | | | | 381 | | | | | | 422 | | | | | | 342 | |
Loss from operations | | | | | (1,907 | | | | | | (4,237 | | | | | | (4,624 | |
OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | | | |
Interest income | | | | | 76 | | | | | | 48 | | | | | | 38 | |
Interest expense | | | | | (539 | | | | | | (211 | | | | | | (81 | |
Other income | | | | | 160 | | | | | | 180 | | | | | | 232 | |
| | | | | (303 | | | | | | 17 | | | | | | 189 | |
Loss from continuing operations before tax | | | | | (2,210 | | | | | | (4,220 | | | | | | (4,435 | |
INCOME TAX (EXPENSE) BENEFIT | | | | | (16,017 | | | | | | 1,604 | | | | | | 1,686 | |
Loss from continuing operations | | | | | (18,227 | | | | | | (2,616 | | | | | | (2,749 | |
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | | | | | | | | | | | | | | | | | | |
Income (loss) from operations, net of tax (expense) benefit of $(265), $(70), and $253, respectively | | | | | 427 | | | | | | 126 | | | | | | (403 | |
Income (loss) from disposal, net of tax (expense) benefit of $(2,825), $0, and $575, respectively | | | | | 4,553 | | | | | | 1 | | | | | | (927 | |
| | | | | 4,980 | | | | | | 127 | | | | | | (1,330 | |
Net loss | | | | | (13,247 | | | | | | (2,489 | | | | | | (4,079 | |
OTHER COMPREHENSIVE INCOME (EXPENSE) | | | | | | | | | | | | | | | | | | |
Minimum pension liability adjustment, net of tax | | | | | 70 | | | | | | 153 | | | | | | (38 | |
COMPREHENSIVE LOSS | | | | $ | (13,177 | | | | | $ | (2,336 | | | | | $ | (4,117 | |
EARNINGS PER SHARE – BASIC & DILUTED | | | | | | | | | | | | | | | | | | |
Loss from continuing operations | | | | $ | (0.95 | | | | | $ | (0.14 | | | | | $ | (0.18 | |
Income (loss) from discontinued operations | | | | | 0.26 | | | | | | 0.00 | | | | | | (0.08 | |
Net loss | | | | $ | (0.69 | | | | | $ | (0.14 | | | | | $ | (0.26 | |
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING | | | | | 19,278 | | | | | | 18,206 | | | | | | 15,714 | |
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING | | | | | 19,278 | | | | | | 18,206 | | | | | | 15,714 | |
|
The accompanying notes to consolidated financial statements
are an integral part of these consolidated financial statements
F-3
Table of ContentsTEAMSTAFF, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYBALANCE SHEETSFOR THE YEARS ENDED SEPTEMBER 30, 2006, 2005, AND 2004(AMOUNTS IN THOUSANDS)
THOUSANDS, EXCEPT PAR VALUE) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | | Additional
Paid-In
Capital | | | Accumulated
Retained Earnings
Deficit | | | Treasury Stock | | | Other
Comprehensive
Loss | | | Total
Shareholder’s
Equity |
| | | | Shares | | | Amount | | | Shares | | | Amount |
| BALANCE, September 30, 2003 | | | | | 16,267 | | | | | $ | 16 | | | | | $ | 65,256 | | | | | | ($27,572 | | | | | | 553 | | | | | | ($2,317 | | | | | | ($273 | | | | | $ | 35,110 | |
| Common stock retirement from treasury | | | | | (546 | | | | | | | | | | | | (2,293 | | | | | | | | | | | | (546 | | | | | | 2,293 | | | | | | | | | | | | — | |
| Minimum pension liability adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (38 | | | | | | (38 | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | (4,079 | | | | | | | | | | | | | | | | | | | | | | | | (4,079 | |
| BALANCE, September 30, 2004 | | | | | 15,721 | | | | | | 16 | | | | | | 62,963 | | | | | | (31,651 | | | | | | 7 | | | | | | (24 | | | | | | (311 | | | | | | 30,993 | |
| Common stock issued in connection with private stock offering, net of expense | | | | | 2,392 | | | | | | 2 | | | | | | 3,455 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,457 | |
| Common stock issued in connection with acquisition of RS Staffing Services | | | | | 1,207 | | | | | | 1 | | | | | | 1,749 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,750 | |
| Warrants granted in connection with private stock offering | | | | | | | | | | | | | | | | | 498 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 498 | |
| Minimum pension liability adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 153 | | | | | | 153 | |
| Return of shares related to forgiveness of shareholder note | | | | | (35 | | | | | | | | | | | | (50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (50 | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | (2,489 | | | | | | | | | | | | | | | | | | | | | | | | (2,489 | |
| BALANCE, September 30, 2005 | | | | | 19,285 | | | | | | 19 | | | | | | 68,615 | | | | | | (34,140 | | | | | | 7 | | | | | | (24 | | | | | | (158 | | | | | | 34,312 | |
| Minimum pension liability adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 70 | | | | | | 70 | |
| Expense related to Director stock options | | | | | | | | | | | | | | | | | 17 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17 | |
| Expense related to Restricted Stock grants | | | | | | | | | | | | | | | | | 52 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 52 | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | (13,247 | | | | | | | | | | | | | | | | | | | | | | | | (13,247 | |
| BALANCE, September 30, 2006 | | | | | 19,285 | | | | | $ | 19 | | | | | $ | 68,684 | | | | | | ($47,387 | | | | | | 7 | | | | | | ($24 | | | | | | ($88 | | | | | $ | 21,204 | |
|
| | | | | | | | | |
| | | September 30, | | | September 30, | |
| | | 2009 | | | 2008 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
| Notes payable | | $ | 1,500 | | | $ | 1,500 | |
| Current portion of capital lease obligations | | | 20 | | | | 29 | |
| Accrued payroll | | | 10,694 | | | | 10,408 | |
| Accrued pension liability | | | — | | | | 70 | |
| Accounts payable | | | 1,890 | | | | 2,578 | |
| Accrued expenses and other current liabilities | | | 1,241 | | | | 1,910 | |
| Liabilities from discontinued operations | | | 392 | | | | 381 | |
| | | | | | | |
Total current liabilities | | | 15,737 | | | | 16,876 | |
| | | | | | | | | |
CAPITAL LEASE OBLIGATIONS, net of current portion | | | 27 | | | | 45 | |
| | | | | | | | | |
OTHER LONG TERM LIABILITY, net of current portion | | | 13 | | | | 14 | |
| | | | | | | | | |
LONG TERM LIABILITIES FROM DISCONTINUED OPERATIONS | | | 64 | | | | 173 | |
| | | | | | | |
| | | | | | | | | |
Total Liabilities | | | 15,841 | | | | 17,108 | |
| | | | | | | |
| | | | | | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | | | | |
| | | | | | | | | |
SHAREHOLDERS’ EQUITY: | | | | | | | | |
| Preferred stock, $.10 par value; authorized 5,000 shares; none issued and outstanding | | | — | | | | — | |
| Common Stock, $.001 par value; authorized 40,000 shares; issued 4,900 at September 30, 2009 and 4,874 at September 30, 2008, respectively; outstanding 4,898 at September 30, 2009 and 4,843 at September 30, 2008, respectively | | | 5 | | | | 5 | |
| Additional paid-in capital | | | 69,124 | | | | 68,844 | |
| Accumulated deficit | | | (55,289 | ) | | | (50,934 | ) |
| Accumulated comprehensive loss | | | — | | | | (5 | ) |
| Treasury stock, 2 shares at cost at September 30, 2009 and September 30, 2008 | | | (24 | ) | | | (24 | ) |
| | | | | | | |
| Total shareholders’ equity | | | 13,816 | | | | 17,886 | |
| | | | | | | |
| | | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 29,657 | | | $ | 34,994 | |
| | | | | | | |
The accompanying notes to consolidated financial statements
are an integral part of these consolidated financial statements
F-4
Table of ContentsTEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(AMOUNTS IN THOUSANDS)
THOUSANDS, EXCEPT PER SHARE DATA) | | | | | | | | | | | | | | | | | | |
| | | | For the Years Ended September 30, |
| | | | 2006 | | | 2005 | | | 2004 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | |
| Net loss | | | | $ | (13,247 | | | | | $ | (2,489 | | | | | $ | (4,079 | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities, net of acquired businesses: | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | 381 | | | | | | 422 | | | | | | 369 | |
| Compensation expense related to director stock option grants | | | | | 17 | | | | | | — | | | | | | — | |
| Compensation expense related to employee restricted stock grants | | | | | 52 | | | | | | — | | | | | | — | |
| Deferred income taxes | | | | | 18,482 | | | | | | (1,575 | | | | | | 1,444 | |
| Provision for doubtful accounts | | | | | 36 | | | | | | 30 | | | | | | 12 | |
| Gain on sale of DSI Payroll Services division | | | | | (4,553 | | | | | | — | | | | | | — | |
| Changes in operating assets and liabilities, net of acquired businesses: | | | | | | | | | | | | | | | | | | |
| Decrease (increase) in accounts receivable | | | | | 142 | | | | | | (1,764 | | | | | | 1,946 | |
| Decrease (increase) in other current assets | | | | | 822 | | | | | | (35 | | | | | | 55 | |
| Decrease (increase) in other assets | | | | | 1,969 | | | | | | 1,248 | | | | | | (3,705 | |
| (Decrease) increase in accounts payable, accrued expenses and other current liabilities | | | | | (203 | | | | | | 1,242 | | | | | | (3,390 | |
| (Decrease) increase in pension liability | | | | | (274 | | | | | | (556 | | | | | | (296 | |
| Decrease (increase) in restricted cash | | | | | — | | | | | | 1,800 | | | | | | (536 | |
| Cash flow from discontinued operations | | | | | 5,035 | | | | | | (515 | | | | | | 4,620 | |
| Net cash provided by (used in) operating activities | | | | | 8,659 | | | | | | (2,192 | | | | | | (3,560 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | |
| Purchase of equipment, leasehold improvements and software | | | | | (146 | | | | | | (87 | | | | | | (18 | |
| Payment for acquisition of RS Staffing Services, net of cash acquired | | | | | (2,075 | | | | | | (2,847 | | | | | | — | |
| Payment for acquisition of Nursing Innovations | | | | | — | | | | | | (1,866 | | | | | | — | |
| Cash flow from discontinued operations | | | | | 419 | | | | | | (160 | | | | | | 2,366 | |
| Net cash (used in) provided by investing activities | | | | | (1,802 | | | | | | (4,960 | | | | | | 2,348 | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | |
| Borrowings on revolving line of credit | | | | | 58,434 | | | | | | 32,084 | | | | | | — | |
| Payment on revolving line of credit | | | | | (62,440 | | | | | | (28,078 | | | | | | — | |
| Repayments on capital lease obligations | | | | | (95 | | | | | | (238 | | | | | | (69 | |
| Principal payments on notes payable | | | | | (1,775 | | | | | | (178 | | | | | | — | |
| Payment of bank line of credit acquired from RS Staffing Services | | | | | — | | | | | | (2,560 | | | | | | — | |
| Proceeds from capital lease | | | | | — | | | | | | — | | | | | | 50 | |
| Net proceeds from issuance of common stock, net of expense | | | | | — | | | | | | 3,956 | | | | | | — | |
| Net comprehensive income (loss) on pension | | | | | 70 | | | | | | 153 | | | | | | (38 | |
| Cash flow from discontinued operations | | | | | (198 | | | | | | 257 | | | | | | — | |
| Net cash (used in) provided by financing activities | | | | | (6,004 | | | | | | 5,396 | | | | | | (57 | |
| Net increase (decrease) in cash and cash equivalents | | | | | 853 | | | | | | (1,756 | | | | | | (1,269 | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | | | | | 1,304 | | | | | | 3,060 | | | | | | 4,329 | |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | | | | $ | 2,157 | | | | | $ | 1,304 | | | | | $ | 3,060 | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | | | | | | | |
| Interest | | | | $ | 539 | | | | | $ | 222 | | | | | $ | 81 | |
| Income taxes | | | | $ | 194 | | | | | $ | 212 | | | | | $ | 60 | |
|
| | | | | | | | | |
| | | For the Year Ended | |
| | | September 30, | | | September 30, | |
| | | 2009 | | | 2008 | |
REVENUES | | | | | | | | |
| Operating revenues | | $ | 46,021 | | | $ | 47,747 | |
| Non-recurring retroactive billings | | | — | | | | 10,772 | |
| | | | | | | |
| Total revenue | | | 46,021 | | | | 58,519 | |
| | | | | | | |
DIRECT EXPENSES | | | | | | | | |
| Operating direct expense | | | 39,019 | | | | 39,495 | |
| Non-recurring retroactive billings | | | — | | | | 10,080 | |
| | | | | | | |
| Total direct expense | | | 39,019 | | | | 49,575 | |
| | | | | | | |
GROSS PROFIT | | | | | | | | |
| Operating gross profit | | | 7,002 | | | | 8,252 | |
| Non-recurring retroactive billings | | | — | | | | 692 | |
| | | | | | | |
| Total gross profit | | | 7,002 | | | | 8,944 | |
| | | | | | | |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | | 6,505 | | | | 5,930 | |
| | | | | | | | | |
DEPRECIATION AND AMORTIZATION | | | 111 | | | | 150 | |
| | | | | | | |
| | | | | | | | | |
Income from operations | | | 386 | | | | 2,864 | |
| | | | | | | | | |
OTHER INCOME (EXPENSE) | | | | | | | | |
| Interest income | | | 45 | | | | 40 | |
| Interest expense | | | (222 | ) | | | (147 | ) |
| Settlement of prior periods’ payroll tax contingencies | | | — | | | | 716 | |
| Other income, net | | | 160 | | | | — | |
| Legal expense related to pre-acquisition activity of acquired company | | | (21 | ) | | | (218 | ) |
| | | | | | | |
| | | | (38 | ) | | | 391 | |
| | | | | | | |
| | | | | | | | | |
Income from continuing operations before taxes | | | 348 | | | | 3,255 | |
| | | | | | | | | |
INCOME TAX BENEFIT (EXPENSE) | | | 28 | | | | (60 | ) |
| | | | | | | |
| | | | | | | | | |
Income from continuing operations | | | 376 | | | | 3,195 | |
| | | | | | | |
| | | | | | | | | |
LOSS FROM DISCONTINUED OPERATIONS | | | | | | | | |
| Loss from operations | | | (4,731 | ) | | | (2,049 | ) |
| | | | | | | |
| | | | | | | | | |
Loss from discontinued operations | | | (4,731 | ) | | | (2,049 | ) |
| | | | | | | |
| | | | | | | | | |
NET (LOSS) INCOME | | | (4,355 | ) | | | 1,146 | |
| | | | | | | | | |
OTHER COMPREHENSIVE INCOME | | | | | | | | |
| Pension liability adjustment | | | 5 | | | | 28 | |
| | | | | | | |
| | | | | | | | | |
COMPREHENSIVE (LOSS) INCOME | | $ | (4,350 | ) | | $ | 1,174 | |
| | | | | | | |
| | | | | | | �� | | |
(LOSS) EARNINGS PER SHARE — BASIC | | | | | | | | |
| Income from continuing operations | | $ | 0.08 | | | $ | 0.66 | |
| Loss from discontinued operations | | | (0.97 | ) | | | (0.42 | ) |
| | | | | | | |
| Net (loss) earnings per share | | $ | (0.89 | ) | | $ | 0.24 | |
| | | | | | | |
(LOSS) EARNINGS PER SHARE — DILUTED | | | | | | | | |
| Income from continuing operations | | $ | 0.07 | | | $ | 0.66 | |
| Loss from discontinued operations | | | (0.93 | ) | | | (0.42 | ) |
| | | | | | | |
| Net (loss) earnings per share | | $ | (0.86 | ) | | $ | 0.24 | |
| | | | | | | |
| | | | | | | | | |
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING | | | 4,900 | | | | 4,866 | |
| | | | | | | |
| | | | | | | | | |
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING | | | 5,085 | | | | 4,875 | |
| | | | | | | |
Table of ContentsSUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITY:
For the fiscal year ended September 30, 2006:
During the twelve months ended September 30, 2006, the company recorded $396,000 in notes payable related to the funding of the RS Staffing workers’ compensation insurance policy renewal. The policy and note was cancelled after six months, effective March 15, 2006, and refinanced with a new carrier for the final six months of the policy term. The company recorded $232,000 in notes payable related to this renewal.
The Company recorded $303,000 in capital leases during the twelve months ended September 30, 2006.
The accompanying notes to consolidated financial statements
are an integral part of these consolidated financial statements
F-5
Table of ContentsTEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
(AMOUNTS IN THOUSANDS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Additional | | | | | | | | | | | | | | | Other | | | Total | |
| | | Common Stock | | | Paid-In | | | Accumulated | | | Treasury Stock | | | Comprehensive | | | Shareholders’ | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Shares | | | Amount | | | Loss | | | Equity | |
BALANCE, September 30, 2007 | | | 4,823 | | | $ | 5 | | | $ | 68,726 | | | $ | (52,080 | ) | | | 2 | | | $ | (24 | ) | | $ | (33 | ) | | $ | 16,594 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension liability adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | 28 | | | | 28 | |
| Return of shares related to settlement | | | | | | | | | | | (41 | ) | | | | | | | | | | | | | | | | | | | (41 | ) |
| Expense related to director restricted stock grants | | | | | | | | | | | 30 | | | | | | | | | | | | | | | | | | | | 30 | |
| Expense related to employee restricted stock grants | | | 21 | | | | | | | | 129 | | | | | | | | | | | | | | | | | | | | 129 | |
| Fractional shares related to reverse stock split | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| Net income | | | | | | | | | | | | | | | 1,146 | | | | | | | | | | | | | | | | 1,146 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, September 30, 2008 | | | 4,843 | | | | 5 | | | | 68,844 | | | | (50,934 | ) | | | 2 | | | | (24 | ) | | | (5 | ) | | | 17,886 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension liability adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | 5 | | | | 5 | |
| Return of shares related to settlement | | | (38 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| Director restricted stock grants | | | 14 | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| Expense related to employee restricted stock grants | | | 79 | | | | | | | | 280 | | | | | | | | | | | | | | | | | | | | 280 | |
| Net income | | | | | | | | | | | | | | | (4,355 | ) | | | | | | | | | | | | | | | (4,355 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, September 30, 2009 | | | 4,898 | | | $ | 5 | | | $ | 69,124 | | | $ | (55,289 | ) | | | 2 | | | $ | (24 | ) | | $ | 0 | | | $ | 13,816 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements
F-6
TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
| | | | | | | | | |
| | | For the Twelve Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2009 | | | 2008 | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | |
| Net (loss) income | | $ | (4,355 | ) | | $ | 1,146 | |
| Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of divested businesses: | | | | | | | | |
| Depreciation and amortization | | | 111 | | | | 150 | |
| Settlement of prior periods’ payroll tax contingencies | | | — | | | | (716 | ) |
| Compensation expense related to director restricted stock grants | | | — | | | | 30 | |
| Compensation expense related to employee restricted stock grants | | | 221 | | | | 188 | |
| Recovery of doubtful accounts | | | — | | | | (6 | ) |
| Loss on retirement of equipment | | | — | | | | 8 | |
| Changes in operating assets and liabilities, net of divested businesses: | | | | | | | | |
| Accounts receivable | | | 454 | | | | (5,949 | ) |
| Other current assets | | | 293 | | | | (137 | ) |
| Other assets | | | (131 | ) | | | 69 | |
| Accounts payable, accrued payroll, accrued expenses and other current liabilities | | | (1,012 | ) | | | 8,876 | |
| Other long term liabilities | | | (1 | ) | | | (18 | ) |
| Pension liability | | | (70 | ) | | | (276 | ) |
| Cash flow from discontinued operations | | | 2,400 | | | | 1,237 | |
| | | | | | | |
| Net cash (used in) provided by operating activities | | | (2,090 | ) | | | 4,602 | |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
| Purchase of equipment, leasehold improvements and software | | | (69 | ) | | | (140 | ) |
| Cash flow from discontinued operations | | | — | | | | 357 | |
| | | | | | | |
| Net cash (used in) provided by investing activities | | | (69 | ) | | | 217 | |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| Repayments on capital lease obligations | | | (27 | ) | | | (27 | ) |
| Loan fees | | | — | | | | (146 | ) |
| Net comprehensive income on pension | | | 5 | | | | 28 | |
| Cash flows from discontinued operations | | | (40 | ) | | | (22 | ) |
| | | | | | | |
| Net cash used in financing activities | | | (62 | ) | | | (167 | ) |
| | | | | | | |
| | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (2,221 | ) | | | 4,652 | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | 5,213 | | | | 561 | |
| | | | | | | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 2,992 | | | $ | 5,213 | |
| | | | | | | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
| Cash paid during the period for interest | | $ | 50 | | | $ | 159 | |
| | | | | | | |
| Cash paid during the period for income taxes | | $ | 124 | | | $ | 86 | |
| | | | | | | |
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
In the year ended September 30, 2009, an accrued liability was reduced (and additional paid-in-capital was increased) by $59 to reflect the issuance of stock to settle the liability.
The accompanying notes are an integral part of these consolidated financial statements
F-7
TEAMSTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2006, 20052009 AND 20042008 (1) ORGANIZATION AND BUSINESS: TeamStaff, Inc. and its subsidiaries (“TeamStaff” or the “Company”, also referred to as “we,” “us” and “our”), provide staffing services to the United States Department of Veterans Affairs (“DVA”) and other US governmental entities. TeamStaff’s primary operations are located in Loganville, Georgia and its principal executive office is located at 1 Executive Drive, Suite 130, Somerset, New Jersey 08873 where its telephone number is (877) 523-9897. TeamStaff, Inc., a New Jersey corporation,
(‘‘TeamStaff’’ or the ‘‘Company’’), was founded in 1969 as a payroll service company and evolved into a national provider of
payroll and temporarycontract and permanent medical and administrative staffing services.
Its principal operations are conducted through its subsidiary, TeamStaff
has offices located in Clearwater, Florida; Memphis, Tennessee; Monroe, Georgia; Atlanta, Georgia; and Somerset, New Jersey.When we useGovernment Solutions, (“TeamStaff GS”), a wholly-owned subsidiary of TeamStaff, Inc. TeamStaff GS changed its name from RS Staffing Services, Inc on February 12, 2008 to reflect the term ‘‘TeamStaff,’’ or the ‘‘Company’’ we meansubsidiary’s expanding service offerings.
On December 28, 2009, TeamStaff and its subsidiaries. Currently, we operate only through the parent corporation, TeamStaff, Inc., and our TeamStaff Rx, Inc. (including(“TeamStaff Rx”), its Nursing Innovations division)wholly-owned subsidiary, entered into a definitive Asset Purchase Agreement with Advantage RN, LLC, an Ohio limited liability company (“Advantage RN”), providing for the sale of substantially all of the operating assets of TeamStaff Rx related to TeamStaff Rx’s business of providing travel nurse and RSallied healthcare professionals for temporary assignments to Advantage RN. The closing of this transaction occurred on January 4, 2010. The Asset Purchase Agreement provides that the purchased assets were acquired by Advantage RN for a purchase price of up to $425,000, of which: (i) $350,000 in cash was paid at the closing, and (ii) $75,000 is subject to an escrowed holdback as described in the Asset Purchase Agreement. Additionally, Advantage RN will make rent subsidy payments to TeamStaff Rx totaling $125,000, consisting of (i) $25,000 paid at closing, and (ii) an additional $100,000 payable in 10 equal monthly installments beginning on March 1, 2010. Under the terms of the Asset Purchase Agreement, Advantage RN did not assume any debts, obligations or liabilities of TeamStaff Rx nor did it purchase any accounts receivable outstanding as of the closing date. As described in note 4 to these consolidated financial statements, the results of operations, cash flows and related assets and liabilities of TeamStaff Rx have been reclassified in the accompanying consolidated financial statements from those of continuing businesses for all periods presented.
Following the disposition of its TeamStaff Rx business, TeamStaff provides specialized medical, nursing, logistics and administrative staffing services by supplying allied healthcare and nursing professionals, logistics and administrative personnel to U.S. government entities through TeamStaff GS. The staffing services offered by TeamStaff are provided through independent Federal Supply Schedule (“FSS”) contracts through the United States General Services Administration (“GSA”). The provision of logistical and administrative personnel is accomplished through the Logistics Worldwide Schedule and medical personnel are supplied through the Professional and Allied Healthcare Staffing Services Inc. wholly-owned subsidiaries. Schedule. TeamStaff also provides its staffing services to federal government agencies through competitively bid contracts and has a GSA schedule contract to provide information technology professional services. TeamStaff provides these services to the DVA, the US Department of Defense and other US governmental agencies and placed contract employees at over 40 facilities during the 2009 fiscal year.
TeamStaff’s other wholly-owned subsidiaries include DSI Staff ConnXions Northeast, Inc., DSI Staff ConnXions Southwest, Inc., TeamStaff Solutions, Inc., TeamStaff I, Inc., TeamStaff II, Inc., TeamStaff III, Inc., TeamStaff IV, Inc., TeamStaff
V, Inc., TeamStaff VI, Inc., TeamStaff Insurance Services, Inc., TeamStaff VIII,
Inc., Employer Support Services, Inc., TeamStaff IX, Inc., Digital Insurance Services, Inc., HR2, Inc. and BrightLane.com, Inc. As a result of the sale of our Professional Employer Organization
(‘‘PEO’’) business in fiscal year 2004 and other Company business changes, these
‘‘other’’“other” subsidiaries are not actively operating.
TeamStaff provides specialized medical, nursing and administrative staffing services. TeamStaff provides allied healthcare and nursing professionals and administrative personnel through three staffing units. The Company’s TeamStaff Rx subsidiary operates throughout the United States and specializes in providing allied medical employees and nurses, especially ‘‘travel’’ staff (typically on a thirteen-week assignment basis). Allied medical staff includes MRI technicians, mammographers, dosimetrists, ultrasound staff and physicists. TeamStaff Rx places temporary employees for over 200 client facilities. TeamStaff Rx’s Nursing Innovations unit provides travel nursing, per diem nursing, temporary-to-permanent nursing and permanent nursing placement services. Nursing Innovations places temporary employees at over 130 client facilities. The Company’s RS Staffing subsidiary specializes in providing medical and office administration/technical professionals through nationwide Schedule contracts with both the General Services Administration and Veterans Affairs. RS Staffing places temporary employees at over 75 facilities.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:POLICIES:
Basis of Presentation-Presentation and Principles of Consolidation The accompanying consolidated financial statements include the accounts of TeamStaff, Inc. and its subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
All references to common stock, options, share based arrangements, exercise price, fair values and related data within this Form 10-K have been retroactively amended so as to incorporate the effect of the one-to-four reverse stock split effective April 21, 2008.
F-8
Use of Estimates-Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.
Significant estimates include valuation of goodwill and other intangible assets, expected settlement amounts of accounts receivable, measurement of prepaid workers’ compensation, valuation allowances established against accounts receivable and deferred tax assets and measurement of payroll tax contingencies, accounts payable, workers’ compensation claims and accrued expenses. Actual results could differ from those estimates.
As disclosed in Note 10, the Company reduced liabilities established for certain prior period payroll tax contingencies by $0.7 million in fiscal 2008 based on resolution of such matters with the Internal Revenue Recognition-Service.
Revenue RecognitionFrom October 1, 2005 through May 31, 2006, TeamStaff operated two different lines of business from which it derived substantially all of its revenue: temporary and permanent staffing and payroll services. Effective May 31, 2006, TeamStaff sold substantially all of the assets of its DSI Payroll
Table of ContentsServices division (see Note 4), and as a result, as of September 30, 2006 TeamStaff operated in only one segment, which is the temporary and permanent medical and administrative staffing business.
TeamStaff accounts for its revenues in accordance with EITF 99-19, ACS 605-45,Reporting Revenues Gross as a Principal Versus Net as an Agent,and SAB 104, Revenue Recognition. TeamStaff recognizes all amounts billed to its temporarycontract staffing customers as gross revenue because, among other things, TeamStaff is the primary obligor in the temporarycontract staffing arrangement,arrangement; TeamStaff has pricing latitude,latitude; TeamStaff selects temporarycontract employees for a given assignment from a broad pool of individuals,individuals; TeamStaff is at risk for the payment of its direct costs,costs; and TeamStaff assumes a significant amount of other risks and liabilities as an employer of its temporarycontract employees, and therefore, is deemed to be a principal in regard to these services. TeamStaff also recognizes as gross revenue and as unbilled receivables, on an accrual basis, any such amounts that relate to services performed by temporarycontract employees which have not yet been billed to the customer as of the end of the accounting period.
Revenues related to retroactive billings in 2008 (see Note 10 to the Consolidated Financial Statements) from an agency of the Federal government were recognized when: (1) the Company developed and calculated an amount for such prior period services and had a contractual right to bill for such amounts under its arrangements, (2) there were no remaining unfulfilled conditions for approval of such billings and (3) collectability is reasonably assured based on historical practices with the DVA. The related direct costs, principally comprised of salaries and benefits, are recognized to match the recognized reimbursements from the Federal agency; upon approval, wages will be processed for payment to the employees.
During the year ended September 30, 2008, TeamStaff recognized revenues of $10.8 million and direct costs of $10.1 million related to these non-recurring arrangements. At September 30, 2009 and 2008, the amount of the remaining accounts receivable with the DVA approximated $9.3 million and accrued liabilities for salaries to employees and related benefits totaled $8.7 million. The $9.3 million in accounts receivable was unbilled to the DVA at September 30, 2009 and 2008. At present, the Company expects to collect such amounts by the end of the second quarter of fiscal 2010 based on current discussions and collection efforts.
Staffing (whether medical or administrative) revenue is recognized as service is rendered. TeamStaff bills its clients based on an hourly rate. The hourly rate is intended to cover TeamStaff’s direct labor costs of the
temporarycontract employees, plus an estimate
to coverfor overhead expenses and a profit margin. Additionally, commissions from permanent placements
(principally TeamStaff Rx) are included in revenue
related to Medical Staffing.as placements are made. Commissions from permanent placements result from the successful placement of a medical staffing employee to a customer’s workforce as a permanent employee.
In connection with The Company also reviews the status of such placements to assess the Company’s discontinued payroll services operation, payroll services revenue was recognized as service was rendered and consisted primarily of administrative service fees charged to clients for the processing of paychecks as well as preparing quarterly and annual payroll related reports. These amounts are reflected as part of income (loss) from discontinued operations in the consolidated financial statements.
In connection with its discontinued operation, TeamStaff’s professional employer organization division revenues were derived from its PEO division billings, net of worksite employee payroll costs (net method), which included payroll taxes, benefit costs, workers’ compensation charges and administrative fees. The net method was used because TeamStaff was not generally responsible for the output and quality of work performed by the worksite employees. These amounts are reflected as part of income (loss) from discontinued operations in the consolidated financial statements.
future performance obligations under such contracts.
Direct costs of services are reflected in TeamStaff’s
StatementConsolidated Statements of Operations as
‘‘direct expenses’’“direct expenses” and are reflective of the type of revenue being generated. Direct costs of the
temporarycontract staffing business include wages, employment related taxes and reimbursable expenses.
Payroll services’ direct costs include salaries and supplies associated with the processing of the payroll service.Concentrations of Credit Risk-Risks Financial instruments that potentially subject TeamStaff to concentrations of credit risk consist principally of cash and accounts receivable. TeamStaff maintains substantially all its cash balances in a limited number of financial institutions. The balances are insured by the Federal Deposit Insurance Corporation up to
$100,000.$250,000 (effective through December 31, 2013). At times the deposits in banks may exceed the amount of insurance provided on such deposits. TeamStaff monitors the financial health of these banking institutions.
TeamStaff’s customer base consists of over 400 client companies as of At September 30, 2006. Substantially all2009, the Company’s uninsured cash balances approximated $1.2 million. Historically, the Company has not experienced any losses on deposits.
TeamStaff provides staffing services to the DVA, the US Department of
Defense and other US governmental agencies and placed contract employees at over 40 facilities during the
customers of our TeamStaff Rx, Inc. and Nursing Innovations subsidiary are engaged in the healthcare industry.2009 fiscal year. Substantially all of the business of
RS Staffing Services, Inc.TeamStaff GS is accomplished through
FSS contracts with the
General Services AdministrationGSA and
Veterans Affairs.DVA. Credit, when given, is generally granted on an unsecured basis.
Cash Equivalents-
For purposes of the statements of cash flows, TeamStaff considers all liquid investments purchased with a maturity of three months or less to be cash equivalents.
Restricted Cash-
TeamStaff had restricted cash related to collateral for a letter of credit to Zurich for its workers’ compensation program. Effective March 31, 2005, Zurich withdrew the requirement for a letter of
Table of Contentscredit and $1.8 million of restricted cash held in the form of a certificate of deposit at SunTrust Bank was released to TeamStaff. As of September 30, 2006, the company had no restricted cash.
Allowance for Doubtful Accounts-
TeamStaff maintains an allowance for doubtful accounts, if any, for estimated losses resulting from the inability of its customers to pay. However, if the financial condition of TeamStaff’s customers were to deteriorate rapidly, resulting in nonpayment, TeamStaff’s accounts receivable balances could grow and TeamStaff could be required to provide for additional allowances, which would decrease net incomeoperating results in the period that such determination was made.
F-9
Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, TeamStaff considers all liquid investments purchased with a maturity of three months or less to be cash equivalents.
Allowance for Doubtful Accounts
Accounts receivable are unsecured and carried at fair value, which is net of an allowance for doubtful accounts. The allowance for doubtful accounts is determined based on a specific identification methodology. Generally an account receivable is deemed uncollectible based upon the aging of the receivable and/or specific identification. Interest is not typically charged on past due accounts and specific identification takes into account the Company’s assessment of the default risk based upon recent events in the customer’s business, economic status and changes in credit status. With respect to receivables owed by agencies of the U.S. Government, the Company believes that the risk of loss on these accounts is minimal (See Note 14).
Before accounts are deemed uncollectible, demand letters are sent and, if that does not result in payment, the receivable is placed for collection with a collection agency. The Company’s last attempt at collection would be legal action, depending upon the customer’s financial situation. If the Company is unsuccessful at collection after these steps, the receivable is written-off.
TeamStaff has financial instruments,
none of which are held for trading purposes.principally accounts receivable, accounts payable, notes payable and accrued expenses. TeamStaff estimates that the fair value of all financial instruments at September 30,
20062009 and
2005,2008 does not differ materially from the aggregate carrying values of these financial instruments recorded in the accompanying
consolidated balance sheets.
The estimated fair value amounts have been determined by TeamStaff using available market information and appropriate valuation methodologies. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly, the estimates are not necessarily indicative of the amounts that TeamStaff could realize in a current market exchange.Equipment and Improvements-Improvements Equipment and improvements are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful asset lives (3 to 5 years) and the shorter of the initial lease term or estimated useful life for leasehold improvements.
During 2008, the Company retired fixed assets with a carrying value of $20,000 and accumulated depreciation of $12,000 that resulted in a loss of $8,000 (included in other income, net).
The Company’s advertising expenses consist primarily of online advertising, health care professional trade magazines and other various print media, promotional material and direct mail marketing. The Company expenses advertising costs as they are incurred. Total advertising costs
for continuing operations were
$0.3$0.2 million
in each of theand $0.1 million for fiscal years ended September 30,
2006, 2005,2009 and
2004.2008, respectively.
Occupancy Lease Commitments-Commitments The Company has occupancy leases with various payment terms to include a fixed payment schedule over the lease term, variable payment schedule over the lease term, or a lease that may have
a rent
escalations, an abatement
period or
‘‘rent holiday’’ period.“rent holiday” periods. The Company records occupancy expense using the straight-line method over the lease term, regardless of actual payment terms.
Acquired Intangible Assets-
Acquired intangible assets consist of trade name of $4.6 million at September 30, 2006 and 2005. TeamStaff determined that no impairment of its tradename existed as of September 30, 2006. TeamStaff will continue to review annually its remaining indefinite life intangible assets for possible impairment or loss of value.
Impairment of Goodwill-
Goodwill is assigned to specific reporting units and, in accordance with SFAS 142, is reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount may be greater than its fair value. All goodwill is attributable to the staffing services reporting units. TeamStaff determined that no impairment of its remaining goodwill existed as of September 30, 2006. TeamStaff will continue to review annually its remaining goodwill for possible impairment or loss of value.
Table of ContentsGoodwill-
(Amounts in thousands)
| | | | | | |
| Balance as of September 30, 2005 | | | | $ | 9,911 | |
| Additional consideration for acquisition | | | | | 2,075 | |
| Balance as of September 30, 2006 | | | | $ | 11,986 | |
|
$1.7 million of goodwill was recorded as part of the acquisition of the assets of Nursing Innovations on November 14, 2004, all of which is deductible for tax purposes. $8.6 million of goodwill was recorded as part of the acquisition of the stock of RS Staffing Services, effective as of June 4, 2005, none of which is deductible for tax purposes. (See Note 3)
Long-Lived Assets-Assets
TeamStaff reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management of TeamStaff believes that no such events or changes in circumstances have occurred though September 30, 2006. If such events or changes in circumstances are present, a loss is recognized to the extent that the carrying value of the asset is in excess of the sum of the undiscounted cash flows expected to result from the use of the asset and its eventual disposition.
As a result of the decision to divest TeamStaff Rx, the Company recognized an impairment charge of $2.3 million to reduce the carrying value of long lived assets (equipment, tradename and goodwill) to estimated fair value. The estimated fair value was derived from the terms of the sale of these assets to Advantage RN, as described in Note 1. The impairment charge is included in the 2009 loss from discontinued operations.
F-10
Acquired Intangible Assets
Acquired intangible assets consist of trade name of $3.9 million at September 30, 2009 and 2008. Tradename of $0.7 million related to TeamStaff RX has been reclassified to “Assets from Discontinued Operations” for all periods presented.
TeamStaff will continue to annually test and review its remaining indefinite life intangible assets for possible impairment or loss of value.
Goodwill
Goodwill is assigned to specific reporting units and is reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount may be greater than its fair value. All goodwill is attributable to continuing staffing services reporting units. Goodwill of $1.6 million related to TeamStaff RX has been reclassified to “Assets from Discontinued Operations” for all periods presented.
Workers’ Compensation-Compensation For the remaining open years through November 17, 2003, the date of sale of its discontinued PEO business, TeamStaff applies loss-development factors to workers’ compensation incurred losses in order to estimate fully developed losses as well as other formula driven methodologies supplied by its current third party
administrator.administrator (See Note 10)
.
TeamStaff accounts for income taxes in accordance with the “liability” method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the consolidated balance sheet when it is determined that it is more likely than not that the asset will be realized. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. At September 30, 2009 and 2008, the Company recorded a 100% valuation allowance against its net deferred tax assets (See Note 5).
Reclassifications
Certain reclassifications have been made to prior years’ amounts to conform to the current year presentation and the effects of the reverse stock split. As discussed in Note 4, the TeamStaff Rx operations were reclassified in 2009 and 2008 as discontinued operations.
Stock-Based Compensation
Compensation costs for the portion of awards (for which the requisite service has not been rendered) that are outstanding are recognized as the requisite service is rendered. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for recognition purposes under applicable guidance. There was no share-based compensation expense for options for the years ended September 30, 2009 and 2008. As of September 30, 2009, there was no remaining unrecognized compensation expense related to non-vested stock option awards to be recognized in future periods.
From time to time, the Company grants restricted stock awards to non-employee directors and employees under existing plans. The Company recognizes non cash compensation expense over the various vesting periods. Stock compensation expense totaled $0.2 million in each of fiscal 2009 and 2008. Certain awards vest upon satisfaction of certain performance criteria. As permitted, the Company will not recognize expense on the performance based shares until it is probable that these conditions will be achieved. Such charges could be material in future periods.
Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding and restricted stock grants that vested or are likely to vest during the period. Diluted earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of basic common shares outstanding, adjusted to reflect potentially dilutive securities.
F-11
The respective determination of weighted average shares used in the computation of earnings (loss) per share is as follows (amounts in thousands);
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| Basic: | | | | | | | | |
| Income from continuing operations | | | 4,900 | | | | 4,866 | |
| Loss from Discontinued operations | | | 4,900 | | | | 4,866 | |
| | | | | | | | | |
| Diluted: | | | | | | | | |
| Income from continuing operations | | | 5,085 | | | | 4,875 | |
| Loss from Discontinued operations | | | 5,085 | | | | 4,875 | |
Under guidance for determining earnings (loss) per share, the effects of common stock equivalents of approximately 185,000 and 9,000, are included (even though the shares are anti dilutive) for 2009 and 2008, in the calculation of loss per share for discontinued operations.
Accumulated Comprehensive Income (Loss) and Pension Liability Adjustment
A pension liability adjustment is required when the actuarial present value of accumulated benefit obligation exceeds the plan assets and accrued pension liabilities. The pension liability adjustment, net of income taxes, is recorded as a component of “Accumulated comprehensive loss” on the balance sheet and is reflected in the Statement of Comprehensive Income (Loss) as “Pension liability adjustment”. The Company used a discount rate of 3.0% to calculate the projected benefit obligation and the periodic benefit cost calculation for the respective years presented. The Company recorded a reduction in the net liability from such adjustment, net of tax of $5,000 and $28,000 for the years ended September 30, 2009 and 2008, respectively. The accumulated comprehensive loss on the consolidated balance sheets reflects the cumulative balance due to the pension liability adjustment. As of September 30, 2009, the liability was paid off and thus, there was no remaining accumulated comprehensive loss to be recognized in future periods.
(3) RECENT ACCOUNTING STANDARDS:
In June 2006, the Financial Accounting Standards No. 109, ‘‘Board (“FASB”) issued authoritative guidance that clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has been met. This Interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. TeamStaff conducts business solely in the U.S. and, as a result, files income tax returns for U.S., New Jersey and various other states and jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities. The Company’s tax returns for years subsequent to fiscal 2005 are open, by statute, for review by authorities. However, at present, there are no ongoing income tax audits or unresolved disputes with the various tax authorities that the Company currently files or has filed with. Given the Company’s substantial net operating loss carryforwards, which are subject to a full valuation allowance, as well as the historical operating losses in prior periods, the adoption of this guidance on October 1, 2007 did not have any effect on our financial position, results of operations or cash flows as of the adoption date or for subsequent periods.
In September 2006, the FASB issued a standard which defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expanded disclosures about fair value measurements. This standard was effective for financial statements issued for fiscal years beginning after November 15, 2007, with earlier application encouraged. Any amounts recognized upon adoption as a cumulative effect adjustment will be recorded to the opening balance of retained earnings in the year of adoption. In February 2008, the FASB issued supplemental guidance in the form of a staff position, which delayed the effective date of the initial standard for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted this standard on October 1, 2008 with no effect on its financial position, results of operations and cash flows.
In February 2007, the FASB issued a standard that permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported in earnings at each reporting date. This standard was effective for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. The Company adopted this standard on October 1, 2008 with no effect on its financial position, results of operations and cash flows.
In March 2008, the FASB issued a standard which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable users of the financial statements to better understand the effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for interim periods beginning after November 15, 2008, with early application encouraged. The adoption of this standard did not have a material effect on our consolidated financial statements.
In June 2009, the FASB issued a standard which stipulated theFASB Accounting Standards Codification™ is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. This standard is effective for Income Taxes.’’financial statements issued for interim and annual periods ending after September 15, 2009. The implementation of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.
F-12
(4) DISCONTINUED OPERATIONS:
Sale of Nursing Innovations Division
Effective January 27, 2008, TeamStaff, Inc. completed the sale of its per diem nurse staffing business located in Memphis, Tennessee and operating under the name of Nursing Innovations, to Temps, Inc. Under SFAS No. 109,the terms of the definitive Asset Purchase Agreement, dated as of January 29, 2008 (“Asset Purchase Agreement”), the Company received a cash purchase price of $447,000 for the acquired business and related assets. Of the purchase price, a defined amount was escrowed for a period of six months from the closing date. Temps, Inc. released approximately $89,000 escrow to Teamstaff in the fourth quarter of 2008.
Net revenues and net loss for the Nursing Innovations per diem operations for 2008 were $0.7 million and $42,000 respectively.
Sale of TeamStaff Rx
Based on an analysis of historical and forecasted results and the Company’s strategic initiative to focus on core business, in the fourth quarter of fiscal 2009, the Company approved and committed to a formal plan to divest the operations of TeamStaff Rx, our wholly-owned subsidiary, based at its Clearwater, Florida location. In evaluating the facets of TeamStaff Rx’s operations, management concluded that this business component meets the definition of a discontinued operation. Accordingly, the results of operations, cash flows and related assets and liabilities of TeamStaff Rx for all periods presented have been reclassified in the accompanying consolidated financial statements from those of continuing businesses.
Effective December 28, 2009, TeamStaff and TeamStaff Rx entered into a definitive Asset Purchase Agreement with Advantage RN, providing for the sale of substantially all of the operating assets of TeamStaff Rx related to TeamStaff Rx’s business of providing travel nurse and allied healthcare professionals for temporary assignments to Advantage RN. The closing of this transaction occurred on January 4, 2010. The Asset Purchase Agreement provides that the purchased assets were acquired by Advantage RN for a purchase price of up to $425,000, of which (i) $350,000 in cash was paid at the closing, and (ii) $75,000 is subject to an escrowed holdback as described in the Asset Purchase Agreement. Additionally, Advantage RN will make rent subsidy payments to TeamStaff Rx totaling $125,000, consisting of: (i) $25,000 paid at closing, and (ii) an additional $100,000 payable in 10 equal monthly installments beginning on March 1, 2010. Under the terms of the Asset Purchase Agreement, Advantage RN will not assume any debts, obligations or liabilities of TeamStaff Rx nor will it purchase any accounts receivable outstanding as of the closing date.
Condensed financial statement information and results of discontinued operations are as follows:
| | | | | | | | | |
| | | For the Fiscal Years Ended | |
| | | September 30, | | | September 30, | |
| (amounts in thousands) | | 2009 | | | 2008 | |
| Revenues | | $ | 8,342 | | | $ | 14,766 | |
| Direct expenses | | | 6,537 | | | | 11,649 | |
| Selling, general and administrative expenses | | | 4,152 | | | | 5,142 | |
| Impairment charge-intangible assets | | | 2,305 | | | | — | |
| Other expense, net | | | 79 | | | | 24 | |
| | | | | | | |
| Net loss | | $ | (4,731 | ) | | $ | (2,049 | ) |
| | | | | | | |
There were no tax benefits associated with the losses from these discontinued operations.
F-13
The following chart details assets and liabilities from all discontinued operations (amounts in thousands):
| | | | | | | | | |
| | | September 30, | | | September 30, | |
| | | 2009 | | | 2008 | |
| ASSETS | | | | | | | | |
| Cash | | $ | 245 | | | $ | — | |
| Accounts receivable | | | 674 | | | | 1,011 | |
| Other current assets | | | 124 | | | | 102 | |
| | | | | | | |
| Total current assets | | | 1,043 | | | | 1,113 | |
| | | | | | | |
| Fixed assets | | | 1,878 | | | | 1,859 | |
| Accumulated depreciation | | | (1,602 | ) | | | (1,464 | ) |
| | | | | | | |
| Net fixed assets | | | 276 | | | | 395 | |
| | | | | | | |
| Goodwill and intangibles | | | 99 | | | | 2,355 | |
| | | | | | | |
| Other assets | | | — | | | | 15 | |
| | | | | | | |
| Total assets | | $ | 1,418 | | | $ | 3,878 | |
| | | | | | | |
| | | | | | | | | |
| Liabilities | | | | | | | | |
| Current portion capital leases | | $ | 44 | | | $ | 40 | |
| Accrued payroll | | | 237 | | | | 177 | |
| Accrued expenses and other current liabilities | | | 111 | | | | 164 | |
| | | | | | | |
| Total current liabilities | | | 392 | | | | 381 | |
| | | | | | | |
| Long term capital leases | | | 39 | | | | 83 | |
| | | | | | | |
| Other long term liabilities | | | 25 | | | | 90 | |
| | | | | | | |
| Total liabilities | | $ | 456 | | | $ | 554 | |
| | | | | | | |
Activity in the liabilities of discontinued operations is as follows:
| | | | | | | | | | | | | | | | | |
| | | September 30, | | | Expensed | | | Paid This | | | September 30, | |
| | | 2007 Balance | | | This Period | | | Period | | | 2008 Balance | |
| Current portion capital leases | | $ | 45 | | | $ | 4 | | | $ | (9 | ) | | $ | 40 | |
| Accrued payroll | | | 279 | | | | | | | | (102 | ) | | | 177 | |
| Accrued expenses and other current liabilities | | | 228 | | | | 135 | | | | (199 | ) | | | 164 | |
| Capital leases | | | 140 | | | | — | | | | (57 | ) | | | 83 | |
| Other long term liabilities | | | 123 | | | | | | | | (33 | ) | | | 90 | |
| | | | | | | | | | | | | |
| Total | | $ | 815 | | | $ | 139 | | | $ | (400 | ) | | $ | 554 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | September 30, | | | Expensed | | | Paid This | | | September 30, | |
| | | 2008 Balance | | | This Period | | | Period | | | 2009 Balance | |
| Current portion capital leases | | $ | 40 | | | $ | 4 | | | $ | — | | | $ | 44 | |
| Accrued payroll | | | 177 | | | | 60 | | | | — | | | | 237 | |
| Accrued expenses and other current liabilities | | | 164 | | | | 2 | | | | (55 | ) | | | 111 | |
| Capital leases | | | 83 | | | | — | | | | (44 | ) | | | 39 | |
| Other long term liabilities | | | 90 | | | | — | | | | (65 | ) | | | 25 | |
| | | | | | | | | | | | | |
| Total | | $ | 554 | | | $ | 66 | | | $ | (164 | ) | | $ | 456 | |
| | | | | | | | | | | | | |
Management anticipates that the Company will report a net loss from discontinued operations through the effective date of the sale to Advantage RN, which will include an estimated charge of $0.2 million for severance to certain TeamStaff Rx employees. Although there are certain conditions on the collection of amounts that are held in escrow, the Company expects to settle such matters in the second quarter of the fiscal year ending September 30, 2010. In addition, management estimates that the Company will incur a loss on the disposal of TeamStaff Rx approximating $0.3 million principally from recognition of the remaining unfunded operating lease payments. The measurement date for recording this liability is December 31, 2009. These amounts are preliminary and subject to change based on future events; the ultimate amount could significantly differ from these current estimates.
F-14
(5) INCOME TAXES:
TeamStaff accounts for income taxes in accordance with the “liability” method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized.
SFAS No. 109This guidance also requires that deferred tax assets
bybe reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized.
(See Note 5)Reclassifications-
Certain reclassifications have been made to prior years amounts to conform to
In the currentfiscal year presentation. These changes include a portionended September 30, 2006, after an assessment of goodwill related to the acquisition of RS Staffing Services in June 2005 reclassified as trade name, the reclassificationall available evidence (including historical and forecasted operating results), management concluded that realization of the payroll services segment from continuing operations to discontinued operations asCompany’s net operating loss carryforwards (which includes those amounts acquired in previous years’ business combinations, collectively “NOLs”), tax credits and other deferred tax assets, could not be considered more likely than not. Accordingly, for the fiscal years ended September 30, 2009, 2008 and 2007, the Company did not record a result oftax benefit for NOLs.
Based on similar assessments, the
sale of DSI Payroll Services to CompuPay effective May 31, 2006 (See Note 4)Company increased (decreased) the valuation allowance established on deferred tax assets by approximately $1.8 million and
a change$(0.5) million in 2009 and 2008, respectively. The increase in the
presentation of cash flows to begin the reconciliation with net loss rather than net loss from continuing operations.Stock-Based Compensation-
The Company’s 2006 Long Term Incentive Plan (the ‘‘2006 Plan’’), which is shareholder approved, permits the grant of stock options, stock appreciation rights, restricted stock, performance awards or other stock unit awards (collectively, ‘‘Awards’’) of up to 5,000,000 shares of common stock to all employees and non-employee directors. All Awards under the 2006 Plan are granted at the fair market value of the common stock at the grant date. See Note 11 Shareholders’ Equity for a full description of the 2006 Plan.
Table of ContentsThe Company’s 2000 Employee Stock Option Plan (the ‘‘2000 Plan’’), which is shareholder approved, permits the grant of options to purchase up to 1,714,286 shares of common stock to all employees as stock compensation. All stock options under the 2000 Plan are granted at the fair market value of the common stock at the grant date. Employee stock options vest ratably over a two year period and expire 5 years from the grant date.
The Company’s 2000 Non-Executive Director Stock Option Plan (the ‘‘Director Plan’’), which is shareholder approved, permits the grant of options to non-employee directors of TeamStaff. Under the terms of the Director Plan, each non-executive director is automatically granted an option to purchase 5,000 shares upon joining the Board and each September lst, pro rata, based on the time the director has served in such capacity during the previous year. The Director Plan also provides that directors, upon joining the Board, and for one (1) year thereafter, will be entitled to purchase restricted stock from TeamStaff at a price equal to 80% of the closing bid price on the date of purchase up to an aggregate purchase price of $50,000.
Effective October 1, 2005, the Company’s plans are accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards (‘‘FAS’’) No. 123 (revised 2004), Share-Based Payment (‘‘FAS 123(R)’’), which replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion (‘‘APB’’) No. 25, Accounting for Stock Issued to Employees, and related interpretations. FAS 123 (R) requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements. In addition, the Company adheres to the guidance set forth within Securities and Exchange Commission (‘‘SEC’’) Staff Accounting Bulletin (‘‘SAB’’) No. 107, which provides the Staff’s views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies.
Prior to October 1, 2005, the Company accounted for similar transactions in accordance with APB No. 25 which employed the intrinsic value method of measuring compensation cost. Accordingly, compensation expense was not recognized for fixed stock options if the exercise price of the option equaled or exceeded the fair value of the underlying stock at the grant date.
While FAS No. 123 encouraged recognition of the fair value of all stock-based awards on the date of grant as expense over the vesting period, companies were permitted to continue to apply the intrinsic value-based method of accounting prescribed by APB No. 25 and disclose certain pro-forma amounts as if the fair value approach of SFAS No. 123 had been applied. In December 2002, FAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123, was issued, which, in addition to providing alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation, required more prominent pro-forma disclosures in both the annual and interim financial statements. The Company complied with these disclosure requirements for all applicable periods prior to October 1, 2005.
In adopting FAS 123(R), the Company applied the modified prospective approach to transition. Under the modified prospective approach, the provisions of FAS 123 (R) are to be applied to new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro-forma disclosures under FAS 123.
Stock option compensation expense in 2006 is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for the entire portion of the award. As a result of the adoption of FAS 123 (R), the Company’s resultsallowance for the fiscal year ended September 30, 2006 include share-based compensation expense totaling2009 was principally due to the Federal NOL and the asset impairment charge while the net decrease of $0.5 in 2008 related to the Federal NOL, offset by a decrease of approximately $17,000. Such$1.1 representing adjustments to state NOLs and other fully reserved deferred tax assets. The primary reason for the NOL generated in 2008 relates to the realized tax loss (unrealized in 2007) on the sale of the Nursing Innovations discontinued operation’s assets (see Note 4).
Based on an assessment performed as of September 30, 2009 and 2008, the Company has maintained a full valuation allowance against remaining NOLs and other deferred tax assets; as the realization of such amounts, have been included inat those dates, could not be considered more likely than not. In prospective periods, there may be reductions to the Consolidated Statementsvaluation allowance to the extent that the Company concludes that it is more likely that not that all or a portion of Operations within operating expenses. The Company recognized relatedthe deferred tax benefits associated with its share-based compensation arrangements totaling approximately $6,000 forassets can be utilized (subject to annual limitations and prior to the expiration of such NOLs), to offset future periods’ taxable income.
In the fiscal year ended September 30,
2006. As2009, the Company recognized a tax benefit of
Table of ContentsSeptember 30, 2006, approximately $12,000 of remaining unrecognized compensation expense $28,000 related to non-vested stock option awards is expected to be recognized during the next fiscal year.
The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. During 2006, the Company took into consideration guidance under SFAS 123R and SEC Staff Accounting Bulletin No. 107 (SAB 107) when reviewing and updating assumptions. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. Previously such assumptions were determined based on historical data.
The weighted average assumptions made in calculating the fair values of options are as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Fiscal years ended September 30, |
| | | | 2006 | | | 2005 | | | 2004 |
| Weighted Average Grant Fair Value | | | | $ | 0.43 | | | | | $ | 0.84 | | | | | $ | 1.21 | |
| Expected term (in years) | | | | | 4 | | | | | | 4 | | | | | | 4 | |
| Expected volatility | | | | | 33.8 | | | | | | 47 | | | | | | 68 | |
| Expected dividend yield | | | | | 0 | | | | | | 0 | | | | | | 0 | |
| Risk-free interest rate | | | | | 4.56 | | | | | | 3.56 | | | | | | 3.68 | |
|
During the twelve months ended September 30, 2006, TeamStaff granted awards of restricted stock under its 2006 LTIP. An aggregate of 220,000 restricted shares were awarded at the closing price on the award date of $1.70. The restricted shares vest over a three-year period, one-third each year beginning on April 27, 2007. As of September 30, 2006, approximately $322,000 of unrecognized compensation costs related to non-vested restricted stock awards is expected to be recognized overrefund from a weighted average period of 2.6 years.
The following table addresses the additional disclosure requirements of 123(R) in the period of adoption. The table illustrates the effect on net income and earnings per share as if the fair value recognition provisions of FAS No. 123 had been applied to all outstanding and unvested awards in the prior year comparable period.
| | | | | | | | | | | | |
| (Amounts in thousands, except per share data) | | | 2005 | | | 2004 |
| Net loss, as reported | | | | $ | (2,489 | | | | | $ | (4,079 | |
| Add: Total stock-based employee compensation expense included in reported net loss, net of related tax effects | | | | | — | | | | | | — | |
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | | | | | (294 | | | | | | (250 | |
| Pro forma net loss | | | | $ | (2,783 | | | | | $ | (4,329 | |
| Loss per share: | | | | | | | | | | | | |
| Basic and diluted – as reported | | | | $ | (0.14 | | | | | $ | (0.26 | |
| Basic and diluted – pro forma | | | | $ | (0.15 | | | | | $ | (0.28 | |
|
Earnings (Loss) Per Share-
Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period adjusted to reflect potentially dilutive securities.
Table of Contentsstate. In accordance with SFAS 128, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
| | | | | | | | | | | | | | | | | | |
| | | | Years Ended September 30, |
| (Amounts in thousands, except per share data) | | | 2006 | | | 2005 | | | 2004 |
| Weighted average number of common shares outstanding – Basic | | | | | 19,278 | | | | | | 18,206 | | | | | | 15,714 | |
| Incremental shares for assumed conversions of stock options/warrants | | | | | — | | | | | | — | | | | | | — | |
| Weighted average number of common and equivalent shares outstanding – Diluted | | | | | 19,278 | | | | | | 18,206 | | | | | | 15,714 | |
|
Stock options and warrants outstanding at September 30, 2006, 2005, and 2004 to purchase 1,491,000, 1,942,000, and 1,252,941 shares of common stock respectively were not included in the computation of Diluted EPS as they were antidilutive due to losses from continuing operations in each of the three years.
Accumulated Comprehensive Loss and Minimum Pension Liability Adjustment-
A minimum pension liability adjustment is required when the actuarial present value of accumulated benefit obligation exceeds the plan assets and accrued pension liabilities. The minimum pension liability adjustment, net of income taxes, is recorded as a component of ‘‘Accumulated comprehensive loss’’ on the balance sheet and is reflected in the Statement of Comprehensive Loss as ‘‘Minimum pension liability adjustment, net of tax’’. The Company used a discount rate of 3.0% each to calculate the projected benefit obligation and the periodic benefit cost calculation for the twelve months ended September 30, 2006. The Company recorded a gain from such adjustment, net of tax of $70,000 and $153,000 for the twelve months ended September 30, 2006 and 2005, respectively. The Company recorded a loss from such adjustment, net of tax of $38,000 for the twelve months ended September 30, 2004. At September 30, 2006, 2005 and 2004, accumulated comprehensive loss on the balance sheet reflects the cumulative balance due to the minimum pension liability adjustment.
Recent Accounting Standards:
In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company’s financial statements and the related financial statement disclosures. This model is commonly referred to as a ‘‘dual approach’’ because it requires quantification of errors under both the iron curtain and the rollover methods.
SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if the ‘‘dual approach’’ had always been used or (ii) recording the cumulative effect of initially applying the ‘‘dual approach’’ as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings.
We will adopt the provisions of SAB 108 in connection with the preparation of our annual financial statements for the year ending after December 31, 2006. We are in the process of evaluating the impact, if any, on our financial statements of initially applying the provisions of SAB 108.
On September 15, 2006, the Financial Accounting Standard Board issued SFAS 157 ‘‘Fair Value Measurements’’ that provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances.
This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company will adopt this pronouncement effective for fiscal year beginning October 1, 2008. We are currently evaluating the impact of adopting this pronouncement on our financial statements.
Table of ContentsIn September 2006, the Financial Accounting Standards Board issued SFAS 158 ‘‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132(R).’’ SFAS 158 requires an employer and sponsors one or more single employer defined benefit plans to recognize the funded status of a benefit plan; recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that may arise during the period; measure defined benefit plan assets and obligations as of the employer’s fiscal year; and, enhances footnote disclosure.
For fiscal years ending after December 15, 2006 employers with equity securities that trade on a public market are required to initially recognize the funded status of a defined benefit postretirement plan and to provide the enhanced footnote disclosures. For fiscal years ending after December 15, 2008 employers are required to measure plan assets and benefit obligations. We are currently evaluating the impact of adopting this pronouncement on our financial statements.
FSP FAS 123(R)-5 was issued on October 10, 2006. The FSP provides that instruments that were originally issued as employee compensation and then modified, and that modification is made to the terms of the instrument solely to reflect an equity restructuring that occurs when the holders are no longer employees, no change in the recognition or the measurement (due to a change in classification) of those instruments will result if both of the following conditions are met: (a). There is no increase in fair value of the award (or the ratio of intrinsic value to the exercise price of the award is preserved, that is, the holder is made whole), or the antidilution provision is not added to the terms of the award in contemplation of an equity restructuring; and (b). All holders of the same class of equity instruments (for example, stock options) are treated in the same manner. The provisions in this FSP shall be applied in the first reporting period beginning after the date the FSP is posted to the FASB website. We will adopt this FSP from its effective date. We currently do not believe that its adoption will have any impact on our financial statements.
(3) BUSINESS COMBINATIONS:
Acquisition of RS Staffing Services, Inc.:
On June 8, 2005 TeamStaff, Inc. completed its acquisition of RS Staffing Services, Inc., a privately held Georgia corporation, pursuant to the terms of a Stock Purchase Agreement dated as of May 26, 2005. RS Staffing, headquartered in Monroe, GA, specializes in providing medical and office administration/technical professionals through nationwide Schedule contracts with both the General Services Administration (‘‘GSA’’) and Veterans Affairs (‘‘VA’’). Closing of the transaction was completed for accounting purposes as of June 4, 2005. TeamStaff acquired all of the capital stock of RS Staffing for a purchase price of $8 million consisting of $3.25 million in cash, $3 million in a 2-year note, and $1.75 million in TeamStaff common stock (1,206,896 shares). The shares are restricted shares and can only be sold in accordance with the provisions of Rule 144 of the Securities Act of 1933. The Sellers guaranteed a minimum net worth of $1.4 million and any amounts above or below this amount after a finalized accounting at one year post acquisition, were subject to a purchase price adjustment. As a result, for the quarter ended June 30, 2006, a downward purchase price adjustment in the amount of approximately $132,000 was made and deducted from the amount due under the first installment of the note payable. In addition, there was a one-year earn out of up to $2.0 million based upon the achievement of specified performance targets for the business. The performance targets were met and the Company made payment of the full amount on August 14, 2006. Principals of RS Staffing, namely Roger Staggs and Barry Durham, initially continued as management of RS pursuant to employment agreements with each of them. Barry Durham resigned his position effective as of December, 2005. Roger Staggs’ employment agreement expired on June 4, 2006 and was not renewed. The acquisition agreement also provided for mutual indemnification for breaches of representations and warranties. Further, the note issued by TeamStaff as part of the purchase price bears interest at 5% per annum, of which one half has been paid and the remainder is payable in June 2007, and is secured by a lien on certain assets of the business, subordinate to any liens granted in connection with financing for the transaction. The Company paid $1.5 million of the note payable plus accrued interest of $150,000 on June 8, 2006. In connection with the acquisition, TeamStaff obtained financing from PNC Bank, National Association.
Table of ContentsThe following table summarizes the revised estimated fair values of the assets acquired and liabilities assumed:
(Amounts in thousands)
| | | | | | |
| Current assets | | | | $ | 5,865 | |
| Property, plant, and equipment | | | | | 204 | |
| Goodwill | | | | | 8,590 | |
| Tradename | | | | | 370 | |
| Other assets | | | | | 75 | |
| Total assets acquired | | | | | 15,104 | |
| Current liabilities | | | | | 4,680 | |
| Long term liabilities | | | | | 39 | |
| Total liabilities assumed | | | | | 4,719 | |
| Net assets acquired | | | | $ | 10,385 | |
|
Included in Goodwill is $330,000 of expenses directly related to the acquisition.
Acquisition of Certain Assets of Nursing Innovations, Inc.:
On November 14, 2004, TeamStaff’s medical staffing subsidiary, TeamStaff Rx, Inc. acquired the assets of the staffing business of Nursing Innovations, Inc., a Memphis, Tennessee-based provider of travel and per diem nurses. The terms of the agreement provided for TeamStaff Rx to acquire certain assets from Nursing Innovations and its primary shareholder. The combined purchase price was approximately $1.8 million, of which $180,000 was held in an escrow account for a period of one year to provide security for the sellers’ indemnification obligations. The purchase price was subject to downward adjustment based upon the percentage of former Nursing Innovations business that successfully transferred to TeamStaff Rx. Subsequent to the balance sheet date, it was determined that no additional purchase price adjustment was due after the first year and on November 18, 2005, the Company authorized the release of the $180,000 of funds held in escrow to the sellers. In addition, there are certain deferred purchase price provisions which may increase the total purchase price based upon the performance of the former Nursing Innovations business during the two years following closing of the transaction. It was determined that no additional purchase price was due for both years of the two year earn-out period.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:
(Amounts in thousands)
| | | | | | |
| Property, plant and equipment | | | | $ | 185 | |
| Goodwill | | | | | 1,681 | |
| Total assets acquired | | | | | 1,866 | |
| Total liabilities assumed | | | | | — | |
| Net assets acquired | | | | $ | 1,866 | |
|
Included in Goodwill is $66,000 of expenses directly related to the acquisition.
The following unaudited pro forma information presents a summary of consolidated financial results of operations of the Company and acquired companies as if the acquisitions had occurred on October 1, 2003, the beginning of the earliest period presented.
Table of Contents
| | | | | | | | | | | | |
| | | | Years Ended September 30, |
| | | | 2005 | | | 2004 |
| (amounts in thousands) | | | | | | |
| Revenues | | | | $ | 82,794 | | | | | $ | 84,102 | |
| Net loss | | | | $ | (2,318 | | | | | $ | (3,527 | |
| Loss per share – basic and diluted | | | | $ | (0.12 | | | | | $ | (0.18 | |
|
The number of common shares outstanding used to calculate pro forma loss per share have been adjusted to include 2,392,000 shares issued as the source of financing for the Nursing Innovations acquisition and 1,206,896 shares issued as part of the RS Staffing Services acquisition, as if these shares had been outstanding as of the earliest period presented.
These proforma results for the fiscal year ended September 30, 2005 include $175,0002008 the Company recorded tax expense of additional expense recorded by RS Staffing, prior to acquisition, predominately$60,000 related to outstanding former employee claims, as well as $300,000 of non recurring incentives paid to its owners, prior tocertain estimated state taxes due which could not be offset by an NOL from those specific states.
At September 30, 2009 the
acquisition. This table also does not reflect cost savingsCompany had net operating losses of approximately
$115,000 and $417,000 for the twelve months ended September 30, 2005 and 2004, respectively, that would have potentially been eliminated due to cost synergies between the companies as part of the acquisition.(4) DISCONTINUED OPERATIONS:
Effective November 17, 2003, TeamStaff sold certain of the assets of the subsidiaries through which it operated its professional employer organization (‘‘PEO’’) business to Gevity HR, Inc. (‘‘Gevity’’) for the sum of $9.5$30.4 million, in cash, $2.5 million of which had been placed in escrow.
On April 23, 2004, TeamStaff and Gevity agreed that TeamStaff’s share of the $2.5 million placed in escrow was $2.25 million. That amount was released from escrow for TeamStaff’s benefit. When added to the $7.0 million previously paid by Gevity, the total purchase price paid was $9.25 million. Concurrently, TeamStaff settled obligations to Gevity related to payroll for TeamStaff’s internal employees under a co-employment arrangement of $1.2$15.1 million and settled obligations predominantly related to PEO client payments received by TeamStaff during the period following the sale, offset in part by invoices paid by TeamStaff on Gevity’s behalf, totaling$.7 million for U.S., New Jersey and other states’ tax return purposes, respectively, and unutilized tax credits approximate $1.1 million. Additionally, effective May 2, 2004, TeamStaff sold certainAs a result of the assetsprevious business combinations and changes in its ownership, there is a substantial amount of TeamStaff Solutions, Inc., the subsidiary through which it operated its temporary technical staffing business, to Metro Tech Consulting Services, Inc. for the sum of $65,000.
Net revenues for the PEO segment for fiscal years ended September 30, 2006, 2005, and 2004 were $0, $0, and $12.1 million, respectively.
Effective May 31, 2006, the Company sold substantially all of the assets of its DSI Payroll Services division to CompuPay, Inc. for $9.0 million. The general terms of the transaction were an all-cash sale for $9.0 million,U.S. NOLs that are subject to an escrow of $250,000 for potential post-closing contingencies. On November 30, 2006, CompuPay released $125,000 of the escrowannual limitations on utilization. The U.S. NOLs begin to TeamStaffexpire in 2021 and is scheduledcontinue to release the remaining escrow on May 31, 2007. The agreement called for minimum working capital requirements that resulted in a purchase price adjustment of $248,677, which was paid to TeamStaff on September 11, 2006. The sale also included a transition agreement whereby CompuPay would sublease certain office space at DSI’s current location from TeamStaff, Inc., among other standard agreements.
Net revenues for the DSI Payroll Services division for fiscal years ended September 30, 2006, 2005, and 2004 were $3.5 million, $4.6 million, and $4.4 million, respectively.
Table of ContentsThe following chart details assets and liabilities from all discontinued operations:
| | | | | | | | | | | | |
| | | | For Fiscal Years Ended
September 30, |
| | | | 2006 | | | 2005 |
| ASSETS | | | | | | | | | | | | |
| Accounts receivable | | | | $ | — | | | | | $ | 580 | |
| Other current assets | | | | | — | | | | | | 9 | |
| Total current assets | | | | | — | | | | | | 589 | |
| Fixed assets | | | | | — | | | | | | 637 | |
| Accumulated depreciation | | | | | — | | | | | | (218 | |
| Net fixed assets | | | | | — | | | | | | 419 | |
| Total assets | | | | $ | — | | | | | $ | 1,008 | |
| LIABILITIES | | | | | | | | | | | | |
| Current portion capital leases | | | | | — | | | | | $ | 50 | |
| Accrued payroll | | | | | — | | | | | | 49 | |
| Accrued expenses and other current liabilities | | | | | 454 | | | | | | 516 | |
| Total current liabilities | | | | | 454 | | | | | | 615 | |
| Long term capital leases | | | | | — | | | | | | 148 | |
| Total liabilities | | | | $ | 454 | | | | | $ | 763 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Liability Balances
(amounts in thousands) | | | September 30,
2005 Balance | | | Expensed
This Year | | | Paid This
Year | | | September 30,
2006 Balance |
| Current portion capital leases | | | | $ | 50 | | | | | $ | — | | | | | $ | (50 | | | | | $ | — | |
| Accrued payroll | | | | | 49 | | | | | | — | | | | | | (49 | | | | | | — | |
| Accrued expenses and other current liabilities | | | | | 516 | | | | | | 654 | | | | | | (716 | | | | | | 454 | |
| Long term capital leases | | | | | 148 | | | | | | — | | | | | | (148 | | | | | | — | |
| Total | | | | $ | 763 | | | | | $ | 654 | | | | | $ | (963 | | | | | $ | 454 | |
|
(5) INCOME TAXES:
Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. The Company is required to record a valuation allowance to reduce its net deferred tax assets to the amount that it believes is more likely than not to be realized. In assessing the need for a valuation allowance, the Company historically had considered all positive and negative evidence, including scheduled reversals of deferred tax liabilities, prudent and feasible tax planning strategies and recent financial performance. The Company determined that the negative evidence, including historic and current taxable losses, as well as uncertainties related to the ability to utilize certain Federal and state net loss carryforwards, outweighed any objectively verifiable positive factors, and as such, concluded that a full valuation allowance against the deferred tax asset was necessary. In fiscal 2006, the deferred tax asset was reduced by $16.9 with a corresponding adjustment to the provision for income taxes. The net carrying value of the deferred tax asset is $0 at September 30, 2006. The establishment of the deferred tax asset allowance does not preclude the Company from reversing a portion or all of the allowance in future periods if the Company believes the positive evidence is sufficient enough to utilize at least a portion of the deferred tax asset, nor does it limit the ability to utilize losses for tax purposes, subject to loss carry-forward limitations and periods permitted by tax law.
The company has available $28.3 in net operating loss carry forwards that expire at various dates through 2025.
Table of ContentsAn analysis of TeamStaff’s deferred tax asset and liability (including those related to TeamStaff Rx) is as follows-
(Amountsfollows (Amounts in thousands):
| | | | | | | | | |
| | | Years Ended September 30, | |
| | | 2009 | | | 2008 | |
| Deferred income tax asset: | | | | | | | | |
| Net operating loss carry forwards and tax credits | | $ | 12,977 | | | $ | 12,102 | |
| Workers’ compensation reserves | | | (115 | ) | | | (160 | ) |
| Occupancy leases | | | — | | | | 55 | |
| Pension | | | — | | | | 28 | |
| Deferred rent | | | 35 | | | | 37 | |
| Accrued liabilities | | | 335 | | | | 235 | |
| Stock based compensation | | | 133 | | | | 68 | |
| Fixed and intangible assets | | | (252 | ) | | | (997 | ) |
| Other items, net | | | 7 | | | | 1 | |
| Valuation allowance | | | (13,120 | ) | | | (11,369 | ) |
| | | | | | | |
| | | $ | — | | | $ | — | |
| | | | | | | |
F-15
| | | | | | | | | | | | |
| | | | Years Ended September 30, |
| | | | 2006 | | | 2005 |
| Deferred income tax asset: | | | | | | | | | | | | |
| Net operating loss carry forwards and tax credits | | | | $ | 16,856 | | | | | $ | 18,620 | |
| Workers’ compensation reserves | | | | | (459 | | | | | | (527 | |
| Occupancy leases | | | | | 124 | | | | | | 143 | |
| Pension | | | | | 153 | | | | | | 207 | |
| Deferred rent | | | | | 76 | | | | | | 41 | |
| Accrued liabilities | | | | | 150 | | | | | | 83 | |
| Other items, net | | | | | (49 | | | | | | (85 | |
| Valuation allowance | | | | | (16,851 | | | | | | — | |
| | | | | $ | — | | | | | $ | 18,482 | |
|
The significant components of the provisionexpense (benefit) for income taxes from continuing operations are summarized as follows-
(Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended September 30, | | Years Ended September 30, | |
| (Amounts in thousands) | | | 2009 | | 2008 | |
| Current expense (benefit) | | | $ | (28 | ) | | $ | 60 | |
| Deferred expense (benefit) | | | — | | — | |
| | | 2006 | | 2005 | | 2004 | | | | | |
| Current (benefit) | | $ | (834 | | | $ | (1,634 | | | $ | (242 | | |
| Deferred expense (benefit) | | | 16,851 | | | | 30 | | | | (1,444 | | |
| Total expense (benefit) | | | $ | 16,017 | | | | $ | (1,604 | | | | $ | (1,686 | | | $ | (28 | ) | | $ | 60 | |
| | | | | |
The following table indicates the significant
elements contributing to the differencedifferences between the Federal statutory rates and TeamStaff’s effective tax rate for continuing operations-
(Amounts
| | | | | | | | | |
| | | Years Ended September 30, | |
| (Amounts in thousands) | | 2009 | | | 2008 | |
| Federal statutory rate | | $ | 157 | | | $ | 1,139 | |
| State taxes, net | | | (28 | ) | | | 60 | |
| Valuation allowance | | | (157 | ) | | | (1,139 | ) |
| | | | | | | |
| | | $ | (28 | ) | | $ | 60 | |
| | | | | | | |
(6) DEBT:
On March 28, 2008, we entered into an Amended and Restated Loan and Security Agreement dated as of March 28, 2008 (the “Loan Agreement”) with Business Alliance Capital Company (“BACC”), a division of Sovereign Bank (“Sovereign” or “Lender”). Effective April 1, 2008, BACC changed its name to Sovereign Business Capital. Under the Loan Agreement, the Lender agreed to provide a revolving credit facility to the Company in
thousands) | | | | | | | | | | | | | | | | | | |
| | | | Years Ended September 30, |
| | | | 2006 | | | 2005 | | | 2004 |
| Federal statutory rate | | | | $ | (746 | | | | | $ | (1,435 | | | | | $ | (1,508 | |
| State taxes, net of federal income tax benefit | | | | | (88 | | | | | | (169 | | | | | | (178 | |
| Valuation allowance | | | | | 16,851 | | | | | | — | | | | | | — | |
| | | | | $ | 16,017 | | | | | $ | (1,604 | | | | | $ | (1,686 | |
|
(6) DEBT:
In connection withan aggregate amount of up to $3,000,000, subject to the acquisitionfurther terms and conditions of RS Staffing Services, Inc. (see Note 3), TeamStaffthe Loan Agreement. The loan is secured financing withby a first priority lien on all of the Company’s assets. Previously in 2005, the Company and PNC Bank, National Association in the form of a $7.0 million revolving credit facility. The credit facility was provided by PNC Bank effective on June 8, 2005 to (i) provide for the acquisition of RS Staffing; (ii) refinance an outstanding senior loan facility; and (iii) provide ongoing working capital. Effective February 13, 2006, TeamStaff(“PNC”) had entered into an amendment to the revolving credit note, increasing the$8,000,000 revolving credit facility (“PNC Loan Facility”). Pursuant to $8.0 million. Revolvingthe Loan Agreement, the Lender (i) acquired by assignment from PNC all right, title and interest of PNC under the PNC Loan Facility, the PNC note and related loan documentation, and (ii) restructured the PNC Loan Facility into a $3,000,000 revolving credit facility with a 3 year term. The Company’s ability to request loan advances under the creditLoan Agreement is subject to computation of the Company’s advance limit and compliance with the covenants and conditions of the loan. The facility bear interestis for a term of 36 months and matures on March 31, 2011. Interest on amounts due accrue on the daily unpaid balance of the loan advances at either a PNC bank internalper annum rate that approximatesof 0.25% percentage point above the Prime Rate plus 25 basis points or LIBOR plus 275 basis points, whichever is higher. The facility has a three-year life and contains term and line of credit borrowing options. in effect from time to time, but not less than 5.5% per annum.
The facility is subject to certain restrictive covenants.For the period ended September 30, 2006, PNC Bank amended the covenants, to replace theincluding minimum debt service coverage ratio and restrictions on the Company’s ability to, among other things, dispose of certain assets, engage in certain transactions, incur indebtedness and pay dividends. The Loan Agreement also provides for customary events of default following which, the Lender may, at its option, accelerate the amounts outstanding under the Loan Agreement.
In connection with
the disposition of the assets of our TeamStaff Rx subsidiary, we were required to obtain the consent of Sovereign. On January 12, 2010 we were granted such consent. As a
minimum combined cash and line availability requirement. Forcondition to such consent, however, Sovereign reduced the
fiscal year endedmaximum amount available under such loan facility from $3.0 million to $2.0 million. As of September 30,
2006, TeamStaff was in compliance with all loan covenants. The facility is subject to acceleration upon non-payment or various other standard default clauses. In addition, the Company granted PNC a lien2009 and
security interest on all of its assets. The facility was paid off with the proceeds from the sale of DSI Payroll Services on May 31, 2006 and the line has not
Table of Contentsbeen drawn upon since that date. As of fiscal year ended September 30, 2006,2008, there was no debt outstanding under the Credit FacilityLoan Agreement and $5.5 million of unused availability (as defined) totaled $1.7 million and $1.8 million, respectively, net of required collateral reserves per the Loan Agreement for certain payroll and tax liabilities.
In addition, on January 11, 2010, we determined that as of September 30, 2009, we were not in compliance with the debt service coverage ratio covenant of the Loan Agreement. The Loan Agreement provides that following an event of default, Sovereign may, among other remedies provided for in the Loan Agreement, accelerate the amounts outstanding under the
line, based on billed accounts receivable. TheLoan Agreement, take such actions as it deems necessary to protect its security interest
rate effective at September 30, 2006 was 8.5%.in the collateral, and terminate the Loan Agreement. In connection with the acquisition of RS Staffing, TeamStaff issued two promissory notesits consent to the former owners of RS Staffing as partsale of the acquisition price, inTeamStaff Rx assets and loan modification, Sovereign waived such non-compliance for the aggregate principal amount of $3.0 million. The notes bear interest at 5% per annum, and are subordinateperiod ended September 30, 2009. Sovereign, however, reserved its rights under the Loan Agreement with respect to any future non-compliance with the financing provided by PNC Bank described above. One halfdebt service coverage ratio for any future period or any other provision of the principal and interest was due on June 8, 2006 and payment was made in the amount of $1.65 million. Loan Agreement.
F-16
(7) CAPITAL LEASES:
The
remaining principal and interest is due in June 2007.Long-term debt from continuing operations at September 30, 2006 and 2005 consists of the following-
(Amounts in thousands)
| | | | | | | | | | | | |
| | | | 2006 | | | 2005 |
| Notes payable | | | | $ | 1,500 | | | | | $ | 3,043 | |
| Less – current portion | | | | | (1,500 | | | | | | (1,543 | |
| Long-term debt | | | | $ | — | | | | | $ | 1,500 | |
|
(7) CAPITAL LEASES:
The companyCompany leases certain office equipment under non-cancelable capital lease agreements that expire at various dates through 2011.fiscal year 2012. Terms range from 36 to 63 months. Interest rates range from 1.0%7.5% to 13.3%10.1%. As of September 30, 2006,2009 and 2008, the companyCompany has recorded $1.0 million in gross capital leases and accumulated depreciation of $0.7 million.
$0.9 million and $0.8 million, respectively.
(8) OTHER CURRENT ASSETS: (9) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: LIABILITIESIncluded in accrued:
Accrued expenses and other current liabilities at September 30, 2006 was $0.5 million2009 and 2008 consist of the following (amounts in accrued income taxes.thousands):
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| Accrued benefits and incentives | | $ | 406 | | | $ | 482 | |
| Accrued bonus | | | 50 | | | | 588 | |
| Accrued interest | | | 75 | | | | 75 | |
| Accrued occupancy | | | 50 | | | | 72 | |
| Accrued payroll taxes | | | 70 | | | | 66 | |
| Accrued professional fees | | | 487 | | | | 297 | |
| Other | | | 103 | | | | 330 | |
| | | | | | | |
| | | $ | 1,241 | | | $ | 1,910 | |
| | | | | | | |
Table of Contents(10) COMMITMENTS AND CONTINGENCIES:
Potential Contractual Billing Adjustments
At September 30, 2009, TeamStaff GS is seeking approval from the Federal government for gross profit on retroactive billing rate increases associated with certain government contracts at which it has employees staffed on contract assignments. These adjustments are due to changes in the contracted wage determination rates for these contract employees. A wage determination is the listing of wage rates and fringe benefit rates for each classification of laborers whom the Administrator of the Wage and Hour Division of the U.S. Department of Labor (“DOL”) has determined to be prevailing in a given locality. Contractors performing services for the Federal government under certain contracts are required to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in these localities. An audit by the DOL at one of the facilities revealed that notification, as required by contract, was not provided to TeamStaff GS in order to effectuate the wage increases in a timely manner. Wages for contract employees currently on assignment have been adjusted prospectively to the prevailing rate and hourly billing rates to the DVA have been increased accordingly. During the fiscal year ended September 30, 2008, TeamStaff recognized nonrecurring revenues of $10.8 million and direct costs of $10.1 million, based on amounts that are contractually due under its arrangements with the Federal agencies. At September 30, 2009, the amount of the remaining accounts receivable with the DVA approximates $9.3 million. The Company has been and continues to be in discussions with representatives of the DVA regarding the matter and anticipates resolution during the second quarter of fiscal 2010. TeamStaff is currently in the process of negotiating a final amount related to gross profit on these adjustments. As such, there may be additional revenues recognized in future periods once the approval for such additional amounts is obtained. The ranges of additional revenue and gross profit are estimated to be between $0.4 million and $0.6 million. At present, the Company expects to collect such amounts during fiscal 2010. Because these amounts are subject to government review, no assurances can be given that we will receive any additional billings from our government contracts or that if additional amounts are received, that the amount will be within the range specified above.
Leases-F-17
Leases
Rent expense, net of sublease income, under all operating leases in fiscal year ended September 30, 2006,2009, was $0.7 million,$483,000, of which $0.5 million$148,000 is attributed to continuing operations and $0.2 million$335,000 is attributed to discontinued operations. Rent expense, net of sublease income, under all operating leases in fiscal year ended September 30, 2005,2008, was $1.1 million,$542,000, of which $0.7 million was$167,000 is attributed to continuing operations and $0.4 million was$375,000 is attributed to discontinued operations. Rent expense net of sublease income, under all operating leases in fiscal year endedAt September 30, 2004, was $2.6 million,2009 there is one remaining occupancy sublease.
As discussed in Note 4, as part of
which $0.8 million was attributedthe sale of TeamStaff Rx, Advantage RN will have the right to
continuing operations and $1.8 million was attributed to discontinued operations.The PEO office spaceuse, through February 28, 2011, the premises located in Boca Raton,Clearwater, Florida has been subleasedthat was used by GevityHR, IncTeamStaff Rx for its principal executive offices. In connection with such use, Advantage RN will make rent subsidy payments to TeamStaff Rx totaling $125,000, consisting of (i) $25,000 payable at the closing and (ii) an additional $100,000 payable in 10 equal monthly installments of $10,000 payable on the first day of each calendar month beginning on March 1, 2010 until December 1, 2010. In addition, the Company anticipates incurring a remaining lease term asloss on the disposal of September 30, 2006, of 9 months for approximately $142,000. A portionTeamStaff Rx principally from recognition of the office space located in Somerset, New Jersey has been subleased by CompuPay, Inc.remaining unfunded operating lease payments at this facility. The measurement date for a remaining lease term as of September 30, 2006, of 8 months for $95,000.
recording this liability is December 31, 2009.
Workers’ Compensation Policy-Prepaid Workers’ Compensation:
Compensation
From November 17, 2003 through April 14, 2009, inclusive, TeamStaff’s
current workers’ compensation insurance program
iswas provided by Zurich American Insurance
Company.Company (“Zurich”). This program
coverscovered TeamStaff’s temporary,
employeescontract and
its corporate employees.
The program is managed by Cedar Hill and GAB Robins provides claims handling services. This program
iswas a fully insured, guaranteed cost program that
containscontained no deductible or retention feature. The premium for the program
iswas paid monthly based upon actual payroll and is subject to a policy year-end audit.
Effective April 15, 2009, TeamStaff entered into a partially self-funded workers’ compensation insurance program with a national insurance carrier for the premium year April 15, 2009 through April 14, 2010. The Company will pay a base premium plus actual losses incurred, not to exceed certain stop-loss limits. The Company is insured for losses above these limits, both per occurrence and in the aggregate. The Company accrues for estimated claims incurred based on data provided by its insurance carrier.
As part of the Company’s discontinued PEO operations, TeamStaff had a workers’ compensation program with Zurich, American Insurance Company, which originally covered the period from March 22, 2002 through March 31,November 16, 2003, inclusive. The Company subsequently renewedPayments for the policy with Zurich for the period from April 1, 2003, through March 31, 2004, inclusive. The renewal program was collateralized by a letter of credit inuring to the benefit of Zurich, and cash held in a trust account by a third party. Effective March 31, 2005, Zurich withdrew the requirement for a letter of credit and $1.8 million of restricted cash held in the form of a certificate of deposit at SunTrust Bank was released to TeamStaff. Payments were made to the trust monthly based on projected claims for the year.policy period. Interest on all assets held in the trust is credited to TeamStaff. Payments for claims and claims expenses are made from the trust. Assets inFrom time-to-time, trust assets have been refunded to the trust may be adjusted from time to timeCompany based on program experience.Zurich’s and management’s overall assessment of claims experience and historical and projected settlements. In conjunction with the sale of its PEO assets to GevityHR, Inc., TeamStaff requestedJune 2009 and received a pro rata cancellation of the policy as of November 17, 2003. On March 3, 2006,2008, Zurich reduced the collateral requirements on outstanding workers’ compensation claims and released $2.25 million$114,000 and $350,000, respectively, in trust account funds back to TeamStaff.the Company. The final amount of trust funds that could be refunded to the Company is subject to a number of uncertainties (e.g. claim settlements and experience, health care costs, the extended statutory filing periods for such claims); however, based on a third party’s study of claims experience, TeamStaff estimates that ofat September 30, 2009, the remaining prepaid asset an additional approximately $1.0of $0.3 million in return premiums will be received within the next twelve to thirty-six months. ThisA portion of this is reflected on theTeamStaff’s balance sheet atas of September 30, 20062009 as a current asset.asset, in addition to approximately $0.2 million related to current policy deposits.
Table of ContentsAs of September 30, 2006 and 20052009 the adequacy of the workers’ compensation reserves (which are offset against the trust fund balances in prepaid assets) was determined, in management’s opinion, to be reasonable. In determining our reserves we rely in part upon information regarding loss data received from our workers’ compensation insurance carriers that may include loss data for claims incurred during prior policy periods. In addition, these reserves are for claims that have not been sufficiently developed due to their relatively young age, and such variables as timing of payments and investment returns thereon are uncertain or unknown, therefore actual results may vary from current estimates. TeamStaff will continue to monitor the development of these reserves, the actual payments made against the claims incurred, the timing of these payments, the interest accumulated in TeamStaff’s prepayments and adjust the related reserves as deemed appropriate.
Accrued Workers’ Compensation:F-18
As was previously reported in TeamStaff’s Exchange Act filing on Form 8-K, filed on October 20, 2005, the Company settled certain disputed workers’ compensation insurance premium and loss claims totaling nearly $4.4 million for $2.05 million payable over two (2) years (subject to certain prepayment requirements), and was fully reserved as of the Company’s June 30, 2005 balance sheet. The settlement was entered on or about October 10, 2005. In or about January, 2001, TeamStaff purchased from Transportation Insurance Company (‘‘TPIC’’), Transcontinental Insurance Company (‘‘TCIC’’), Continental Casualty Company (‘‘CCC’’), CNA Claimplus, Inc. (‘‘ClaimPlus’’) and North Rock Insurance Company Limited (‘‘North Rock’’) (together, the ‘‘CNA Entities’’) a workers’ compensation insurance program to provide workers’ compensation insurance and claims services for TeamStaff’s professional employee operations nationwide (the ‘‘Program’’). The Program provided TeamStaff with workers’ compensation insurance coverage and claims services for all covered claims incurred during the period from January 22, 2001 to January 22, 2002 (the ‘‘Initial Policy Term’’). TeamStaff secured its obligations under the Program through its February 5, 2001 purchase of an Exposure Buyback Policy numbered EBP 006/001 from North Rock (the ‘‘Exposure Buyback Policy’’), also covering the period from January 22, 2001 to January 22, 2002. On or around January 22, 2002, TeamStaff purchased from TCIC and RSKCo an extension of the Program (the ‘‘Program Extension’’). The Program Extension provided TeamStaff with workers’ compensation insurance coverage and claims services for all covered claims incurred during the period from January 22, 2002 to March 22, 2002 (the ‘‘Extended Policy Term’’).
TeamStaff contested the CNA Entities’ accounting of the amount due and owing under the Program, the Program Extension and the Exposure Buyback Policy, and of the ultimate losses projected to be due from TeamStaff. TeamStaff additionally asserted that the CNA Entities committed certain errors in claims management which unjustifiably increased the losses incurred under the Program and the Program Extension, and inappropriately included certain non-recoverable items in the premium calculations for both the Program and the Program Extension, thereby entitling TeamStaff to a credit against the amounts ultimately due and owing under the Program, the Program Extension and the Exposure Buyback Policy. The CNA Entities maintained that there was due and owing from TeamStaff the sum of $1,824,975 in premiums, deductibles, claims services fees, losses and allocated loss adjustment expenses under the Program and the Program Extension, and $835,596 in premiums and losses under the Exposure Buyback Policy. The CNA Entities projected that TeamStaff would be liable for an additional $1,181,301 of losses under the Program and the Program Extension, and an additional $556,176 of losses under the Exposure Buyback Policy. The aggregate amounts totaled $4,398,048.
The settlement fully and completely resolved, without litigation, all of the issues addressed above on the material terms described below and in the Agreement, without admitting and, in fact, expressly denying, the allegations and claims each party could have made against the other. Under the settlement, TeamStaff agreed to pay the CNA Entities the sum of $2,050,000, plus interest at a rate of 6.0%, as follows: (1) $300,000 upon execution of the Agreement; (2) $250,000 every 90 days thereafter, plus interest on the unpaid sum at a rate of 6.0% from the date of the preceding payment, for a total of eight (8) payments. TeamStaff made the first $250,000 payment on or about January 20, 2006. The $300,000 payment made at execution was in settlement of the outstanding premiums, deductibles, claims services fees, losses and allocated loss adjustment expenses due and owing under the Program,
Table of Contentsthe Program Extension and the Exposure Buyback Policy. The second through eighth payments were in settlement of liabilities that become due and/or may become due under the Program, the Program Extension and the Exposure Buyback Policy, including but not limited to, premiums, deductibles, claims services fees, losses and allocated loss adjustment expenses. It was also agreed that the payment schedule would be accelerated by and in the amount of any and all payments TeamStaff receives from Zurich North American in settlement of the receivable TeamStaff is carrying from its prior years’ workers’ compensation insurance programs, up and to the then outstanding balance due the CNA Entities.
As a result of the release of $2.25 million by Zurich on March 3, 2006, TeamStaff satisfied its remaining obligation to CNA under the settlement agreement by paying the remaining settlement amount of $1.5 million plus accrued interest in full.
TeamStaff has received notices from the
IRSInternal Revenue Service (“IRS”) claiming taxes, interest and penalties due related to payroll taxes predominantly from its former PEO
operations.operations which were sold in fiscal 2003. TeamStaff has also received notices from the IRS reporting overpayments of taxes. Management believes that these notices are predominantly the result of misapplication of payroll tax payments between its legal entities. If not resolved favorably, the Company may incur interest and penalties. Until the sale of certain assets
as described in Note 4,related to the former PEO operations, TeamStaff operated through 17 subsidiaries, and management believes that the IRS has not correctly identified payments made through certain of the different entities, therefore leading to the notices. To date, TeamStaff has been working with the IRS to resolve these discrepancies and has had certain interest and penalty claims abated. TeamStaff has also received notices from the Social Security Administration claiming variances in wage reporting compared to IRS transcripts. TeamStaff believes the notices from the Social Security Administration are directly related to the IRS notices received. TeamStaff
hashad retained the services of Ernst & Young LLP as a consultant to assist
it in resolving certain of these matters with the IRS and Social Security Administration. TeamStaff believes that after the IRS applies all the funds correctly, any significant interest and penalties will be abated; however, there can be no assurance that each of these matters will be resolved favorably.
In settling various years for specific subsidiaries with the IRS, the Company has received refunds for those specific periods; however, as the process of settling and concluding on other periods and subsidiaries is not yet completed, the potential exists for related penalties and interest. Based upon the most recent correspondence from the IRS and an assessment of open periods, we believe that our liability of $1.1 million at September 30, 2009 (recorded in accounts payable) is fairly stated. Interest expense would accrue on such amounts through the ultimate payment date, unless waived by the IRS. In fiscal 2009, the Company paid $1.1 million, related to this matter.
Based on an assessment of periods settled and the status of open periods under review by the IRS, management reduced its estimated liability by $0.7 million in 2008. Such amount, accounted for as a change in estimate, is included as a component of other income (expense) in the accompanying 2008 statement of operations. Management believes that the ultimate resolution of these remaining payroll tax matters will not have a significant adverse effect on its financial position or future results of operations.
Legal ProceedingsIn July 2000,
RS Staffing Services, Inc.
On April 17, 2007, a Federal Grand Jury subpoena was issued by the Northern District of Illinois to the Company’s wholly-owned subsidiary, TeamStaff made claims for indemnification againstGS, formerly known as RS Staffing Services, requesting production of certain documents dating back to 1997, prior to the selling shareholderstime the Company acquired RS Staffing Services. The subpoena stated that it was issued in connection with an investigation of possible violations of Federal criminal laws and related crimes concerning procurement at the DVA. According to the cover letter accompanying the subpoena, the U.S. Department of Justice, Antitrust Division (“DOJ”), along with the DVA, Office of the Inspector General, are responsible for the current criminal investigation. RS Staffing Services provides contract staffing at certain DVA hospitals that may be part of the investigation. The return date for documents called for by the subpoena was May 17, 2007. In connection with the same investigation, agents with the DVA, Office of Inspector General, executed a search warrant at the Monroe, Georgia offices of RS Staffing Services.
The government has advised TeamStaff Companies (the Sellers), which werethat the DOJ has no intent to charge TeamStaff or any of its subsidiaries or employees in connection with the Federal investigation of contract practices at various government owned/contractor operated facilities. TeamStaff remains committed to cooperate with the DOJ’s continued investigation of other parties.
The Company originally acquired
by TeamStaffRS Staffing Services in
January 1999. The claims consistedJune 2005. As part of
various potential liabilities and expenses incurred based on breachesthe purchase price of
representations and warranties contained in the acquisition,
agreement. The Sellers disputed these claimsthe Company issued to the former owners of RS Staffing Services a $3.0 million promissory note, of which $1.5 million and
attemptedinterest of $150,000 was paid in June 2006. On May 31, 2007, the Company sent a notice of indemnification claim to
assert claims of their own. On January 12, 2001, TeamStaff entered into a settlement agreementthe former owners for costs that have been incurred in connection with the
Sellers. Underinvestigation. Effective June 1, 2007, the
settlementCompany and former owners of RS Staffing Services reached an agreement
to extend the
Sellers agreeddue date from June 8, 2007 to
be liable and responsible for certain potential liabilities estimated at approximately $0.5 million and agreed that 55,000 shares of TeamStaff common stock, which had been held in escrow since the acquisition, were to be cancelled. TeamStaff also agreed to release 29,915 escrow shares to the Sellers. TeamStaff retains 75,000 shares in escrow to provide security for the Seller’s obligations. Each party agreed to release each other from all other claims under the acquisition agreements. No third parties have contacted TeamStaff seeking payment in the last fiscal year for these potential liabilities. In the event that TeamStaff incurs liability to third partiesDecember 31, 2008 with respect to the
claims, TeamStaff would declare an eventremaining $1.5 million note payable and accrued interest payable. Such agreement has been extended to February 28, 2010. As of
default underSeptember 30 2009, the
settlement agreementamount has not been settled. The Company recognized expenses related to legal representation and
seek collection from the Sellers.TeamStaff’s subsidiary, BrightLane, was a party to a suit brought by one of its former shareholders (Atomic Fusion, Inc. v. BrightLane.com, Inc. Civil Action No ONS02246OE, Fulton County State Court, Georgia) (the ‘‘Action’’).. Incosts incurred in connection with TeamStaff’s acquisitionthe investigation in the amount of BrightLane, the former shareholders$21,000 and $219,000 during fiscal 2009 and 2008, respectively, as a component of BrightLane were requiredother income (expense). Cumulative costs related to place approximately 158,000 shares in escrowthis matter approximate $1.7 million. Pursuant to provide indemnification for any claims made by TeamStaff under the acquisition agreement (the ‘‘BrightLane Escrow Shares’’), subjectwith RS Staffing Services, the Company has notified the former owners of RS Staffing Services that it is the Company’s intention to a $0.3 million threshold. In August, 2004, a trial was held on Atomic Fusion’s breachexercise its right to setoff the payment of contract claim before a jury. The jury returned a verdict in Atomic Fusion’s favor,
Tablesuch expenses against the remaining principal and accrued interest due to the former owners of Contentsawarding $534,246 in damages and $116,849 in attorney’s fees, for a total verdict of $651,095, including interest and costs (the ‘‘Judgment’’). The Judgment continued to accrue interest. BrightLane filed a motion for judgment notwithstanding the verdict, which was denied by the court. Atomic Fusion appealed the summary judgment granted in favor of BrightLane on several issues, including Atomic Fusion’s fraud cause of action. BrightLane opposed that appeal, and also filed a motion to dismiss that appeal. RS Staffing Services.
The Company
believed that it hadwill pursue the recovery as a right of offset in future periods. Management has a good faith
defenses relative to successor liability on the Judgment. BrightLane was no longer an operating entity and had minimal assets.On June 2, 2006, TeamStaff, Inc., and its wholly owned subsidiary, BrightLane, Inc., executed a settlement agreement (the ‘‘Settlement Agreement’’), effective June 2, 2006 (the ‘‘Execution Date’’), to settle the Action. TeamStaff believedbelief that the Settlement Agreement was in the best interests of its shareholders as it ended the on-going litigation with certainty, and releasedCompany will recover such amounts; however, generally accepted accounting principles preclude the Company from recording an offset to the obligationsnote payable to continue to pay ongoingthe former owners of RS Staffing Services until the final amount of the claim is settled and expensive legal feesdeterminable. At present, no assurances can be given that the former owners of RS Staffing Services would not pursue action against us or that the Company will be successful in the offset of such amounts against the outstanding debt and accrued interest from notice date forward, if any. Accordingly, the Company has expensed costs incurred related to the Action.investigation through September 30, 2009.
F-19
Other Matters
On October 2, 2008, the United States Equal Employment Opportunity Commission (“EEOC”) issued a subpoena to TeamStaff GS regarding the alleged wrongful termination of certain employees who were employed at a federal facility staffed by TeamStaff GS contract employees. The
Settlement Agreement fullywrongful termination is alleged to have occurred when the former employees were terminated because they could not satisfy English proficiency requirements imposed by the Federal government. TeamStaff GS has produced all documents that it believes were required by the subpoena and
finally settled the Judgment, the claims set forth in the Action, and any and all allegations, appeals, charges, complaints or potential legal action between and among Atomic Fusion, BrightLane and TeamStaff relatedhas submitted its position statement to the
Action. Approximately $0.3 million related to the Settlement are reflected as a charge against discontinued operations.The general terms of the Settlement are as follows:
1. Dismissal of Claims. Contemporaneously with payment of the Initial Payment provided for in the Settlement Agreement (described below), Atomic Fusion filed a Dismissal with Prejudice in the Action and in the Georgia Court of Appeals. The Dismissal (a) Dismissed the Lawsuit, with prejudice; and (b) dismissed all appeals by Plaintiff related to the Lawsuit, with prejudice.
2. Payment. TeamStaff will pay to Atomic Fusion the aggregate sum of $550,000 (the ‘‘Settlement Proceeds’’) as follows: (a) Payment of $250,000 was made upon execution of the Settlement Agreement (the ‘‘Initial Payment’’); and (b) Two equal payments of $150,000 (each, a ‘‘Payment’’), the first due on June 4, 2007 (the ‘‘2007 Payment Date’’) and the second due on June 2, 2008 (the ‘‘2008 Payment Date’’) (hereinafter referred to as the ‘‘Payments’’EEOC. It is unclear, at present, if or singularly with particularity, the ‘‘2007 Payment’’ and the ‘‘2008 Payment’’); (c) Atomic Fusion was granted contingent title to, and possession of, 150,000 shares of TeamStaff stock (the ‘‘Shares’’) consisting of the BrightLane Escrow Shares at $1.74 per Share (the ‘‘Issue Price’’) to secure the unpaid portion of the Settlement Proceeds of $300,000. TeamStaff delivered the Shares; (d) At each Payment Date, Atomic Fusion has the option to retain 75,000 Shares at the Issue Price (TeamStaff liable for the difference of $19,500, in cash payable on each Payment Date), or to request that TeamStaff make the respective Payment, whereupon Atomic Fusion will convey the Shares back to TeamStaff (each, an ‘‘Election’’); (e) The amount of Shares to which the 2007 Payment Election applies is 75,000 Shares. The amount of Shares to which the 2008 Payment Election applies is 75,000 Shares. Atomic Fusion must give notice of intention at least ten (10) days prior to each Payment Date whether Atomic Fusion will retain the Shares, or request the Payment and repurchase of the Shares by TeamStaff. If no notice is given, Atomic Fusion will be deemed to have elected the Payment, whereupon TeamStaff will make, and Atomic Fusion will receive, the Payment, and Atomic Fusion will immediately convey the Shares to TeamStaff. Once made, the Election is irrevocable; (f) The Shares are subject to a stock purchase agreement and a lockup agreement and are not tradable during the Restricted Period (as defined in the Lock-Up Agreement) unless there is a default in Payment of the Settlement Proceeds (a ‘‘Default’’). If there is a Default, Atomic Fusion can, with seventy-two (72) business hours notice and opportunity to cure, accelerate the entire indebtedness (without further proceeding) and take all right, title and interest in and to the Shares at the then-current market price, subject to SEC Rule 144. In the event of such a Default and Atomic Fusion taking the stock upon the occurrence of such a Default, TeamStaff shall be liable for any deficiency between the then-current market price and any Payment due (giving full credit for any Payment made and/or consideration reflected by retention of Shares at the Issue Price); and (g) Atomic Fusion agreed to be bound under the provisions of SEC Rule 144 (as to time restrictions as well as volume restrictions on sale). The SEC Rule 144 holding period will commence when the Lock-Up Agreement expires.
EEOC will respond.
As a commercial enterprise and employer,
we are subject to various claims and
with respect to its employment-related businesseslegal actions in
particular, TeamStaff is engaged in litigation from time to time during the ordinary course of
business
Table of Contentsin connection withbusiness. These matters can include professional liability, employment-relations issues, workers’ compensation, tax, payroll and other matters. Generally, TeamStaffemployee-related matters and inquiries and investigations by governmental agencies regarding our employment practices. We are not aware of any pending or threatened litigation that we believe is entitledreasonably likely to indemnificationhave a material adverse effect on our results of operations, financial position or repayment from its former PEO clients for claims brought by worksite employees related to their employment. However, there can be no assurance that the client employer will have funds or insurance in amounts to cover any damages or awards, and as co-employer, TeamStaff may be subject to liability. Additionally, incash flows.
In connection with its medical staffing business, TeamStaff is exposed to potential liability for the acts, errors or omissions of its
temporarycontract medical employees. The professional liability insurance policy provides up to $5,000,000 aggregate coverage with a $2,000,000 per occurrence limit. Although TeamStaff believes the liability insurance is reasonable under the circumstances to protect it from liability for such claims, there can be no assurance that such insurance will be adequate to cover all potential claims.
TeamStaff is engaged in no other litigation, the effect of which would be anticipated to have a material adverse impact on TeamStaff’s
financial condition or results of
operations.operations, financial position or cash flows.
Employment AgreementsOn June 30, 2005 TeamStaff entered
From time-to-time, we enter into
a two-year employment
agreementagreements with
Mr. T. Kent Smith, its President and Chief Executive Officer. The term of the agreement commenced on October 1, 2005 and terminates on September 30, 2007. The material terms of Mr. Smith’s employment agreementcertain key executives which provide for
a base salaryfixed compensation, criterion for earning bonuses and other incentives and, in certain instances, issuance of
$250,000 per annum and standard Company executive benefits as provided under his prior agreement. In addition, Mr. Smith is eligible to receive a bonus equal to up to 70% of his base salary upon satisfaction of performance-based criteria. Mr. Smith will be considered for future salary increases as may be determinedshare based equity grants. These agreements generally continue until terminated by the
Management Resources and Compensation Committee of the Board of Directors. Mr. Smith will be eligible to participate in the Company’s incentive stock ownership plan as may be determined by the Management Resources and Compensation Committee of the Board of Directors. The agreement also includes provisions for payment of all compensation otherwise payable under the agreement in the event that Mr. Smith is terminated without cause and one year of severance in all circumstances other than for termination ‘‘for cause.’’ In the event that there is a change of control of TeamStaff and Mr. Smith’s employment is terminated (or his position is changed), Mr. Smith will be entitled to acceleration of all incentive compensation, all compensation otherwise due under the agreement and an additional twelve (12) months of his then in-effect base salary. A ‘‘change of control’’ is defined generally to constitute a change of 20% of more of the beneficial ownership of the Company’s outstanding Common Stock,employee or
a change in two thirds of the Board of Directors
subject toor, upon the occurrence of defined certain
exceptions.On June 30, 2005 TeamStaff entered intoevents or circumstances (including a twenty seven month employment agreement with Mr. Rick J. Filippelli, its Vice Presidentdefined change in control), and Chief Financial Officer. The termprovide for salary continuance for specified periods of generally no more than a year.
During the agreement commenced on June 30, 2005 and terminates onfiscal year ended September 30, 2007. The material terms2009, the Company terminated certain management and staff personnel, and as a result, incurred severance related expenses of Mr. Filippelli’s employment agreement provide forapproximately $169,000, of which $165,000 is included in results of discontinued operations; at September 30, 2009 the remaining liability from these arrangements was approximately $108,000, which is included in accrued expenses.
During the fiscal year ended September 30, 2008, the Company terminated certain executives, management and staff personnel, and as a
base salaryresult, incurred severance related expenses of
$225,000 per annum, a potential bonus of up to 70%approximately $0.2 million (included in selling, general and
standard Company executive benefits, upon substantiallyadministrative expense); at September 30, 2008 the
same terms as provided for Mr. Smith. The Management Resources and Compensation Committee of the Board of Directors will consider Mr. Filippelli for future compensation increases as may be determined. Mr. Filippelli will be eligible to participateremaining liability from these arrangements was approximately $74,000, which was included in
the Company’s incentive stock ownership plan as may be determined by the Management Resources and Compensation Committee of the Board of Directors. The agreement also includes provisions for payment of all compensation otherwise payable under the agreement in the event that Mr. Filippelli is terminated without cause and one year of severance in all circumstances other than for termination ‘‘for cause.’’ In the event that there is a change of control of TeamStaff and Mr. Filippelli’s employment is terminated (or his position is changed), Mr. Filippelli will be entitled to acceleration of all incentive compensation, all compensation otherwise due under the agreement and an additional twelve (12) months of his then in-effect base salary. A ‘‘change of control’’ is defined generally to constitute a change of 20% of more of the beneficial ownership of the Company’s outstanding Common Stock, or a change in two thirds of the Board of Directors, subject to certain exceptions.Change in Control Agreement
On October 31, 2006, TeamStaff entered into a Change in Control Agreement with James D. Houston, its Vice President of Business and Legal Affairs and General Counsel. The Change in
accrued expenses.
Table of ContentsControl Agreement supplemented and amended Mr. Houston’s Severance Agreement dated October 11, 2005. The severance agreement includes provisions for payment of all compensation otherwise payable pursuant to Mr. Houston’s employment in the event that Mr. Houston is terminated without cause and six months of severance in all circumstances other than for termination ‘‘for cause.’’ In the event that there is a change of control of TeamStaff and Mr. Houston’s employment is terminated (or his position is changed), Mr. Houston will be entitled to acceleration of all incentive compensation, all compensation otherwise due pursuant to his employment and an additional twelve (12) months of his then in-effect base salary. A ‘‘change of control’’ is defined generally to constitute a change of 30% of more of the beneficial ownership of the Company’s outstanding Common Stock, or a change in two thirds of the Board of Directors, subject to certain exceptions.
Government Assignment of Contracts
Availability
of funds under the
PNCSovereign line of credit is directly related to the successful assignment of certain accounts receivable. Certain government accounts of
RS Staffing ServicesTeamStaff GS are required to execute
‘‘Acknowledgements“Acknowledgements of Assignment.
’’” There can be no assurance that every
RS StaffingTeamStaff GS government account will execute the documentation to effectuate the assignment and secure availability. The failure of government third parties to sign the required documentation could result in a decrease in availability under the
existing line of credit.
Related Party Transactions
TeamStaff entered into a one year, automatically renewable marketing agreement with Directo, Inc. effective as of February 1, 2004. Directo provides financial and direct deposit services to companies and their employees. Pursuant to the terms of the agreement, TeamStaff is compensated based on its sales of Directo pay card services. TeamStaff offered these services primarily through its payroll services division and as a result of the sale of the division on May 31, 2006 (See Note 4), this agreement was terminated. For the fiscal years ended September 30, 2006, 2005 and 2004, TeamStaff has not earned any commissions from its sales of Directo’s services. T. Stephen Johnson, TeamStaff’s Chairman, is also Chairman of Directo. TeamStaff’s entry into the marketing agreement with Directo was approved by the disinterested members of the Board.
During the year ended September 30, 2004, the company shared a portion of its leased office space in Alpharetta, Georgia with an affiliated entity of the Chairman of the Board of Directors, T. Stephen Johnson & Associates, Inc. As part of the agreement, TeamStaff shared the cost of a receptionist, phone service, and leased common area furniture.
(11) SHAREHOLDERS’ EQUITY:
Stock Warrants
During the fiscal year ended September 30,
2004, TeamStaff paid $28,000 in shared costs. TeamStaff was responsible for payment of the monthly lease obligation and T. Stephen Johnson & Associates reimbursed TeamStaff in the amount of $34,000 in fiscal year ended September 30, 2004 for their prorated portion of the space. The Company no longer uses these facilities.(11) SHAREHOLDERS’ EQUITY:
Stock Warrants-
The following is a summary of the outstanding warrants to purchase TeamStaff’s common stock at September 30, 2006:
| | | | | | | | | | | | | | | |
| Exercise Period From | | | Exercise Period To | | | Exercise Price Per
Common Share | | | Number of Shares of
Common Stock Reserved |
| November 2004 | | | November 2007 | | | | | 2.50 | | | | | | 598,000 | |
|
During the fiscal year ending September 30, 2006,2009, TeamStaff granted no warrants, 26,000 warrants expired unexercised and no warrants were exercised. During the fiscal year ending September 30, 2005, TeamStaff issued 598,000 warrants as part of a private placement offering. During 2005, no warrants expired unexercised and no warrants were exercised. During the fiscal year endingended September 30, 2004,2008, TeamStaff granted no warrants, and 21,428149,500 warrants expired unexercised. During 2004,unexercised and no warrants were exercised. At September 30, 2009, there are no warrants outstanding.
F-20
Table of Contents2000 Employee Stock Option Plan During 2000, the Board of Directors and shareholders approved the adoption of the 2000 Employees Stock Option Plan (the
‘‘2000 Plan’’“2000 Plan”) to provide for the grant of options to purchase up to 1,714,286 shares of TeamStaff’s common stock to all employees, including senior management. The 2000 Plan replaces the 1990 Employee Plan and Senior Management Plans, both of which expired. Under the terms of the 2000 Plan, options granted thereunder may be designated as options which qualify for incentive stock option treatment
(‘‘ISOs’’(“ISOs”) under Section 422A of the Code, or options which do not so qualify
(‘‘Non-ISO’s’’(“Non-ISO’s”). As of September 30,
2006,2009 and 2008, there were
753,0004,500 and 17,000 options,
respectively, outstanding under the 2000 Plan.
The 2000 Plan is administered by the Management Resources and Compensation Committee
designated byof the Board of
Directors. Directors (“The
Management Resources andCompensation Committee”). The Compensation Committee has the discretion to determine the eligible employees to whom, and the times and the price at which, options will be granted; whether such options shall be ISOs or Non-ISOs, subject to applicable law; the periods during which each option will be exercisable; and the number of shares subject to each option. The
Compensation Committee has full authority to interpret the 2000 Plan and to establish and amend rules and regulations relating thereto.
Under the 2000 Plan, the exercise price of an option designated as an ISO shall not be less than the fair market value of the common stock on the date the option is granted. However, in the event an option designated as an ISO is granted to a ten percent (10%) shareholder, as defined, such exercise price shall be at least 110% of such fair market value. Exercise prices of Non-ISO options may be less than such fair market value.
The aggregate fair market value of shares subject to options granted to a participant, which are designated as ISOs and which become exercisable in any calendar year shall not exceed $100,000.
The
Management Resources and Compensation Committee may, in its sole discretion, grant bonuses or authorize loans to or guarantee loans obtained by an optionee to enable such optionee to pay the exercise price or any taxes that may arise in connection with the exercise or cancellation of an option. The
Management Resources and Compensation Committee can also permit the payment of the exercise price in the common stock of the
CorporationCompany held by the optionee for at least six months prior to exercise.
Non-Executive Director Plan In fiscal year 2000, the Board of Directors and stockholders approved the adoption of the 2000 Non-Executive Director Stock Option Plan (the ‘‘“2000 Director Plan’’Plan”) to provide for the grant of options to non-employee directors of TeamStaff. Under the terms of the 2000 Director Plan, each non-executive director is automatically granted an option to purchase 5,000 shares upon joining the Board and each September lst, pro rata, based on the time the director has served in such capacity during the previous year. However, the granting of options to non-employee directors was suspended for fiscal 2007, 2008 and 2009. The Directors’2000 Director Plan also provides that directors, upon joining the Board, and for one (1) year thereafter, will be entitled to purchase restricted stock from TeamStaff at a price equal to 80% of the closing bid price on the date of purchase up to an aggregate purchase price of $50,000. For fiscal years 2005 through 2009 there were no purchases of discounted restricted stock. The 2000 Director Plan replaced the previous Director Plan that expired in April 2000. As of September 30, 2006,2009 and 2008, there were 140,00010,625 and 15,625 options, respectively, held by directors outstanding underoutstanding.
Under the
Director Plan.Under the2000 Director Plan, the exercise price for options granted under the Director Plan shall be 100% of the fair market value of the common stock on the date of grant. Until otherwise provided, the exercise price of options granted under the 2000 Director Plan must be paid at the time of exercise, either in cash, by delivery of shares of common stock of TeamStaff or by a combination of each. The term of each option commences on the date it is granted and unless terminated sooner as provided in the 2000 Director Plan, expires five (5) years from the date of grant. The Compensation Committee has no discretion to determine which non-executive director will receive options or the number of shares subject to the option, the term of the option or the exercisability of the option. However, the
Table of Contents Compensation Committee will make all determinations of the interpretation of the 2000 Director Plan. Options granted under the 2000 Director Plan are not qualified for incentive stock option treatment.
The fair value of previously issued options at the date of grant historically was estimated using the Black-Scholes option pricing model. The Company took into consideration pertinent accounting guidance and SEC Staff Accounting Bulletin No. 107 when reviewing and updating assumptions. The expected volatility was based upon historical volatility of our stock and other contributing factors. The expected term was based upon observation of actual time elapsed between date of grant and exercise of options for all employees. Previously such assumptions were determined based on historical data.
F-21
The following tables summarize the activity in TeamStaff’s
various stock option plans for the years ended September 30,
2006, 2005,2009 and
2004: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Shares | | Weighted
Average
Exercise Price | | Weighted
Average
Remaining
Contractual
Term | | Aggregate
Instrinsic
Value | | Weighted | | | |
| Options outstanding, September 30, 2003 | | | 1,409,472 | | | $ | 3.97 | | | | | | | | | | |
| | | | Average | | Aggregate | |
| | | | Weighted | | Remaining | | Pretax | |
| | | | Number of | | Average | | Contractual | | Intrinsic | |
| | | | Shares | | Exercise Price | | Term | | Value | |
| Options outstanding, September 30, 2007 | | | 59,125 | | $ | 8.80 | | 2.2 | | $ | 0 | |
| Granted | | | 225,000 | | | $ | 2.24 | | | | | | | | | | | — | | — | |
| Exercised | | | — | | | | — | | | | | | | | | | | — | | — | |
| Cancelled | | | (407,531 | | | $ | 4.81 | | | | | | | | | | | | (26,500 | ) | | $ | 9.47 | |
| Options outstanding, September 30, 2004 | | | 1,226,941 | | | $ | 3.59 | | | | 3.6 | | | $ | 0 | | |
| | | | | |
| Options outstanding, September 30, 2008 | | | 32,625 | | $ | 8.09 | | 1.8 | | $ | 0 | |
| Granted | | | 315,000 | | | $ | 1.89 | | | | | | | | | | | — | | — | |
| Exercised | | | — | | | | — | | | | | | | | | | | — | | — | |
| Cancelled | | | (223,941 | | | $ | 4.27 | | | | | | | | | | | | (17,500 | ) | | $ | 9.12 | |
| Options outstanding, September 30, 2005 | | | 1,318,000 | | | $ | 3.07 | | | | 3.4 | | | $ | 0 | | |
| Granted | | | 30,000 | | | $ | 1.29 | | | | | | | | | | |
| Exercised | | | — | | | | — | | | | | | | | | | |
| Cancelled | | | (455,000 | | | $ | 3.98 | | | | | | | | | | |
| Options outstanding, September 30, 2006 | | | 893,000 | | | $ | 2.65 | | | | 2.6 | | | $ | 0 | | |
| | | |
| Options outstanding, September 30, 2009 | | | 15,125 | | $ | 6.30 | | 1.6 | | $ | 0 | |
| | | | | |
As of September 30,
2006, 2005,2009 and
2004, 863,000, 1,283,0002008, all options had vested and
759,941 options, respectively, were exercisable.
As
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of
September 30, 2006, 863,000 options were exercisable at a weighted averagethe fiscal year and the exercise price,
times the number of
$2.67.shares) that would have been received by the option holders had all option holders exercised their in the money options on those dates.
This amount changes based on the fair market value of the Company’s stock.
2006 Long Term Incentive Plan (“2006 Plan”)
The Board of Directors adopted the 2006
Long-Term Incentive Plan
(the ‘‘2006 Plan’’) on January 17, 2006. The shareholders approved the 2006 Plan at the annual meeting on April 27, 2006. The Company reserved an aggregate of 5,000,000 shares of common stock for issuance under the 2006 Plan. The maximum number of shares of common stock that may be delivered to participants under the 2006
Long-Term Incentive Plan equals the sum of: (a) 5,000,000 shares of common stock; (b) any shares subject to awards granted under the 2000
Employee Stock Option Plan and the 2000
Non-Executive Director
Stock Option Plan (collectively, the
‘‘2000 Plans’’“2000 Plans”), which are forfeited, expired, canceled or settled in cash without delivery of such shares to the participant or otherwise is terminated without a share issuance; (c) any shares tendered by participants or withheld in payment of the exercise price of options or to satisfy withholding taxes under the 2000 Plans; and (d) any shares repurchased with the proceeds of options exercised under the 2000 Plans.
Administration.
Administration. The 2006 Plan is administered by the
Management Resources and Compensation
Committee (the ‘‘committee’’).Committee. The 2006 Plan authorizes the
committeeCompensation Committee to select those participants to whom awards may be granted, to determine whether and to what extent awards are granted, to determine the number of shares of common stock or other considerations to be covered by each award, to determine the terms and conditions of awards, to amend the terms of outstanding awards, and to take any other action consistent with the terms of the 2006 Plan as the
committeeCompensation Committee deems appropriate.
Terms and Conditions of Awards.Awards. The committeeCompensation Committee is authorized to make any type of award to a participant that is consistent with the provisions of the Plan. Awards may consist of options, stock appreciation rights, restricted stock, restricted stock units, performance shares, cash awards or any combination of these types of awards.
Table of ContentsSubject to the terms of the 2006 Plan, the committeeCompensation Committee determines the provisions, terms and conditions of each award. The committeeCompensation Committee may grant awards subject to vesting schedules or restrictions and contingencies in the company’s favor. However, the awards may be subject to acceleration such that they become fully vested, exercisable and released from any restrictions or contingencies upon the occurrence of a change of control (as defined in the 2006 Plan). The committeeCompensation Committee may provide that stock-based awards earn dividends or dividend equivalents, which may be paid in cash or shares or may be credited to an account designated in the name of the participants. Participants may also be required or permitted to defer the issuance of shares or cash settlements under awards including under other deferred compensation arrangements of the company. Each option granted under the 2006 Plan will be designated as either an incentive stock option or a non-statutory stock option. No option or stock appreciation right may be granted with a term of more than 10 years from the date of grant.
Performance shares or cash awards will depend on achievement of performance goals based on one or more performance measures determined by the committeeCompensation Committee over a performance period as prescribed by the committeeCompensation Committee of not less than one year and not more than five years. Performance goals may be established on a corporate-wide basis or as to one or more business units, divisions or subsidiaries, and may be in either absolute terms or relative to the performance of one or more comparable companies on an index covering multiple companies. ‘‘Performance measures’’“Performance measures” means criteria established by the committeeCompensation Committee from time to time prior to granting the performance shares or cash awards.
F-22
Exercise Price.Price. The
2006 Plan authorizes the
committeeCompensation Committee to grant options and stock appreciation rights at an exercise price of not less than 100% of the fair market value of the shares on the date of grant. The
committeeCompensation Committee has the right to provide post-grant reduction in exercise price to reflect any floating index as specified in an award agreement. The exercise price is generally payable in cash, check, surrender of pre-owned shares of common stock, broker-dealer exercise and sale, or by such other means determined by the
committee.Compensation Committee.
Option Repricing Prohibited.Prohibited. The exercise price for any outstanding option or stock appreciation right may not be decreased after the date of grant, nor may any outstanding option or stock appreciation right be surrendered as consideration for the grant of a new option or stock appreciation right with a lower exercise price.
| | | | | | | | | | | | |
| | | | Number Of
Shares | | | Weighted
Average
Grant-Date
Fair Value |
| Restricted stock outstanding, September 30, 2005 | | | | | — | | | | | | — | |
| Granted | | | | | 220,000 | | | | | $ | 1.70 | |
| Cancelled | | | | | — | | | | | | — | |
| Restricted stock outstanding, September 30, 2006 | | | | | 220,000 | | | | | $ | 1.70 | |
|
Treasury Stock
| | | | | | | | | |
| | | | | | | Weighted | |
| | | Number Of | | | Average Grant- | |
| | | Shares | | | Date Fair Value | |
| Restricted stock outstanding, September 30, 2007 | | | 55,000 | | | $ | 5.32 | |
| Granted | | | 147,500 | | | $ | 2.58 | |
| Issued | | | (21,250 | ) | | $ | 3.32 | |
| Cancelled | | | (28,334 | ) | | $ | 4.58 | |
| | | | | | | |
| Restricted stock outstanding, September 30, 2008 | | | 152,916 | | | $ | 3.09 | |
| Granted | | | 341,612 | | | $ | 1.76 | |
| Issued | | | (93,278 | ) | | $ | 3.11 | |
| Cancelled | | | (10,000 | ) | | $ | 1.70 | |
| | | | | | | |
| Restricted stock outstanding, September 30, 2009 | | | 391,250 | | | $ | 1.96 | |
| | | | | | | |
During
2006 and 2005, TeamStaff did not repurchase any of its common stock. As ofthe year ended September 30,
2004,2009, TeamStaff
retiredgranted awards of restricted stock under its 2006 Plan. An aggregate of 341,612 restricted shares were awarded to employees and non-employee directors at the closing price on the award dates. Of this award, 16,612 shares vested immediately, resulting in a
totalcharge of
574,470$25,000; 10,000 shares were cancelled; and 315,000 shares will vest upon satisfaction of certain performance criteria. In addition, $196,000 related to current and prior periods’ grants was recognized as an expense. The Company will not recognize expense on 315,000 shares of
treasury stock.
Table of Contents(12) QUARTERLY FINANCIAL DATA (UNAUDITED):
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands, except per share data) | | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter |
| Fiscal 2006 | | | | | | |
| Net revenues | | | | $ | 19,426 | | | | | $ | 18,452 | | | | | $ | 18,752 | | | | | $ | 18,338 | |
| Gross profit | | | | | 3,253 | | | | | | 3,057 | | | | | | 3,201 | | | | | | 3,000 | |
| Loss from continuing operations (1) | | | | | (405 | | | | | | (457 | | | | | | (261 | | | | | | (17,104 | |
| Income (loss) from discontinued operations net of tax (2) | | | | | 387 | | | | | | 245 | | | | | | 4,455 | | | | | | (107 | |
| Net (loss) income | | | | | (18 | | | | | | (212 | | | | | | 4,194 | | | | | | (17,211 | |
| Income (loss) per share – Basic and Diluted | | | | $ | 0.00 | | | | | $ | (0.01 | | | | | $ | 0.22 | | | | | $ | (0.89 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter |
| Fiscal 2005 | | | | | | | | | | | | | | | | | | | | | | | | |
| Net revenues | | | | $ | 8,897 | | | | | $ | 9,854 | | | | | $ | 12,427 | | | | | $ | 20,001 | |
| Gross profit | | | | | 1,671 | | | | | | 1,983 | | | | | | 2,071 | | | | | | 3,401 | |
| Loss from continuing operations | | | | | (730 | | | | | | (725 | | | | | | (928 | | | | | | (233 | |
| Income (loss) from discontinued operations net of tax | | | | | 151 | | | | | | 104 | | | | | | (322 | | | | | | (194 | |
| Net loss | | | | | (579 | | | | | | (621 | | | | | | (1,250 | | | | | | (39 | |
| Loss per share – Basic and Diluted | | | | $ | (0.03 | | | | | $ | (0.04 | | | | | $ | (0.07 | | | | | $ | (0.00 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter |
| Fiscal 2004 | | | | | | | | | | | | | | | | | | | | | | | | |
| Net revenues | | | | $ | 8,452 | | | | | $ | 7,783 | | | | | $ | 8,578 | | | | | $ | 8,043 | |
| Gross profit | | | | | 1,359 | | | | | | 1,325 | | | | | | 1,649 | | | | | | 1,643 | |
| Loss from continuing operations | | | | | (912 | | | | | | (841 | | | | | | (641 | | | | | | (355 | |
| Loss from discontinued operations net of tax | | | | | (935 | | | | | | (143 | | | | | | (215 | | | | | | (37 | |
| Net loss | | | | | (1,847 | | | | | | (984 | | | | | | (856 | | | | | | (392 | |
| Loss per share – Basic and Diluted | | | | $ | (0.12 | | | | | $ | (0.06 | | | | | $ | (0.05 | | | | | $ | (0.03 | |
|
| |
(1) | Loss from continuing operations in the 4th quarter of fiscal 2006 of $17.1 million includes the establishment of deferred tax asset valuation allowance of $16.9 million as described in Note 5. |
| |
(2) | Income from discontinued operations, net of tax, in the 3rd quarter of fiscal 2006 of $4.4 million includes gain from the sale of DSI Payroll services as described in Note 4. |
(13) EMPLOYEE BENEFIT PLANS:
these awards until it is probable that these performance conditions will be achieved. Such charges could be material in future periods. During the fiscal year ended September 30, 2009, 10,000 unvested shares were cancelled. As of September 30, 2009, approximately $282,000 of unrecognized compensation costs related to non-vested non-performance based restricted stock awards is expected to be recognized in future periods.
During the year ended September 30, 2008, TeamStaff granted awards of restricted stock under its 2006 Plan. An aggregate of 147,500 restricted shares were awarded to employees and non-employee directors at the closing price on the award dates. Of this award, 47,500 shares vested immediately, resulting in a charge of $115,000; 23,750 shares vested at September 30, 2008 based upon satisfaction of certain performance criteria, resulting in a charge of $59,000 (included in accrued expenses at that date); and 76,250 shares will vest upon satisfaction of certain performance criteria. In addition, $44,000 related to prior periods’ grants was recognized as an expense. Of the restricted shares awarded in fiscal 2008, 30,000 shares were awarded to the Company’s non-employee directors and are subject to vesting as follows: fifty percent of all such shares of restricted stock shall vest when the volume-weighted average share price of the Company’s common stock over any twenty consecutive trading days exceeds the price on the date of grant by 20%, with the remaining fifty percent vesting one year thereafter. As permitted, the Company will not recognize expense on 76,250 shares of these awards until it is probable that these performance conditions will be achieved. Such charges could be material in future periods. During the fiscal year ended September 30, 2008, 28,334 unvested shares were cancelled. As of September 30, 2008, approximately $23,000 of unrecognized compensation costs related to non-vested non-performance based restricted stock awards is expected to be recognized during fiscal 2009.
At September 30, 2009 and 2008 the number of unvested shares under this program totaled 391,250 and 82,084, respectively. At September 30, 2009 the Company had reserved 6,160,409 shares of common stock for issuance under various option, shares and warrant plans and arrangements.
F-23
During the fiscal year ended September 30, 2009, the Company did not issue any equity grants of securities to its board members. However, on October 13, 2009, the Board of Directors approved the issuance of 42,500 shares of restricted stock to the Company’s non-employee directors. Such shares were vested on the grant date. The estimated expense that will be recognized in the first quarter of fiscal 2010 approximates $57,000.
Subsequent to September 30, 2009, the Company approved a grant of options to purchase 30,000 shares of Common Stock to the Company’s Chief Executive Officer in connection with his execution of a new employment agreement. The options awarded to Mr. Filippelli are exercisable for a period of five years at an exercise price of $1.00 per share. There will be a charge associated with this grant of approximately $14,000 in fiscal 2010. Such options will vest and become exercisable upon the termination date of this new employment agreement. In addition, on January 14, 2010, the Company granted options to purchase 75,000 shares of its Common Stock to the Company’s Chief Financial Officer in connection with the entering into of a new employment agreement on such date. Fifty percent of the options awarded to Ms. Presuto vest on the date of issuance and the balance vests on September 30, 2010, provided Ms. Presuto is in the Company’s employ as of such date. The options have a per share exercise price of $1.06 and are exercisable for a period of five years. There will be a charge associated with this grant of approximately $37,000 in fiscal 2010.
(12)QUARTERLY FINANCIAL DATA (UNAUDITED):
(Amounts in thousands, except per share data)
| | | | | | | | | | | | | | | | | |
| | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
| Fiscal Year 2009 | | | | | | | | | | | | | | | | |
| Net revenues | | $ | 12,013 | | | $ | 11,472 | | | $ | 11,344 | | | $ | 11,192 | |
| Gross profit | | | 2,122 | | | | 1,715 | | | | 1,719 | | | | 1,446 | |
| Income (loss) from operations | | | 587 | | | | 72 | | | | (42 | ) | | | (231 | ) |
| Income (loss) from continuing operations | | | 569 | | | | 53 | | | | 126 | | | | (372 | ) |
| Loss from discontinued operations (1) | | | (521 | ) | | | (612 | ) | | | (659 | ) | | | (2,939 | ) |
| Net income (loss) | | | 48 | | | | (559 | ) | | | (533 | ) | | | (3,311 | ) |
| Earnings (loss) per share from continuing operations — Basic | | $ | 0.12 | | | $ | 0.01 | | | $ | 0.03 | | | $ | (0.08 | ) |
| Net earnings (loss) per share — Basic | | $ | 0.01 | | | $ | (0.11 | ) | | $ | (0.11 | ) | | $ | (0.68 | ) |
| | | | | | | | | | | | | | | | | |
| | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
| Fiscal Year 2008 | | | | | | | | | | | | | | | | |
| Net revenues (2) | | $ | 10,465 | | | $ | 13,666 | | | $ | 14,634 | | | $ | 19,754 | |
| Gross profit | | | 1,700 | | | | 2,195 | | | | 2,648 | | | | 2,401 | |
| Income from operations | | | 469 | | | | 735 | | | | 929 | | | | 731 | |
| Income from continuing operations | | | 347 | | | | 641 | | | | 1,184 | | | | 1,023 | |
| Loss from discontinued operations | | | (312 | ) | | | (577 | ) | | | (643 | ) | | | (517 | ) |
| Net income | | | 35 | | | | 64 | | | | 541 | | | | 506 | |
| Earnings per share from continuing operations — Basic and Diluted | | $ | 0.07 | | | $ | 0.13 | | | $ | 0.25 | | | $ | 0.21 | |
| Net earnings per share — Basic and Diluted | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.11 | | | $ | 0.11 | |
| | |
| (1) | | Reflects impairment charge in the fourth quarter on TeamSTaff Rx intangible assets of $2.3 million. |
|
| (2) | | Revenues for the 2nd, 3rd and 4th quarter of fiscal 2008 include retroactive billings for Teamstaff GS in the amount of $1.5 million, $2.1 million and $7.2 million, respectively, described in Note 10. |
(13)EMPLOYEE BENEFIT PLANS:
As of September 30, 2009, TeamStaff and its subsidiaries
maintained threecurrently maintain a defined contribution
and a supplemental pension
plans for the benefit of its non-worksite and former worksite employees.TeamStaff previously maintained The TeamStaff Retirement Savings Plan. Gevity HR, Inc. assumed this plan effective as of November 17, 2003, as part of Gevity’s purchase of the PEO operating segment from TeamStaff. This plan was designed to qualify as a multiple employer plan as described in Section 413(c) of the Internal Revenue Code, and TeamStaff was an adopting employer under that plan. TeamStaff received favorable determination letters regarding the tax-qualified status of the plan assumed by Gevity on June 25, 1999 and November 23, 2003. Gevity assumed responsibility for obtaining an audit of and filing the Form 5500 Annual Report for the TeamStaff plan assumed by Gevity as of November 17, 2003.
RS Staffing Services, Inc. previously maintained a 401(k) retirement plan for the benefit of its internal and staffing employees (the ‘‘RS Staffing Plan’’). Employees were eligible to participate upon meeting certain length of service and minimum compensation requirements. RS Staffing did not provide a discretionary matching contribution. Effective January 1, 2006, the Company terminated the RS
Table of ContentsStaffing Plan. RS Staffing employees who were eligible for the TeamStaff 401(k) Plan adopted in 2004 were given the opportunity to roll their money over into the Plan. The RS Staffing Plan is closed and all filings pursuant to the RS Staffing Plan have been completed and there are no further assets residing in the RS Staffing Plan.
As of January 1, 2004, TeamStaff adopted the TeamStaff 401(k) Plan (the ‘‘Plan)“401(k) Plan”) for the benefit of its internal and temporary staffing employees and all assets attributable to TeamStaff’s internal and staffing employees under the plan assumed by Gevity were ultimately transferred to the Plan. Because Plan participants have their own account, manage their own plan investments and make their own investment decisions from a broad range of investment options, TeamStaff believes that it is afforded protection from liability for participants’ investment decisions under Section 404(c) of the Code under the prior plan assumed by Gevity and the Plan.
eligible employees. Any TeamStaff corporate employee and any TeamStaff Rx temporary staffing(non worksite) employee is immediately eligible upon hire for participation in the Plan upon completing three months of service with TeamStaff.401(k) Plan. TeamStaff providesmay provide a discretionary matching contribution of 25% of each of the first 4% of a participant’s elective contributions under the 401 (k) Plan. TeamStaff recorded related expense for this matching of $35,000$13,000 and $18,000 respectively, in fiscal 2006, $76,000 in fiscal 2005,2009 and $99,000 in fiscal 2004.2008. A participant is always fully vested in his or her elective contributions.
A participant’s interestcontributions and vest in TeamStaff discretionaryCompany matching contributions vests in accordance with the following schedule:over a four year period.
F-24
| | | | | | |
Years of Service: | | | Vested Interest: |
Less than 1 Year of Service | | | | | 0 | |
1 Year, but less than 2 Years | | | | | 25 | |
2 Years, but less than 3 Years | | | | | 50 | |
3 Years, but less than 4 Years | | | | | 75 | |
4 Years or more | | | | | 100 | |
|
Because calendar year 2004 was the first plan year of the Plan, a Form 5500 Annual Report and plan audit was not due for the Plan until calendar year 2005. Principal Financial Group, the Plan’s record keeper (‘‘Principal’’) undertook compliance testing for calendar year 2004. Initially, the Company did not pass the ‘‘coverage test’’ for the 2004 Plan Year. Compliance testing for the 2004 Plan year was thereafter completed and the Plan failed Actual Deferral Percentage and Actual Contribution Percentage (‘‘ADP/ACP’’) testing. Checks were given back to employees where required to correct the failed test.
Effective January 1, 2006 TeamStaff amended the Plan to allow employees who were acquired as a part of the RS Staffing acquisition to be eligible for the Plan, with the exception of RS Staffing contract employees. In addition, the Plan was amended effective January 1, 2006 to no longer allow eligibility into the Plan for Highly Compensated Employees (‘‘HCE’’). For 2006, HCE’s included any employee that grossed $95,000 in 2005, or were a 5% owner or greater in 2005 or 2006. Because of this amendment, ADP/ACP testing for the Plan will not be required in future years. TeamStaff received a favorable IRS Determination Letter on the Plan in 2006. In 2006 the Plan was further amended to allow for eligibility into the Plan after one year of service with enrollment on a semi-yearly entry date. The average benefits test for the 2005 Plan year was completed in March of 2006 and was passed. The 2005 5500 filing was completed, and as of the time of this report the Plan audit is in process.
Effective October 1, 2000, TeamStaff adopted a non-qualified, supplemental retirement plan covering certain corporate officers of TeamStaff (the ‘‘SERP’’“SERP”). Under the terms of the SERP, a participant received a benefit sufficient to provide lump sum annual payments equal to approximately one-third of the participant’s base salary on the date the participant became a participant. Payment of benefits was to commence when the participant reached 65 years of age. The benefit under the SERP was subject to a seven-year vesting schedule (0%,0%,20%,40%, 60%, 80%, 100%), based on the participant’s original date of employment with TeamStaff and was contingent on the participant’s reaching age 55; provided, however, a participant’s benefit became fully vested upon a change of control, as defined in
Table of Contentsthe SERP, if within two years of the change of control there was a material change in the participant’s job title or responsibilities or if the participant’s employment was terminated by TeamStaff for any reason other than conviction for theft or embezzlement from TeamStaff. Additionally, if a participant retired by means of total disability (as defined in the SERP), the participant’s benefit became fully vested and benefit payments would have commenced as of the disability retirement date. The SERP did not provide a death benefit. At inception, TeamStaff’s former Chief Executive Officer and its former Chief Financial Officer were the only SERP participants.
SERP participants were also
are provided with a split dollar life insurance policy
(‘‘Policy’’(“Policy”), insuring the life of the participant until the participant reached age 65. Although the participant was the owner of the Policy, TeamStaff paid all Policy premiums. Each participant collaterally assigned the Policy to TeamStaff to secure repayment of the premiums through either its cash surrender value or the Policy proceeds. The participant’s right to the Policy vested in accordance with the same schedule as the SERP and with similar change of control provisions. Upon the participant’s 65
th birthday (and in certain other circumstances provided by the Policy agreement), TeamStaff was to release the collateral assignment of the Policy provided the participant released TeamStaff from all obligations the
CorporationCompany may have had with respect to the participant (including those under the SERP).
The following table illustrates TeamStaff’s changes in benefit costs and pension benefit obligations for the fiscal years endingended September 30, 20062009 and September 30, 20052008 under the SERP.SERP:
| | | | | | | | | |
| | | Fiscal Year | |
| (Amounts in thousands) | | 2009 | | | 2008 | |
| Change in benefit obligation | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 70 | | | $ | 346 | |
| Service cost | | | — | | | | — | |
| Interest Cost | | | — | | | | 4 | |
| Benefits paid | | | (70 | ) | | | (280 | ) |
| Actuarial loss | | | — | | | | — | |
| | | | | | | |
| Benefit obligation at end of year | | $ | 0 | | | $ | 70 | |
| | | | | | | |
| | | | | | | | | |
| Change in plan assets | | | | | | | | |
| Company contribution | | $ | 70 | | | $ | 280 | |
| Benefits paid | | | (70 | ) | | | (280 | ) |
| | | | | | | |
| Fair value of plan assets at end of year | | $ | — | | | $ | — | |
| | | | | | | |
| | | | | | | | | |
| Reconciliation of funded status | | | | | | | | |
| Funded status | | $ | — | | | $ | (70 | ) |
| Unrecognized net actuarial (gain)/loss | | | 5 | | | | 28 | |
| | | | | | | |
| Net amount recognized | | $ | 5 | | | $ | (42 | ) |
| | | | | | | |
| | | | | | | | | |
| Amounts recognized in the consolidated balance sheets consist of: | | | | | | | | |
| Accrued benefit liability | | $ | — | | | $ | (70 | ) |
| Accumulated other comprehensive income | | | 5 | | | | 28 | |
| | | | | | | |
| Net amount recognized | | $ | 5 | | | $ | (42 | ) |
| | | | | | | |
| | | | | | | | | |
| Discount rate used to determine benefit cost and obligations: | | | 3.00 | % | | | 3.00 | % |
F-25
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| Components of net periodic benefit cost are as follows: | | | | | | | | |
| Interest cost | | $ | — | | | $ | 4 | |
| Recognized actuarial loss | | | — | | | | 9 | |
| | | | | | | |
| Net periodic benefit cost | | | — | | | | 13 | |
| Settlement charges | | | 8 | | | | 38 | |
| | | | | | | |
| Total benefit cost | | $ | 8 | | | $ | 51 | |
| | | | | | | |
| | | | | | | | | |
| Other disclosure items at end of year: | | | | | | | | |
| Projected benefit obligation | | $ | — | | | $ | 70 | |
| | | | | | | |
| Fair value of plan assets | | | — | | | | — | |
| | | | | | | |
| Increase in pension liability included in other comprehensive income | | $ | (8 | ) | | $ | (46 | ) |
| | | | | | | |
| | | | | | | | | | | | |
| (Amounts in thousands) | | | Fiscal Year |
| 2006 | | | 2005 |
| Change in benefit obligation | | | | | | | | | | | | |
| Benefit obligation at beginning of year | | | | $ | 872 | | | | | $ | 1,428 | |
| Service cost | | | | | — | | | | | | — | |
| Interest Cost | | | | | 20 | | | | | | 32 | |
| Benefits paid | | | | | (294 | | | | | | (588 | |
| Actuarial (gain)/loss | | | | | — | | | | | | — | |
| Benefit obligation at end of year | | | | $ | 598 | | | | | $ | 872 | |
| Change in plan assets | | | | | | | | | | | | |
| Employer contribution | | | | $ | 294 | | | | | $ | 588 | |
| Benefits paid | | | | | (294 | | | | | | (588 | |
| Fair value of plan assets at end of year | | | | $ | — | | | | | $ | — | |
| Reconciliation of funded status | | | | | | | | | | | | |
| Funded status | | | | $ | (598 | | | | | $ | (872 | |
| Unrecognized net actuarial (gain)/loss | | | | | 147 | | | | | | 263 | |
| Net amount recognized | | | | $ | (451 | | | | | $ | (609 | |
| Amounts recognized in the statement of financial position consist of: | | | | | | | | | | | | |
| Accrued benefit liability | | | | $ | (598 | | | | | $ | (872 | |
| Accumulated other comprehensive income | | | | | 147 | | | | | | 263 | |
| Net amount recognized | | | | $ | (451 | | | | | $ | (609 | |
| Assumptions used to determine benefit obligations at September 30: | | | | | | | | | | | | |
| Discount rate used to determine net periodic benefit costs | | | | | 3.00 | | | | | | 3.00 | |
| Discount rate used to determine benefit obligations | | | | | 3.00 | | | | | | 3.00 | |
| Components of net periodic benefit cost | | | | | | | | | | | | |
| Service cost | | | | $ | — | | | | | $ | — | |
| Interest cost | | | | | 19 | | | | | | 32 | |
| Amortization of prior service cost | | | | | — | | | | | | — | |
| Recognized actuarial (gain)/loss | | | | | 36 | | | | | | 63 | |
|
Table of Contents
| | | | | | | | | | | | |
| (Amounts in thousands) | | | Fiscal Year |
| 2006 | | | 2005 |
| Net periodic benefit cost | | | | $ | 55 | | | | | $ | 95 | |
| Curtailment charges | | | | | | | | | | | — | |
| Settlement charges | | | | | 82 | | | | | | 193 | |
| Total benefit cost | | | | $ | 137 | | | | | $ | 288 | |
| Other disclosure items at end of year: | | | | | | | | | | | | |
| Accumulated benefit obligation | | | | $ | 598 | | | | | $ | 872 | |
| Fair value of plan assets | | | | | — | | | | | | — | |
| Increase in minimum liability included in other comprehensive income | | | | $ | (117 | | | | | $ | (255 | |
|
For unfunded plans, contributions to the planSERP are the benefit payments made to participants. For years ended September 30, 2009 and 2008, TeamStaff Inc. made $294,000 in benefit payments during fiscal 2006, $588,000 during fiscal 2005of $70,000 and $776,000 during fiscal 2004. The following$280,000, respectively. There are no benefit payments are expectedremaining related to be paid in future fiscal years:
| | | | | | |
| Fiscal year ending | | | Pension Benefits |
| 2007 | | | | $ | 209,605 | |
| 2008 | | | | $ | 209,605 | |
| 2009 | | | | $ | 70,590 | |
| 2010 | | | | $ | 70,590 | |
| 2011 | | | | $ | 70,590 | |
| 2012 and thereafter | | | | | 0 | |
|
During fiscal year 2004, TeamStaff Inc. and plan participants agreed on optional payment forms effectively accelerating benefit payments. Beginning in fiscal year 2004 and ending in fiscal 2011, this plan will settleyear 2009, the SERP settles liabilities by paying benefit obligations to participants. Each quarter, a settlement charge will bewas recognized in accordance with SFAS No. 88 to account for settling of liabilities. A settlement charge of $82,000, $193,000$8,000 and $276,000$38,000 was recognized during fiscal 2006, 20052009 and 2004,2008, respectively.
During fiscal 2003, two events were recognized as curtailments under SFAS No. 88. Donald Kelly was relieved of his duties as Chief Financial Officer. A curtailment charge related to this event of $254,000 was recognized during the second quarter of fiscal 2003. Donald Kappauf relinquished his positions as President and Chief Executive Officer. A curtailment charge related to this event of $445,000 was taken during the third quarter of fiscal 2003. TeamStaff is not aware of any other events that might constitute settlement or curtailment under SFAS No. 88. Total curtailment during fiscal 2003 was $699,000.
(14) ECONOMIC DEPENDENCY: A major customer is defined as a customer from which the Company derives at least 10% of its sales. For fiscal year ended September 30, 2006, one RS Staffing Services customer represents 10% or more of the Company’s overall consolidated revenues. For fiscal year ended September 30, 2006, RS Staffing Services had three customers who each individually comprised greater than 10% of the division’s revenue, and collectively comprised 49.9% of the division’s revenue. For the fiscal year ended September 30, 2006, RS Staffing Services2009, Teamstaff GS generated approximately 92.1%98.2% of itsthe Company’s overall consolidated revenues from agencies of the United States Government. Through its FSS contracts primarily with the DVA, the Company had four specific customers who totaled 31%, 23%, 12% and 11% of the Company’s overall consolidated revenues. We anticipate that the DVA may release new requests for proposals related to staffing services with these four customer facilities in 2010. In such an event, the Company intends to submit a proposal to address any such solicitation. Although the Company believes it is well positioned to continue its relationship with the DVA, no assurances can be given that in the event the DVA issues such a solicitation, that any purchase orders would be awarded to the Company or if it is granted subsequent orders, that such orders would be of a scope comparable to the services that the Company has provided to date.
For the fiscal year ended September 30,
2006, the Nursing Innovations division of TeamStaff Rx had two customers who each individually comprised greater than 10% of the division’s revenue and collectively comprised 37.6% of the division’s revenue.For fiscal year ended September 30, 2005, no one customer represented 10% or more2008, Teamstaff GS generated approximately 96.7% of the Company’s overall consolidated revenues. Since the date of acquisition effective June 4, 2005 to September 30, 2005, RS Staffing Services had three customers who each individually comprised greater than 10% of the division’s revenue, and collectively comprised 50.1% of the division’s revenue.
Table of ContentsSince the date of acquisition effective June 4, 2005 to September 30, 2005, RS Staffing Services generated approximately 94% of its revenues from agencies of the United States Government. SinceThrough its FSS contracts primarily with the DVA, the Company had three specific customers who totaled 39%, 17% and 10% of the Company’s overall consolidated revenues.
Accounts receivable from agencies of the United States Government totaled $11.4 million and $11.9 million at September 30, 2009 and 2008, respectively. As discussed in Note 10, included in revenue derived from the Federal government in 2008 are retroactive adjustments that totaled $10.8 million. $9.3 million of this amount is included in accounts receivable (unbilled)at September 30, 2009. Such revenue is not expected to recur in future periods.
(15)SUBSEQUENT EVENTS:
Management evaluated subsequent events through January 19, 2010, the date the Company’s financial statements were issued. Based on this evaluation, the Company has determined that no subsequent events have occurred which require disclosure through January 19, 2010, which is the date that these financial statements are issued.
Disposition of TeamStaff Rx Assets
On December 28, 2009, TeamStaff and TeamStaff Rx, our wholly-owned subsidiary, entered into a definitive Asset Purchase Agreement with Advantage RN, providing for the sale of substantially all of the operating assets of TeamStaff Rx related to TeamStaff Rx’s business of providing travel nurse and allied healthcare professionals for temporary assignments to Advantage RN. The closing of this transaction occurred on January 4, 2010. The Asset Purchase Agreement provides that the purchased assets were acquired by Advantage RN for a purchase price of up to $425,000, of which (i) $350,000 in cash was paid at the closing, and (ii) $75,000 is subject to an escrowed holdback as described in the Asset Purchase Agreement. Additionally, Advantage RN will make rent subsidy payments to TeamStaff Rx totaling $125,000, consisting of (i) $25,000 payable at closing, and (ii) an additional $100,000 payable in 10 equal monthly installments beginning on March 1, 2010. Under the terms of the Asset Purchase Agreement, Advantage RN did not assume any debts, obligations or liabilities of TeamStaff Rx nor did it purchase any accounts receivable outstanding as of the closing date. Upon the completion of the sale, the employment agreement of Dale West, TeamStaff Rx’s President, was terminated, with an effective date as of December 28, 2009 in accordance with its terms. Ms. West will be entitled to receive certain termination compensation and benefits pursuant to such employment agreement.
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Employment Agreement with Chief Executive Officer
On November 3, 2009, the Company announced in a press release that Mr. Rick J. Filippelli, who has served as the Registrant’s President and Chief Executive Officer since January 2007, has informed the Board of his intent to resign from such positions in connection with the Company’s strategic shift in its current business plan. Mr. Filippelli’s resignation as President and Chief Executive Officer will become effective at the end of January 2010. Mr. Filippelli has agreed to assist the Company with its transition to a new Chief Executive Officer. The Company’s Board has established a search committee to identify candidates for Chief Executive Officer. In connection with the foregoing, on November 2, 2009, the Company entered into a new employment agreement with Mr. Filippelli, the material terms of which are summarized below. As used in the following summary, the term “Executive” shall refer to Mr. Filippelli. The following description of this employment is qualified in its entirety by reference to the full text of such agreement. The new employment agreement supersedes and replaces the employment agreement that the Company entered into with Mr. Filippelli on April 17, 2008.
The new employment agreement is dated November 2, 2009, is effective as of October 1, 2009 and expires January 31, 2010, unless both parties agree to extend the term. Under the employment agreement, the Executive will receive a base salary of $290,000 per annum and may receive a bonus in the sole discretion of the Management Resources and Compensation Committee of the Board of Directors. Under the new employment agreement, Mr. Filippelli was granted options to purchase 30,000 shares of common stock. The options are exercisable for five years from the date of acquisition effective Novembergrant and vest upon the termination date, as defined in the new employment agreement, provided the Executive complies with the obligations described therein. The exercise price of the options shall be equal to closing price of the Company’s common stock on the execution date of the new employment agreement.
In the event of a termination of Executive’s employment by the Executive for good reason (as defined in the employment agreement), (a) the Executive’s right to purchase shares of common stock of the Company pursuant to any stock option or stock option plan shall immediately fully vest and become exercisable, (b) the exercise period in which he may exercise his options to purchase common stock shall be extended to the duration of their original term, as if he remained an employee of the Company, and (c) the terms of such options shall be deemed amended to reflect the foregoing provisions. Further, in the event of a termination of the Executive’s employment for cause, options granted and not exercised as of the termination date shall terminate immediately and be null and void. In the event of a termination of Executive’s employment due to his death or disability, the Executive’s (or his estate’s or legal representative’s) right to exercise any stock option, to the extent vested as of the termination date, shall remain exercisable for a period of twelve (12) months following the termination date, but in no event after the expiration of the exercise period. In the event of a termination of Executive’s employment other than for good reason, his right to exercise the stock options, to the extent vested as of the termination date, shall remain exercisable for a period of three months following the termination date, but in no event after the expiration of the exercise period.
The employment agreement further provides that in the event of a change in control (as defined in the employment agreement), or termination without cause by the Company or for good reason (as defined in the employment agreement) by the Executive, the conditions to the vesting of any outstanding restricted stock awards granted to the Executive shall be deemed void and all such shares shall be immediately and fully vested and delivered to the Executive.
In the event of the termination of employment by us without “cause” or by the Executive for “good reason,” as those terms are defined in the employment agreement, or in the event his employment is terminated due to his disability, the Executive would be entitled to: (a) a severance payment of 12 months of base salary; (b) continued participation in our health and welfare plans for a period not to exceed 18 months from the termination date; and (c) all compensation accrued but not paid as of the termination date. In the event of the termination of his employment due to his death, the Executive’s estate would be entitled to receive all compensation accrued but not paid as of the termination date and continued participation in our health and welfare plans for a period not to exceed 18 months from the termination date. If the Executive’s employment is terminated by us for “cause” or by him without “good reason,” he is not entitled to any additional compensation or benefits other than his accrued and unpaid compensation.
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In the event that within 180 days of a “Change in Control”, as defined in the employment agreement, (a) the Executive is terminated, or (b) his status, title, position or responsibilities are materially reduced and the Executive terminates his employment, the Company shall pay and/or provide to the Executive, the following compensation and benefits: (A) The Company shall pay the Executive, in lieu of any other payments due hereunder, (i) the accrued compensation; (ii) the continuation benefits; and (iii) as severance, base salary for a period of 12 months, payable in one lump sum following the termination date; and (B) The conditions to the vesting of any outstanding incentive awards (including restricted stock, stock options and granted performance shares or units) granted to the Executive under any of the Company’s plans, or under any other incentive plan or arrangement, shall be deemed void and all such incentive awards shall be immediately and fully vested and exercisable. Further, any such options shall be deemed amended to provide that in the event of termination after a change of control, the options shall remain exercisable for the duration of their term. Notwithstanding the foregoing, if the payments due in the event of a change in control would constitute an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the aggregate of such credits or payments under the employment agreement and other agreements shall be reduced to the largest amount as will result in no portion of such aggregate payments being subject to the excise tax imposed by Section 4999 of the Code. The priority of the reduction of excess parachute payments shall be in the discretion of the Executive.
Pursuant to the employment agreement, the Executive is subject to customary confidentiality, non-solicitation of employees and non-competition obligations that survive the termination of such agreement.
Employment Agreement with Chief Financial Officer
On January 14, 20042010, the Company entered into a new employment agreement with Ms. Presuto, the terms of which are summarized below. The following description of our new employment agreement with Ms. Presuto is qualified in its entirety by reference to the full text of such agreement.
The employment agreement is for an initial term expiring September 30, 2005,2010. Under the Nursing Innovations divisionemployment agreement, Ms. Presuto will receive a base salary of TeamStaff Rx had two customers who each individually comprised greater than 10%$181,000. The term of the division’s revenue and collectively comprised 24.2%agreement is effective as of October 1, 2009. Upon any termination of the division’s revenue.Employee’s employment on or after the expiration date, other than cause (as defined in the employment agreement), Ms. Presuto will be entitled to the severance payment described below. Ms. Presuto may receive a bonus in the sole discretion of the Management Resources and Compensation Committee of the Board of Directors of up to 50% of her base salary for each fiscal year of employment. The bonus will be based on performance targets and other key objectives established by the Management Resources and Compensation Committee.
Ms. Presuto received a grant of options to purchase 75,000 shares of common stock under the Company’s 2006 Long Term Incentive Plan. The vesting schedule applicable to the options is as follows: 50% of the options shall vest on the date of the agreement and the balance shall vest on September 30, 2010, provided Ms. Presuto is an employee as of such date. The options are exercisable for a period of five years at a per share exercise price equal to the closing price of the Company’s common stock on the date of execution of the employment agreement.
In the event of the termination of her employment, the Options will be governed by the terms of the 2006 Plan, except that the following provisions shall apply: (a) in the event Ms. Presuto’s employment is terminated for cause, options granted and not exercised as of the termination date shall terminate immediately and be null and void; (b) in the event her employment with the Company is terminated due to her death, or disability, her (or her estate’s or legal representative’s) right to purchase shares of common stock pursuant to any stock option or stock option plan to the extent vested as of the date of termination shall remain exercisable for a period of 12 months, but in no event after the expiration of the option; (c) in the event Ms. Presuto elects to terminate her employment other than for good reason (as defined in the agreement), her right to purchase shares of common stock of the Company pursuant to any stock option or stock option plan to the extent vested as of the date of termination shall remain exercisable for a period of three months following such termination date, but in no event after the expiration of option; and (d) in the event of (A) a Change of Control, as defined in the agreement, (B) employee’s termination by the Company without cause or; (C) termination by employee for good reason, the conditions to the vesting of any outstanding restricted stock awards or options granted under the agreement shall be deemed void and all such shares and options shall be immediately and fully vested and delivered to the employee and all outstanding options shall remain exercisable for a period of 24 months following the date of termination, but in no event after the expiration date of any such option.
In the event of the termination of employment by us without “cause” or by Ms. Presuto for “good reason,” as those terms are defined in the employment agreement, or in the event her employment is terminated due to her disability, she would be entitled to: (a) a severance payment of 12 months of base salary; (b) continued participation in our health and welfare plans for a period not to exceed 12 months from the termination date; and (c) all compensation accrued but not paid as of the termination date. In addition, in the event of termination for disability, she would also receive a pro-rata bonus, as described below.
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In the event of the termination of her employment due to her death, Ms. Presuto’s estate would be entitled to receive: (a) all compensation accrued but not paid as of the termination date; (b) continued participation in our health and welfare plans for a period not to exceed 12 months from the termination date; and (c) payment of a “Pro Rata Bonus”, which is defined as an amount equal to the maximum bonus Ms. Presuto had an opportunity to earn multiplied by a fraction, the numerator of which shall be the number of days from the commencement of the fiscal year to the termination date, and the denominator of which shall be the number of days in the fiscal year in which she was terminated. If Ms. Presuto’s employment is terminated by us for “cause” or by her without “good reason,” she is not entitled to any additional compensation or benefits other than her accrued and unpaid compensation.
In the event that within 180 days of a “Change in Control” as defined in the employment agreement, (a) Ms. Presuto is terminated, or (b) her status, title, position or responsibilities are materially reduced and she terminates her employment, the Company shall pay and/or provide to her, the following compensation and benefits: (A) The Company shall pay Ms. Presuto, in lieu of any other payments due hereunder, (i) the accrued compensation; (ii) the continuation benefits; and (iii) as severance, base salary for a period of 12 months, payable in equal installments on each of the Company’s regular pay dates for executives during the twelve months commencing on the first regular executive pay date following the termination date; and (B) The conditions to the vesting of any outstanding incentive awards (including restricted stock, stock options and granted performance shares or units) granted to Ms. Presuto under any of the Company’s plans, or under any other incentive plan or arrangement, shall be deemed void and all such incentive awards shall be immediately and fully vested and exercisable. Further, any such options shall be deemed amended to provide that in the event of termination after a change of control, the options shall remain exercisable for the duration of their term. Upon the effective date of an event constituting a change of control, the Company shall pay Ms. Presuto, in one lump sum upon the first day of the month immediately following such event, an amount equal to her then current base salary. Ms. Presuto shall be entitled to such payment whether or not her employment with the Company continues after the change of control.
If the payments due in the event of a change in control would constitute an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the aggregate of such credits or payments under the employment agreement and other agreements shall be reduced to the largest amount as will result in no portion of such aggregate payments being subject to the excise tax imposed by Section 4999 of the Code. The priority of the reduction of excess parachute payments shall be in the discretion of Ms. Presuto. Pursuant to the employment agreement, Ms. Presuto is subject to customary confidentiality, non-solicitation of employees and non-competition obligations that survive the termination of such agreements.
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TEAMSTAFF, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 2006, 2005,2009 AND 20042008(Amounts in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) Description | | (b) Balance at
Beginning of Year | | (c) Additions
Charged to
(reversed from)
Costs and Expenses | | (d) Deductions –
Net Write-Offs | | (e) Balance at
End of Year | |
| Year Ended September 30, 2006 | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts on trade receivables | | $ | 8 | | | $ | 98 | | | $ | (62 | | | $ | 44 | | |
| Deferred tax valuation allowance | | $ | — | | | $ | 16,851 | | | $ | — | | | $ | 16,851 | | |
| Year Ended September 30, 2005 | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts on trade receivables | | $ | 4 | | | $ | 15 | | | $ | (11 | | | $ | 8 | | |
| Year Ended September 30, 2004 | | | | | | | | | | | | | | | | | |
| | | | | (c) | | | | | |
| | | | Additions | | | | | |
| | | | (b) | | Charged to | | | | (e) | |
| | | | Balance at | | (reversed from) | | (d) | | Balance at | |
| (a) | | | Beginning of | | Costs and | | Deductions – | | End of | |
| Description | | | Year | | Expenses | | Net Adjustments | | Year | |
| | | |
Year Ended September 30, 2009 | | |
| | | |
| Allowance for doubtful accounts on trade receivables | | $ | 48 | | | $ | (44 | | | $ | — | | | $ | 4 | | | $ | — | | $ | — | | $ | — | | $ | — | |
| |
| Deferred tax valuation allowance | | | $ | 11,369 | | $ | 1,751 | | $ | — | | $ | 13,120 | |
| | | |
Year Ended September 30, 2008 | | |
| | | |
| Allowance for doubtful accounts on trade receivables (1) | | | $ | 6 | | $ | 4 | | $ | (10 | ) | | $ | — | |
| | | |
| Deferred tax valuation allowance | | | $ | 11,843 | | $ | — | | $ | (474 | ) | | $ | 11,369 | |
| | |
| (1) | | Reflects reclassification of discontinued operations in 2009. |
S-1
