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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

            þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2007
For the fiscal year ended September 30, 2009
            oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      TO                     

For the transition period fromto
Commission File No. 0-18492

TEAMSTAFF, INC.
(Exact Name of IssuerRegistrant as Specified in Its Charter)


New Jersey22-1899798
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

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)12(b) of the Exchange Act


 NAME OF EACH EXCHANGE ONName of Each Exchange on
TITLE OF EACH CLASS
Common Stock, par valueTitle of Each Class
Which Registered
COMMON STOCK, PAR VALUE $.001 per sharePER SHAREWHICH REGISTERED
The Nasdaq Stock Market,THE NASDAQ STOCK MARKET, LLC

Securities registered pursuant to Section 12(g)12(g) of the Securities
Exchange Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yeso No No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act.

Yeso NoNo þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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.

Yesþ NoNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitionhas submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of ‘‘accelerated filerRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and large accelerated filer’’ in Rule 12b-2 of the Securities Exchange Act. (check one):


post such files).Yeso Noo
Large accelerated filer Accelerated filer Non-accelerated filer

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 fileroAccelerated fileroNon-accelerated fileroSmaller 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).Yeso NoNo þ

At the close of our fiscal year, September 30, 2007,

State the aggregate market value of the voting stock of TeamStaff, Inc. (consisting ofand non-voting common stock, $.001 par value per share)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 $13,248,374 based uponlast business day of the closing sales price of $0.83 for such common stock on said date as reported on the Nasdaq National Market.

registrant’s most recently completed second fiscal quarter (March 31, 2009): $4,586,028.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: On January 14, 20085, 2010 there were 19,403,3664,940,982 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

THIS ANNUAL REPORT ON FORM 10-K, INCLUDING

ITEM 1.BUSINESS
INTRODUCTION
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 (‘‘BUSINESS’’) AND ITEM 7 (‘‘MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS’’), CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 (‘‘SECURITIES ACT’’) AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 (‘‘EXCHANGE ACT’’). WHEN USED IN THIS REPORT, THE WORDS ‘‘BELIEVE,’’ ‘‘ANTICIPATE,’’ ‘‘THINK,’’ ‘‘INTEND,’’ ‘‘PLAN,’’ ‘‘WILL BE,’’ ‘‘EXPECT’’, AND SIMILAR EXPRESSIONS IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REGARDING FUTURE EVENTS AND/OR OUR FUTURE FINANCIAL PERFORMANCE ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUS E ACTUAL EVENTS OR OUR ACTUAL FUTURE RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHER THINGS, RISKS ASSOCIATED WITH MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES, OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN, COMPETITION, MANAGEMENT OF GROWTH, TECHNOLOGICAL CHANGES, PERSONNEL, THE AVAILABILITY OF ANY NEEDED FINANCING AND OTHER RISKS AND UNCERTAINTIES THAT MAY BE DETAILED FROM TIME TO TIME IN OUR REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (‘‘SEC’’). IN LIGHT OF THE SIGNIFICANT RISKS AND UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN INCLUDING BUT NOT LIMITED TO THE ITEMS DISCUSSED IN ‘‘RISK FACTORS’’ IN ITEM 1A OF THIS REPORT, THE INCLUSION OF SUCH STATEMENTS SHOULD NOT BE REGARDED AS A REPRESENTATION BY US OR ANY OTHER PERSON THAT OUR OBJECTIVES AND PLANS WILL BE ACHIEVED. TEAMSTAFF ASSUMES NO OBLIGATION AND DOES NOT INTEND TO UPDATE THESE FORWARD LOOKING S TATEMENTS.

ITEM 1.    BUSINESS

INTRODUCTION

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. Effective October 23, 2007, TeamStaff’s corporate headquarters isIts principal operations are conducted through its subsidiary, TeamStaff Government 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 Somerset, New Jersey. Previously, the Company’s corporate headquarters was located in Atlanta, Georgia.greater detail below, on December 28, 2009, TeamStaff has offices located in Clearwater, Florida; Memphis, Tennessee; Monroe, Georgia; Atlanta, Georgia; and Somerset, New Jersey.

When we use the term ‘‘TeamStaff,’’ or the ‘‘Company’’ we mean TeamStaff and its subsidiaries. Currently, we operate only through the parent corporation, TeamStaff, Inc., and TeamStaff Rx, Inc. (‘‘(“TeamStaff Rx’’) and RS Staffing Services, Inc. (‘‘RS Staffing Services’’Rx”), twoour wholly-owned subsidiariessubsidiary, 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 Inc. 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.

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 VIII, 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’’ subsi diaries“other” subsidiaries are not actively operating. References
Governmental Services
Following the disposition of its TeamStaff Rx business, TeamStaff’s operations are concentrated in this filing to ‘‘TeamStaff,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer togovernmental staffing segment. TeamStaff, Inc. and its wholly owned subsidiaries.

Effective May 31, 2006, TeamStaff exited the payroll processing business it operated for more than 25 years through its DSI Payroll Services division (‘‘DSI’’) when it sold substantially all of the assets of DSI to CompuPay, Inc. for $9.0 million.

TeamStaff provides specialized medical, nursing and administrativeGS subsidiary, is a staffing services. TeamStaff provides allied healthcare and nursing professionals and administrative personnel through two staffing



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subsidiaries. The Company’s TeamStaff Rx subsidiary operates throughout the United States and specializesprovider specializing in providing travel allied medical employees and nurses (typically on a thirteen-week assignment basis), as well as permanent placement services. Allied medical staff includes MRI technicians, mammographers, dosimetrists, ultrasound staff and physicists. TeamStaff Rx places temporary employees for over 250 client facilities. The Company’s RS Staffing Services subsidiary specializes in providing medicalhealthcare, logistical, information technology and office administration/technical professionalsadministration personnel to U.S. government entities. The staffing services offered by TeamStaff GS are provided through independent Federal Supply Schedule (‘‘FSS’’(“FSS”) contracts with boththrough the United States General Services Administration (‘‘GSA’’(“GSA”). The provision of logistical and United Statesadministrative 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 Veterans Affairs (‘‘DVA’’). RS Staffing Services places temporaryDefense and other US governmental agencies and placed contract employees at over 70 facilities. 40 facilities during the 2009 fiscal year.

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Description of Services
TeamStaff, Rx Nursing Innovations division, discontinuedthrough its TeamStaff GS subsidiary, is a staffing provider specializing in 2007, provides per diem nursing. This nursing unit places per die mhealthcare, logistical, information technology and office administration personnel that has been serving the Federal Government for over a decade. Providing quality staffing solutions and facility management services, TeamStaff GS is committed to providing on-time delivery of multi-disciplined employees at over 20 client facilities.

who possess the necessary experience, expertise, and dedication required to meet contract specifications. TeamStaff 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 1 Executive Drive, Suite 130, Somerset, New Jersey 08873 where its telephone number is (877) 523-9897.

RECENT DEVELOPMENTS

Discontinued operations

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 2007, the Company approved and committed to a formal plan to divest the operations of the Nursing Innovations per diem nursing business (‘‘Per Diem’’), based at its Memphis, Tennessee location. In evaluating the facets of Per Diem’s operations, management concluded that this business component meets the definition of a discontinued operation (as defined in SFAS 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’). Accordingly, the results of operations, cash flows and related assets and liabilities of Per Diem have been reclassified in the accompanying financial statements from those of continuing businesses.

TeamStaff has received confidential letters of intent from interested third parties to purchase certain assets, including accounts receivable, fixed assets and all Nursing Innovations intangibles, and assume defined liabilities of Per Diem. Based on the values and terms of these conditional offers, the Company believes that an objective indication of fair value now exists and, accordingly, has reduced the carrying value of related assets held for sale to fair value (adjusted for estimated disposal costs) as of September 30, 2007. There are a number of uncertainties inherent in the Company’s ability to find a suitable buyer, negotiate an acceptable sale and satisfy closing conditions in a timely manner. Although no assurances can be provided, the Company expects to complete the sale of this business in the second fiscal quarter of 2008 and that the ultimate gain or loss on a formal disposal will not be material to the Company’s future f inancial condition, results of operations or cash flows. Per Diem’s results of operations from October 1, 2007 through a closing date will be recognized, as incurred, as a loss from discontinued operations. Such operating losses are not expected to be material.

SERVICES

As a part of its continuing operations, TeamStaff provides staffing services through its wholly-owned subsidiaries, TeamStaff Rx and RS Staffing Services.

Staffing Services

TeamStaff provides allied healthcare and nursing professionals and administrative staffing through two staffing subsidiaries. The Company’s TeamStaff Rx subsidiary operates throughout the United States and specializes in the supply of travel allied medical employees and nurses, (typically on thirteen-week assignments), as well as permanent placement services. Allied medical staff includes MRI technicians, mammographers, dosimetrists, ultrasound staff and physicists. The Nursing Innovations unit of TeamStaff Rx provides per diem nursing. TeamStaff’s RS Staffing Services subsidiary specializes in providing medical and office administration/technical professionals through FSS contracts with both the GSA and DVA, among other customers.



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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, 2007, this unit generated $22.0 million of revenue.

TeamStaff Rx focuses its allied health staffing services in all national markets, and seeks to place employees on temporary long-term assignments or on a permanent basis. TeamStaff Rx employs allied health professionals such as radiological technologists, MRI techs, CT techs, diagnostic sonographers, cardiovascular technologists, radiation therapists, dosimetrists, and physicists and places these professionals in hospitals, clinics and therapy centers throughout the United States. TeamStaff Rx also provides travel 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. TeamStaff Rx provides a full complement of specialized nurses to fill the needs of its clients. Clients whose staff requirements vary dramatically depending on patie nt census and in-house turnover 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. Hiring travel nurses plays a key role in the facilities plan to meet their core and long-term staffing needs.

TeamStaff Rx’s clients are dependent on temporary staffing to supplement various internal departments for staffing shortages due to vacations, medical leaves, core vacancies 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’GS’s primary client has been the United States Government and its various agencies. RS Staffing ServicesTeamStaff 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 FSS contracts with both the GSA and the DVA, RS Staffing ServicesTeamStaff GS offers the ease of ordering directly through one of its multiple-award contracts and through multiple procurement vehicles and schedules. These procurement vehicles include the Logistics World schedule, and the Professional and Allied Healthcare and Information Technology schedules, as well as the ability to order through the GSA’s e-Buy system. RS Staffing ServicesTeamStaff 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 generates revenue opportunities through the use of ‘teaming partners’ that provide personnel to fill positions secured by RS Staffing Services. During the fiscal year ended September 30, 2007,2009, 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.

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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 $44.9 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.



TableTeamStaff GS has achieved positive results in expanding its penetration of Contents

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. TeamStaff Rx believes that itCompany is in a pivotal position to increasealso expanding 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. RS Staffing Services has recently expanded its reach and started to bidsector beyond VA opportunities by bidding on Department of Defense (“DOD”) staffing contracts.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 allow 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 means of horizontal expansion of its client base.

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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 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.
Government Contracts

The U.S. Government is the primary customer to our RS Staffing ServicesTeamStaff 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 would 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 ServicesTeamStaff 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 may 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, results of operations or cash flows in the future.

CUSTOMERS

As of September 30, 2007, TeamStaff’s combined customer base consisted of over 340 staffing clients. All of the customers of our TeamStaff Rx subsidiary are engaged in the healthcare industry. Substantially all of the business of our RS Staffing Services subsidiary is accomplished through contracts with various agencies of the United States Government. In fiscal 2007, RS Staffing Services has two customers who each individually comprise more than 10% of the Company’s overall consolidated revenue

Sales and four customers who each individually comprise more than 10% of the subsidiary’s revenue. In fiscal 2007, TeamStaff Rx had one client who individually comprises greater than 5% of the subsidiary’s revenue. In fiscal 2007, RS Staffing Services had six clients who each individually comprise greater than 5% of the subsidiary’s revenue.

SALES AND MARKETING

Marketing

TeamStaff maintains healthcare and government staffing sales, service and marketing personnel in Tucson, Arizona; Clearwater, Florida; Monroe,Loganville, Georgia; Hines, Illinois; Leavenworth, Kansas; Boston, Massachusetts; Biloxi, Mississippi; Muskogee, Oklahoma; Memphis Tennessee; Murfreesboro, Tennessee; and Charleston, South Carolina; and Washington, DC.

Carolina.

Through our business units,operating subsidiary, TeamStaff continues to build sales through both telemarketing effortsthe GSA’se-Buy portal, an electronic system designed to allow Federal buyers to request information, find sources, and prepare RFQs/RFPs, online and face-to-face client interactions. Communicating with our clients on a regular basis allows us to form a trusted, working relationship which enables us to better serve and deliver the most qualified candidates. The acquisition of RS Staffing Services in June 2005 offered TeamStaff the opportunity to use RS Staffing Services accounts and on site locations as well as nearby RS Staffing Services offices for the further marketing of its general and government services offerings.

Recent effortsEfforts to build marketing presence include revising our website,the launching of new TeamStaff GS and corporate websites, implementing an aggressivea print advertisement campaign, and revising our strategic marketing communications plan. Additionally



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plan in an effort to attract allied medical and nurse travelers. During the year, we havealso added several marketing events to our tradeshow calendar in order to increase our brand recognition and participation in both the commercial and government sectors.recognition. This added exposure is allowing us to introduce our suite of offerings to an expanded market.

TeamStaff implemented quarterly We continue to focus on our sales and services meetingsmarketing efforts in order to align supplyincrease 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 government sector and provides us with an opportunity to demand and to enable faster communication of sales focus. We have implemented new software enabling our sales force to share information across the company. We also have expanded our sales efforts to cover more territories and be more nationally focused.

COMPETITION

Thebid on awards for large multi-year contracts with favorable 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., Nursefinders,Kforce, Inc. and Maxim Healthcare Services, Inc. TeamStaff competes with these companies by offering customized products, 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’TeamStaff 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 governing 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 the Federal Insurance Contribution Act (‘‘FICA’’(“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.

Employee Benefit Plans

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’’(“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 (‘‘ERISA’’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 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 IRC Section 401(k) and matching contributions under IRC Section 401(m), must satisfy certain other requirements under the 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.



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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.’’

State Regulation

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. As required by state regulation, 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 a license application pending in Illinois. TeamStaff Rx is licensed or registered for its temporary nursing business in California, Kentucky, Maine, Maryland, Massachusetts Minnesota, New Jersey, 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 Systems

During

Throughout the 2009 fiscal year, 2007,the Company has made technology related strategic improvements. Previously, the infrastructure 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 IT in house; improving overall support, while reducing the Company’s primary IT objectiveIT-related expenditures by approximately $75,000 per year.

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Looking forward, the Company will continue to focus on the government division. The Company has analyzed and documented the requirements needed to replace 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 consolidationpurchase 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 travel staffing systems, which was successfully completed on September 30, 2007. Our new platform providesTeamStaff Rx subsidiary, Dale West, ceased her employment with TeamStaff. Ms. West will receive severance payments and 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 more cohesive view intodivision of Sovereign Bank (“Sovereign” or “Lender”). Effective April 1, 2008, BACC changed its name to Sovereign Business Capital. Under the activitiesLoan 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 alliedLoan Agreement. The loan is secured by a first priority lien on all of the Company’s assets. Previously in 2005, the Company and nursing businesses, which we believe will position usPNC Bank, National Association (“PNC”) had entered into an $8,000,000 revolving credit facility (“PNC Loan Facility”). Pursuant to serve our clientsthe Loan Agreement, the Lender (i) acquired by assignment from PNC all right, title and travelers fasterinterest of PNC under the PNC Loan Facility, the PNC note and more efficiently.related loan documentation, and (ii) restructured the PNC Loan Facility into a $3,000,000 revolving credit facility with a 3 year term. The new system also includes integrated email and calendar functions, giving us theCompany’s ability to associate all electronic communicationsrequest loan advances under the Loan Agreement is subject to computation of the Company’s advance limit and compliance with the appropriate employee or client contact. Sincecovenants and conditions of the new platformloan. The facility is entirely Web-basedfor a term of 36 months and hosted bymatures on March 31, 2011. Interest on amounts due accrues on the daily unpaid balance of the loan advances at a third-party,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 havewere 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 effect of any emergency situation which would impact our Clearwater, Florida office.

Throughout the year, we also addressed some older portions of our infrastructure by upgrading our office servers and employees’ workstations, as well as replacing an outdated mail server with the aforementioned new platform. 

For fiscal year 2008, we will focus on improving our business processesmaximum amount available under such loan facility from $3.0 million to take full advantage of the updated technologies, and roll out new versions of our staffing-related web sites that reflect our updated branding. For regulatory reasons, we still maintain equipment that supported past lines of business, but over the next two years we will begin the decommissioning process, which will let us reduce associated operating costs without impacting ongoing business.

Employees

$2.0 million. As of September 30, 2007,2009, there was no 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 TeamStaff 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 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”.
Employees
As of September 30, 2009, TeamStaff employed 9845 corporate (non worksite) employees, both full-time and part-time, including executive officers, a decrease from 12264 during the previous fiscal year. As of September 30, 2007,2009, TeamStaff also employed approximately 1,290 temporary911 contract employees on client assignments. TeamStaff believes its relationship with its current employees is satisfactory. None of TeamStaff’s employees are covered by a collective bargaining agreement.

RISK FACTORS

Available Information
We file annual, quarterly and current reports and other information with the Securities 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 the 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.
Item 1A.Risk Factors
As provided for under the Private Securities Litigation Reform Act of 1995 (‘‘(“1995 Reform Act’’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, 2007,2009, 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 and



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financial condition may be materially and adversely affected due to any of the following risks. The risks described below are not the only ones we face. Additional risks we are not presently aware of or that we currently believe are immaterial may also impair 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 Annual Report on Form 10-K, including our consolidated financial statements and related notes.

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Safe Harbor Statement

Certain statements contained herein constitute ‘‘forward-looking statements’’“forward-looking statements” within the meaning of the 1995 Reform 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, 20072009 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.

Risks 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:

• 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;
• Future acquisitions, investments or joint ventures may require us to issue additional common stock, spend significant cash amounts or decrease our operating income;
• We may have trouble integrating the acquired business and retaining its personnel;
• Acquisitions, investments or joint ventures may disrupt our business and distract our management from other responsibilities; and
• 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



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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, weTeamStaff 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’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 herein.

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 manage ment 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’ revenue isderived from U.S. Government customers.

We derive a substantial portion of our revenues in our RS Staffing ServicesTeamStaff GS subsidiary from the U.S. Government as a prime contractor or a subcontractor. Revenues from the U.S. Government represented approximately 95%98% of the total revenues of RS Staffing ServicesTeamStaff GS for each of the 2009 and 2008 fiscal years. Further, in fiscal year 2007, 92%2009, 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 11% of the Company’s overall consolidated revenue, or 77% in fiscal year 2006 and 94% in fiscal year 2005. 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 from 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 ServicesTeamStaff 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 U.S. 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 U.S. 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.



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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 Government 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, we generally doCFO and the 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.

Unfavorable economic conditions could harm our business.

United States.

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.

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There are significant expectations that there may be legislative changes in the next few years that fundamentally impact the healthcare industry. We cannot assess the impact that any such future changes may have on our customers and, as a result, on our business. We also cannot assess how, and whether, the recently enacted fiscal stimulus bill will impact our business and our industry.
Our business may be adversely affected due to economic conditions in specific geographic markets.

A significant portion of our revenues are derived from California, Florida, Georgia and Tennessee with respect to allied healthcare and nurse staffing with respect to TeamStaff Rx, and Illinois, Kansas, South Carolina and Tennessee with respect to RS Staffing Services.the government staffing services provided by TeamStaff GS. While we believe that our market diversification will eventually lessen this risk in addition to generating significant revenue growth, we may not be able to duplicate in other markets the revenue growth and operating results experienced in the listed markets.

Accordingly, we have a specific sensitivity to adverse economic conditions in these geographic markets.

Our financial condition may be affected by increases in health insurance premiums, unemployment taxes and workers’ compensation rates.

Health insurance premiums, state unemployment taxes and workers’ compensation rates are in part determined by our claims experience and comprise a significant portion of our direct costs. If we experience a large increase in claim activity, our health insurance premiums, unemployment taxes or workers’ compensation rates could increase. Although we employ internal and external risk management procedures in an attempt to manage our claims incidence and estimate claims expenses



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and structure our benefit contracts to providesprovide as much cost stability as possible, we may not be able to prevent increases in claim activity, accurately estimate our claims expenses or pass the cost of such increases on to our clients. Since our ability to incorporate such increases into our fees to our clients is constrained by contractual arrangements with our clients, a delay could occur before such increases could be reflected in our fees, which may reduce our profit margin. As a result, such increases could have a material adverse effect on our financial condition, results of operations, cash flows and liquidity.

Our financial condition may be affected by risks associated with our health and workers’ compensation claims experience.

Although we utilize only fully insured plans of health care and incur no direct risk of loss under those plans, the premiums that we pay for health care and workers’ compensation insurance are directly affected by our claims experience, including the claims experience of our off-site temporarycontract employees. If this experience is unfavorable, the premiums that are payable by us will increase or coverage may become unavailable altogether. We may not be able to pass such increases onto our clients, which may reduce our profit margins. Increasing health care and workers’ compensation premiums could also place us at a disadvantage in competing for new clients. In addition, periodic reassessments of workers’ compensation claims of prior periods (when TeamStaff was covered under large deductible-type plans) may require an increase or decrease to our reserves, and therefore may also affect our present and future financial condition.

If unfavorable government regulations regarding temporarycontract and permanent staffing are implemented, or if current regulations are changed, our business could be harmed.

Because many of the laws related to the employment relationship were enacted prior to the development of alternative staffing businesses, many of these laws do not specifically address the obligations and responsibilities of non-traditional employers. Numerous federal, state and local laws and regulations relating to labor, tax, insurance and employment matters affect our operations. Many states require licensure or registration of entities providing temporarycontract health care or nursing services as well as those offering permanent placement services. There can be no assurance that we will be able to comply with any such regulations, which may be imposed upon us now or in the future, and our inability to comply with any such regulations could have a material adverse effect on our results of operations and financial condition. In addition, there can be no assurance that existing laws and regulations which are not currently applicable to us will not be interpreted more broadly in the future to apply to our existing activities or that new laws and regulations will not be enacted with respect to our activities. Either of these changes could have a material adverse effect on our business, financial condition, results of operations and liquidity.

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We may not be able to obtain all of the licenses and certifications that we need to operate.

State authorities extensively regulate the temporary medical staffing and permanent placement industry and some states require us to satisfy operating, licensing or certification requirements. If we are unable to obtain or maintain all of the required licenses or certifications that we need, we could experience material adverse effects to our results of operations, financial condition and liquidity.

Health care reform could impose unexpected burdens on our ability to conduct our business.

Regulation in the health care field continues to evolve, and we cannot predict what additional government regulations affecting our business may be adopted in the future. Changes in any of these laws or regulations may adversely impact the demand for our services, require that we develop new or modified services to meet the demands of the marketplace, or require that we modify the fees that we charge for our services. Any such changes may adversely impact our competitiveness and financial condition.

We bear the risk of nonpayment from our clients and the possible effects of bankruptcy filings by clients.

To the extent that any particular client experiences financial difficulty, or is otherwise unable to meet its obligations as they become due, our financial condition and results of operations could be adversely



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affected. For work performed prior to the termination of a client agreement, we may be obligated, as an employer, to pay the gross salaries and wages of our temporary medical employees and the related employment taxes and workers’ compensation costs, whether or not our client pays us on a timely basis, or at all. A significant increase in our uncollected account receivables may have a material adverse effect on our earnings, cash flows and financial condition.

We may be held liable for the actions of our temporarycontract employees and therefore incur unforeseen liabilities.

A number of legal issues with respect to the employment arrangements among temporarycontract staffing firms, their clients and temporarycontract employees remain unresolved. These issues include who bears the ultimate liability for violations of employment and discrimination laws. As a result of our employer status, we may be liable for violations of these or other laws despite contractual protections. While our client service agreements generally provide that the client is to indemnify us for any liability caused by the client’s failure to comply with its contractual obligations and the requirements imposed by law, we may not be able to collect on such a contractual indemnification claim and may then be responsible for satisfying such liabilities. In addition, temporarycontract employees may be deemed to be our agents, which could make us liable for their actions.

Our staffing of healthcare professionals exposes us to potential malpractice liability.

Through our TeamStaff Rx and RS Staffing Services subsidiaries, we engage in the business of providing temporarycontract healthcare professionals. The placement of such employees increases our potential liability for negligence and professional malpractice of those employees. Although we are covered by professional malpractice liability insurance in the aggregate amount of $5,000,000$5.0 million with a $2,000,000$2.0 million per occurrence limit, which we deem reasonable under the circumstances, not all of the potential liability we face may be fully covered by insurance. Any significant adverse claim, which is not covered by insurance, may have a material adverse effect on us.

We may not be fully covered by the insurance we procure.

Although we carry liability insurance, the insurance we purchase may not be sufficient to cover any judgments, settlements or costs relating to any present or future claims, suits or complaints. In addition, sufficient insurance may not be available to us in the future on satisfactory terms or at all. Additionally, the ever-increasing costs of insurance will impact our profitability to the extent that we cannot offset these increases into our costs of services. Our current workers’ compensation plan is a partially self-funded workers’ compensation insurance program. The Company pays 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. If the insurance we carry is not sufficient to cover any judgments, settlements or costs relating to any present or future claims, suits or complaints, our business, financial condition, results of operations and liquidity could be materially adversely affected.

If we were not able to renew all of the insurance plans that cover temporarycontract healthcare employees, our business would be adversely impacted.

The maintenance of health and workers’ compensation insurance plans that cover our temporarycontract healthcare employees is a significant part of our business. If we were unable to secure renewal of contracts for such plans or the renewal of such plans with favorable rates and with competitive benefits, our business would be adversely affected. The current health and workers’ compensation contracts are provided by vendors with whom we have an established relationship and on terms that we believe to be favorable. While we believe that renewal contracts could be secured on competitive terms without causing significant disruption to our business, there can be no assurance in this regard.

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We operate in a highly competitive market and our success depends on our ability to remain competitive in obtaining and retaining clients and demonstrating the value of our services.
We operate in a highly competitive market. Our business will suffer if our services areprimary competitors in government staffing solutions include Top Echelon Management, Inc., Total Management, Inc., Medical Staffing Network Holdings, Inc., Kforce, Inc. and Maxim Healthcare Services, Inc. In addition, other large staffing companies that do not competitive.

The temporary employee placement industry is characterized by vigorous competition.currently provide government staffing solutions may seek to enter into this space. These companies may have greater name recognition and financial and marketing resources than us. Since we compete with numerous entities that have greater resources than us, in each of our business lines, our business will suffer if we are not competitive with respect to each of the services we provide. Our



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major competitors with respect to temporary medical staffing resources include, but are not limited to, AMN Healthcare Services, Inc., Cross Country Healthcare, Inc., CHG Healthcare Services, Inc., Medical Staffing Network Holdings, Inc., Nursefinders, Inc. and Maxim Healthcare Services Inc. These companies may have greater financial and marketing resources than we.

Our failure to remain competitive could harm our business.

Our business is highly competitive. We compete with larger companies that have greater name recognition, financial resources and larger staffs. We also compete with smaller, more specialized entities whowhich are able to concentrate their resources on particular areas. In

We believe that the primary competitive factors in obtaining and retaining government healthcare facility clients are identifying qualified healthcare professionals for specific job requirements, providing qualified employees in a timely manner, pricing services competitively and effectively monitoring the job performance of our contract professionals. Competition for government healthcare facility clients and contract and permanent healthcare professionals may increase in the future related to these factors or due to a shortage of qualified healthcare professionals in the marketplace and, as a result, we may not be able to remain competitive. To the extent competitors seek to gain or retain market share by reducing prices or increasing marketing expenditures, we could lose revenue or clients and our margins could decline, which could seriously harm our operating results and cause the price of our stock to decline. With respect to staffing for Government segment,entities, we also compete with the U.S. Government’s own in-house capabilities and the U.S. Government’s ability to hire permanent staff. To remain competitive, we must provide superior service and performance on a cost-effective basis to our customers. Any failure to do so could have a material adverse effect on our business.

If we cannot obtain sufficient levels of temporary employees,are unable to attract qualified nurses and allied health professionals for our healthcare staffing business, or other contract personnel for our staffing business, our business may be negatively affected.

TeamStaff Rx

We rely heavily on our ability to attract and retain nurses and allied health professionals who possess the skills, experience and licenses necessary in order to provide staffing solutions for hospital and healthcare facility assignments. We compete for healthcare professionals with other healthcare staffing companies and with hospitals and healthcare facilities. We must continually evaluate and expand our healthcare professional network to keep pace with our hospital and healthcare facility clients’ needs. Currently, there is a temporary employment agency, whichshortage of qualified nurses in most areas of the United States and competition for nursing personnel is increasing. We may be unable to continue to increase the number of healthcare professionals that we recruit, thereby decreasing the potential for growing our business. Our ability to attract and retain healthcare professionals depends on several factors, including our ability to provide healthcare professionals with assignments that they view as attractive and to provide them with competitive benefits and wages. The cost of attracting healthcare professionals and providing them with attractive benefits packages may be higher than we anticipate and, as a result, if we are unable to pass these costs on to our hospital and healthcare facility clients, our profitability could decline. Moreover, if we are unable to attract and retain healthcare professionals, the quality of our services to our hospital and healthcare facility clients may decline and, as a result, we could lose clients.
Similarly, in order to provide contract logistic, administrative or other employees to our clients, we are dependent on securing a pool of qualified temporary employeespersons willing to accept assignments for our clients. ItsOur business is materially dependent upon the continued availability of such qualified medical temporary personnel. Our inability to secure temporary medicalqualified personnel would have a material adverse effect on our business.
We are dependent on the proper functioning of our information systems.
We are dependent on the proper functioning of our information systems in operating our business. Critical information systems used in daily operations identify and match staffing resources and client assignments. The system also tracks regulatory credentialing expirations and other relevant client and healthcare information. They also perform payroll, billing and accounts receivable functions. Our information systems are vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events. If our information systems fail or are otherwise unavailable, these functions would have to be accomplished manually, which could impact our ability to identify business opportunities quickly, maintain billing and staffing records reliably, pay our staff in a timely fashion and bill for services efficiently.

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Potential tax liabilities may adversely affect our financial condition.

From time to time, we have received several notices from the Internal Revenue Service regarding potential underpayment, overpayment or non-payment of payroll-related taxes. We have disputed these notices, and strongly believe that such notices were the result of errors made in reporting taxes paid and the resulting misapplication of taxes paid, in large part due to our operation of approximately seventeen different subsidiaries over the last few years to conductpredominantly from our various lines of business.former Professional Employer Organization discontinued operations. The IRS has made claims that, if we were required to pay in full, could materially adversely affect our financial condition.condition and cash flows. We are contesting these notices because we believe all material payroll-related taxes have been paid. We further believe that once all tax payments are applied appropriately, all material penalties and interest should be abated. We have retained the services of Ernst & Young, LLP to assist us in this regard. However, there can be no assurance that we will be successful in our efforts. 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, such amounts havethe remaining liability ($1.1 million at September 30, 2009) has been recorded in accounts payable in the accompanying balance sheets. 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.

We have a substantial amount of goodwill on our balance sheet. Future write-offs of goodwill may not be successful in seekinghave the effect of decreasing our earnings or increasing our losses.
We have previously obtained growth through acquisitions of other companies and businesses. Under existing accounting standards, we are required to setoff legal feesperiodically review goodwill and indefinite life intangible assets for possible impairment. In the event that have been incurred in connection withwe are required to write down the investigationvalue of RS Staffing Services.

As described in greater detail in ‘‘Legal Proceedings’’, we were served with a federal subpoena relating toany assets under these pronouncements, it may materially and adversely affect our subsidiary, RS Staffing Services, requesting production of certain documents in connection with an investigation of possible violations of Federal criminal laws and related crimes concerning procurement activities. Asearnings. See the more detailed discussion appearing as part of our Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 herein.

As of September 30, 2009, we had $8.6 million of goodwill on our consolidated balance sheet, which represents the excess of the total purchase price of our acquisition over the subsidiary,fair value of the net assets acquired. At such date, goodwill represented approximately 32% of our total assets. As permitted, we issueddo not amortize goodwill or intangible assets deemed to have an indefinite useful life. Impairment, for goodwill and intangible assets deemed to have an indefinite life, exists if the net book value of the goodwill or intangible asset equals or exceeds its fair value. As required, we performed our annual review for impairment during the fourth quarter of fiscal year 2009 by performing a fair value analysis of each reporting unit. The fair value analysis was completed with the assistance of outside valuation professionals. The carrying values of the intangibles associated with our continuing TeamStaff GS business were supported by the results of this valuation, However, 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 (tradename — $0.7 million and goodwill — $1.6 million) to estimated fair value. The estimated fair value was derived from the terms of the sale of these assets to Advantage RN. The impairment charge is included in the 2009 loss from discontinued operations. Contributing to this 2009 impairment charge was the reduction in our projected growth rates (compared to prior projections), management’s current assessment of the healthcare staffing industry and the significant decrease in the enterprise value of the unit. Additional impairment analyses may be performed to determine if indicators of impairment are present, and if so, such amount will be determined and the associated charge will be recorded to the former ownersconsolidated statement of RS Staffing Services a $3.0 million promissory note,operations. Although it does not affect our cash flow, an impairment charge to earnings has the effect of which $1.5 million was paid in June 2006. On May 31, 2007decreasing our earnings or increasing our losses, as the Company sent a notice of indemnification claimcase may be. If we are required to the former owners for costs that have been incurred in connection with the investigation. At September 30, 2007, the amount had not been settled. The Company recognized expenses related to legal representation and costs incurred in connection with the investigation in the amount of $1.486 million during the fiscal year ended Septemb er 30, 2007, as a component of other income (expense). We haverecord additional impairment charges, our stock price could also notified the former owners or RS Staffing Services that it is the Company’s intention to exercise its right to setoff the payment of such expenses against the remaining principal and accrued interest due



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to the former owners of RS Staffing Services. The Company will pursue the recovery as a right of offset in future periods. Although, management and its counsel have a good faith belief that the Company will recover such amounts, 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. Accordingly, the Company has expensed costs related to the investigation at September 30, 2007.adversely affected.

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Risks Relating To Our Revolving Credit Line

Our credit facility is secured by a lien on substantially all of our assets and if we are unable to make the scheduled principal and interest payments on the facility or maintain compliance with other debt covenants, we may default on the facility.
TeamStaff completed a $7.0$3.0 million revolving credit facility by PNCSovereign Business Capital (formerly known as Business Alliance Capital Company), a division of Sovereign Bank, effective on June 8, 2005. Effective February 13, 2006, TeamStaff entered into an amendment to the revolving credit note, increasing the revolving credit facility to $8.0 million.March 28, 2008. Revolving credit advances bear interest at either the per annum rate of Prime Rate plus 25 basis points, or LIBOR plus 275 basis points, whichever is higher.but not less than 5.5% per annum. The facility has a three-year life and contains term and line of credit borrowing options. In connection with the disposition of the assets of our TeamStaff Rx subsidiary, we were required to obtain the consent of the lender under our Loan Agreement, 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 September 30, 2009, there was no 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, we 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 our operations and financial condition.
The facility is subject to certain restrictive covenants, including minimum combined cashdebt service coverage ratio and line availability.restrictions on the Company’s ability to, among other things, dispose of certain assets, engage in certain transactions, incur indebtedness and pay dividends. In addition, the line of credit is secured by a lien on substantially all of our assets. Due to these covenants and restrictions, our operations may be affected in several ways. For instance, a portion of our cash flow from operations will be dedicated to the payment of the principal and interest on our indebtedness and as referenced above, our ability to enter into certain transactions, incur additional indebtedness and dispose of certain assets may be limited. 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 facility, as well as interest costs. Failure to pay revolving credit advances or any failure to comply with applicable restrictive covenants would have a material adverse effect on our business in that we could be required to repay the outstanding balance in advance or sell assets in order to repay the outstanding amount. In addition, the Lender could seize the collateral securing the loan facility.
Further, availability under the line 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 Staffing ServicesTeamStaff 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 line of credit, which would materially affect the Company’s business.

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 facility expiresLoan Agreement provides that following an event of default, Sovereign may, among other remedies provided for in June 2008the 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, on January 12, 2010, 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 Company will be seekinglender does not agree to replacemodify the facility with PNC Bankcovenants or another financial institution; shouldwaive such violations, it could result in the Company be unable to obtain an extension or a replacement credit facility on acceptable terms, thereacceleration of the maturity date of all of our debt under this loan facility. In both of these circumstances it could behave a material adverse effectimpact on our business and financial position, interest expense and cash flows. If the facility is replaced or modified prior to June 2008, the Company will incur a non cash write off of the then unamortized capitalized financing fees. Unamortized fees at September 30, 2007 approximated $34,000.

condition.

Risks Relating To Our Stock

There is limited trading volume in our common stock and you may find it difficult to dispose of your shares of common stock; it is possible that our stock may be delisted from The Nasdaq Global Market.

Our common stock is currently traded on The Nasdaq GlobalCapital Market under the symbol ‘‘TSTF.’’“TSTF”. On December 31, 2007,2009, the closing bid price of our common stock was $0.70.$0.80. If we fail to meet any of the continued listing standards of The Nasdaq GlobalCapital Market, our common stock will be delisted from The Nasdaq GlobalCapital Market. These continued listing standards include specifically enumerated criteria, such as a $1.00 minimum closing bid price.

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On July 6, 2007,December 17, 2009, we received a Nasdaq Staff Deficiency Letterstaff deficiency letter from The Nasdaq Stock Market notifying usthe Company that for the past 30 consecutive business days, the closing bid price per share of ourits common stock was below the $1.00 minimum bid price requirement for 30 consecutive trading days and that, as a result, we no longer meet Thecontinued listing on the Nasdaq Stock Market’s minimum bid price requirement for continued listingCapital Market set forth in MarketplaceNasdaq Listing Rule 4450(a)(5)5550(a)(2). As a result, the Company was notified by Nasdaq that it is not in compliance with the Listing Rule. Nasdaq has provided usthe Company with 180 calendar days, or until January 2, 2008,June 15, 2010, to regain compliance. To regain compliance with the minimum bid price requirement, the closing bid price of our common stock must remain above $1.00 for a minimum of ten consecutive trading days during the 180-day compliance period. If this occurs, Nasdaq will provide us with written notification of compliance. However, if we do not regain compliance by January 2, 2008during this grace period, our common stock will be delistedsubject to delisting from The Nasdaq Global Market. As of January 2, 200 8 we did not regain compliance and on



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January 4, 2008, we received a notice that our common stock will be delisted. Nasdaq rules permit us to appeal any delisting determination by the Nasdaq staff to a Nasdaq Listings Qualifications Panel and we intend to appeal such determination. Our appeal will stay the suspension and delisting of our common stock pending a decision by a Nasdaq Listing Qualifications Panel. In addition, our board of directors has authorized the approval of a reverse stock split in order to facilitate our ability to regain compliance with the continuing listing standards of the Nasdaq Global Market. In the event that such a delisting determination was based solely on non-compliance with the minimum bid price rule, we may be permitted to transfer the listing of our common stock to The Nasdaq Capital Market if we satisfy all criteria for initial inclusion on such market other than compliance with the minimum bid price requirement. In the event of such a transfer, the Nasdaq Marketplace Rules provide that we would be gr anted an additional 180 calendar days to comply with the minimum bid price rule while on The Nasdaq Capital Market. The 180-day compliance period relates exclusively to our bid price deficiency. We may be delisted during the 180-day period for failure to maintain compliance with any other listing requirement which occurs during this period.

If our common stock were to be delisted from The Nasdaq Capital Market, trading of our common stock most likely will be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. Such trading will reduce the market liquidity of our common stock. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock. If our common stock is delisted from The Nasdaq Capital Market and the trading price remains below $5.00 per share, trading in our common stock might also become subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a ‘‘penny stock’’“penny stock” (generally, any equity security not listed on a national securities exchange or quoted on Na sdaqNasdaq that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of shareholders to borrow against or ‘‘margin’’“margin” low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual shareholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitati ngfacilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock.

Changes in our business, the volatility of the market value of our comparable companies and the impact of litigation and disputes may increase the volatility of the stock price.

The price of our common stock could be subject to fluctuations in the future. This volatility may result from the impact on our stock price of:

 the impact of acquisitions, investments, joint ventures and divestitures that we may undertake;
 the impact of the volatility of the market value of comparable public companies that are considered in our valuation process and any publicly traded securities we may own;
 the impact of litigation, government investigations or other customer disputes on our operating performance and future prospects; and
 the mix of our commercial and international business as a proportion of our overall business and the volatility associated with companies in those business areas

Since we have not paid dividends on our common stock, you cannot expect dividend income from an investment in our common stock.

We have not paid any dividends on our common stock since our inception and do not contemplate or anticipate paying any dividends on our common stock in the foreseeable future. Future potential



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lenders may prohibit us from paying dividends without its prior consent. Therefore, holders of our common stock may not receive any dividends on their investment in us. Earnings, if any, will be retained and used to finance the development and expansion of our business.

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We may issue preferred stock with rights senior to our common stock, which may adversely impact the voting and other rights of the holders of our common stock.

Our certificate of incorporation authorizes the issuance of ‘‘blank check’’“blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors up to an aggregate of 5,000,000 shares of preferred stock. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights, which would adversely affect the voting power or other rights of the holders of our common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our Company, which could have the effect of discouraging bids for our Company and thereby prevent stockholders from receiving the maximum value for their shares. Although we have no present intention to issue any shares of our preferred stock, in order to discourage or delay a change of control of our Company, we may do so in the future. In addition, we may determine to issue preferred stock in connection with capital raising efforts and the terms of the stock so issued could have special voting rights or rights related to the composition of our Board.

Anti-takeover provisions in our Articles of Incorporation make a change in control of our Company more difficult.

The provisions of our Articles of Incorporation and the New Jersey Business Corporation Act, together or separately, could discourage potential acquisition proposals, delay or prevent a change in control and limit the price that certain investors might be willing to pay in the future for our common stock. Among other things, these provisions:

 require certain supermajority votes;
 establish certain advance notice procedures for nomination of candidates for election as directors and for shareholders’ proposals to be considered at shareholders’ meetings; and
 divide the board of directors into three classes of directors serving staggered three-year terms.

Pursuant to our articles of incorporation, the board of directors has authority to issue up to 5,000,000 preferred shares without further shareholder approval. Such preferred shares could have dividend, liquidation, conversion, voting and other rights and privileges that are superior or senior to our common stock. Issuance of preferred shares could result in the dilution of the voting power of our common stock, adversely affecting holders of our common stock in the event of its liquidation or delay, and defer or prevent a change in control. In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock. In addition, the New Jersey Business Corporation Act contains provisions that, under certain conditions, prohibit business combinations with 10% shareholders and any New Jersey corporation for a period of five years from the time of acquisition of shares by the 10% shareholder. The New Jersey Business Corporation Act also contains provisions that restrict certain business combinations and other transactions between a New Jersey corporation and 10% shareholders.

Forward-Looking Statement Risks

You may not be able to rely on forward-looking statements.

The information contained in this report or in documents that we incorporate by reference or in statements made by our management includes some forward-looking statements that involve a number of risks and uncertainties. A number of factors, including but not limited to those outlined in the Risk Factors, could cause our actual results, performance, achievements, or industry results to be very different from the results, performance or achievements expressed or implied by these forward-looking statements.



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In addition, forward-looking statements depend upon assumptions, estimates and dates that may not be correct or precise and involve known or unknown risks, uncertainties and other factors. Accordingly, a forward-looking statement in this report is not a prediction of future events or circumstances and those future events or circumstances may not occur. Given these uncertainties and risks, you are warned not to rely on the forward-looking statements. A forward-looking statement is usually identified by our use of certain terminology including ‘‘believes,’’ ‘‘expects,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘seeks,’’ ‘‘pro“believes,” “expects,” “may,” “will,” “should,” “seeks,” “pro forma,’’ ‘‘anticipates’’” “anticipates” or ‘‘intends,’’“intends,” or by discussions of strategies or intentions. We are not undertaking any obligation to update t hesethese factors or to publicly announce the results of any changes to our forward-looking statements due to future events or developments.

ITEM 1B.UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments.

ITEM 1B.    UNRESOLVED STAFF COMMENTS18

None.


ITEM 2.    PROPERTIES

Operation

ITEM 2.PROPERTIES
Operations and Facilities

Effective October 23, 2007, TeamStaff’s corporate headquarters is located in Somerset, New Jersey. Previously, the Company’s corporate headquarters was located in Atlanta, Georgia. TeamStaff leases its 2,670 square foot corporate headquarters in Somerset, New Jersey, as well as offices in Atlanta, Georgia; Clearwater, Florida; Memphis, Tennessee; and Monroe,Loganville, Georgia. The facilities provide sufficient capacity to meet demands for the foreseeable future. In the fiscal year ended September 30, 2007,2009, TeamStaff’s total lease expense for continuing operations was approximately $533,000.

$422,000.

The following is summary information on TeamStaff’s facilities as of September 30, 2007:


2009:
APPROXIMATEEXPIRATIONMONTHLY
LOCATIONAPPROXIMATE
SQUARE FEET
EXPIRATION
DATE
MONTHLY
TERMS
Corporate Headquarters
1 Executive Drive
Suite 130
Somerset, NJ
2,6708/31/2012$4,005 9/2007 – 8/2008
$4,125 9/2008 – 8/2008
$
4,248 9/10/2009 – 8/2010
1 Executive Drive
$4,376 9/2010 – 8/2011
Suite 130
$4,507 9/2011 – 8/2012
Somerset, NJ
1545 Peachtree Street, NENE*
Suite 340
Atlanta, GA
2,9986/30/2011$6,246 7/2006 – 1/2007
$6,433 2/2007 – 1/2008
$6,626 2/2008 – 1/2009
$
6,825 2/10/2009 – 1/2010
Suite 340
$7,030 2/2010 – 1/2011
Atlanta, GA
$7,241 2/2011 – 6/2011
18167 US 19 NorthNorth**
Suite 400
Clearwater, FL
15,1772/28/2011$23,446 9/2006 – 8/2007
$24,144 9/2007 – 8/2008
$24,865 9/2008 – 8/2009
$
25,624 9/10/2009 – 8/2010
Suite 400
$26,395 9/2010 – 2/2011
Clearwater, FL
6555 Quince RoadRoad***
Suite 303
Memphis, TN
1,8941/31/2010$2,841 2/2007 – 1/2008
$2,898 2/2008 – 1/2009
$
2,956 2/10/2009 – 1/2010
533 Plaza Drive *Suite 303
Monroe, GA 30655
Memphis, TN
2,5006/30/2008
3525 Highway 81 South
6,2005/31/2015$3,800 per month6.250 10/2009 – 5/2010
Loganville, GA$6,500 6/2010 – 5/2011
$6,750 6/2011 – 5/2012
$7,000 6/2012 – 5/2013
$7,250 6/2013 – 5/2014
$7,500 6/2014 – 5/2015
* As parta result of the transactionrelocation of the Company’s corporate headquarters, the Atlanta, GA office space was vacated and has been subleased effective January 15, 2008 through the end of the lease term.
**In connection with RS Staffing Services,sale of the operating assets of TeamStaff agreedRx, Advantage RN will have the right to accept an assignment or subleaseuse these premises and is obligated to make rent subsidy payments to us totaling $125,000, beginning on March 1, 2010.
***As a result of this lease effective asthe sale of June 4, 2005.the Nursing Innovations per diem business, the Memphis, TN office space was vacated and is currently unoccupied.

ITEM 3.LEGAL PROCEEDINGS

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ITEM 3.    LEGAL PROCEEDINGS

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 GS, formerly known as RS Staffing Services, requesting production of certain documents dating back to 1997, prior to the time the Company acquired RS Staffing.Staffing Services. The subpoena stated that it iswas 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 temporarycontract 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 Company is cooperating fully with the Department of Justice investigation.

19


The government has advised TeamStaff that based on all the information known to date, the Company is not a target of the government’s investigation and that the governmentDOJ has no intentionintent to charge TeamStaff or any of indicting TeamStaff.

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 RS Staffing Services in MayJune 2005. As part of the purchase price of the subsidiary,acquisition, the Company issued to the former owners of RS Staffing Services a $3.0 million promissory note, of which $1.5 million and interest of $150,000 was paid in June 2006. On May 31, 2007, the Company sent a notice of indemnification claim to the former owners for costs that have been incurred in connection with the investigation. Effective June 1, 2007, the Company and former owners of RS Staffing Services reached an agreement to extend the due date from June 8, 2007 to September 1,December 31, 2008 with respect to the remaining $1.5 million note payable and accrued interest payable on June 8, 2007. Atpayable. Such agreement has been extended to February 28, 2010. As of September 30 2007,2009, the amount has not been settled. The Company recognized expenses related to legal representation and costs incurred in connection with the investigation in the amount of $1.486 millio n$21,000 and $219,000 during the fiscal year ended September 30, 2007,2009 and 2008, respectively, as a component of other income (expense). Legal counsel for the Company has reviewedCumulative costs related to this matter approximate $1.7 million. Pursuant to the acquisition contract and based on their analysis of the Company’s rights,agreement with RS Staffing Services, the Company has notified the former owners of RS Staffing Services that it is the Company’s intention to exercise its right to setoff the payment of such expenses against the remaining principal and accrued interest due to the former owners of RS Staffing Services.

The Company will pursue the recovery as a right of offset in future periods. Management and its counsel havehas a good faith belief that the Company will recover such amounts; however, generally accepted accounting principles preclude the Company from recording an offset to the note payable to the former owners of RS Staffing Services until the final amount of the claim is settled and determinable. 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.debt and accrued interest from notice date forward, if any. Accordingly, the Company has expensed costs incurred related to the investigation atthrough September 30, 2007.

2009.

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 wrongful 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 has submitted its position statement to the EEOC. It is unclear, at present, if or when the EEOC will respond.
As a commercial enterprise and employer, we are subject to various claims and legal actions in the ordinary course of business. These matters can include professional liability, employment-relations issues, workers’ compensation, tax, payroll and employee-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 reasonably likely to have a material adverse effect on our results of operations, financial position or cash 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



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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 results of operations, financial position or cash flows.
ITEM 4.SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 2009.

ITEM 4.    SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS20

On August 21, 2007, TeamStaff held its Annual Meeting of Shareholders. The record date for shareholders eligible to vote was July 13, 2007. As of the record date there were 19,283,366 shares of common stock issued and outstanding. Voting of the shares of common stock was on a non-cumulative basis. 15,294,025 shares were voted at the Annual Meeting.


The only matter before the shareholders was the election of three persons as Class II directors for a term of three years. The persons nominated for election were Karl W. Dieckmann, Frederick G. Wasserman and William H. Alderman. All three nominees were elected to the Board of Directors. The results of the vote were:


NomineesVotes
Cast For
Withheld
Authority to
Vote
Karl W. Dieckmann14,764,437529,588
Frederick G. Wasserman14,848,317445,708
William H. Alderman14,848,317445,708


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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

A.    

Principal Market

TeamStaff’s common stock is traded in the over-the-counter market and included on the Nasdaq GlobalCapital Market System under the symbol ‘‘TSTF.’’“TSTF”. TeamStaff started trading on The Nasdaq GlobalCapital Market in June 2001. Prior to that date, TeamStaffNovember 25, 2009. Previously, TeamStaff’s common stock was listed for trading on The Nasdaq Global Market. As previously announced, on September 15, 2009, we received a letter from the Nasdaq Stock Market advising that we had not maintained a minimum market value of publicly held shares of common stock of $5,000,000, as required by the continued listing requirements of the Nasdaq Global Market set forth in Nasdaq Listing Rule 5450(b)(1)(C). Subsequently, the Company elected to apply to transfer the listing of its common stock to the Nasdaq Capital Market. On November 23, 2009, Nasdaq approved the transfer application.
On December 17, 2009, we received a staff deficiency letter from The Nasdaq Stock Market notifying the Company that for the past 30 consecutive business days, the closing bid price per share of its common stock was below the $1.00 minimum bid price requirement for continued listing on the Nasdaq Capital Market System.set forth in Nasdaq Listing Rule 5550(a)(2). As a result, the Company was notified by Nasdaq that it is not in compliance with the Listing Rule. Nasdaq has provided the Company with 180 calendar days, or until June 15, 2010, to regain compliance. See Item 1A-Risk Factors-Risks Relating to Our Stock.

B.    

Market Information

On April 17, 2008, the Company filed an amendment to its Amended and Restated Certificate of Incorporation in order to effect a one-for-four reverse split of the Company’s common stock. The reverse split was approved on April 17, 2008 at the Company’s annual meeting of shareholders and became effective on April 21, 2008, at which time the Company’s common stock began trading on the Nasdaq Global Market on a split-adjusted basis. As a result of the reverse stock split, each four shares of common stock was combined and reclassified into one share of common stock. All references to common stock, options, share based arrangements, exercise price, fair values and related data within this Form 10-K have been retroactively restated so as to incorporate the effect of this reverse stock split.
The range of high and low closing sales prices for TeamStaff’s common stock for the periods indicated below are:

Common Stock


FISCAL YEAR 2005HIGHLOW
1st Quarter2.501.71
2nd Quarter2.021.20
3rd Quarter1.800.92
4th Quarter1.751.24

         
FISCAL YEAR 2009 HIGH  LOW 
1st Quarter $2.57  $1.64 
2nd Quarter
 $2.25  $1.03 
3rd Quarter $2.65  $1.23 
4th Quarter $1.98  $1.32 
FISCAL YEAR 2006HIGHLOW
1st Quarter1.411.17
2nd Quarter1.741.24
3rd Quarter1.751.32
4th Quarter1.381.22

         
FISCAL YEAR 2008 HIGH  LOW 
1st Quarter $4.16  $2.36 
2nd Quarter $3.24  $2.40 
3rd Quarter $2.80  $1.83 
4th Quarter $3.30  $1.85 
FISCAL YEAR 2007HIGHLOW
1st Quarter1.351.22
2nd Quarter1.281.02
3rd Quarter1.180.90
4th Quarter0.990.72

The above quotations, reported by Nasdaq, represent prices between dealers and do not include retail mark-ups, markdowns or commissions. Such quotations do not necessarily represent actual transactions. On January 11, 2008,December 31, 2009, TeamStaff’s common stock had a closing price of $0.68$0.80 per share.

C.    Dividends21


Dividends
TeamStaff has not declared any cash dividends on its common stock since inception, and has no present intention of paying any cash dividends on its common stock in the foreseeable future.

D.    

Approximate Number of Equity Security Holders

Effective August 31, 2001, TeamStaff acquired all of the capital stock of BrightLane. As contemplated under the agreements governing the transaction, TeamStaff agreed to issue 8,216,5222,054,130 shares of its common stock in exchange for all of the outstanding capital stock of BrightLane. As of January 14, 2008,December 31, 2009, not all of the BrightLane shareholders had submitted their capital stock for exchange into shares of common stock; however such shares are classified as outstanding.

In connection with the acquisition of RS Staffing Services, TeamStaff issued to the shareholders of RS Staffing Services an aggregate of 1,206,896 shares of its common stock. The shares are restricted securities and may be sold only pursuant to Rule 144. TeamStaff relied upon the exemption from registration provided by Section 4(2) of the Securities Act in issuing the shares.



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As of January 14, 2008,December 31, 2009, there were 19,403,3664,940,982 shares of common stock outstanding held of record by 290267 persons. TeamStaff believes it has approximately 1,4261,315 beneficial owners of its common stock.

E.    

Sales of Unregistered Securities

For

During the quarter ended September 30, 2007, weperiod covered by this report, the Company did not issue any sharessecurities that were not registered under the Securities Act of 1933, as amended, except as has been reported in previous filings with the SEC or as set forth herein. Following the end our common stock to our non-executive directors. However,2009 fiscal year, on October 3, 2007,13, 2009, we issuedgranted an aggregate of 120,000 restricted42,500 shares of our commonrestricted stock to our non-executive directors, pursuant toconsistent with our 2006 Long Term Incentive Plancompensation policy for non-executive directors. These shares were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act.

F.    Act of 1933, as amended.

Securities Authorized for Issuance Under Equity Compensation Plans

TeamStaff has three equity compensation plans, all of which were approved by its Board of Directors and its shareholders. The table set forth below discloses outstanding and available awards under our equity compensation plans as of September 30, 2009. The Company has no equity compensation plans that have not been approved by security holders. All option grants made to executive officers and directors, including those to the Chief Executive Officer, under employment agreements, are made under the plans referenced below. All grants of restricted stock made to executive officers are made under the plan referenced below.

The stock option plans under which options are outstanding are:

The 2000 Employee Stock Option Plan (‘‘(“2000 Employee Plan’’Plan”)

The 2000 Non-Executive Director Option Plan (‘‘(“2000 Non-Executive Director Plan’’Plan”)

The long-term incentive plan under which restricted stock grants were made is:

The 2006 Long Term Incentive Plan (‘‘(“2006 Long Term Incentive Plan’’Plan”)

Equity Compensation Plan Information (*)


            
Equity Compensation Plan Information (*)Equity Compensation Plan Information (*) 
 (b)   
 Weighted   
 Average (c) 
 (a) exercise price of Number of securities 
 Number of Securities outstanding remaining available for 
 to be issued upon options, warrants future issuances under 
 exercise of and rights (or fair equity compensation plans 
 outstanding options, value at date of (excluding securities reflected in 
Plan Category(a)
Number of
Securities to be issued
upon exercise of
outstanding options,
warrants and rights
(b)
Weighed Average
exercise price of
outstanding options,
warrants and rights
(or fair value at
date of grant)
(c)
Number of securities remaining
available for future issuances
under equity compensation plans
(excluding securities reflected in
column (a))
 warrants and rights grant) column (a)) 
Equity Compensation Plans Approved by Security Holders:    
 
2000 Employee Stock Option Plan149,000$2.301,561,687 4,500 $7.84 1,706,187 
 
2000 Non-Executive Director Stock Option Plan (1)87,500$2.01 10,625 $5.35  
 
2006 Long Term Incentive Plan220,000$1.334,740,000 391,250 $1.96 4,454,222 
*Does not include grants made pursuant to these plans subsequent to the September 30, 2007 balance sheet date. On October 3, 2007, 120,000 shares of restricted stock were issued to non-executive members of the Board of Directors in accordance with the Director compensation policy effective January 19, 2007.
(1)5,000 shares per year per non-executive director are granted under the 2000 Non-Executive Director Plan for a full year’s service and prorated for less than a full year’s service. Effective January 19, 2007, this 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’’“Director Compensation” in Item 11 Executive Compensation.

G.    

22


Registrant Repurchases of Securities

TeamStaff did not repurchase any of its securities during the two prior fiscal yearyears ended September 30, 2007.


2009.

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H. Stock Performance Graph

The following performance graph shall not be deemed ‘‘filed’’ for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of TeamStaff under the Securities Act or the Exchange Act.

Set forth herein is a line graph comparing the total returns (assuming reinvestment of dividends) of TeamStaff’s common stock, the Standard and Poor’s Industrial Average, and an industry composite consisting of a group of five peer issuers selected in good faith by TeamStaff. TeamStaff’s common stock is listed for trading in The Nasdaq Global Market and is traded under the symbol ‘‘TSTF’’.

NOTES

(1)Assumes that the value of the investment in TeamStaff’s common stock and each index was $100 on September 30, 2002 and that dividends were reinvested at years ended September 30th.
(2)Industry composite for ‘‘Peer Group includes Cross Country Healthcare, Medical Staffing Network Holdings, On Assignment, ATC Healthcare and AMN Healthcare Services. The industry composite has been determined in good faith by management to represent entities that compete with TeamStaff in certain of its significant business segments.


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ITEM 6.SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS)

 For the Years Ended September 30,
 20072006200520042003
Revenues$66,882$71,644$47,275$32,856$58,119
Direct expenses$55,852$59,859$39,053$26,880$48,909
Gross profit$11,030$11,785$8,222$5,976$9,210
Selling, general and administrative expenses (includes depreciation and amortization)$13,063$14,193$13,180$10,600$13,427
Loss from operations$(2,033$(2,408$(4,958$(4,624$(4,217
Loss from continuing operations$(3,374$(18,537$(3,065$(2,749$(2,411
Discontinued operations net of tax$(1,319$5,290$576$(1,330$(26,474
Net loss$(4,693$(13,247$(2,489$(4,079$(28,885
Earnings per share – Basic and diluted     
Loss from continuing operations$(0.17$(0.96$(0.17$(0.18$(0.15
(Loss) income from discontinued operations$(0.07$0.27$0.03$(0.08$(1.69
Net loss$(0.24$(0.69$(0.14$(0.26$(1.84
Weighted average shares outstanding:     
Basic19,28819,27818,20615,71415,732
Diluted19,28819,27818,20615,71415,732
BALANCE SHEET DATA:     
Assets from continuing operations$25,678$28,596$46,606$36,574$37,410
Assets from discontinued operations$490$2,180$3,448$855$23,207
Total assets$26,168$30,776$50,054$37,429$60,617
Long-term liabilities from continuing operations$404$779$2,150$864$1,042
Liabilities from continuing operations$9,311$9,070$14,979$5,349$9,054
Liabilites from discontinued operations$263$502$763$1,087$16,453
Total liabilities$9,574$9,572$15,742$6,436$25,507
Working capital$1,074$4,223$(11$5,149$4,368
Shareholders’ equity$16,594$21,204$34,312$30,993$35,110

Certain prior period amounts have been reclassifiedWe are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to reflectprovide the Nursing Innovations per diem business unit as a discontinued operation.

information contained in this item pursuant to Regulation S-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking and Cautionary Statements

This Annual Report on Form 10-K contains ‘‘forward-looking statements’’“forward-looking statements” within the meaning of the 1995 Reform Act, Section 27A of the Securities Act and Section 21E of the Exchange 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 TeamStaff to do so. Forward-looking statements are identified by words such as ‘‘believe,’’ ‘‘anticipate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘plan,’’ ‘‘will,’’ ‘‘may’’“believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements included in this report involve known and unk nownunknown 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



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implied by such forward-looking statements. We based these forward-looking statements on our current expectations and best estimates and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. The following factors (among others) could cause our actual results to differ materially from those implied by the forward-looking statements in this Annual Report:Report on Form 10-K: our ability to continue to recruit qualified temporarycontract and permanent healthcare professionals and administrative staff at reasonable costs; our ability to retain qualified temporarycontract healthcare professionals and administrative staff for multiple assignments at reasonable costs; our ability to attract and retain sales and operational personnel; our ability to enter into contracts with hospitals, healthcare facility clients, affiliated healthcare networks, physician practice groups and the United States Government facilities on terms attractive to us and to secure orders related to those contracts; our ability to demonstrate the value of our services to our healthcare and other facility clients; changes in the timing of hospital, healthcare facility clients’, physician practice groups’ and U.S. Government orders for and our placement of temporarycontract and permanent healthcare professionals and administrative staff; the general level of patient occupancy at our hospital, healthcare facility clients’ and physician practice groups’ facilities; the overall level of demand for services offered by temporarycontract and permanent healthcare staffing providers; the ability of our hospital, healthcare facility and physician practice group clients to retain and increase the productivity of their permanent staff; the variation in pricing of the healthcare facility contracts under which we place temporarycontract and permanent healthcare professionals; our ability to successfully implement our strategic growth, acquisition and integration strategies; our ability to successfully integrate co mpleted acquisitions into our current operations; our ability to manage growth effectively; our ability to leverage our cost structure; the performance of our management information and communication systems; the effect of existing or future government legislation and regulation; our ability to grow and operate our business in compliance with these legislation and regulations; the impact of medical malpractice and other claims asserted against us; the disruption or adverse impact to our business as a result of a terrorist attack; our ability to carry out our business strategy; the loss of key officers, and management personnel that could adversely affect our ability to remain competitive; the effect of recognition by us of an impairment to goodwill and intangible assets; other tax and regulatory issues and developments; and the effect of adjustments by us to accruals for self-insured retentions.

Overview23

Management and Board Changes


Effective January 5, 2007, Mr. Robert P. Traficanti resigned as General Manager of the Nursing Innovations division of TeamStaff Rx. Effective January 8, 2007, Mr. T. Kent Smith left the Company having served as President, Chief Executive Officer and a Member of the Board of Directors. Mr. James L. Donahue left the Company having served as its Vice President of Sales and President of the Company’s TeamStaff Rx subsidiary. In addition, Mr. Peter Rosen left the Company having served as its Vice President of Human Resources. Effective January 10, 2007, Mr. Rick J. Filippelli, the Company’s Chief Financial Officer was appointed President and Chief Executive Officer. Effective January 18, 2007, Mr. James D. Houston, the Company’s General Counsel, Vice President of Business and Legal Affairs and Corporate Secretary was appointe d Chief Operating Officer. Effective April 30, 2007, Mr. Houston’s employment with the Company was terminated. Effective January 16, 2007, Mr. Ben Dyer resigned from the Company’s Board of Directors. Effective January 23, 2007, Mr. Ronald R. Aldrich resigned from the Company’s Board of Directors. Effective March 2, 2007, Mr. Timothy Nieman left the Company having served as President of RS Staffing Services.

Effective January 19, 2007, the Company’s Board of Directors elected Mr. Rick Filippelli, the Company’s President, Chief Executive Officer and Chief Financial Officer to the Board of Directors. Effective January 19, 2007, the Company’s Board of Directors elected Mr. William H. Alderman and Mr. Frederick Wasserman to the Company’s Board of Directors to fill vacancies in accordance with the Company’s by-laws. Ms. Julie Thompson was concurrently rehired on a consultant basis to assist at RS Staffing Services. As part of the Company’s initiative on sales and marketing in its allied and



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nursing staffing division, Mr. Terry Merlin was hired as Director of Sales and Marketing for TeamStaff Rx, the Company’s allied and nursing staffing subsidiary and commenced employment on March 15, 2007. As part of the Company’s initiative on sales and contract procurement in the government sector, Mr. Kevin Wilson was hired as Director of Sales for RS Staffing Services, the Company’s subsidiary that specializes in staffing through FSS contracts with both the GSA and DVA. Mr. Wilson commenced employment on June 18, 2007.

Critical Accounting Policies and Estimates

TeamStaff believes the accounting policies below represent its critical accounting policies due to the significance or estimation process involved in each. See Note 2 of TeamStaff’s 2009 Annual Report on Form 10-K as well as “Critical Accounting Policies” contained therein for a detailed discussion on the application of these and other accounting policies.
Our discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the SEC. The preparation of our Consolidated Financial Statements and related notes in accordance with generally accepted accounting principles requires us to make estimates, which include judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Actual results may differ from these estimates under different assumptions or conditions. To the extent that there are material differences between th esethese estimates and actual results, our financial condition, or results of operations and cash flow will be affected.

A critical accounting estimate is based on judgments and assumptions about matters that are uncertain at the time the estimate is made. Different estimates that reasonably could have been used or changes in accounting estimates could materially impact our financial statements. We believe that the policies described below represent our critical accounting policies, as they have the greatest potential impact on our Consolidated Financial Statements. However, you should also review ourSummary of Significant Accounting Policiesbeginning on page F-9F-8 of the notes to our Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K.

Revenue Recognition

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; TeamStaff has pricing latitude; TeamStaff selects temporarycontract employees for a given assignment from a broad pool of individuals; TeamStaff is at risk for the payment of its direct 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 has 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, the amount of the remaining accounts receivable with the DVA approximates $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. 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 are included in revenue 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. The Company also reviews the status of such placements to assess the Company’s future performance obligations under such contracts.

In connection with the Company’s DSI 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 the preparation of quarterly and annual payroll related reports. These amounts are reflected as part of income (loss) from discontinued operations in the consolidated financial statements.24




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Direct costs of services are reflected in TeamStaff’s Consolidated StatementStatements 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. In connection with the Company’s DSI discontinued payroll services operation, payroll services’ direct costs included salaries and supplies associated with the processing of the payroll service.

Goodwill and Intangible Assets

Beginning October 1, 2001, TeamStaff no longer amortizes goodwill or indefinite life intangible assets. TeamStaff continues to review its goodwill and other intangible assets for possible impairment or loss of value at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. If an impairment write off of all the goodwill became necessary, a charge of up to $10.3$8.6 million would be expensed in the Consolidated Statement of Operations. All remaining goodwill is attributable to the staffing servicesTeamStaff GS reporting units.unit. If an impairment write off of all the trade namenames became necessary, a charge of up to $4.6$3.9 million would be expensed in the Consolidated Statement of Operations. During 2007,2009, in connection with the Company’s decision to exit the Nursing Innovation per diem operations,TeamStaff Rx business, an unrealizedimpairment loss of $1.6 million was recognized to reduce the carrying value of this business’ goodwill to net realizable value and an impairment loss of $0.7 million was recognized to reduce the carrying value of the trade name to net realizable value. TeamStaff has concluded, at present, that there is not any other required write off of goodwill or its tradename.

Workers’ Compensation

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 (‘‘Zurich’’(“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.

As part of the Company’s discontinued PEO operations, TeamStaff had a workers’ compensation program with Zurich, which covered the period from March 22, 2002 through November 17,16, 2003, inclusive. Payments for the policy were made to the trust monthly based on projected claims for the 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. From time-to-time, trust assets have been refunded to the Company based on Zurich’s and managers’ overall assessment of claims experience and historical and projected settlements. In June 2009 and March 2006 and in the year ended September 30, 2007,2008, Zurich reduced the collateral requirements on outstanding workers’ compensation claims and released $2.25 million$114,000 and $1.19 million,$350,000, respectively, in trust account funds back to 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 at September 30, 2007,2009, the remaining prepaid asset of $0.3 million will be received within the next twelve to thirty-six months. ThisA portion of this is reflected on TeamStaff’s Consolidated Balance Sheetbalance sheet as of September 30, 20072009 as a current asset, in addition to approximately $150,000$0.2 million related to current policy deposits.

As of September 30, 20072009 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 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.

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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 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 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.

For the year ended September 30, 2007, the Company has not recorded a tax benefit for net operating losses.

In the fourth quarter of thefiscal 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’’“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 tax benefit for NOLs.
Based on this assessment, the Company increased the valuation allowance established on deferred tax assets by approximately $0.8 million in 2007. Based on a similaran assessment performed as of September 30, 2006,2009 and 2008, the Company providedhas maintained a full valuation allowance expense of $16.9 million against remaining NOLs and other deferred tax assets; as the realization of s uchsuch amounts, at that date, could not be considered more likely than not. In prospective periods, there may be reductions to the valuation allowance to the extent that the Company concludes that it is more likely thanthat not that all or a portion of the deferred tax assets can be utilized (subject to annual limitations and prior to the expiration of such NOLs), to offset future periods’ taxable income. The income
In the fiscal year ended September 30, 2009, the Company recognized a tax benefit of $123,000 for 2007 is attributable$28,000 related to an overaccruala refund from a state. In the fiscal year ended September 30, 2008 the Company recorded tax expense of $60,000 related to certain estimated state taxes at September 30, 2006 against amounts computed in the preparation of various income tax returns, while the tax benefit of approximately $1.9 million for 2005 was expected todue which could not be realized, based onoffset by an assessment of evidence performed at that date.

NOL from those specific states.

At September 30, 20072009 the Company had net operating losses of approximately $27.6$30.4 million, $8.9$15.1 million and $8.0$.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 a substantial amount of U.S. NOLs that are subject to annual limitations on utilization. The U.S. NOLs begin to expire in 2021 and continue to expire through 2027.

2029.

Allowance for Doubtful 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 .25%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 pre-tax income wouldare 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 reducedserving 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 $150,000.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.

Overview26

Results


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 Operations

Fiscal Year 2007substantially 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 Compareddescribed in the Asset Purchase Agreement. Additionally, Advantage RN will make rent subsidy payments to Fiscal Year 2006

The Company’s travel alliedTeamStaff Rx totaling $125,000, consisting of (i) $25,000 payable at closing, and travel nursing subsidiary continued to under perform the market during fiscal 2007. In response to this,(ii) an additional $100,000 payable in January 2007,10 equal monthly installments beginning on March 1, 2010.

Management anticipates that the Company restructured its seniorwill 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 its Boardsubject to change based on future events; the ultimate amount could significantly differ from these current estimates.
Following the disposition of Directors in an effort to accelerate revenue growth, reduce expenses and restructure its operations and contribute to a return to profitability. Rick J. Filippelli, the Company’s Chief Financial Officer, was appointed President and Chief Executive Officer and was



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elected to the Board of Directors. Mr. Filippelli also retained his position as Chief Financial Officer until October 23, 2007, subsequent to fiscal 2007 year end, when Cheryl Presuto, the Company’s Controller, was appointed to the Chief Financial Officer position.

The Company is implementing several initiatives to position theour TeamStaff Rx business, TeamStaff provides staffing services subsidiaries for growththrough TeamStaff GS.

As described in fiscal 2008. Sales initiatives include assessing, restructuring and adding to its sales force and recruiting efforts, restructuring sales force incentive compensation to better reflect pay for performance and implementation of a pricing and gross margin improvement plan. The Company hired a Director of Sales experiencedgreater detail in allied and nurse travel staffing to oversee the sales efforts at TeamStaff Rx. As part of the marketing initiative, the Company hired an experienced Marketing Manager. Recent efforts to build marketing presence include revising our website, implementing an aggressive print advertisement campaign, and revising our strategic marketing communications plan in an effort to attract allied medical and nurse travelers. Additionally we have added several marketing eventsNote 4 to our tradeshow calendar in order to increaseconsolidated financial statements, the results of operations, cash flows and related assets and liabilities of our brand recognition and pa rticipation in both the commercial and government sectors. This added exposure is allowing us to introduce our suite of offerings to an expanded market. We initiated a corporate branding campaign which will promote consistency and brand recognition as well as increase TeamStaff’s visibilityTeamStaff Rx business was reclassified in the marketplace. To lead initiatives in the government staffing sector, the Company hired a Directoraccompanying consolidated financial statements from those of Sales with government contract bid experience for RS Staffing Services. We areour continuing businesses to discontinued operations.
Recent Business Trends
TeamStaff GS is expanding ourits reach within the government sector beyond VADVA opportunities by bidding on Department of Defense staffing contracts afforded to large businesses.

Longer term, we continuebusinesses and GSA’se-Buy portal, an electronic Request for Quote (RFQ) / Request for Proposal (RFP) system designed to believeallow 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 demandGSA 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 temporary medical personnel will stay strong. Key driversquotes for the Federal government’s IT staffing needs. Additionally, TeamStaff GS is evaluating opportunities to satisfy the staffing needs of other government agencies in our business segment includeaddition to the declining healthDVA and DOD as a means of an aging population, advanceshorizontal 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 medical technology, hospital employee turnoverorder to expand and growth in hospital admissions. diversify its service offerings.

We believe demand will also increasebe strong in fiscal 2010 and beyond as more states introduce legislation for mandatory minimum caregiver-to-patient ratios and overtime limitations. The introduction of such legislation should favorably impact our temporary travel nurse staffing business. Our acquisition of RS Staffing Services completed in June 2005 gives us a strong presence in the government sectormaintains 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 provides us with an opportunityveterans.

27


Results of Operations
Fiscal Year 2009 as Compared to bid on awardsFiscal Year 2008
The following table summarizes, for large multi-year contracts with solidthe 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 margins. We continuerevenues from continuing operations is due primarily to focus on our salesthe impact of reduced overtime and marketing efforts throughout the divisionsnet reductions in order to increase our contact with current and prospective clients.

headcount at certain Government facilities. TeamStaff’s total revenues for the fiscal years ended September 30, 20072009 and 20062008 were $66.9$46.0 million and $71.6$58.5 million, respectively, which represents a decrease of $4.8$12.5 million or 6.6%21.4% over the prior fiscal year. RevenuesIncluded in revenues for the fiscal year 2007ended September 30, 2008 is $10.8 million in non-recurring retroactive billings to the DVA.

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 2006 include $44.9fringe 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 $43.8direct costs of $10.1 million, respectively,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 RS Staffing Services. This subsidiary’sgross profit on these adjustments. As such, there may be additional revenues helped offset a decreaserecognized in future periods once the approval for such additional amounts is obtained. The ranges of $6.0additional revenue and gross profit are estimated to be between $0.4 million in revenues inand $0.6 million. At present, the TeamStaff Rx travel alliedCompany expects to collect such amounts during fiscal 2010 based on current discussions and travel nursing subsidiarycollection efforts. Because these amounts are subject to government review, no assurances can be given that we will receive any additional billings from fiscal year 2006 to fiscal year 2007. The decrease in revenue is in part due to the loss of certain clients coupled with competition from state associations in certain markets. It is the Company’s hopeour government contracts or that if additional amounts are received, that the management changes made in fiscal 2007, as well as a redirected sales focus,amount will help to reestablish relationships with some of these former clients.

Directbe within the range specified above.

Operating direct expenses from continuing operations for the fiscal years ended September 30, 20072009 and 20062008 were $55.9$39.0 million and $59.9$39.5 million, respectively which represents a decrease of $4.0$0.5 million or 6.7%.1.2% over the prior fiscal year. This decrease is primarily a direct result of decreasedlower revenues. As a percentage of revenue,Total direct expenses for the fiscal years ended September 30, 20072009 and 20062008 were 83.5%$39.0 million and 83.6%$49.6 million, respectively. Included in direct expenses for the year ended September 30, 2008 is $10.1 million related to non-recurring retroactive billings to the DVA. As a percentage of operating revenue from continuing operations, operating direct expenses were 84.8% and 82.7%, respectively.respectively, for the years ended September 30, 2009 and 2008. As a percentage of total revenue, direct expenses were 84.8% and 84.7%, respectively, for the years ended September 30, 2009 and 2008.

Gross profits28


Operating gross profit from continuing operations for the fiscal years ended September 30, 20072009 and 20062008 were $11.0$7.0 million and $11.8$8.3 million, respectively which represents a decrease of $0.75$1.3 million or 6.4%. This decrease is a result of15.1% over the 6.6% decrease in revenues. Gross profits,prior fiscal year. Operating gross profit from continuing operations, as a percentage of operating revenue, remained relatively constant at 16.5%was 15.2% and 16.4%17.3%, for the fiscal years ended September 30, 20072009 and 2006,2008, respectively.

Operating gross profit is lower as compared to the prior year due to increased 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 fiscal 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 ended September 30, 2008 is $0.7 million related to non-recurring retroactive billings to the DVA.

Selling, general and administrative (‘‘(“SG&A’’&A”) expenses for the fiscal years ended September 30, 20072009 and 20062008 were $12.7$6.5 million and $13.8$5.9 million, respectively, which represents a decreasean increase of $1.1$0.6 million, or 7.9%9.7%. Included in this increase is $0.1 million in management consulting fees related to the strategic business review of our government business, $0.5 million in increased new business expense for additional sales related headcount and marketing 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 expenseheadcount in fiscal 2007 for liability insurancenon-revenue generating departments and occupancy expense, among other expenses. This savings helped to offset an increase in new business expense of $0.2 million from fiscal 2006 to



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2007. This increased spending is related to increased sales staff and marketing efforts.G&A costs. The Company seeks continued elimination of overhead costs deemed to be non-essential to growth or infrastructure.

Depreciation and amortization expense was approximately $111,000 and $150,000 for the fiscal years ended September 30, 20072009 and 20062008, respectively.
Income from operations for the fiscal year ended September 30, 2009 was approximately $349,000 and $381,000, respectively.$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 reductionresult of increased health benefit expenses, lower overtime at certain government facilities and lower turnover among our government contract employees resulting in depreciationhigher vacation expense, caused by several asset groups becoming fully depreciated duringhigher SG&A expenses, as well as $0.7 million profit reported in fiscal 2008 related to the fiscal year.

non-recurring retroactive billings to the DVA.

Other income which is comprised of interest incomewas $0.2 million and late fee income,$0.8 million, for the fiscal years ended September 30, 20072009 and 2006 was approximately $219,000 and $236,000, respectively, representing2008, respectively. In fiscal 2009, the Company received a decreasenotification from the state of $17,000. This is primarilyFlorida regarding a resultrefund of decreased late fee income due to a reduction in accounts receivable$151,000 for various taxes. Such amount has been recognized in the TeamStaff Rx subsidiary.

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, 20072009 and 20062008 was approximately $197,000$0.2 million and $539,000, respectively, representing a decrease of $342,000. This decrease$0.1 million, respectively. The increase is primarily a result of less interest expense due to the payoff of the line of credit with the proceeds of the DSI sale on May 31, 2006, as well as the payoff of a $1.5 million note payable in 2006additional interest accruals related to the acquisition of RS Staffing Services.

estimated liability for payroll tax contingencies.

The Company recorded other expense of $1.49 million$21,000 and $218,000, for the fiscal yearyears ended September 30, 20072009 and 2008, respectively representing a decrease of $197,000. This expense is related to legal representation and investigation costs incurred in connection with the Federal 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 2005. These expenses are classified as non-operating expenseexpenses because the subpoena relates to activity prior to the acquisition.

Income tax benefit from continuing operations for29


Beginning in fiscal year ended September 30, 2007 was $0.1 million as a result of adjustments in amounts accrued for tax provisions or settlements for fiscal year 2006, when the final federal and state returns were prepared and filed. Income tax expense from continuing operations for fiscal year ended September 30, 2006 was $15.8 million. As a component of this tax expense, the Company provided a 100% deferred tax valuation allowance 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. 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 stat e net loss carry forwards, outweighed any objectively verifiable positive factors, and as such, concluded that a valuation allowance was necessary. The Company provided a 100% 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 the deferred tax asset.

Loss from continuing operations for the fiscal year ended September 30, 2007 was $3.4 million, or $(0.17) per basic and diluted share, as compared to loss from continuing operations for the fiscal year ended September 30, 2006 of $18.5 million, or $(0.96) per basic and diluted share.

Loss from discontinued operations, net of tax, for the fiscal year ended September 30, 2007 was $1.3 million, or $(0.07) per basic and diluted share, as compared to income from discontinued operations, net of tax, for the fiscal year ended September 30, 2006 of $5.3 million, or $0.27 per basic and diluted share. Loss from operations from the discontinued business unit, net of tax, for the fiscal year ended September 30, 2007, was $1.6 million. This includes income from operations, net of tax, of the discontinued per diem business unit of $0.2 million, offset by the write-down to fair value of per diem intangible assets of $1.6 million. Income from operations from the discontinued business units, net of tax, for the fiscal year ended September 30, 2006 was $0.7 million. In fiscal 2006, this income includes income from operations, net of tax, of the discontinued DSI business unit of $0.8 mi llion, income from operations, net of tax, of the discontinued per diem business unit of $0.3 million, offset by loss from operations of 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 $0.3 million in fiscal 2007 is related to the release of $250,000 escrow, half on November 30, 2006 and the remainder on May 31, 2007, related to the sale of the DSI division (See Note 4 of Notes to Consolidated Financial Statements). Income from disposal, net of tax, of $4.6 million in fiscal 2006 is related to the net gain on the sale of the DSI division.



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Net loss for the fiscal year ended September 30, 2007 was $4.7 million, or ($0.24) per basic and diluted share, as compared to a net loss of $13.2 million, or $(0.69) per basic and diluted share, for the fiscal year ended September 30, 2006.

Fiscal Year 2006 as Compared to Fiscal Year 2005

TeamStaff’s revenues for the fiscal years ended September 30, 2006 and 2005 were $71.6 million and $47.3 million, respectively, which represents an increase of $24.4 million, or 51.6% over the prior fiscal year. Revenues for fiscal year 2006 and 2005 include $43.8 million and $13.0 million, respectively, 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.)    This acquisition helped offset a decrease of $6.1 million in revenues in the TeamStaff Rx travel allied and travel nursing subsidiary from fiscal year 2005 to fiscal year 2006. The decrease was driven by continued weak demand for radiological technologists in our allied business and the largest nurse per diem client joining an association thus reducing o ur billing rates. The Company’s travel allied and travel nursing subsidiary continued to under perform the market in fiscal 2006. During fiscal 2006, the Company led several initiatives to position these subsidiaries 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. In November 2006, subsequent to the September 30, 2006 balance sheet date, the Company consolidated the Nursing Innovations travel nurse 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 acquisition of RS Staffing Services 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 subsidiaries in order to increase our contact with current and prospective client s.

Direct expenses for the fiscal years ended September 30, 2006 and 2005 were $59.9 million and $39.1 million, respectively, which represents an increase of $20.8 million, or 53.3%. This increase is a direct result of increased revenues. As a percentage of revenue, direct expenses for the fiscal years ended September 30, 2006 and 2005 were 83.6% and 82.6%, respectively. This increase is the result of a higher volume of teaming partner (subcontractor) costs due to the inclusion of RS Staffing Services for the full fiscal year 2006. Teaming is a business practice expected by government entities who prefer their suppliers to provide more of a master vendor service where the supplier looks to outside sources when needed to fill open staffing positions.

Gross profits for the fiscal years ended September 30, 2006 and 2005 were $11.8 million and $8.2 million, respectively, which represents an increase of $3.6 million, or 43.3%. This increase is attributable to the growth by acquisition of our staffing business. Gross profits, as a percentage of revenue, decreased to 16.4% from 17.4%, for the fiscal years ended September 30, 2006 and 2005, respectively. This decrease is primarily due to the inclusion of RS Staffing Services for the full fiscal year 2006 and the lower gross profit associated with staffing teaming partners.

Selling, general and administrative (‘‘SG&A’’) expenses for the fiscal years ended September 30, 2006 and 2005 were $13.8 million and $12.8 million, respectively, which represents an increase of $1.1 million, or 8.3%. Included in fiscal year 2006 is $3.0 million of SG&A expenses related to RS Staffing Services. 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



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forgiveness related to TeamStaff’s acquisition of BrightLane in 2001 and $1.0 million of SG&A expenses related to RS Staffing Services 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 Services 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 2.7% from 2005 to 2006. SG&A expenses, as a percentage of revenue, were 19.3% and 27.0%, for the fiscal years ended September 30, 2006 and 2005, respectively.

Depreciation and amortization for the fiscal years ended September 30, 2006 and 2005 was approximately $381,000 and $422,000, respectively. This decrease is due to a reduction in depreciation expense caused by several asset groups becoming fully depreciated during the fiscal year.

Other income, which is comprised of interest income and late fee income, 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 offset by decreased late fee income due to a reduction in accounts receivable in TeamStaff Rx.

Interest expense for the fiscal years ended September 30, 2006 and 2005 was approximately $539,000 and $211,000, respectively, representing an increase of $328,000. 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 expense from the notes payable related to the acquisition of RS Staffing Services effective as of June 4, 2005.

Income tax expense from continuing operations for fiscal year ended September 30, 2006 was $15.8 million. As a component of this tax expense,the Company provided a deferred tax valuation allowance 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. 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 valuation 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 $1.9 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 $18.5$0.4 million, or $(0.96)$0.08 per basic share and diluted share, as compared to loss from continuing operations for the fiscal year ended September 30, 2005 of $3.1 million, or $(0.17)$0.07 per basic and diluted share.

Income from discontinued operations, net of tax, for the fiscal year ended September 30, 2006 was $5.3 million, or $0.27 per basic and diluted share, as compared to income from discontinuedcontinuing operations net of tax, for the fiscal year ended September 30, 2005 of $0.6$3.2 million, or $0.03 per basic and diluted share. Income from operations from the discontinued business unit, net of tax, for the fiscal years ended September 30, 2006 and 2005 was $0.7 million and $0.6 million, respectively. Included in the results of discontinued operations is net income of $0.3 million and $0.4 million for fiscal years ended September 30, 2006 and 2005, respectively, related to the per diem business unit. Also included in fiscal 2006, is income from operations, net of tax, of the discontinued DSI business unit of $0.8 million offset by loss from operations of 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 in fiscal 2006 is related to the net gain on the sale of the DSI business unit (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.

Net loss for the fiscal year ended September 30, 2006 was $13.2 million, or ($0.69) per basic and diluted share, as compared to a net loss of $2.5 million, or $(0.14)$0.66 per basic and diluted share, for the fiscal year ended September 30, 2005.


2008.

TableLoss from discontinued operations, net of Contents

tax, for the fiscal years ended September 30, 2009 was $4.7 million, or ($0.97) per basic share and ($0.93) per diluted share. This includes a loss of $2.4 million from the operating results of the discontinued TeamStaff Rx business and the write-down to fair value of TeamStaff Rx intangible assets of $2.3 million. Loss from discontinued operations for the fiscal year 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, 2009 was $4.4 million, or ($0.89) per basic share and ($0.86) per diluted share, as compared to net income of $1.1 million, or $0.24 per basic and diluted share, for the fiscal year ended September 30, 2008. This represents a decline of $5.5 million in net income from fiscal 2008 to fiscal 2009.
Liquidity and Capital Resources; Commitments

Our principal sources of cash to fund our working capital needs are cash generated from operating activities and borrowings under our revolving credit facility.
Cash from operating activities
Net cash used in operating activities for the fiscal year ended September 30, 20072009 was $1.4$2.1 million as compared to net cash provided by operating activities of $8.7$4.6 million for the fiscal year ended September 30, 2006. Losses2008. This decrease in net cash was primarily driven by the loss from continuing operations wereof the primary usediscontinued TeamStaff Rx business of $2.3 million, a net decrease in accounts payable of $1.0 million, of which $1.1 million was for payments made to the IRS for previously recorded payroll tax liabilities, offset by a 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 government. Net cash duringprovided by operating activities for the fiscal year ended September 30, 2007.2008 was primarily 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 use was offsetdecrease in DSOs increased our cash position by $1.2approximately $3 million. Also contributing to net cash provided by operating activities is net income of $1.1 million and $0.35 million in cash received from Zurich related to the reduction in collateral requirements on outstanding workers’ compensation claims and $0.25 million in escrow release related to the sale of the discontinued DSI business unit. claims.
Cash provided by operations for the fiscal year ended September 30, 2006 was primarily due tofrom investing activities
Net cash generated by the discontinued DSI business unit and cash received from Zurich of $2.25 million.

Cash used in investing activities for the fiscal year ended September 30, 20072009 was $0.2$0.1 million. We continue to have relatively low capital investment requirements. The Company spent $0.1 million primarilyduring fiscal 2009 for the purchase of technology equipment, expenses related to the implementation of a new front office computer system and the redesign of our traveler website. Cash used inequipment. Net cash provided by investing activities for the fiscal year ended September 30, 20062008 was $1.8$0.2 million primarily for paymentas a result of the one-year earn out of $2.0 million to the former owners of RS Staffing Services as part of the acquisition. This was offset byproceeds from the sale of fixed assetsour Per Diem division, offset in part by cash used for the purchases of furniture, technology equipment and software related to the DSI business unit.

relocation of TeamStaff GS administrative offices to Loganville, Georgia.

Cash from financing activities
Net cash used in financing activities for the fiscal year ended September 30, 20072009 was minimal. Cash$0.1 million primarily as a result of repayment of capital lease obligations for continuing and discontinued operations. Net cash used in financing activities was $6.0 million for the fiscal year ended September 30, 2006,2008 was $0.2 million, primarily as a result of paying off the revolving line of creditrepayments on capital lease obligations and payment of the $1.5 million note payablefees related to the RS Staffing Services acquisition.new credit facility with Sovereign Business Capital and capital lease obligations.

Effective June 8, 2005,30


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 March 28, 2008 (the “Loan Agreement”) with Business Alliance Capital Company, a $7.0division of Sovereign Bank. Pursuant to the Loan Agreement, the Lender (i) acquired by assignment from the Company’s prior lender, PNC Bank, National Association, all right, title and interest of PNC under the $8.0 million PNC Credit Facility, the PNC note and related loan documentation, and (ii) restructured the PNC Credit Facility into a $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 Services; (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 includingthe further terms and conditions of the Loan Agreement. The loan is secured by a fixed charge coverage ratio if the Company fails to maintain invested cash and line availability minimum requirements. At September 30, 2007, TeamStaff was in compliance with all loan covenants. The facility is subject t o acceleration upon non-payment or various other standard default clauses. In addition, the Company granted PNC Bank 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 September 30, 2007,2009, there was no debt outstanding under the creditLoan 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. The average daily outstanding balance on the facility and $5.5 million remains availablefor 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 of credit, based on defined billed accounts receivable. There was no borrowing under the line of credit for the 3rd and 4th quarters of fiscal 2007.

The facility expires in June 2008 and the CompanyLoan Agreement will be seeking to replace the facility with PNC Bank or another financial institution. Should the Company be unable to obtain an extension or a replacement credit facility on acceptable terms, there could behave a material adverse impact on 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 position, interest expense and cash flows. If the facility is replaced or modified priorcondition. See “Risk Factors – Risks Relating to June 2008, the Company will incur a non cash write off of the then unamortized capitalized financing fees. This unamortized balance was $34,000 at September 30, 2007.

our Revolving Credit Line”.

Availability under the PNC Bank 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.’’ There can be no assurance that every RS Staffing ServicesTeamStaff 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 line of credit.Loan Agreement.

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As of September 30, 2007,2009, TeamStaff had unrestricted cash and cash equivalents of $0.6$3.0 million and net accounts receivable of $8.3$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, 2007,2009, 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 $1.3$0.9 million. The Company believes that along with cash on hand, the availability under the existing revolving line of credit and extended or successor facilities will provide sufficientit has adequate liquidity resources to fund operations over the next twelve months.


Payroll Taxes

Table
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 Contents
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.
Obligations
(Amounts in thousands)
 Payments Due By Period
 TotalLess than
1 year
1-3 years4-5 years
Long-term debt (1)$1,746$1,563$175$8
Operating leases1,7044861,16949
Pension liability (2)34628066
Severance liability (3)3333
Total Obligations$3,829$2,362$1,410$57
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 Staffing Services,TeamStaff GS, and capital lease obligations.
(2)Represents pension liabilities for the former Chief Executive Officer and former Chief Financial Officer.lease payments net of sublease income, including those of discontinued operations.
(3)Represents severance payments related to all former employees.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 oth erother 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 Company

In June 2006, the Financial Accounting Standards 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 SFAS No. 157, Fair Value Measurements (‘‘SFAS 157’’). SFAS 157a standard which defines fair value, establishesestablished a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expandsexpanded disclosures about fair value measurements. SFAS No. 157 isThis 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 expects to adopt SFAS No. 157 in the first quarter of fiscal 2009 and is still evaluating theadopted this standard on October 1, 2008 with no effect if any, on its financial position, or results of operations.


operations and cash flows.

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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159a 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. SFAS No. 159 isThis standard was effective for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. The Company expects to adopt SFAS No. 159 in the first quarter of fiscal 2009 and is stil l evaluating theadopted this standard on October 1, 2008 with no effect if any, on its financial position, or results of operations.operations and cash flows.

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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 2006,2009, the FinancialFASB issued a standard which stipulated theFASB Accounting Standards Board (‘‘FASB’’) issued Interpretation No. 48, AccountingCodification™ is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. This standard is effective for Uncertainty in Income Taxes (‘‘FIN 48’’). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements issued for interim and prescribesannual periods ended after September 15, 2009. The implementation of this standard did not have 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 guidancematerial impact on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 will be effective in the Company’s first quarterfinancial position, results of the fiscal year ending September 30, 2008. The Company is current ly evaluating the impact of adopting FIN 48.

operations and cash flows.
ITEM 7a. Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative 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 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 LIBOR 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 facility as well as interest costs.

ITEMItem 8.FINANCIAL STATEMENTS AND SUPPLEMENTAL DATAFinancial Statements and Supplemental Data

See attached Financial Statements beginning on page F-1 attached to this Report on Form 10-K.

ITEMItem 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREChanges in and Disagreements with Accountants on Accounting and Financial Disclosure

On July 11, 2007, TeamStaff, Inc. dismissed Lazar, Levine & Felix, LLP (‘‘LLF’’) as the Company’s independent registered public accounting firm and engaged WithumSmith+Brown, P.C. (‘‘Withum’’) as its new independent registered public accounting firm to audit the Company’s financial statements for the fiscal year ended September 30, 2007. The Company’s decision to change its independent registered public accounting firm was the result of a competitive bidding process involving several accounting firms. The decision to dismiss LLF and engage Withum was made and approved by the Audit Committee of the Board of Directors of the Company. The services provided by Withum consist of auditing financial statements, reviewing filings with the SEC, and various tax matters as permitted under the Sarbanes-Oxley Act of 2002.


Not applicable.

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The reports of LLF on the financial statements of the Company for fiscal years ended September 30, 2006 and 2005 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the Company’s fiscal years ended September 30, 2006 and 2005, and through July 11, 2007, there were no disagreements with LLF on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of LLF would have caused them to make reference thereto in their reports on the financial statements of the Company for such years. During the Company’s fiscal years ended September 30, 2006 and 2005, and through July 11, 2007, there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K).

Prior to the engagement of Withum, neither the Company nor someone on behalf of the Company had consulted with Withum during the Company’s fiscal years ended September 30, 2006 and 2005, and through July 11, 2007 in any matter regarding: (A) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither was a written report provided to the Company nor was oral advice provided that Withum concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue, or (B) the subject of either a disagreement or a reportable event defined in Item 304(a)(1)(iv) and (v) of Regulation S-K.

ITEM 9A.    CONTROLS AND PROCEDURES

Item 9A(T).Controls and Procedures
Evaluation of Disclosure Controls and Procedures

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,report, have concluded that, based 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 reports that we file or submit under the Exchange Act 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 our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Management does not view the Company’s inability 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.

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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 provide reasonable assurance that the 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 effect 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 attestation 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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to 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 Control over Financial Reporting

There was no change in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fourth fiscal quarter of our fiscal year ended September 30, 20072009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As previously disclosed, effective January 8, 2007, T. Kent Smith, the Company’s Chief Executive Officer resigned. Rick J. Filippelli, the Company’s Chief Financial Officer, was appointed President and Chief Executive Officer and retained his position as Chief Financial Officer. On October 23, 2007, subsequent to the balance sheet date, the Board of Directors of TeamStaff appointed Ms. Cheryl Presuto to the position of Chief Financial Officer. Ms. Presuto, 43, has served as TeamStaff’s



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Controller since August 2004 and will retain that position and title. Mr. Rick Filippelli, the Company’s Chief Executive Officer and President had served as the Company’s Chief Financial Officer from September 2003 until Ms. Presuto’s appointment. Mr. Filippelli will continue to serve as the Company’s Chief Executive Officer and President.

ITEM 9B.    OTHER INFORMATION

None.



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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of TeamStaff as of January 14, 2008 are as follows:


NAMEItem 9B.Other Information
None.

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PART III
AGEOFFICE
T. Stephen JohnsonItem 10.57Chairman of the Board of Directors, Class 1
Karl W. Dieckmann79Vice-Chairman Class 2
Peter Black35Director Class 1
Martin Delaney64Director Class 3
Frederick G. Wasserman53Director Class 2
William H. Alderman44Direct Class 2
Rick J. Filippelli51President, Chief Executive Officer, Director Class 1
Cheryl Presuto43Chief Financial Officer, ControllerOfficers and Corporate Governance

Directors and Executive Officers
Our Board is presently comprised of Directors

Our boardseven members and is classified into three classes, which are each elected in staggered three-year terms. Class 1 consists of T. Stephen Johnson Rick Filippelli and Peter Black, and the term expires in 2009;2012; Class 2 consists of Karl Dieckmann, Frederick G. Wasserman and William H. Alderman, and the term expires in 2010 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
NameAgePositions
Rick J. Filippelli53President, Chief Executive Officer and Director
Cheryl Presuto45Chief Financial Officer, Controller
Kevin Wilson44President, 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.

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Biographical Information – Board of Directors
William H. Aldermanjoined the Board of Directors in January 2007. Mr. Alderman has over 15 years experience providing investment banking services across multiple industries, with a particular expertise in financings, and mergers and acquisitions in the aerospace and defense industry. Since March 2001, Mr. Alderman has been the President of Alderman & Company, where he represents some ofa securities broker specializing in the world’s most respected aerospace and defense companies.industries. Mr. Alderman started his career at Bankers Trust Company and has held senior positions in investment management and corporate development at GE Capital, Aviation Sales Company, and most recently as Managing Director of the aviation investment banking practice of Fieldstone.Fieldstone Investments. Mr. Alderman received a MBA from J.L. Kellogg Graduate School of Management in 1989 and is also a graduate of Kenyon College and the Taft School.

Mr. Alderman is currently a director of 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 eightnine 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 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 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.

Karl 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



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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.

Rick J. Filippelliwas appointed as our Chief Executive Officer, President and a member of our Board of Directors in January 2007. Mr. Filippelli also served as Vice President from September 2003 to January 2007 and as Chief Financial Officer of 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’’(“FGIC”), a subsidiary 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 Young. Mr. Filippelli holds a Bachelor of Science degree in Accounting from Brooklyn College and is a Certified Public Accountant as well as a member of the American Institute of 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.

Frederick Wassermanjoined the Board of Directors in January 2007.2007 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 Operating/Financial Officer for Mitchell & Ness Nostalgia Co., a privately-held manufacturer and distributor of licensed sportswear and authentic team apparel. Prior to Mitchell & Ness, Mr. Wasserman served as the President of Goebel of North America, a U.S. subsidiary of the German specialty gift maker, from 2001 to 2005. Mr. Wasserman also served as the Chief Financial Officer of Goebel North America in 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 Corporatio n,Corporation, Gilman + Ciocia, Inc., Crown Crafts, Inc. and AfterSoft Group, Inc.

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Biographical Information – Other Executive Officer

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, Ms. Presuto spent four years with the newspaper division of Gannett, Inc., where she served as Accounting Manager and Assistant Controller. Prior to joining 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.

Management Resources

Kevin Wilson was appointed as the President of TeamStaff GS in October 2008. Previously, Mr. Wilson 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 the domestic and Compensation Committee Interlocks and Insider Participation in Compensation Decisions

Mr. Karl W. Dieckmann (Chair)foreign defense markets. Prior to his tenure at Varec, Inc., Mr. Ron Aldrich and Mr. T. Stephen Johnson, served on the Management Resources and Compensation Committee during the fiscal year from October 2006March 1997 to January 2007.2004, Mr. Peter Black (Chair),Wilson was the Program Manager for a multiyear defense services contract with Endress Hauser Systems & Gauging. Mr. Dieckmann and Mr. Johnson served on the Management



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Resources and Compensation CommitteeWilson also worked at Tracer Research Corporation from January 2007 through1990 to March 1997, where he was Project Manager for the remainder of the fiscal year ended September 30, 2007. 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.

United States Air Force, Air Combat Command professional services contract. Mr. Wilson holds a BS in Business Marketing from Northwest Missouri State University.

Corporate Governance
Meetings of the Board of Directors; Independence and Committees

During the fiscal year ended September 30, 2007,2009, the Board of Directors met on 19 occasions, 15 of which were by telephone conference call.8 occasions. Our Board of Directors determined that from October 1, 2006 to January 16, 2007as of September 30, 2009, Messrs. Aldrich,Alderman, Black, Dyer,Delaney, Dieckmann, Johnson and JohnsonWasserman satisfied the independence requirements within the meaning of Section 4200(a) (15) of the NASDAQ Marketplace Rules. Mr. Dyer announced his resignation as a member of the Board of Directors of TeamStaff on January 16, 2007 and Mr. Aldrich announced his resignation as a member of the Board of Directors of TeamStaff on January 23, 2007. Mr. Wasserman and Mr. Alderman joined the Board of Directors on January 19, 2007 as independent directors and continuously satisfied the independence requirements within the meaning of Section 4200(a) (15) of the NASDAQ Marketplace Rules. From and after April 19, 2007 to the end of the Company’s 2007 fiscal year, Messrs. Alderman, Black, Dieckmann, Johnson and Wasserman satisfy 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 Committee, and Nominating and Corporate Governance Committee and Strategic Planning Committee. Each of these committees has a written charter approved by the Board of Directors. TheseOther than the charter of the Strategic Planning Committee, all of the charters andof 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, 2007,2009, 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 the retention and termination of TeamStaff’s independent auditors.

From October 1, 2006 through January 2007, our Audit Committee was comprised of Mr. Dyer (Chair & Financial Expert), Mr. Black, Mr. Dieckmann and Mr. Aldrich. In January 2007, Mr. Dyer and Mr. Aldrich resigned from the Audit Committee as well as the Company’s Board of Directors. In January 2007, Mr. Wasserman was appointed to the Audit Committee and elected its Chairman, and appointed its financial expert in accordance with the Sarbanes Oxley Act of 2002 and the regulations promulgated thereunder. From January 20072008 to the present, members of our Audit Committee were and are Mr. Wasserman (Chair & Financial Expert)(Chair), Mr. Black and Mr. Dieckmann. Mr. Wasserman is also designated as our Audit Committee Financial Expert. 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 Nasdaq Marketplace Rules. From the fiscal year to the present, all o f the members of our Audit Committee are ‘‘independent’’ within the definition of that term as provided by Rule 4200(a)(15) of the Nasdaq Marketplace Rules. During the fiscal year ended September 30, 2007, this2009, the Audit Committee met on eight occasions, seven of which were by telephone conference call.5 occasions.

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Management Resources and Compensation Committee.The charter governing the activities of the Management Resources and Compensation Committee (sometimes referred to as the ‘‘Compensation Committee’’“Compensation Committee”) may be viewed online on our website atwww.teamstaff.com. www.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. From October 1, 20062008 to January, 2007,the present, the members of the Management Resources and Compensation Committee’s members were Mr. Dieckmann (Chair), Mr. Aldrich and Mr. Johnson. From January 2007 to the



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present, the membersCommittee were and are Mr. Black (Chair), Mr. Dieckmann and Mr. Johnson. 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. During the fiscal year ended September 30, 2007,2009, this committee met on two3 occasions.

Nominating and Corporate Governance Committee.Committee. The charter governing the activities of the Nominating and Corporate Governance Committee may be viewed online on our website atwww.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 a ndand its shareholders; and making recommendations regarding proposals submitted by shareholders. The 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 renominationre-nomination 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. From October 1, 2006 to January 2007,The members of the Nominating and Corporate Governance Committee members wereare Mr. AldrichAlderman (Chair), Mr. Delaney, Mr. Dieckmann and Mr. Delaney. From January 2007 to August 2007, the Nominating and Corporate Governance Committee members were Mr. Alderman (Chair), Mr. Dieckmann and Mr. Delaney. On August 10, 2007, Mr. Delaney announced his resignation as a memberJohnson, each of the Nominating and Corporate Governance Committee. On November 8, 2007, T. Stephen Johnson, an indepe ndent member of our Board was elected to serve on this committee. Presently, the Nominating and Corporate Governance Committee members consists of Mr. Alderman (Chair), Mr. Dieckmann and Mr. Johnson. At all times Messrs. Alderman, Aldrich, Dieckmann and Johnson satisfiedwhom satisfy the independence requirements of Section 4200(a) (15) of the Nasdaq Marketplace Rules. Mr. Delaney was appointed to this Committee in April 2009. During the fiscal year ended September 30, 2007,2009, 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 two2 occasions.

Executive Committee.Committee. The Board of Directors created an Executive Committee effective September 4, 2001. Executive Committee members are currently Mr. Karl W. Dieckmann and Mr. T. Stephen Johnson.Rick Wasserman. Mr. T. Stephen JohnsonWasserman 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, 2007.

2009.

No member of the Board of Directors or any committee failed to attend at least, or participated in fewer than, 75% of the meetings of the Board or of a committee on which such member serves.
Management Resources and Compensation Committee Interlocks and Insider Participation in Compensation Decisions
Mr. 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 other 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.
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.
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.
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.
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.
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).
Code of Ethics

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.

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 20072009 fiscal year.



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ITEM 11.    EXECUTIVE COMPENSATION

Compensation Discussion

Item 11.Executive Compensation and Related Information
This section provides information, in tabular and Analysis

The Board of Directors, the Management Resources and Compensation Committee and senior management share responsibility for establishing, implementing and continually monitoring our executive compensation program, with the Board making the final determination with respect to executive compensation. The goal of our executive compensation program is to motivate and incentivize, as well as provide a competitive total compensation package to our executive management team through a combination of base salary, annual cash incentive bonuses, long-term equity incentive compensation and broad-based benefits programs. This Compensation Discussion and Analysis explains our compensation objectives, policies and practices with respect to our Chief Executive Officer, Chief Financial Officer and certain of our other most highly-compensated executive officers as determinednarrative formats specified in accordance with applicable SEC rules, which are collectively referred to herein as the Named Executive O fficers.

Objectives of Our Executive Compensation Program

Our executive compensation program is designed to achieve the following objectives:

• attract and retain talented and experienced executives necessary to achieve our strategic objectives in the highly competitive and dynamic industry in which we compete;
• motivate and reward executives whose knowledge, skills and performance are critical to our success;
• align the interests of our executives and stockholders by motivating executives to increase stockholder value;
• to increase our Company’s long-term profitability and, accordingly, increase stockholder value;
• provide a competitive compensation package in which a significant portion of total compensation is determined by Company and individual results and the creation of shareholder value; and foster a shared commitment among executives by coordinating their Company and individual goals.

Our Executive Compensation Program

Our executive compensation consists of base salary, cash incentive bonuses, long-term equity incentive compensation and broad-based benefits programs. Consistent with the emphasis we place on performance-based incentive compensation, cash incentive bonuses and long-term equity incentive compensation in the form of stock options constitute a significant portion of our total executive compensation. We structured cash incentive bonuses to be primarily tied to the achievement of predetermined Company and individual performance goals, which are established at the beginning of each year (or in the case of Named Executive Officers who have commenced employment during the applicable fiscal year, at the time of or shortly following their engagement by our Company), on an individualized basis.

Within the context of the overall objectives of our compensation program, we determined the specific amounts of compensation to be paid to each of our executives in 2007 based on a number of factors including:

• our understanding of the amount of compensation generally paid by similarly situated companies to their executives with similar roles and responsibilities;
• our executives’ performance during the fiscal year in general and as measured against predetermined Company and individual performance goals;
• the roles and responsibilities of our executives;
• the individual experience and skills of, and expected contributions from, our executives;


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• regarding the amounts of compensation being paid to our other executives;
• our executives’ historical compensation and performance at our Company; and
• any contractual commitments we have made to our executives regarding compensation.

Each of the primary elements of our executive compensation is discussed in detail below, including a description of the particular element and how it fits into our overall executive compensation program. In the descriptions below, we highlight particular compensation objectives that we have designed our executive compensation program to address. However, it should be noted that we have designed the various elements of our compensation program to complement each other and thereby collectively serve all of our executive compensation objectives. Accordingly, whether or not specifically mentioned below, we believe that each element of our executive compensation program, to a greater or lesser extent, serves each of our compensation objectives.

Base Salary

Our approach is to pay our executives a base salary that is competitive with those of other executive officers in our peer group of competitive companies. We believe that a competitive base salary is a necessary element of any compensation program that is designed to attract and retain talented and experienced executives. We also believe that attractive base salaries can motivate and reward executives for their overall performance. The base salary of each Named Executive Officer is reviewed annually, and may be adjusted in accordance with the terms of such executive officer’s employment agreement, where applicable, and certain performance criteria, including, without limitation: (i) individual performance and experience; (ii) our performance as a company; (iii) the functions performed by the executive officer; (iv) past salary; and (v) changes in the compensation peer group in which we compete for executive talent. Discretion is used to determine the weight given to each of the factors listed above and such weight may vary from individual to individual and the Management Resources and Compensation Committee may decline to assign relative weight or ranking to these factors, in its discretion. Evaluations of base salary are made regardless of whether a Named Executive Officer has entered into an employment agreement with us, and annual adjustments, if any, to the base salary of our Named Executive Officers are analyzed within the context of the terms and conditions of such employment agreements. Although evaluations of and recommendations as to base salary are made by the Management Resources and Compensation Committee and senior management, the ultimate determination is made by the Board of Directors. Salary levels for each of our Named Executive Officers, other than the Chief Executive Officer, were also based in part upon evaluations and recommendations made by the Chief Executive Officer.

To the extent that we have entered into employment agreements with our Named Executive Officers, the base salaries of such individuals reflect the initial base salaries that we negotiated with them at the time of their initial employment or promotion and our subsequent adjustments to these amounts to reflect market increases, the growth and stage of development of our company, our executives’ performance and increased experience, any changes in our executives’ roles and responsibilities and other factors. The initial base salaries that we negotiated with our executives were based on our understanding of base salaries for comparable positions at similarly situated companies at the time, the individual experience and skills of, and expected contribution from, each executive, the roles and responsibilities of the executive, the base salaries of our existing executives and other factors. We have entered into employment agreements with our Chief Executive Officer the terms of which are summarized below.

During the fiscal year ended September 30, 2007, the base salary of Mr. Filippelli averaged $253,932, reflecting an increase following his appointment as President and Chief Executive Officer. During fiscal year 2007, the base salary of Mr. T. Kent Smith, the former President and Chief Executive Officer, was $250,000. Mr. Smith’s employment with the Company ended on January 8, 2007. During fiscal year 2007, the base salary of Mr. James D. Houston, the former Chief Operating Officer and General Counsel, averaged $200,943, reflecting an increase following his appointment as Chief Operating Officer. Mr. Houston’s employment with the Company was terminated effective on April 30, 2007.



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Cash Incentive Bonuses

Consistent with our emphasis on performance incentive compensation programs, our executives are eligible to receive cash incentive bonuses primarily based upon their performance as measured against predetermined company and individual goals covering operations, business development and commercialization, and corporate and financial achievements. These goals are recommended by senior management to the Management Resources and Compensation Committee, and then by the Management Resources and Compensation Committee to the Board of Directors, at the beginning of each year. The goals are ultimately set by the Board of Directors. If a Named Executive Officer joined our Company during a particular year, these performance goals are established at the time of or shortly following such executive’s employment. The primary objective of our cash incentive bonuses is to motivate and reward our Named Executive Officers for meeting our short-term objectives using a perform ance-based compensation program with objectively determinable goals that are specifically tailored for each executive. In addition, we may reserve a portion of each executive’s annual cash incentive bonus to be paid at our discretion based on the executive’s overall performance. We maintain this discretionary portion of the annual cash incentive bonuses in order to motivate our executives’ overall performance and their performance relating to matters that are not addressed in the predetermined performance goals that we set. We believe that every important aspect of executive performance is not capable of being specifically quantified in a predetermined objective goal. For example, events outside of our control may occur after we have established the executives’ performance goals for the year that require our executives to focus their attention on different or other strategic objectives.

We establish the target amount of our cash incentive bonuses at a level that represents a meaningful portion of our executives’ currently paid out cash compensation, and set additional threshold and maximum performance levels above and below these target levels. In establishing these levels, in addition to considering the incentives that we want to provide to our executives, we also consider the bonus levels for comparable positions at similarly situated companies, our historical practices and any contractual commitments that we have relating to executive bonuses.

Overall, the targets for the performance measures were set at levels that we believed to be achievable with strong performance by our executives. Although we cannot always predict the different events that will impact our business during an upcoming year, we set our performance goals for the target amount of annual incentive cash bonuses at levels that we believe will be achieved by our executives a majority of the time. Our maximum and threshold levels for these performance goals are determined in relation to our target levels, are intended to provide for correspondingly greater or lesser incentives in the event that performance is within a specified range above or below the target level, and are correspondingly easier or harder to achieve. We set the performance goals for the maximum amount at a level that we believe will be achieved in some years, but will not be achieved a majority of the time. At the end of each year, the Management Resources and Compensati on Committee evaluates the performance of each executive officer and provides to the Board its recommendation for the amount of the cash incentive bonus to be paid to each such executive for that year, with the Board making the final determination as to the amount of the cash incentive bonus.

Based upon the employment agreements that he has entered into with us, Mr. Filippelli is entitled to a bonus of up to $185,500 contingent on the achievement of certain financial metrics. For our 2007 fiscal year, Mr. Filippelli received a bonus of $185,500 which amount was earned under his employment agreement. No bonus was paid to Mr. Smith. in our 2007 fiscal year. As part of the severance package paid to Mr. Houston he received a pro rated bonus of $89,024 for fiscal year 2007. As noted above, the amount of the bonus paid to each Named Executive Officer also reflects the extent to which such executive achieved the milestones established at the beginning of the year, plus the amount of the discretionary bonus that is based on our assessment of their overall performance during the year.

Long-Term Equity Incentive Compensation

We believe that long-term company performance is best achieved through an ownership culture that encourages long-term performance by our executive officers through the use of stock-based awards. We grant stock options in order to provide certain executive officers with a competitive total



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compensation package and to reward them for their contribution to our long-term growth in value and the long-term price performance of our common stock. Grants of stock options are designed to align the executive officer’s interest with that of our shareholders. To assist us in retaining executives and encouraging them to seek long-term appreciation in the value of our stock, the benefits of the awards generally are not immediately realizable by the grantee as the awards vest over a specified period, usually three years, and therefore an employee must remain with us for a specified period to enjoy the full potential economic benefit of an award. We may consider as one of a number of factors the level of an executive officer’s realizable compensation from awards granted in prior years when making decisions with respect to awards to be granted to that executive officer for the most recently ended fiscal year.

Based on the stage of our Company’s development and the incentives we are trying to provide to our executives, we have currently chosen to use restricted stock awards. Our decisions regarding the amount and type of long-term equity incentive compensation and relative weighting of these awards among total executive compensation have also been based on our understanding of market practices of similarly situated companies and our negotiations with our executives in connection with their initial employment or promotion by us.

Stock option awards provide our executive officers with the right to purchase shares of our common stock at a fixed exercise price typically for a period of up to ten years, subject to continued employment with our Company. Stock options are earned on the basis of continued service to us and generally vest over three years, beginning with one-third vesting one year after the date of grant with the balance then vesting in equal monthly installments over the following two year period. Such vesting is intended as an incentive to such executive officers to remain with us and to provide a long-term incentive.

Options are generally exercisable for a limited period of time after termination of employment (other than termination for cause) if vested, subject to certain rights that were negotiated in connection with the employment agreements we entered into with our Named Executive Officers. We do not require that any portion of the shares acquired be held until retirement, we do not have a policy prohibiting a director or executive officer from hedging the economic risks of his or her stock ownership and we do not have any minimum stock ownership requirements for executive officers and directors. However, each of our executive officers has a significant number of exercisable options. Stock option awards are made pursuant to our 2000 Employee Plan. See ‘‘Payments Upon Termination or Change-in-Control’’ for a discussion of the change-in-control provisions related to stock options. The exercise price of each stock option granted under the 2000 Emplo yee Plan is based on the fair market value of our common stock on the grant date and the Management Resources and Compensation Committee has set the exercise price of the options granted to our Named Executive Officers other than our Chief Executive Officer at a price greater than the fair market value in order to reinforce the incentive nature of the award.

In addition to periodically granting performance-based stock options, we also granted options to certain of our Named Executive Officers at the time of their hiring as an incentive to accept employment with us.

We granted Mr. Filippelli 130,000 shares of restricted stock in connection with the approval of the formal letter agreement, dated as of February 14, 2007, modifying his employment agreement following his appointment as President and Chief Executive Officer. Such restricted shares granted to Mr. Filippelli were subject to the following vesting schedule: (i) 30,000 shares vested on the grant date, (ii) 50,000 shares will vest on September 30, 2008, subject to certain performance based vesting requirements, and (iii) 50,000 shares will vest on September 30, 2009 subject to certain performance based vesting requirements.

We also granted Mr. Houston 100,000 shares of restricted stock in connection with his appointment as Chief Operating Officer. Such restricted shares granted to Mr. Houston were subject to the following vesting schedule: (i) 30,000 shares vested in the grant date, (ii) 35,000 shares will vest on September 30, 2008, subject to certain performance based vesting requirements, and (iii) 35,000 shares will vest on September 30, 2009 subject to certain performance based vesting requirements. Effective



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April 30, 2007, Mr. Houston’s employment with the Company was terminated and all unvested restricted shares (70,000) were cancelled.

Awards granted under our equity compensation plans are based on a number of factors, including: (i) the grantee’s position with us; (ii) his or her performance and responsibilities; (iii) the extent to which he or she already holds an equity stake with us; (iv) equity participation levels of comparable executives at other companies in the compensation peer group; (v) general corporate performance; (vi) the Chief Executive Officer’s recommendations; (vii) the current stock price; and (viii) individual contribution to the success of our financial performance. However, the plans do not provide any formulated method for weighing these factors, and a decision to grant an award is based primarily upon the evaluation by the Management Resources and Compensation Committee, in consultation with senior management and the Board of Directors, of the past as well as the anticipated future performance and responsibilities of the individual in question. Awards to executive officers are first reviewed and approved by the Management Resources and Compensation Committee, which then makes a recommendation for final approval by our Board of Directors. Option grants to executives other than the Chief Executive Officer are approved by the Management Resources and Compensation Committee based upon recommendations made by the Chief Executive Officer based upon the individual executive’s performance and market data relating to option grants to individuals occupying similar positions at comparably situated companies.

Other Compensation

We maintain broad-based benefits that are provided to all employees, including health insurance, life and disability insurance and a 401(k) plan. 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. Generally, we do not provide any special reimbursement for perquisites, such as country clubs, corporate aircraft, living or security expenses, for our employees or for any executive officers.

Pension Benefits.    We do not offer qualified or non-qualified defined benefit plans to our executive officers or employees. In the future, we may elect to adopt qualified or non-qualified defined benefit plans if we determine that doing so is in our best interests.

Nonqualified Deferred Compensation.    None of our Named Executive Officers participates in or has account balances in non-qualified defined contribution plans or other deferred compensation plans maintained by us. To date, we have not had a significant reason to offer such non-qualified defined contribution plans or other deferred compensation plans. In the future, we may elect to provide our executive officers or other employees with non-qualified defined contribution or deferred compensation benefits if we determine that doing so is in our best interests.

Severance and Change of Control Arrangements.    As discussed more fully in the section below entitled ‘‘Payments Upon Termination or Change in Control’’, certain of our executive officers are entitled to certain benefits upon the termination of their respective employment agreements. The severance agreements are intended to mitigate some of the risk that our executive officers may bear in working for a company competing in a highly competitive and dynamic industry, such as ours.

Chief Executive Officer Compensation.

Effective January 10, 2007, we appointed Mr. Rick J. Filippelli, our Chief Financial Officer, to serve as our President and Chief Executive Officer, following the termination of our employment relationship with T. Kent Smith, our former President and Chief Executive Officer. For the fiscal year ended September 30, 2007, Mr. Filippelli received a base salary at the annual rate of $265,000. Prior to his appointment as Chief Executive Officer we had employed Mr. Filippelli as our Chief Financial Officer commencing in 2004. During the period from June 30, 2005 to January 10, 2007, Mr. Filippelli was paid a base salary of $225,000 per annum. Mr. Filippelli’s compensation as Chief Executive Officer was determined pursuant to a letter agreement, dated and effective as of February 14, 2007, which modifies his employment agreement dated June 30, 2005. Mr. Filippelli will also be entitled to a cash bonus of up to 70% of his annual base salary in the discretion of the Board of Directors as



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recommended by the Management Resources and Compensation Committee, subject to certain performance and EBITDA requirements. Pursuant to his employment agreement, Mr. Filippelli also was awarded 130,000 shares of restricted stock issued under the Company’s 2006 Plan, some of which are subject to certain performance based vesting requirements. Mr. Filippelli’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 fiscal year 2007, Mr. Filippelli was awarded a bonus of $185,500 in light of the successes he achieved during such period.

During our 2007 fiscal year and up to January, 2007, our former President and Chief Executive Officer, T. Kent Smith, receive a base salary at the annual rate of $250,000. In the fiscal year ended September 30, 2006, Mr. Smith received a base salary at the annual rate 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. Mr. Smith’s compensation was determined pursuant to an employment agreement dated June 18, 2003, which provided for base compensation of $250,000 per annum and a bonus, in the discretion of the Management Resources and Compensation Committee, of up to 50% of his base salary. Pursuant to his employment agreement, Mr.& nbsp;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. 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 in closing the favorable acquisition of RS Staffing Services. 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 business unit. 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. However, since all such shares were not vested upon Mr. Smith’s resignation on January 8, 2007, such shares were cancelled.

On June 30, 2005, we entered into a new 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 was eligible to receive a bonus equal to up to 70% of his base salary upon satisfaction of performance-based criteria. The agreement included 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.’’

Compensation of Executive Officers Other Than the CEO During Fiscal Year 2007

For the fiscal year ended September 30, 2007, 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 forand related information. As a smaller reporting company, the fiscal year ended September 30, 2007 are as set forthCompany has presented such information in accordance with the table providedscaled disclosure requirements permitted under the heading ‘‘Executive Compensation — applicable SEC regulations.

Summary Compensation Table.’’

The Management Resources and Compensation Committee periodically reviews the number 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 shareholder value.


Table

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Stock options typically have been granted to executive officers when the executive first joins TeamStaff, in connection with a significant change in responsibilities and, occasionally, to achieve equity within a peer group. During the fiscal year ended September 30, 2007, 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 2007 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 Chief Executive Officer but seeks to be competitive with similar companies.

Policies Regarding Tax Deductibility of Compensation.    Within our performance-based compensation program, we aim to compensate the Named Executive Officers in a manner that is tax-effective for us. Section 162(m) of the Internal Revenue Code restricts the ability of publicly-held companies to take a federal income tax deduction for compensation paid to certain of their executive officers to the extent that compensation exceeds $1.0 million per covered officer in any fiscal year. However, this limitation does not apply to compensation that is performance-based. We consider these requirements in our compensation determinations. The non-performance-based compensation paid in cash to our executive officers in the 2007 fiscal year did not exceed the $1.0 million limit per officer, and we do not anticipate that the non-performance-based compens ation to be paid in cash to our executive officers in 2007 will exceed that limit.

Summary of Executive Compensation

The following table sets forth certain information concerning all cash and non-cash compensation awarded to, earned by or paid to our Chief Executive Officer, our Chief Financial Officer, and certaineach of our othernamed executive officers (the ‘‘Named Executive Officers’’), during the fiscaltwo year period ended September 30, 2007:

SUMMARY COMPENSATION TABLE


2009:
                             
                  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  $  $  $225,500 
Name and Principal PositionYearSalary
($)(3)
Stock
Awards
($)(4)
Non-Equity Incentive
Plan Compensation
($)(5)
Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($)(6)
Total ($)
Rick J. Filippelli,
President and Chief Executive Officer
2007$253,920$60,433$185,500$$3,199$503,052
T. Kent Smith
Former President and Chief Executive Officer (1)
2007$72,596$8,500$$$178,475$259,571
James Houston
Former General Counsel and Chief Operating Officer (2)
2007$147,829$42,017$$$310,119$499,965
(1)Effective January 8, 2007, Mr. Smith left the Company having served as President, Chief Executive Officer and Member of the Board of Directors. All Other Compensation in the amount of $176,923 represents severance payments made to Mr. Smith related to a separation agreement effective January 29, 2007.
(2)Mr. Houston served as the Company’s General Counsel, Vice President of Business and Legal Affairs and Corporate Secretary. Effective January 18, 2007, Mr. Houston was appointed Chief Operating Officer. Effective April 30, 2007, Mr. Houston’s employment with the Company was


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terminated. All Other Compensation in the amount of $309,024 represents severance payments made to Mr. Houston related to an agreement and release effective April 30, 2007.
(3)‘‘Salary’’“Salary” is comprised of the cash salary paid to the Named Executive Officers during fiscal 2007.2009 and 2008.
(4)
(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.
(3)Stock Awards’’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 20072009 and 2008 in accordance with the provisions of revised Statement of Financial Accounting Standards (‘‘SFAS’’(“SFAS”) No. 123, (‘‘(“FAS 123R’’123R”) Share-Based Payment.
(5)
(4)‘‘Non-Equity Incentive Plan Compensation’’ 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 Compensation Committee, subject to certain performance and EBITDA requirements.
(6)‘‘All Other Compensation’’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. Additionally, severance payments to former Named Executive Officers are included
(5)As previously reported, Ms. West’s employment was terminated on January 4, 2010 in all other compensation.connection with the closing of the Company’s disposition of assets of TeamStaff Rx.

Grants

41


Additional Information.The Summary Compensation Table above quantifies the amount or value of Plan-Basedthe different forms of compensation earned by or awarded to our Named Executive Officers in fiscal 2009 and provides a dollar amount for total compensation. Descriptions of the material terms of each 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 specific 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 disposition of the operating assets of TeamStaff Rx. Ms. West was also granted an aggregate of 16,612 shares of restricted stock during 2009 pursuant to her 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 footnotes to the above table. The 2006 Plan is administered by the Management Resources and Compensation Committee. 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 certain corporate events such as reorganizations, mergers and stock splits. Awards granted under the 2006 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 grants of plan-basedoutstanding equity awards for the year endedat September 30, 20072009 with respect to the Named Executive Officers.

GRANTS OF PLAN-BASED AWARDS


                                 
  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 
  Estimated Future Payments
Under Non-Equity Incentive
Plan Awards
Estimated Future Payments
Under Equity Incentive Plan
Awards
    
NameGrant
Date
Thresh-
old
($)
Target
($)
Maxi-
mum
($)
Thresh-
old
(#)
Target
(#)
Maxi-
mum
(#)
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
Exercise
or Base
Price of
Option
Awards
($/Sh)
Grant Date
Fair Value of
Stock and
Option
Awards ($)
Rick J. Filippelli2/14/07      130,000(1)   $139,100
T. Kent Smith           
James Houston2/14/07      100,000(2)   $107,000
(1)Represents unvested portion of stock award granted on January 2, 2009 with a two year vesting schedule.
(2)The restrictedmarket 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.
(3)Represents unvested portion of stock award granted to Mr. Filippelli veston April 27, 2008, Ms. Presuto on July 30, 2008, Ms. West on December 3, 2008 and Mr. Wilson on October 3, 2008 as follows: (i) 30,000part of their employment agreements. These unvested shares vest on the grant date; (ii) 50,000 shares will vest on September 30, 2008,are subject to certain performance based vesting requirements; and (iii) 50,000 shares will vest oncriteria for the fiscal year ended September 30, 2009 subject to certainfor 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 based vesting requirements.
(2)30,000criteria 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 restricted stock vestedthe 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 grant. Effective April 30, 2007 all remaining restricted shares (70,000) were unvested and cancelled upon Mr. Houston’s termination of employment by the Company.such transaction.

Restricted Stock Grants

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Additional Information.Each stock option grant reported in Fiscal Year 2007

On February 14, 2007, asthe table 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 the 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 options on the death, disability or termination of employment of a termNamed Executive Officer or a change in control of formal letter agreementsour 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 material terms of 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 following awards2006 Plan. This table does not reflect prior grants of restricted stock were ratified and approved by the Board. As of and at February 14, 2007, the closing price of TeamStaff common stock was $1.07.


awards that are fully vested.
 SharesVesting PeriodFair Market Value
Rick J. Filippelli100,000Contingent-31 months$107,000
Rick J. Filippelli30,000Immediate$32,100
James D. Houston70,000Contingent-31 months$74,900
James D. Houston30,000Immediate$32,100


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Effective April 30, 2007, Mr. Houston’s employment with the Company was terminated and 70,000 shares of unvested restricted stock were cancelled.

Discussion of Summary Compensation and Grants of Plan-Based Awards Tables

Our executive compensation policies and practices, pursuant to which the compensation set forth in the Summary Compensation table and the Grants of Plan Based Awards table was paid or awarded, are described above under ‘‘Compensation Discussion and Analysis.’’ A summary of certain material terms of our compensation plans and arrangements is set forth below.

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 some of the specific terms for the compensation of the Named Executive Officers. See ‘‘Payments Upon Termination or Change-in-Control’’ below for a discussion of payments due to our Named Executive Officers upon the termination of his employment or a change-in-control of our company.

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 was scheduled to terminate on September 30, 2007. The material terms of Mr. Filippelli’s employment agreement provide for a base salary of $225,000 per annum, 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 by the Management Resources and Compensation Committee of the Board of Directors. The agreement a lso 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.

TeamStaff 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. The materialOfficer, 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 letter agreement provide for a modification to his employment agreement dated June 30, 2005 (the ‘‘Filippelli Agreement’’)resignation as follows: (1) Term: the term of the Filippelli Agreement will be extended from September 30, 2007 until September 30, 2009 (the ‘‘Term’’); (2) Position: Mr. Filippelli’s position is amended to include President and Chief Executive Officer; (3) Salary:Officer will become effective at the initialend 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 which 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 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, Mr. Filippelli will receive a base salary duringof $290,000 and may receive a bonus in the Termsole 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, provided 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 good reason (as defined in the employment agreement), (a) Mr. Filippelli’s right to purchase shares of common stock 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 Mr. Filippelli’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 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 no 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 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 within 180 days of a “Change in Control”, as defined in the employment agreement, (a) Mr. Filippelli’s employment is terminated, or (b) his status, title, position 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 sumdiscretion of $265,000 per annum; (4) Fiscal Year Cash Bonus: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.

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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 the severance payment described below.
 Ms. Presuto may receive a cash bonus in the sole discretion of the Management Resources and Compensation Committee of the Board of Directors of up to 70%50% of Mr. Filippelli’s annualher base salary in the discretionfor each fiscal year of the Company’s Board of Directors as recommendedemployment. The bonus will be based on performance targets and other key objectives established by the Management Resources and Compensation Committee, subjectCommittee.
 Grant of options to certain performance and EBITDA requirements; (5) Incentive Compensation (Equity): Mr. Filippelli will receive 130,000purchase 75,000 shares of restrictedcommon stock issued under the Company’s 2006 Long Term Incentive PlanPlan. 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 market price per share of the Company’s common stock on the date of execution of the modification letter ; such sharesemployment agreement.
In the event of the termination of her employment, the Options will vest accordingbe 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.

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 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.
 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 schedule: (a)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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Kevin Wilson
On October 3, 2008, we entered into an employment agreement with Mr. Kevin Wilson, the President of our TeamStaff GS subsidiary. The employment agreement is for an initial term expiring September 30, 2010. Under the employment agreement, Mr. Wilson will receive a base salary of $200,000. The term of the agreement is effective as of October 1, 2008. Mr. Wilson may receive a bonus in the sole discretion of the Management Resources and Compensation Committee of the Board of Directors 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 based 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 will vest immediately; (b) 50,000of restricted common stock. The vesting schedule applicable to the restricted stock is as follows: one-third of the restricted shares will vest on September 30, 2008, subject to certain performance based vesting requirements; and (c) 50,000 shares willthe date of the agreement; one-third vest on September 30, 2009, subject to certainupon satisfaction of performance based vesting requirements; (6) Severance Amount: ‘‘Severance Amount’’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 Filippelli Agreement is amended to mean the aggregate sumevent of one year’s base salary, payable on the Termination Datea change in control (as defined



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therein); ‘‘Continuation Period’’ in the Filippelli Agreement is modifiedemployment agreement), the conditions to mean the periodvesting of one (1) year;the restricted stock awards shall be deemed void and (7) Ifall such shares shall be immediately and fully vested.

 In the event of the termination of employment by us without “cause” or by Mr. Filippelli’sWilson 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 reason,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. Filippelli retains any stock options, restricted stockWilson is terminated, or other incentive(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 that has vested upon such terminationand benefits: (A) (i) the accrued compensation; (ii) the continuation benefits; and (iii) as severance, base salary for a period of 6 months, payable in accordance with the terms and conditionsequal installments on each of the Company’s 2006 Long Term Incentive Plan,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, stock 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.

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 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 receive a bonus in the sole discretion of the Management Resources and Compensation Committee of the Board of 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 are 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 2009; and one-half vest on September 30, 2010, upon the satisfaction of the performance 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 the 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 “good reason,” she is not entitled to any additional compensation or benefits other than her accrued and unused vacation time will be paid outunpaid compensation.
 In the event that within 90 days of a “Change in Control” as defined in the employment agreement, (a) Ms. West’s employment 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) (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 Termination Date. All accruedfirst regular executive pay date following the termination date; and unused vacation time will carry over from year-to-year until used. Mr. Filippelli will notify(B) the Company’s Compensation Committee annuallyconditions to the vesting of amounts being carried over.any outstanding 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 all other respects,addition, in the Filippelli Agreement remainsevent the Company serves a “Notice of Retention” and Ms. West diligently performs her duties during the “Retention Period” (as those terms are defined in full force and effect and applicablethe employment agreement), the Company shall pay her, 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 Mr. Filippelli’s employment.50% of her then current base salary. In the caseevent the Company fails to serve a Notice of Retention, the Company shall pay her in one lump sum on the first day of the month immediately following the Change in Control, an amount equal to 50% of her 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 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, 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 conflict betweenmonth or $36,000 in the modification letter and the Filippelli Agreement, the modification letter will control.

aggregate.

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 Employee 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, 2007,2009, there were 149,0004,500 options outstanding under the 2000 Employee Plan.

The 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.

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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 Company 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 Plan (the ‘‘2000“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 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



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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 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 such 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, 2007,2009, there were 87,50010,625 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’’“Director Compensation”.

2006 Long Term Incentive Plan

The Board of Directors adopted the 2006 Long-Term Incentive 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 Plan and the 2000 Non-Executive Director 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 unde runder 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 Compensation Committee. The 2006 Long Term Incentive Plan authorizes the Compensation 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 Committee deems appropriate.

Terms and Conditions of Awards.Awards. The Compensation 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 Compensation Committee determines the provisions, terms and conditions of each award. The 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 Plan). The 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



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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 Committee over a performance period as prescribed by the 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 Committee from time to time prior to granting the performance shares or cash awards.

Exercise Price.Price. The Plan authorizes the Compensation 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 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.

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.

Outstanding Equity Awards

The following table sets forth certain information with respect to outstanding equity awards at September 30, 2007 with respect to the Named Executive Officers.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END


 Option AwardsStock Awards
NameNumber of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Option
Exercise
Price ($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)
Equity
Incentive Plan
Awards: Number
of Unearned
Shares, Units
or Other Rights
That Have Not
Vested (#)
Equity
Incentive Plan
Awards: Market
or Payout Value
of Unearned
Shares, Units
or Other Rights
That Have Not
Vested ($)
Rick Filippelli50,000$2.299/15/0833,334$56,668100,000$107,000
 50,000$2.302/21/09    

Options Exercised and Stock Vested

None of our Named Executive Officers exercised any stock options during the 2007 fiscal year.

Pension Benefits

None of our Named Executive Officers or former executive officers are covered by a pension plan or other similar benefit plan that provides for payments or other benefits at, following, or in connection with retirement.

Nonqualified Deferred Compensation

None of our Named Executive Officers or former executive officers are covered by a defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.



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Payments Upon Termination or Change-in-Control

The discussion and tables below reflect the estimated benefits that would be paid or accrue to each of the Named Executive Officers in the event of the following hypothetical scenarios:

• termination without cause, or constructive (‘‘good reason’’) termination (including upon the occurrence of a change in control of a company;
• termination for cause;
• upon an executive’s disability; or
• in the event of the executive’s death.

Rick J. Filippelli

Death or Disability.    Pursuant to the terms of his employment agreement, if Mr. Filippelli’s employment is terminated as a result of his death, Mr. Filippelli or his estate, as applicable, would receive any accrued but unpaid, base salary, bonus and expense reimbursement amounts through the date of his death. If Mr. Filippelli’s employment is terminated as a result of disability, Mr. Filippelli or his estate, as applicable, would receive accrued but unpaid base salary, bonus and expense reimbursement from the termination date through the period ending six (6) months thereafter.

Further, in the event of a termination due to his death or disability, Mr. Filippelli’s (or his 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 termination date shall remain exercisable for a period of twelve months following such date, but in no event after the expiration of the exercise period.

Cause.    If Mr. Filippelli’s employment is terminated for cause or he terminates his employment with out good reason, he would be entitled to his base salary and expense reimbursement through the date of termination, and he shall have no further entitlement to any other compensation or benefits. All stock options that have not been exercised as of the date of termination for cause shall be deemed to have expired as of such date, otherwise, options vested as of the date of termination may be exercised for a period of three months thereafter.

Without Cause or for Good Reason.    If Mr. Filippelli’s employment is terminated without cause, by Mr. Filippelli for good reason, or either (1) we fail to timely notify him or our intent to renew his agreement or (2) after providing such notice, we fail to reach an agreement on a new employment agreement with him prior to the expiration date, then we would be obligated to pay Mr. Filippelli his accrued but unpaid compensation, his base salary through the expiration date under the employment agreement and his continuation benefits, including insurance benefits and reimbursement of all reasonable business expenses.

Change of Control.    Upon the effective date of a ‘‘change of control’’ (as defined in Mr. Filippelli’s employment agreement), we would be obligated to pay him, in 12 equal monthly payments an amount equal to his then current base salary. He would be entitled to such payment whether or not his employment with the Company continues after the change of control. In addition, in the event of a change of control, if within 180 days of a change of control, Mr. Filippelli is terminated, or his status, title, position or responsibilities are materially reduced or Mr. Filippelli terminates his employment, we would be required to pay and/or provide him with: (i) accrued but unpaid compensation; (ii) continuation benefits; and (iii) severance pay equal to base salary for a period of 12 months payable in equal i nstallments on each of the Company’s regular pay dates for executives. In addition, all incentive awards, including restricted stock, stock options and granted performance shares or units shall be immediately and fully invested.

Employee Covenants.    In his employment agreement, Mr. Filippelli agreed to keep confidential and not disclose any confidential or proprietary information owned by, or received by or on behalf of, us or any of our affiliates, during the term of the agreement or at any time thereafter. He also agreed to return such confidential and proprietary information to us immediately in the event of any termination of employment. Mr. Filippelli also agreed, during the term of the agreement and for a period of one



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year thereafter, to not in any manner enter into or engage in any business that is engaged in any business directly competitive with our business anywhere in the world, with limited exceptions. Moreover, Mr. Filippelli agreed, during the term of the agreement and for a period of 12 months thereafter, to not, directly or indirectly, without our prior written consent: (i) solicit or induce any employee of us or any of our affiliates to leave such employ; or (ii) solicit the business of any customer with respect to products or services that compete directly with the products or services provided or supplied by us.

2000 Employee Plan

Corporate Transactions.    Notwithstanding any contrary waiting period in any stock option agreement issued pursuant to the 2000 Employee Plan, but subject to any determination by our Board of Directors to provide otherwise, each outstanding option shall, except as otherwise provided in the stock option agreement, become exercisable in full for the aggregate number of shares covered thereby and shall vest unconditionally on the first day following the occurrence of any of the following: (a) the approval by our stockholders of an approved transaction; (b) a control purchase; or (c) a board change, as each such term is defined in the 2000 Employee Plan.

Termination of Employment.    If a grantee’s employment or service is terminated for cause, any unexercised option shall terminate effective immediately upon such termination of employment or service. Except as otherwise provided by in an award agreement, if a grantee’s employment or service terminates on account of death or disability, then any unexercised option, to the extent exercisable on the date of such termination of employment or service, may be exercised, in whole or in part, within the first twelve (12) months after such termination of employment or service (but only during the option term) by his or her personal representative or by the person to whom the option is transferred by will or the applicable laws of descent and distribution.

Except as otherwise provided by the Committee in the award agreement, if a grantee’s employment or service terminates for any reason other than for cause, death, disability or pursuant to a change of control, then any unexercised option, to the extent exercisable immediately before the grantee’s termination of employment or service, may be exercised in whole or in part, not later than three (3) months after such termination of employment or service (but only during the option term); and, to the extent that any such option was not exercisable on the date of such termination of employment or service, it will immediately terminate.

2006 Long Term Incentive Plan

Termination and Change in Control Provisions.    Unless the Compensation Committee will determine otherwise at the time of grant with respect to a particular award granted under the 2006 Long Term Incentive Plan, in the event of a termination of service for any reason other than for cause or a termination of service in connection with a Change in Control as defined in such Plan: (i) any options and stock appreciation rights outstanding as of the date such Change in Control occurs, and which are not then exercisable and vested, will become fully exercisable and vested; (ii) the restrictions and deferral limitations applicable to any restricted stock outstanding as of the date such Change in Control occurs will lapse, and such restricted stock will become free of all restrictions and limitations and become fully vested and tra nsferable; (iii) all performance awards outstanding as of the date such Change in Control occurs will be considered to be earned and payable in full, or at such other level as may be specified in the applicable award agreement between the participant and the Company, and any deferral or other restriction will lapse and such performance awards will be immediately settled or distributed; and (iv) the restrictions and deferral limitations and other conditions applicable to any other awards outstanding as of the date such Change in Control occurs will lapse, and such other awards will become free of all restrictions, limitations or conditions and become fully vested and transferable.

Termination by Reason of Death or Disability.    Unless otherwise determined by the Committee, if a participant’s service is terminated by reason of death or disability, any option held by such person will vest in full and remain exercisable until (i) in the case of a Nonstatutory Stock Option, the first



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anniversary of such termination of service and (ii) in the case of an Incentive Stock Option, the earlier of (A) the first anniversary of such termination or (B) the expiration of the stated term of such option.

Termination by Reason of Retirement.    Unless otherwise determined by the Committee, if a participant’s service is terminated by reason of retirement (as defined in such Plan, any option held by such person may thereafter be exercised by such person to the extent it was exercisable at the time of such termination or on such accelerated basis as the Committee may determine, until the earlier of (i) the third anniversary of such termination of service or (ii) the expiration of the stated term of such option.

Other Terminations.    Unless otherwise determined by the Committee: (i) if a participant is terminated for cause all options held by such person will immediately terminate; (ii) if a participant is terminated by the Company for any reason other than death, disability, retirement or for cause, any option held by such person may, to the extent it was exercisable at the time of termination, be exercised until the earlier of (A) 90 days from the date of such termination or (B) the expiration of the stated term of the option; and (iii) if a person voluntarily terminates his or her service with the Company (other than for retirement), any option held by such person may, to the extent it was exercisable at the time of termination, be exercised until the earlier of (A) 30 days from the date of such termination or (B) the expiration of the stated term of the option.

2000 Non-Executive Director Plan

Corporate Transactions.    Notwithstanding any contrary installment period with respect to any option and unless the Board of Directors determines otherwise, each outstanding option granted under the 2000 Non-Executive Director Plan shall become exercisable in full for the aggregate number of shares covered thereby in the event: (i) the Board of Directors (or, if approval of the stockholders is required as a matter of law, the stockholders of the Company) shall approve (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of shares of common stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of common stock immediately prior to the merger have the same proportionate ownership of common stock o f the surviving corporation immediately after the merger, or (b) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or (c) the adoption of any plan for the liquidation or dissolution of the Company; or (ii) any person, corporation or other entity (a) shall purchase any common stock (or securities convertible into the Company’s common stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, without the prior consent of the Board of Directors, or (b) shall become the ‘‘beneficial owner’’ (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the then outstanding securities of the Company ordinarily having the right to vote in the election of Directors; or (iii) during any period of two cons ecutive years or less, individuals who at the beginning of such period constitute the entire Board of Directors shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company’s stockholders, of each new director was approved by a vote of at least a majority of the directors then still in office.

Termination of Service.    In the event of the termination of service of a non-executive director, options shall terminate on the earlier of the expiration date or the date seven months following the date of termination of service as a director. If termination of service is due to director’s death, the option shall terminate on the earlier of the expiration date or twelve months following the date of death.

Termination Scenario Summary Tables

The amounts shown in the tables below assume that the noted triggering event occurred on September 30, 2007. Other relevant assumptions and explanations are provided in the footnotes following the tables. The amounts shown reflect only the additional payments or benefits that a Named Executive Officer would have received upon the occurrence of the respective triggering events listed below; they do not include the value of payments or benefits that would have been earned, or any amounts associated with equity awards that would have vested absent the triggering event.



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Potential Payments on Termination (without cause or following change-in-control)
As of Year Ended September 30, 2007(1)


 Termination Without Cause (2)Termination Following Change-in-Control (3)
Name of
Executive
Officer
Cash
Payments
($)
Estimated
value of
continued
benefits ($)
(4)
Estimated
value of
accelerated
equity awards
($) (5)
Total ($)Cash
Payments
($)
Estimated
value of
continued
benefits
($)(4)
Estimated
value of
accelerated
equity awards
($)(5)
Total ($)
Rick J. Filippelli $265,000$26,826$151,861$443,687$530,000$26,826$151,861$708,687
(1)This table provides information for each continuing Named Executive Officer. All references to base salary and annual target bonus refer to the amounts described above under ‘‘Summary of Executive Employment Agreements and Compensatory Terms.’’
(2)If we terminate the executive without cause, or the executive resigns for good reason as defined in his executive employment agreement (as described above), the executive will be entitled to receive the compensation as shown in the table
(3)If we terminate the executive’s employment without cause, or if the executive resigns for good reason as defined in his executive employment agreement, in either case within 180 days following a change of control, then the executive will be entitled to receive in lieu of other termination compensation the amounts listed as shown in the table, plus any accrued but not yet paid salary. In addition, upon the effective date of a change of control, the executive will also be entitled to receive in 12 equal monthly payments an amount equal to his then current base salary.
(4)The estimated value of continued benefits in effect on the termination date for a period of up to 18 months.
(5)Estimated value of accelerated vesting of stock options represents the expense as calculated in accordance with FAS123(R).

Potential Payments on Disability or Death
As of Year Ended September 30, 2007


  Disability (1)  Death (2) 
Name of
Executive
Officer
Cash
Payments
(includes
base salary
only) ($)
Estimated
value of
continued
benefits
($)
Estimated
value of
accelerated
equity
awards ($)
Total ($)Cash
Payments
(includes
bonus
only) ($)
Estimated
value of
continued
benefits
($)
Estimated
value of
accelerated
equity awards
($)
Total ($)
Rick J. Filippelli$132,500$8,942$151,861$293,303$185,500$0$151,861$337,361
(1)In the event the executive becomes physically or mentally disabled such that he is unable to perform his duties for a period of 180 consecutive days, we may terminate the executive’s employment, unless otherwise prohibited by law. In the event of termination due to disability, we will continue the executive’s base salary (less any short term disability payments the executive receives from our company) in accordance with the terms of his employment agreement. In the event the executive becomes disabled, options will vest in full and remain exercisable (i) in the case of nonstatutory stock options until the first anniversary of such termination, and (ii) in the case of an incentive stock options, the earlier of (A) the first anniversary of the date of death and (B) the expiration of the stated term of the incentiv e stock option; provided, however, that if the executive dies within such period, notwithstanding the expiration of such period, any unexercised stock option may thereafter be exercised (i) in the case of nonstatutory stock options for a period of one year from the date of death, and (ii) in the case of an incentive stock options, until the earlier of the (A) first anniversary of the date of death and (B) the expiration of the stated term of the incentive stock option. In the event of an executive’s disability, any unvested shares of restricted stock will immediately become fully vested.


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(2)An executive’s employment will terminate automatically upon death. We will pay the executive’s accrued compensation through the date of death and his pro rated bonus for the fiscal year in which his death occurred, to his stated beneficiary. Upon the executive’s death, options will vest in full and remain exercisable (i) in the case of nonstatutory stock options until the first anniversary of such termination, and (ii) in the case of an incentive stock options, the earlier of the first anniversary of the date of death and the and the expiration of the stated term of the incentive stock option. In the event of an executive’s death, any unvested shares of restricted stock will immediately become fully vested.

Director Compensation

From January 1, 2004 through January 2007, the Board established the following cash compensation terms for the members of the Board and committees: The Chairman, Vice Chairman and Chairman of the Audit Committee each received $3,000 per month. The Chairman of the Nominating and Corporate Governance Committee received $2,500 per month. All other non-employee directors received $1,667 per month. All non-employee Board members received $1,500 for each in-person Board meeting attended and $750 for each telephonic Board meeting in which they participated. All committee members received $600 for each in-person meeting attended and $300 for each telephonic committee meeting in which they participated. The Chairman of each committee received $1,000 for each in-person committee meeting attended and $500 for each telephonic meeting in which he participated. Non-employee Directors also received $1,000 for each in-person meeting with Company executives that d id not constitute Board or Committee meetings. Non-employee Board members also received reimbursement of their Board-related travel, cell phone and similar expenses. The 2000 Non-Executive Director Plan also provided that directors, upon joining the Board, and for one (1) year thereafter, were 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 January 19, 2007, the Board of Directors changed the compensation terms for non-employee Board members. The Board agreed to forego all cash compensation in lieu of restricted stock grants. Each non-employee Board member will receive an initial grant under the Company’s 2006 Long-Term Incentive Plan of 15,000 shares of restricted stock following the 2007 annual meeting of shareholders. Additionally, for each Board committee on which such non-employee Board member serves, the Board member will receive a grant of 2,500 shares of restricted stock following the 2007 annual meeting of shareholders. Fifty percent (50%) of all such shares of restricted stock shall vest when the volume-weighted average share price of the Company’s common stock over any 20 consecutive trading days exceeds the price on the date of grant by 20%, with the remaining fifty percent (50%) vesting one year thereafter. Future annual grants shall be determined by the Company’s Compensation Committee. Non-employee Board members also receive reimbursement of their Board-related travel, cell phone and similar expenses.

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;
• each non-executive director shall be awarded an annual grant of 15,000 shares of restricted common stock pursuant to the Company’ 2006 Long Term Incentive Policy following the Company’s annual meeting of shareholders to be held in 2008, provided that such award shall vest as follows: (A) 50% of the Award shall vest when the volume-weighted average share price over any 20 consecutive trading days exceeds the price per share of common stock on the date of grant by 20%; and (B) 50% of the Award shall vest one year from the vesting specified in (A) above;

The annual director fee for our non-executive directors is $15,000;

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the Chairman of ContentsBoard 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;

51


• each non-executive director shall be eligible for an additional annual grant of 5,000 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.

each non-executive director shall be awarded an annual grant of 3,750 shares of restricted common stock pursuant to the Company’ 2006 Long Term Incentive Policy following the Company’s annual meeting of shareholders held in 2008, provided that such award shall vest as follows: (A) 50% of the Award shall vest when the volume-weighted average share price over any 20 consecutive trading days exceeds the price per share of common stock on 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 an 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 cash 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, 20072009 is as follows:

Summary of Non-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              $  $32,467 
Name (1)(5)Fees Earned
or Paid
in Cash ($)
Stock
Awards
($)
Option
Awards
($) (2)
Non-Equity
Incentive Plan
Compensation ($)
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($)
Total ($)
T. Stephen Johnson$15,600    $2,972$18,572
Karl W. Dieckmann$16,300    $1,575$17,875
William H. Alderman$     $
Peter Black$9,968     $9,968
Ronald Aldrich (3)$13,900    $993$14,893
Ben J. Dyer (4)$15,500    $471$15,971
Martin J. Delaney$23,165    $700$23,865
Frederick G. Wasserman$     $
(1)As of September 30, 2007,2009, each director had the following number of Director Plan options outstanding: MrMr. Johnson – 20,000;— 3,750; Mr. Dieckmann – 20,000;— 3,750; Mr. Alderman 0; Mr. Black – 12,500;— 3,125; Mr. Delaney – 15,000;— 2,500; Mr. Wasserman 0
(2)ReflectsNo restricted stock awards were granted to our non-executive directors during the dollar amount recognized for financial statement reporting purposes for2009 fiscal year. Following the end our 2009 fiscal year, ended September 30, 2007 computed in accordance with SFAS 123R, and thus may include amounts from awards granted in and prior to 2007. A discussion of the methods used to calculate these values may be found in footnote 10 of our consolidated financial statements included in this report.
(3)Named director resigned from our Board on January 23, 2007.
(4)Named director resigned from our Board on January 16, 2007.
(5)On October 3, 2007, the Board of Directors13, 2009, we granted an aggregate of 120,00042,500 shares of restricted stock to theour non-executive directors as follows: Mr. Johnson – 20,000— 6,250 shares; Mr. Dieckmann – 25,000— 8,750 shares; Mr. Alderman – 17,500— 6,250 shares; Mr. Black – 20,000— 7,500 shares; Mr. Delaney – 20,000— 6,250 shares; and Mr. Wasserman – 17,500— 7,500 shares. The closing price of our common stock on such date was $1.34.

Report of The Management Resources And Compensation Committee of The Board Of Directors

The following report has been submitted by the Management Resources and Compensation Committee of the Board of Directors:52

The Management Resources and Compensation Committee of the Board of Directors has reviewed and discussed our Compensation Discussion and Analysis with management. Based on this review and discussion, the Management Resources and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our annual report on Form 10-K for the fiscal year ended September 30, 2007, as filed with the SEC.


The foregoing report was submitted by the Management Resources and Compensation Committee of the Board and shall not be deemed to be ‘‘soliciting material’’ or to be ‘‘filed’’ with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the Exchange Act.

Peter Black
Karl W. Dieckmann
T. Stephen Johnson
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters


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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The following table sets forth certain information as of January 14, 20085, 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 January 14, 2008,5, 2010, TeamStaff had 19,403,3664,940,982 shares of common stock outstanding. On October 3, 2007, the Board of Directors granted an aggregate of 120,000 shares of restricted stock to the non-executive directors. As indicated below, one-half (60,000) of such unvested shares are included because such shares may vest within 60 days. The other 60,000 shares are also unvested, subject to vesting requirements which will not vest within 60 days. The figures stated below are based upon Schedule 13D,13Ds, Schedule 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
        


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  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%
NameNumber of Shares
Currently Owned (1)
Percent of Company’s
Outstanding Stock
William H. Alderman (2)
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873
10,250*
Peter Black (3)(12)(13)
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873
26,500
Martin J. Delaney (4)
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873
67,235
Karl W. Dieckmann (5)
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873
118,424
Rick J. Filippelli (6)
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873
146,666
T. Stephen Johnson (7)
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873
294,0111.51
Frederick G. Wasserman (8)
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873
8,750
Cheryl Presuto (9)
c/o TeamStaff, Inc.
1 Executive Drive
Somerset, NJ 08873
24,666


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NameNumber of Shares
Currently Owned (1)
Percent of Company’s
Outstanding Stock
Bernard J. Korman (10)
2129 Chestnut Street
Philadelphia, PA 19103
2,520,12212.91
Nationwide Financial Services (11)
One Nationwide Plaza
Mail Stop 01-12-13
Columbus, OH 43215
2,256,48811.56
Wynnefield Capital Management, LLC (12)
450 Seventh Ave
New York, NY 10123
1,716,8008.80
Wynnefield Capital Inc. (13)
450 Seventh Ave
New York NY 10123
977,0005.01
Hummingbird Value Fund (14)
460 Park Avenue, 12th Flr.
New York NY 10022
580,2452.97
Hummingbird Microcap Value Fund (15)
460 Park Avenue, 12th Flr.
New York NY 10022
517,3652.65
All officers and directors as a group
(6) persons (2, 3, 4, 5, 6, 7, 8, 9,12, 13)
3,390,30217.47
*Less than 1 percent.
1.Ownership consists of sole voting and investment power except as otherwise noted.
2.Includes 8,7504,063 unvested shares of restricted stock which may vest within 60 days. Excludes 8,7504,063 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 12,5003,125 shares of TeamStaff’s common stock. Includes 10,0004,375 unvested shares of restricted stock which may vest within 60 days. Excludes 10,0004,375 shares of restricted stock which are unvested and subject to vesting requirements. Includes 10,000 shares of 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 10,0004,375 unvested shares of restricted stock which may vest within 60 days. Excludes 10,0004,375 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 20,0002,500 shares of TeamStaff’s common stock. Includes 12,5005,000 unvested shares of restricted stock which may vest within 60 days. Excludes 12,5005,000 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 100,00030,000 shares of TeamStaff’s common stock.stock which may vest within 60 days. Includes 46,66682,500 shares of restricted stock which are vested. Excludes 133,334vested and 35,000 shares of restricted stock which are unvested and subject to vesting requirements.may vest within 60 days.
7.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 20,0002,500 shares of TeamStaff’s common stock. Includes 10,0004,375 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 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.


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8.
10.Includes 8,750 unvested shares of restricted stock which may vest within 60 days. Excludes 8,750 shares of restricted stock which are unvested and subject to vesting requirements
9.Includes options to purchase 18,000 shares of TeamStaff’s common stock. Includes 6,66630,000 shares of restricted stock which are vested. Excludes 13,33430,000 shares of restricted stock which are unvested and subject to vesting requirements.
10.
11.Beneficial ownership is based on Schedule 13D filed with the SEC.
11.Nationwide Financial Services obtained these shares in connection with the acquisition of BrightLane completed as of August 31, 2001.
12.Beneficial ownership is based upon Schedule 13D, Schedule 13D/As, Form 3, and Form 4’s4s filed with the 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.BeneficialListed 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 is based upon Schedule 13D, Schedule 13D/A, Form 3,interest in the shares of Common Stock that Wynnefield Partners Small Cap Value L.P. directly beneficially owns. Nelson Obus and Form 4’s filed with the SEC. 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.
14.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 its affiliates.Joshua Landes, as co-managing members of Wynnefield Capital Management, LLC, have an indirect beneficial ownership interest in such shares of Common Stock.

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14.Beneficial ownership is based upon Schedule 13D filed with the SEC.
15.BeneficialListed 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 is based upon Schedule 13D filed withinterest in the SEC.shares of Common Stock that Wynnefield Small Cap Value Offshore Fund, Ltd. directly beneficially owns. Mr. Obus and Mr. Landes, as principal executive officers of Wynnefield Capital, Inc., have an indirect beneficial ownership interest in the shares of Common Stock that Wynnefield Small Cap Value Offshore Fund, Ltd. directly beneficially owns.
16.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 interest in the shares of Common Stock that Wynnefield Capital, Inc. Profit Sharing Plan directly beneficially owns.
17.Listed shares of Common Stock are directly beneficially owned by Channel Partnership II, L.P., as members of a 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 Common Stock that Channel Partnership II, L.P. directly beneficially owns.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Item 13.Certain Relationships and Related Transactions
For information concerning employment and severance agreements with, and compensation of, the Company’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.

Effective April 30, 2007, the employment of James D. Houston, Chief Operating Officer, Vice President and General Counsel with the Company was terminated. On May 11, 2007, the Company and James D. Houston entered into a formal separation agreement related to Mr. Houston’s termination effective April 30, 2007. The material terms of the agreement provide: (a) TeamStaff will pay Mr. Houston the sum of $220,000 representing one year of base salary, in accordance with the terms and conditions of paragraph 5.3(d) of his 2005 Severance Agreement (the ‘‘Agreement’’); (b) TeamStaff will pay Mr. Houston the sum of $89,024 on August 1, 2007, representing a 2007 pro rata bonus, in accordance with the terms and conditions of paragraph 5.3(d) of the Agreement; and (c) Mr. Houston will receive Continuation Benefits (as defined in the Agreement) for standard employee health benefits u ntil March 31, 2008. The agreement provides for other immaterial consideration, mutual and general releases and other standard legal covenants.

On January 19, 2007, the Company and T. Kent Smith entered into a formal separation agreement that became effective on January 29, 2007. The material terms of the agreement provide: (a) Mr. Smith agreed to resign, which TeamStaff agreed is ‘‘without cause’’ under the terms and conditions of his 2005 Employment Agreement (the ‘‘Smith Agreement’’); (b) Mr. Smith agreed to resign from the board of directors according to Article 9.5 of the Smith Agreement; (c) the non-compete provisions of the Smith Agreement were incorporated by reference; (d) TeamStaff will properly disburse Mr. Smith’s 401(k) funds by January 30, 2007; (e) Mr. Smith will receive Continuation Benefits (as defined in the Agreement) for life insurance and long-term disability insurance only; (f) TeamStaff will pay Mr. Smith the Accrued Compensation, ‘‘Accrued Compensation&rsq uo;’ defined as two days of vacation pay, two floating holidays and two expense reports for approximately $1000; and (g) TeamStaff will pay Mr. Smith, according to Article 9.4(c) of the Agreement, base salary under the Smith Agreement through and including September 30, 2007 on the Company’s salary payment dates. The separation agreement provides for other immaterial consideration, mutual and general releases and other standard legal covenants.



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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 u s,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’’“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’’“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) and Martin Delaney (who served as Senior Vice President of the Company from January 1, 2005 to December 31, 2005) are independent directors under the applicable guidelines noted above. Our Board of Directors has fourfive 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.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES55


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, 20072009 and September 30, 2006,2008, 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 
2007(5)2006 
Audit Fees (1)$137,000$180,000 $175,000 $170,000 
 
Audit-Related Fees (2)1,0001,000   
 
Tax Fees (3)99,000149,000 103,000 106,000 
 
All Other Fees (4)26,00010,000 15,500 13,000 
     
 
Total$263,000$340,000 $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.


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(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.
(5)The Company changed auditors on July 11, 2007. Interim fees billed by Withum through September 30, 2007 were $59,000 and $9,000 for audit and tax service fees, respectively.

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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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)(1)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.

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)(3)(2)   Financial Statement Schedules

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.

Exhibits
(a) 
(3)   ExhibitsThe 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
2.1Agreement 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).
2.2.1Form 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).
2.3Asset 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).
2.4Asset 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).
3.1Amended 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).
3.2Form of Certificate of Designation of Series A Preferred Stock (filed as Exhibit 3.1 to Form 8-K dated April 6, 2001).
3.3Amended 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).
3.4Amended and restated By-Laws of Registrant adopted as of August 29, 2001 (filed as Exhibit 3.5 to the Registrant’s Form S-3 filed on December 27, 2001).
3.5Amendment 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).

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 (#) indicates a management contract or compensation plan or arrangement.


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Exhibit No.Description
3.6Amendment to Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit B to Definitive Proxy Statement dated March 13, 2008 as filed with the Securities and Exchange Commission).
4.12000 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).
4.22000 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).
4.32006 Long Term Incentive Plan (filed as Exhibit 10.1 to the Form 10-Q filed on May 15, 2006).
10.1Lease 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).
10.2Form 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).
10.3Form 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).
10.4Form 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).
10.5Form of Asset Purchase Agreement by and among Nursing Innovations, Inc., Vitriarc, Inc., and William L. Booth and TeamStaff Rx, Inc. dated as of November 5, 2004 (filed as Exhibit 10.1 to the Form 8-K filed on November 18, 2004).
10.6Form 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).
10.7Form 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).
10.8Form of Employee Incentive Stock Option Certificate and Agreement (filed as Exhibit 10.13 to the Form 10-K filed on December 23, 2004).
10.9Form of Employee Non-Qualified Stock Option Certificate and Agreement (filed as Exhibit 10.14 to the Form 10-K filed on December 23, 2004).
10.10
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).
10.11Form 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).
10.12Form 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).
10.12.1Form 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).
10.12.2Form 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).

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Exhibit No.Description
10.13Form 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).
10.14Form 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).
10.15Form 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).
10.16Form 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).
10.17Form 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).
10.18Form 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).
10.19Form 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).
10.20Form 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).
10.21Form of Amendment 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).
10.22Lease, 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).
10.24Form 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).
10.25Form of Letter of Agreement with James Houston dated as of January 10, 2007 (filed as Exhibit 99.2 to the Form 8-K filed on February 20, 2007).
10.26Form 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).
10.27Lease, 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).
10.28Lease 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).
10.29Amended 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).

59


Exhibit No.Description
10.30Amended 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).
10.31Employment 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).
10.32Employment 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).
10.33Employment 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).
10.34Employment 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.
10.36Modification Agreement dated as of January 8, 2010 between TeamStaff, Inc. and Sovereign Business Capital, Division of Sovereign Bank.
10.37Amended and Restated Revolving Credit Master Promissory Note dated January 8, 2010 between TeamStaff, Inc. and Sovereign Business Capital, Division of Sovereign Bank.
14Code of Ethics (Exhibit 14.1 to Annual Report on Form 10-K for the fiscal year ended September 30, 2003).
21Subsidiaries of Registrants.
23.1Consent of WithumSmith+Brown, PC
31.1Certification of Chief Executive Officer pursuant to Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
31.2Certification of Chief Financial Officer pursuant to Section 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
32.1Certification 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.

60


EXHIBIT
NO.
DESCRIPTION
2.1Agreement 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).
2.2.1Form 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).
3.1Amended 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).
3.2Form of Certificate of Designation of Series A Preferred Stock (filed as Exhibit 3.1 to Form 8-K dated April 6, 2001).
3.3Amended 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).
3.4Amended and restated By-Laws of Registrant adopted as of August 29, 2001 (filed as Exhibit 3.5 to the Registrant’s Form S-3 filed on December 27, 2001).
3.5Amendment 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).
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).
4.2#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).
Signatures


Table of Contents
EXHIBIT
NO.
DESCRIPTION
10.1Lease 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).
10.2Form 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).
10.3Form 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).
10.7Form 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).
10.8Form of Asset Purchase Agreement by and among Nursing Innovations, Inc., Vitriarc, Inc., and William L. Booth and TeamStaff Rx, Inc. dated as of November 5, 2004 (filed as Exhibit 10.1 to the Form 8-K filed on November 18, 2004).
10.9Form 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).
10.10Form 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#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#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#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).
10.15Form 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).
10.16Form 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).
10.16.1Form 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).


Table of Contents
EXHIBIT
NO.
DESCRIPTION
10.16.2Form 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).
10.16.3#Form of Employment Agreement between TeamStaff, Inc. and Roger Staggs, dated as of June 8, 2005.
10.16.4#Form of Employment Agreement between TeamStaff, Inc. and Barry Durham, dated as of June 8, 2005.
10.17Form 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).
10.20Form 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).
10.21Form 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).
10.24Form 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).
10.25Form 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#Form of Director Stock Option Agreement for options granted September 1, 2006.
10.27#Form of Change in Control Agreement with James D. Houston dated October 31, 2006.
10.28Form of Amendment 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).
10.29Lease, 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).
10.30#Form of Separation Agreement with T. Kent Smith dated as of January 17, 2007 (filed as Exhibit 99.1 to the Form 8-K filed on February 1, 2007).
10.31#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).
10.32#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).


Table of Contents
EXHIBIT
NO.
DESCRIPTION
10.33#Form of Letter of Agreement with James Houston dated as of January 10, 2007 (filed as Exhibit 99.2 to the Form 8-K filed on February 20, 2007).
10.34Form 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).
10.35Lease, 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).
14Code of Ethics (Exhibit 14.1 to Annual Report on Form 10-K for the fiscal year ended September 30, 2003).
16.1Letter from Lazar Levine & Felix LLP to the Registrant filed with the SEC dated July 17, 2007 (filed as Exhibit 16.1 to Current Report on Form 8-K dated July 17, 2007).
   21*Subsidiaries of Registrants.
23.1*Consent of WithumSmith+Brown, P.C.
23.2*Consent of Lazar Levine & Felix LLP.
31.1*Certification of Chief Executive Officer pursuant to Section17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
31.2*Certification of Chief Financial Officer pursuant to Section17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a).
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.


Table of Contents

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/ Rick J. Filippelli
Rick J. Filippelli
Chief Executive Officer
(Principal Executive Officer)
/s/ Cheryl Presuto
Cheryl Presuto
Chief Financial Officer
(Principal Accounting Officer)

Dated: January 15, 2008

19, 2010

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:
SignatureCapacityDate
/s/ T. Stephen JohnsonFrederick G. Wasserman
Frederick G. Wasserman
Chairman of the BoardJanuary 15, 200819, 2010
T. Stephen Johnson
/s/ Karl W. Dieckmann
Karl W. Dieckmann
Vice-Chairman of the BoardJanuary 15, 200819, 2010
Karl W. Dieckmann
/s/ T. Stephen Johnson
T. Stephen Johnson
Director January 19, 2010
/s/ Peter Black
Peter Black
DirectorJanuary 15, 200819, 2010
Peter Black
/s/ Martin J. Delaney
DirectorJanuary 15, 2008
Martin J. Delaney
Director January 19, 2010
/s/ Frederick G. WassermanDirectorJanuary 15, 2008
Frederick G. Wasserman
/s/ William H. Alderman
DirectorJanuary 15, 2008
William H. Alderman
Director January 19, 2010
/s/ Rick J. Filippelli
Rick J. Filippelli
President, Chief Executive Officer,
President and Director
January 15, 200819, 2010
Rick J. Filippelli
/s/ Cheryl Presuto
Cheryl Presuto
Chief Financial Officer (Principaland
Principal Accounting Officer)Officer
January 15, 2008
Cheryl Presuto
19, 2010

61




TeamStaff, Inc. and Subsidiaries

Index to Consolidated Financial Statements


F-1




Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of TeamStaff, Inc.

We have audited the accompanying consolidated balance sheetsheets of TeamStaff, Inc. and Subsidiaries as of September 30, 2007,2009 and 2008, and the related consolidated statements of operations and comprehensive loss,income (loss), shareholders’ equity and cash flows for each of the yearyears then ended. Our auditaudits also included the consolidated financial statement schedule for the year ended September 30, 2007 as listed in 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 audit.

audits.

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. 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 audit providesaudits 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, 2007,2009 and 2008, and the consolidated results of its operations and its cash flows for each of the yearyears then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, suchthe consolidated 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/ WithumSmith+Brown, P.C.

PC

WithumSmith+Brown, P.C.PC
Morristown, New Jersey
January 11, 2008


19, 2010

Table of Contents

REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Teamstaff, Inc.
Somerset, New JerseyF-2

We have audited the accompanying consolidated balance sheet of Teamstaff, Inc. and Subsidiaries as of September 30, 2006, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the two years in the period ended September 30, 2006. Our audits also included the financial statement schedule listed in Schedule I of the Index for the two years in the period ended September 30, 2006. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.


We performed 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 financial statements are free of material misstatement. The Company is not required to have, nor were we engagement 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 financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of TeamStaff, Inc. and Subsidiaries as of September 30, 2006, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic 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

New York, NY
December 15, 2006



Table of Contents

TEAMSTAFF, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2007 AND 2006
(AMOUNTS IN THOUSANDS)


        
 September 30, September 30, 
 2009 2008 
ASSETSSeptember 30,
2007
September 30,
2006
 
   
CURRENT ASSETS:   
Cash and cash equivalents$592$2,157 $2,992 $5,213 
Accounts receivable, net of allowance for doubtful accounts of $17 and $44 as of September 30, 2007 and 2006, respectively8,2798,340
Accounts receivable, net of allowance for doubtful accounts of $0 as of September 30, 2009 and 2008 11,427 11,881 
Prepaid workers’ compensation4681,094 517 562 
Assets held for sale490
Other current assets642923 257 505 
Assets from discontinued operations 1,418 3,878 
     
Total current assets10,47112,514 16,611 22,039 
     
 
EQUIPMENT AND IMPROVEMENTS:   
Furniture and equipment3,2763,223 2,262 2,262 
Computer equipment545448 255 249 
Computer software928898 788 725 
Leasehold improvements124167 9 9 
4,8734,736     
 3,314 3,245 
 
Less accumulated depreciation and amortization(4,132(3,984  (3,054)  (2,945)
     
Equipment and improvements, net741752 260 300 
     
 
TRADENAME4,5694,569 3,924 3,924 
 
GOODWILL10,30510,305 8,595 8,595 
OTHER ASSETS:  
Prepaid workers’ compensation, net of current portion350
Other assets82106
Total other assets82456
ASSETS HELD FOR SALE2,180
 
OTHER ASSETS
 267 136 
     
 
TOTAL ASSETS$26,168$30,776 $29,657 $34,994 
     

The accompanying notes are an integral part
of these consolidated financial statements

F-3




Table of Contents

TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2007 AND 2006
(AMOUNTS IN THOUSANDS, EXCEPT PAR VALUE OF SHARES)


VALUE)
        
 September 30, September 30, 
 2009 2008 
LIABILITIES AND SHAREHOLDERS’ EQUITYSeptember 30,
2007
September 30,
2006
 
   
CURRENT LIABILITIES:   
Notes payable$1,500$1,500 $1,500 $1,500 
Current portion of captial lease obligations6352
Current portion of capital lease obligations 20 29 
Accrued payroll1,5811,687 10,694 10,408 
Accrued pension liability280210  70 
Accounts payable3,7273,207 1,890 2,578 
Accrued expenses and other current liabilities1,7561,635 1,241 1,910 
Liabilities from discontinued operations263 392 381 
     
Total current liabilities9,1708,291 15,737 16,876 
 
CAPITAL LEASE OBLIGATIONS, net of current portion183207 27 45 
ACCRUED PENSION LIABILITY, net of current portion66388
 
OTHER LONG TERM LIABILITY, net of current portion155184 13 14 
LIABILITIES FROM DISCONTINUED OPERATIONS502
Total liabilities9,5749,572
 
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 19,290 and 19,285 at September 30, 2007 and September 30, 2006, respectively; outstanding 19,283 and 19,278 at September 30, 2007 and September 30, 2006, respectively1919
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 capital68,71268,684 69,124 68,844 
Accumulated deficit(52,080(47,387  (55,289)  (50,934)
Accumulated comprehensive loss(33(88   (5)
Treasury stock, 7 shares at cost at September 30, 2007 and September 30, 2006(24(24
Treasury stock, 2 shares at cost at September 30, 2009 and September 30, 2008  (24)  (24)
     
Total shareholders’ equity16,59421,204 13,816 17,886 
     
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$26,168$30,776 $29,657 $34,994 
     

The accompanying notes are an integral part
of these consolidated financial statements

F-4




Table of Contents

TEAMSTAFF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
INCOME (LOSS)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


 For the Years Ended September 30,
 200720062005
REVENUES$66,882$71,644$47,275
DIRECT EXPENSES55,85259,85939,053
Gross profit11,03011,7858,222
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES12,71413,81212,758
DEPRECIATION AND AMORTIZATION349381422
Loss from operations(2,033(2,408(4,958
OTHER INCOME (EXPENSE)   
Interest income747648
Interest expense(197(539(211
Other income145160180
Legal expense related to pre-acquisition activity of acquired company(1,486
 (1,464(30317
Loss from continuing operations before income tax(3,497(2,711(4,941
INCOME TAX BENEFIT (EXPENSE)123(15,8261,876
Loss from continuing operations(3,374(18,537(3,065
(LOSS) INCOME FROM DISCONTINUED OPERATIONS:   
(Loss) income from operations, net of tax benefit (expense) of $14, $(456) and $(345) for the years ended September 30, 2007, 2006 and 2005, respectively(1,612737575
Income from disposal, net of tax benefit (expense) of $43, $(2,825) and $0 for the years ended September 30, 2007, 2006 and 2005, respectively2934,5531
(Loss) income from discontinued operations(1,3195,290576
Net loss(4,693(13,247(2,489
OTHER COMPREHENSIVE INCOME   
Minimum pension liability adjustment, net of tax5570153
COMPREHENSIVE LOSS$(4,638$(13,177$(2,336
(LOSS) EARNINGS PER SHARE – BASIC & DILUTED   
Loss from continuing operations$(0.17$(0.96$(0.17
(Loss) income from discontinued operations(0.070.270.03
Net (loss) earnings per share$(0.24$(0.69$(0.14
WEIGHTED AVERAGE BASIC & DILUTED SHARES OUTSTANDING19,28819,27818,206
         
  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 
       

The accompanying notes are an integral part
of these consolidated financial statements

F-5




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TEAMSTAFF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2006,2009 AND 2005
2008
(AMOUNTS IN THOUSANDS)


 Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Treasury StockOther
Comprehensive
Loss
Total
Shareholders’
Equity
 SharesAmountSharesAmount
BALANCE, September 30, 200415,721$16$62,963$(31,651      7      $(24$(311$30,993
Common stock issued in connection with private stock offering, net of expense2,39223,455    3,457
Common stock issued in connection with acquisition of RS Staffing Services1,20711,749    1,750
Warrants granted in connection with private stock offering  498    498
Minimum pension liability adjustment      153153
Return of shares related to forgiveness of shareholder note(35 (50    (50
Net loss   (2,489               (2,489
BALANCE, September 30, 200519,2851968,615(34,140      7      (24(15834,312
Minimum pension liability adjustment      7070
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, 200619,2851968,684(47,387      7      (24(8821,204
Minimum pension liability adjustment      5555
Return of shares related to forgiveness of shareholder note(35 (50    (50
Return of shares related to settlement  (71    (71
Expense related to Director stock options  7    7
Expense related to Restricted Stock grants40 142    142
Net loss   (4,693               (4,693
BALANCE, September 30, 200719,290$19$68,712$(52,080      7      $(24$(33$16,594
                                 
          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 Years Ended September 30,
 200720062005
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net loss$(4,693$(13,247$(2,489
Adjustments to reconcile net loss to net cash (used in) provided by operating activities, net of acquired and discontinued businesses:   
Depreciation and amortization349381422
Compensation expense related to director stock option grants717
Compensation expense related to employee restricted stock grants14252
Deferred income taxes18,482(1,575
Provision for doubtful accounts1263630
Gain on sale of DSI Payroll Services division(202(4,553
Changes in operating assets and liabilities, net of acquired businesses:   
Accounts receivable(65514(1,147
Other current assets857822(35
Other assets3741,9691,248
Accounts payable, accrued expenses and other current liabilities535(2031,242
Pension liability(252(274(556
Restricted cash1,800
Other long term liabilities(29
Cash flow from discontinued operations1,4764,663(1,132
Net cash (used in) provided by operating activities(1,3758,659(2,192
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchase of equipment, leasehold improvements and software(246(139(87
Payment for acquisition of RS Staffing Services, net of cash acquired(2,075(2,847
Cash flow from discontinued operations61412(2,026
Net cash (used in) provided by investing activities(185(1,802(4,960
CASH FLOWS FROM FINANCING ACTIVITIES:   
Borrowings on revolving line of credit2,44658,43432,084
Payment on revolving line of credit(2,446(62,440(28,078
Repayments on capital lease obligations(52(91(238
Principal payments on notes payable(1,775(178
Payment of bank line of credit acquired from RS Staffing Services(2,560
Net proceeds from issuance of common stock, net of expense3,956
Net comprehensive income on pension5570153
Cash flow from discontinued operations(8(202257
Net cash (used in) provided by financing activities(5(6,0045,396
Net increase (decrease) in cash and cash equivalents(1,565853(1,756
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR2,1571,3043,060
CASH AND CASH EQUIVALENTS AT END OF YEAR$592$2,157$1,304
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:   
Cash paid during the year for:   
Interest$197$539$222
Income taxes$71$194$212
         
  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 ACTIVITY:

The Company recorded $39,000, $251,000 and $391,000 in capital leases duringACTIVITIES:

In the yearsyear ended September 30, 2007, 2006 and 2005, respectively. During 2007, a current asset2009, an accrued liability was reduced (and additional paid-in-capital was increased) by a return$59 to reflect the issuance of common shares valued at $50,000.

stock to settle the liability.

The accompanying notes are an integral
part of these consolidated financial statements

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TEAMSTAFF, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007, 20062009 AND 2005

2008

(1) OrganizationORGANIZATION AND BUSINESS:
TeamStaff, Inc. and business:

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. Effective October 23, 2007, TeamStaff’s corporate headquarters is in Somerset, New Jersey. Previously,Its principal operations are conducted through its subsidiary, TeamStaff Government 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 Company’s corporate headquarters was located in Atlanta, Georgia.subsidiary’s expanding service offerings.

On December 28, 2009, TeamStaff has offices located in Clearwater, Florida; Memphis, Tennessee; Monroe, Georgia; Atlanta, Georgia; and Somerset, New Jersey.

When we use the term ‘‘TeamStaff,’’ or the ‘‘Company’’ we mean TeamStaff and its subsidiaries. Currently, we operate only through the parent corporation, TeamStaff, Inc., and TeamStaff Rx, Inc. (‘‘(“TeamStaff Rx’’Rx”), its 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 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 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 RSadministrative personnel is accomplished through the Logistics Worldwide Schedule and medical personnel are supplied through the Professional and Allied Healthcare Staffing Services Inc. (‘‘RS Staffing Services’’), two wholly-owned subsidiariesSchedule. 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 TeamStaff Inc. 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 VIII, 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’’ subsi diaries“other” subsidiaries are not actively operating. References in this filing to ‘‘TeamStaff,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to TeamStaff, Inc. and its wholly owned subsidiaries.

Effective May 31, 2006, TeamStaff exited the payroll processing business it operated for more than 25 years through its DSI Payroll Services division (‘‘DSI’’) when it sold substantially all of the assets of DSI to CompuPay, Inc. for $9.0 million.

TeamStaff provides specialized medical, nursing and administrative staffing services. TeamStaff provides allied healthcare and nursing professionals and administrative personnel through two staffing subsidiaries. The Company’s TeamStaff Rx subsidiary operates throughout the United States and specializes in providing travel allied medical employees and nurses, (typically on a thirteen-week assignment basis), as well as permanent placement services. Allied medical staff includes MRI technicians, mammographers, dosimetrists, ultrasound staff and physicists. TeamStaff Rx places temporary employees for over 250 client facilities. TeamStaff Rx’s Nursing Innovations unit, discontinued in 2007, provides per diem nursing. This nursing unit places per diem employees at over 20 client facilities. The Company’s RS Staffing Services subsidiary specializes in providing medical and office administration/technical professionals through Federal Supply Schedule (‘‘FSS’’) contracts with both the United States General Services Administration (‘‘GSA’’) and United States Department of Veterans Affairs (‘‘DVA’’). RS Staffing Services places temporary employees at over 70 facilities.

TeamStaff was organized under the laws of the State of New Jersey on November 25, 1969 and maintains its principal executive office at 1 Executive Drive, Suite 130, Somerset, New Jersey 08873 where its telephone number is (877) 523-9897.

(2) Summary of significant accounting policies:

SUMMARY OF SIGNIFICANT ACCOUNTING 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 intercompany balances and transactions have been eliminated in the consolidated financial statements. Prior period amounts
All references to common stock, options, share based arrangements, exercise price, fair values and related data within this Form 10-K have been reclassifiedretroactively amended so as to reflectincorporate the Nursing Innovations per diem business unit as a discontinued operation in 2006 and 2005.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



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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 Recognition
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; TeamStaff has pricing latitude; TeamStaff selects temporarycontract employees for a given assignment from a broad pool of individuals; TeamStaff is at risk for the payment of its direct costs; and TeamStaff assumes a significant amount of other risks and liabilities as an employer of its temporarycontract employees, and therefore, is d eemeddeemed 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 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. The Company also reviews the status of such placements to assess the Company’s future performance obligations under such contracts.

In connection with the Company’s DSI 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 the preparation of quarterly and annual payroll related reports. These amounts are reflected as part of income (loss) from discontinued operations in the consolidated financial statements.

Direct costs of services are reflected in TeamStaff’s Consolidated 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. In connection with the Company’s discontinued payroll services operation, 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 cash balancesthe deposits in banks may exceed the insured levels.amount of insurance provided on such deposits. TeamStaff monitors the financial health of these banking institutions.

TeamStaff’s customer base consists of over 325 client companies as of At September 30, 2007. 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 TeamStaff Rx and customers of its Nursing Innovations per diem unit are engaged in the healthcare industry.2009 fiscal year. Substantially all of the business of RS Staffing ServicesTeamStaff GS is accomplished through FSS contracts with the GSA and DVA. Credit, when given, is generally granted on an unsecured basis.

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



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TeamStaff could be required to provide for additional allowances, which would decrease operating results in the period that such determination was made.

F-9


Cash Equivalents-

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

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.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.

Fair Value-

Value

TeamStaff has financial instruments, principally accounts receivable, accounts payable, notes payable and accrued expenses. TeamStaff estimates that the fair value of all financial instruments at September 30, 20072009 and 20062008 does not differ materially from the aggregate carrying values of these financial instruments recorded in the accompanying consolidated balance sheets.

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 2007,2008, the Company retired fixed assets with a carrying value of $148,000$20,000 and accumulated depreciation of $136,000$12,000 that resulted in a loss of $12,000.

$8,000 (included in other income, net).

Advertising Costs-

Costs

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 $0.4 million, $0.3$0.2 million and $0.3$0.1 million for fiscal years ended September 30, 2007, 2006,2009 and 2005,2008, 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 rent escalations, an abatement or ‘‘rent holiday’’“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, 2007 and 2006. TeamStaff determined that no impairment of its trade name existed as of September 30, 2007 and 2006. TeamStaff will continue to review annually its remaining indefinite life intangible assets for possible impairment or loss of value.



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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 continuing staffing services reporting units. TeamStaff determined that no impairment of its remaining goodwill existed as of September 30, 2007. TeamStaff will continue to review annually its remaining goodwill for possible impairment or loss of value.

Goodwill, as reclassified to reflect discontinued operations (See Note 4) was unchanged in the fiscal year ended September 30, 2007. In fiscal year ended September 30, 2006, goodwill increased by $2.075 million reflecting additional consideration for the acquisition of RS Staffing; $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 through September 30, 2007. 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.

During 2007, in connection with

As a result of the Company’s decision to exitdivest TeamStaff Rx, the Nursing Innovation per diem operations,Company recognized an unrealized loss was recognizedimpairment 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 net realizable value.

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)

.

Income Taxes-

Taxes

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.

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(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.

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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.

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(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 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. (See Note 5)

Reclassifications-

Certain reclassifications have been made to prior years amounts to conform to the current year presentation. The Nursing Innovations per diem business unit has been reclassified to discontinued operations and assets and liabilities held for sale.

Stock-Based Compensation-

Effective October 1, 2005, the Company’s stock based compensation 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



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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 FAS 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. 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 2007 and 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 results for the fiscal years ended September 30, 2007 and 2006 include share-based compensation expense for options totaling approximately $7,000 and $17,000, respectively. The Company did not recognize related tax benefits associated with its share-based compensation arrangements for the fiscal years ended September 30, 2007 and 2006. As of September 30, 2007, there is no remaining unrecognized compensation expense related to non-vested stock option awards to be recognized during the next fiscal year.

No options were granted in the fiscal year ended September 30, 2007. The fair value of options at the date of grant historically was estimated using the Black-Scholes option pricing model. 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 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.

The weighted average assumptions made in calculating the fair values of options are as follows:


 Fiscal years ended September 30,
 20062005
Weighted Average Grant Fair Value$0.43$0.84
Expected term (in years)44
Expected volatility33.847
Expected dividend yield00
Risk-free interest rate4.563.56

The values ascribed to restricted stock grants are based on the fair market value of the Company’s stock on the date of award. Compensation expense is recognized over the vesting period. Stock grants that are contingent upon certain performance criteria are expensed when it is determined that achievement of performance criteria is probable. During the year ended September 30, 2007,



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TeamStaff granted awards of restricted stock under its 2006 Long Term Incentive Plan (‘‘the 2006 Plan’’). An aggregate of 230,000 restricted shares were awarded at the closing price on the award dates and 70,000 shares were subsequently cancelled. The shares will vest according to the following schedule: (a) 60,000 shares vested immediately on February 14, 2007, resulting in a charge of $64,200; (b) 50,000 shares will vest on September 30, 2008 subject to certain performance based vesting requirements, and (c) 50,000 shares will vest on September 30, 2009 subject to certain performance based vesting requirements. In accordance with FAS 123(R) the Company will not recognize expense on 100,000 shares of this award 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, 2007, 190,000 unvested shares were cancelled. As of September 30,& nbsp;2007, approximately $188,000 of unrecognized compensation costs related to non-vested restricted stock awards is expected to be recognized over a weighted average period of 1.8 years.

The following table addresses the additional disclosure requirements of FAS 123(R) in the period of adoption. The table illustrates the effect on net loss and loss per share as if the fair value recognition provisions had been applied to all outstanding and unvested awards in the prior year comparable period.


(Amounts in thousands, except per share data)2005
Net loss, as reported$(2,489
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects(294
Pro forma net loss$(2,783
Loss per share: 
Basic and diluted (loss) – as reported$(0.14
Basic and diluted (loss) – pro forma$(0.15

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 shares of common stock outstanding during the period. Diluted earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period adjusted to reflect potentially dilutive securities.

In accordance with SFAS 128, there were no differences between basic shares outstanding and fully diluted shares outstanding.

Stock options and warrants outstanding at September 30, 2007, 2006, and 2005 to purchase 834,500, 1,491,000, and 1,942,000 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 respective years presented. The Company recorded a reduction in the net liability from such adjustment, net of tax of $55,000, $70,000 and $153,000 for the years ended September 30, 2007, 2006 and 2005, respectively. At September 30, 2007, 2006 and 2005, accumulated comprehensive loss on the balance sheet reflects the cumulativ e balance due to the minimum pension liability adjustment.



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Recent Accounting Standards:

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (’’SFAS 157’’). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. SFAS No. 157 is 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. The Company expects to adopt SFAS No. 157 in the first quarter of fiscal 2009 and is still evaluating the effect, if any, on its financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 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. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. The Company expects to adopt SFAS No. 159 in the first quarter of fiscal 2009 and is stil l evaluating the effect, if any, on its financial position or results of operations.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (‘‘FIN 48’’). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’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 derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 will be effective in the Company’s first quarter of the fiscal year ending September 30, 2008. The Company is currently evaluating the impact of adopting FIN 48.

(3)    BUSINESS COMBINATIONS:

Acquisition of RS Staffing Services, Inc.:

On June 8, 2005 TeamStaff, Inc. completed its acquisition of RS Staffing Services, a privately held Georgia corporation, pursuant to the terms of a Stock Purchase Agreement dated as of May 26, 2005. RS Staffing Services, headquartered in Monroe, GA, specializes in providing medical and office administration/technical professionals through FSS contracts with both the GSA and DVA. Closing of the transaction was completed for accounting purposes as of June 4, 2005. TeamStaff acquired all of the capital stock of RS Staffing Services 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 a maximum of $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 maximum amount on August 14, 2006. Principals of RS Staffing Services, namely Roger Staggs and Barry Durham, initially continued as management of RS Staffing Services 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 i ndemnification 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 in the principal amount of $1.5 million together with the accrued interest of $150,000, was paid on June 8, 2006, and the remainder was payable in June 2007. The note is secured by a lien on certain assets of the business, subordinate to any liens granted in connection with financing for the



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transaction. Effective June 1, 2007, the Company and former owners of RS Staffing Services reached an agreement to extend the due date of the $1.5 million note payable and accrued interest from June 8, 2007 to September 1, 2008. (See Note 10)    

The 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 equipment204
Goodwill8,590
Tradename370
Other assets75
Total assets acquired15,104
Current liabilities4,680
Long term liabilities39
Total liabilities assumed4,719
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 h eld 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
Goodwill1,681
Total assets acquired1,866
Total liabilities assumed
Net assets acquired$1,866

Included in Goodwill is $66,000 of expenses directly related to the acquisition.

As of September 30, 2007, the Nursing Innovations per diem business unit is reported as an asset held for sale and discontinued operation. (See Note 4)

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



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October 1, 2004, the beginning of the earliest period presented. This information includes the now discontinued Nursing Innovations per diem business unit’s results on a pro forma basis.


 Year Ended
September 30,
 2005
(amounts in thousands) 
Revenues$82,794
Net loss$(2,318
Loss per share – basic and diluted$(0.12

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 $175,000 of additional expense recorded by RS Staffing Services, prior to acquisition, predominately related to outstanding former employee claims, as well as $300,000 of non recurring incentives paid to its owners, prior to the acquisition.

(4)    DISCONTINUED OPERATIONS:

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 2007, the Company approved and committed to a formal plan to divest the operations of the Nursing Innovations per diem nursing business (‘‘Per Diem’’), based at its Memphis, Tennessee location. In evaluating the facets of Per Diem’s operations, management concluded that this business component meets the definition of a discontinued operation (as defined in SFAS 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’). Accordingly, the results of operations, cash flows and related assets and liabilities of Per Diem have been reclassified in the accompanying consolidated financial statements from those of continuing businesses.

TeamStaff has received confidential letters of intent from interested third parties to purchase certain assets, including accounts receivable, fixed assets and all Per Diem intangibles, and assume defined liabilities of Per Diem. Based on the values and terms of these conditional offers, the Company believes that an objective indication of fair value now exists and, accordingly, has reduced the carrying value of related assets held for sale to fair value (adjusted for estimated disposal costs) as of September 30, 2007. There are a number of uncertainties inherent in the Company’s ability to find a suitable buyer, negotiate an acceptable sale and satisfy closing conditions in a timely manner. Although no assurances can be provided, the Company expects to complete the sale of this business in the second fiscal quarter of 2008 and that the ultimate gain or loss on a formal disposal will not be material to the Company’s future financial co ndition, results of operations or cash flows. Per Diem’s results of operations from October 1, 2007 through a closing date will be recognized, as incurred, as a loss from discontinued operations. Such operating losses are not expected to be material.

Net revenues for the Nursing Innovations per diem operations for fiscal years ended September 30, 2007, 2006, and 2005 were $2.7 million, $3.3 million and $3.9 million, respectively.

Effective May 31, 2006, the Company sold substantially all of the assets of its DSI 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 released 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, among other standard agreements.

Net revenues for the DSI division for fiscal years ended September 30, 2007, 2006, and 2005 were $0, $3.5 million and $4.6 million, respectively.



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Condensed financial statement information and results of all discontinued operations are as follows:


(amounts in thousands)200720062005
Revenues2,7056,8148,529
Direct expenses2,1493,6924,598
Selling, general and administrative expenses5331,8392,861
Depreciation and amortization85139
Writedown of intangible assets1,513
Other expense122511
Tax expense456345
Net (loss) income(1,612737575

The following chart details assets and liabilities from all discontinued operations:


 For Fiscal Years Ended
September 30,
 20072006
ASSETS  
Accounts receivable$257$372
Total current assets257372
Fixed assets222228
Accumulated depreciation(156(101
Net fixed assets66127
Goodwill and intangibles1671,681
Total assets$490$2,180
LIABILITIES  
Current portion capital leases$9$8
Accrued expenses and other current liabilities223454
Total current liabilities232462
Long term capital leases3140
Total liabilities$263$502

Liability Balances
(amounts in thousands)
September 30, 
2006 Balance
Expensed
This Year
Paid This
Year
September 30,
2007 Balance
Current portion capital leases$8$1$$9
Accrued expenses and other current liabilities454120(351223
Long term capital leases40(931
Total$502$121$(360$263

(5)    income taxes:

For the year ended September 30, 2007, the Company has not recorded a tax benefit for net operating losses. In the fourth quarter of thefiscal 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’’“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 tax benefit for NOLs.

Based on this assessment,similar assessments, the Company increased (decreased) the valuation allowance established on deferred tax assets by approximately $0.8$1.8 million and $(0.5) million in 2007. 2009 and 2008, respectively. The increase in the valuation allowance for the fiscal year ended September 30, 2009 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 $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 a similaran assessment performed as of September 30, 2006,2009 and 2008, the Company providedhas maintained a full valuation allowance expense of $16.9 million against remaining NOLs and other deferred tax assets; as the realization of s uchsuch amounts, at that date,those dates, could not be considered more likely than not. In prospective periods, there may be reductions to the valuation allowance to the extent that the Company concludes that it is more likely that not that all or a portion of the deferred tax assets can be utilized (subject to



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annual limitations and prior to the expiration of such NOLs), to offset future periods’ taxable income. The income

In the fiscal year ended September 30, 2009, the Company recognized a tax benefit of $123,000 for 2007 is attributable$28,000 related to an overaccruala refund from a state. In the fiscal year ended September 30, 2008 the Company recorded tax expense of $60,000 related to certain estimated state taxes at September 30, 2006 against amounts computed in the preparation of various income tax returns, while the tax benefit of approximately $1.9 million for 2005 was expected todue which could not be realized, based onoffset by an assessment of evidence performed at that date.

NOL from those specific states.

At September 30, 20072009 the Company had net operating losses of approximately $27.6$30.4 million, $8.9$15.1 million and $8.0$.7 million for U.S,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 a substantial amount of U.S. NOLs that are subject to annual limitations on utilization. The U.S. NOLs begin to expire in 2021 and continue to expire through 2027.

2029.

An 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,
 20072006
Deferred income tax asset:  
Net operating loss carry forwards and tax credits$11,362$11,058
Workers’ compensation reserves(130(459
Occupancy leases41124
Pension117153
Deferred rent7876
Accrued liabilities215150
Stock based compensation40 
Fixed assets102 
Other items, net18(49
Valuation allowance(11,843(11,053
 $$

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) $60 
Deferred expense (benefit)   
200720062005     
Current (benefit)$(123$(1,025$(1,906
Deferred expense (benefit)16,85130
Total expense (benefit)$(123$15,826$(1,876 $(28) $60 
     

The following table indicates the significant differences between the Federal statutory rates and TeamStaff’s effective tax rate for continuing operations-

(Amounts in thousands)


        
 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)
     
Years Ended September 30, $(28) $60 
200720062005     
Federal statutory rate$(1,189$(917$(1,680
State taxes, net of federal income tax benefit(123(108(196
Valuation allowance1,18916,851
$(123$15,826$(1,876

(6) DEBT:

In connection with the acquisition of RS Staffing Services (see Note 3), TeamStaff secured financing with PNC Bank in the form of a $7.0 million revolving credit facility. The credit facility was provided


DEBT:

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by PNC Bank effective on June 8, 2005 to (i) provide for the acquisition of RS Staffing Services; (ii) refinance an outstanding senior loan facility; and (iii) provide ongoing working capital. Effective February 13, 2006, TeamStaffOn March 28, 2008, we entered into an amendmentAmended 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 revolving credit note, increasingLoan Agreement, the Lender agreed to provide a revolving credit facility to $8.0 million. Revolvingthe 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 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, includinga fixed chargeincluding minimum debt service coverage ratio ifand restrictions on the Company failsCompany’s ability to, maintain invested cashamong other things, dispose of certain assets, engage in certain transactions, incur indebtedness and line availability minimum requirements.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 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, 2007, TeamStaff was in compliance with all loan covenants. The facility is subject to acceleration upon non-payment or various other sta ndard default clauses. In addition, the Company granted PNC Bank a lien2009 and security interest on all of its assets. The facility was paid off with the proceeds from the sale of DSI on May 31, 2006 and the line was not drawn upon subsequently until February 8, 2007. The line has not been drawn upon since the second quarter of fiscal year 2007 through September 30, 2007. As of September 30, 2007,2008, there was no debt outstanding under the credit facilityLoan Agreement and $5.5unused availability (as defined) totaled $1.7 million remains availableand $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 defined billed accounts receivable. TheLoan Agreement, take such actions as it deems necessary to protect its security interest rate onin the facility effective at September 30, 2007collateral, and 2006 was 8.25%.

terminate the Loan Agreement. In connection with the acquisition of RS Staffing Services, TeamStaff issued two promissory notesits consent to the former owners of RS Staffing Services 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 ($1.5 million) and interest ($150,000) was due on June 8, 2006 and payment was made in the amount of $1.65 million. The remaining principal and interest was due in June 2007. As described in Note 10, effective June 1, 2007, the Company and former owners of RS Staffing Services reached an agreement to extend the due date of the $1.5 million note payable and accrued interest that was payable on June 8, 2007 until September 1, 2008.Loan Agreement.

Based on contractual terms of the initial agreement and the status of the parties’ discussions, long-term debt at September 30, 2007 and 2006 is classified as a current liability.F-16


(7) CAPITAL LEASES:

LEASES:

The Company leases certain office equipment under non-cancelable capital lease agreements that expire at various dates through fiscal year 2012. Terms range from 36 to 63 months. Interest rates range from 7.5% to 10.1%. As of September 30, 2007,2009 and 2008, the Company has recorded $1.0 million in gross capital leases and accumulated depreciation of $0.8 million. ($1.0$0.9 million and $0.7$0.8 million, at September 30, 2006)

respectively.

Future minimum lease payments at September 30, 20072009 are as follows:


follows (amounts in thousands):
    
(amounts in thousands) 
Fiscal year: 
2008$81
200979
Years Ending September 30, 
201067 $24 
201150 20 
20129 9 
   
Total minimum lease payments286 53 
Amounts representing interest(40  (6)
246   
 47 
Less current portion(63  (20)
Long term portion of capital leases$183
   
Long term portion $27 
   


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(8) OTHER CURRENT ASSETS:

Other current assets at September 30, 20072009 and 20062008 consist of the following:


following (amounts in thousands):
        
(amounts in thousands)20072006
 2009 2008 
Miscellaneous receivables$302$474 $87 $381 
Prepaid insurance108242 57 66 
Miscellaneous prepaid expense13672 34 20 
Security deposits599 4 5 
Prepaid income taxes71 43  
Other miscellaneous current assets2036
Other 32 33 
$642$923     
 $257 $505 
     

(9) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities:

Included in accrued expenses and other current liabilities at September 30, 20072009 and 2008 consist of the following (amounts in 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 
       
(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 in accrued bonus and incentive and $0.4 million in accrued benefits. Included in accrued expenses and other current liabilities at September 30, 2006 was $0.5 million in accrued income taxes.$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.

(10)    Commitments and Contingencies:F-17

Leases-


Leases
Minimum payments including those of discontinued businesses, net of expected sublease income,payments, under non-cancelable operating lease obligations at September 30, 20072009 are as follows:

(Amountsfollows (amounts in thousands)


:
    
Years Ending September 30,  
2008$486
2009465
 
2010455 $474 
2011249 285 
201249 132 
2013 85 
2014 88 
2015 60 
$1,704   
 $1,124 
   

Rent expense, net of sublease income, under all operating leases in fiscal year ended September 30, 2007,2009, was $0.6 million,$483,000, of which $0.5 million$148,000 is attributed to continuing operations and $0.1 million$335,000 is attributed to discontinued operations. Rent expense, net of sublease income, under all operating leases in the fiscal year ended September 30, 2006, was $0.7 million, of which $0.5 million was attributed to continuing operations and $0.2 million was 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. At September 30, 20072009 there were nois one remaining occupancy subleases.

Workers’ Compensation Policy-

sublease.

As discussed in Note 4, as part of the sale of TeamStaff Rx, Advantage RN will have the right to use, through February 28, 2011, the premises located in Clearwater, Florida that was used by TeamStaff 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 loss on the disposal of TeamStaff Rx principally from recognition of the remaining unfunded operating lease payments at this facility. The measurement date for recording this liability is December 31, 2009.
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 (‘‘Zurich’’(“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, which covered the period from March 22, 2002 through November 17,16, 2003,



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inclusive. Payments for the policy were made to the trust monthly based on projected claims for the 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. From time-to-time, trust assets have been refunded to the Company based on Zurich’s and managers’management’s overall assessment of claims experience and historical and projected settlements. In June 2009 and March 2006 and in the year ended September 30, 2007,2008, Zurich reduced the collateral requirements on outstanding workers’ compensation claims and released $2.25 million$114,000 and $1.19 million,$350,000, respectively, in trust account funds back to 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 est imatesestimates that at September 30, 2007,2009, the remaining prepaid asset of $0.3 million will be received within the next twelve to thirty-six months. ThisA portion of this is reflected on TeamStaff’s balance sheet as of September 30, 20072009 as a current asset, in addition to approximately $150,000$0.2 million related to current policy deposits.

As of September 30, 20072009 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 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.

F-18


Payroll Taxes

TeamStaff has received notices from the Internal Revenue Service (‘‘IRS’’(“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, and the potential exists for related penalties and interest,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 have been recordedthrough 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 accounts payable2008. Such amount, accounted for as a change in estimate, is included as a component of other income (expense) in the accompanying balance sheets.2008 statement of operations. Management believes that the ultimate resolution of these pay rollremaining payroll tax matters will not have a significant adverse effect on its financial position or future results of operations.

Legal Proceedings

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 GS, formerly known as RS Staffing Services, requesting production of certain documents dating back to 1997, prior to the time the Company acquired RS Staffing.Staffing Services. The subpoena



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stated that it iswas 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 temporarycontract 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 Company is cooperating fully with the Department of Justice investigation.

The government has advised TeamStaff that based on all the information known to date, the Company is not a target of the government’s investigation and that the governmentDOJ has no intentionintent to charge TeamStaff or any of indicting TeamStaff.

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 RS Staffing Services in MayJune 2005. As part of the purchase price of the acquisition, the Company issued to the former owners of RS Staffing Services a $3.0 million promissory note, of which $1.5 million and interest of $150,000 was paid in June 2006. On May 31, 2007, the Company sent a notice of indemnification claim to the former owners for costs that have been incurred in connection with the investigation. Effective June 1, 2007, the Company and former owners of RS Staffing Services reached an agreement to extend the due date from June 8, 2007 to September 1,December 31, 2008 with respect to the remaining $1.5 million note payable and accrued interest payable on June 8, 2007. Atpayable. Such agreement has been extended to February 28, 2010. As of September 30 2007,2009, the amount has not been settled. The Company recognized expenses related to legal representation and costs incurred in connection with the investigation in the amount of $1.486 millio n$21,000 and $219,000 during the fiscal year ended September 30, 2007,2009 and 2008, respectively, as a component of other income (expense). Legal counsel for the Company has reviewedCumulative costs related to this matter approximate $1.7 million. Pursuant to the acquisition contract and based on their analysis of the Company’s rights,agreement with RS Staffing Services, the Company has notified the former owners of RS Staffing Services that it is the Company’s intention to exercise its right to setoff the payment of such expenses against the remaining principal and accrued interest due to the former owners of RS Staffing Services.

The Company will pursue the recovery as a right of offset in future periods. Management and its counsel havehas a good faith belief that the Company will recover such amounts; however, generally accepted accounting principles preclude the Company from recording an offset to the note payable to the former owners of RS Staffing Services until the final amount of the claim is settled and determinable. 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.debt and accrued interest from notice date forward, if any. Accordingly, the Company has expensed costs incurred related to the investigation atthrough September 30, 2007.2009.

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 wrongful 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 has submitted its position statement to the EEOC. It is unclear, at present, if or when the EEOC will respond.
As a commercial enterprise and employer, we are subject to various claims and legal actions in the ordinary course of business. These matters can include professional liability, employment-relations issues, workers’ compensation, tax, payroll and employee-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 reasonably likely to have a material adverse effect on our results of operations, financial position or cash 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 results of operations, financial position or cash flows.



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Employment Agreements

From time-to-time, we enter into employment agreements with certain key executives which provide for fixed compensation, criterion for earning bonuses and other incentives and, in certain instances, issuance of share based equity grants. These agreements generally continue until terminated by the employee or the Board of Directors or, upon the occurrence of defined certain events or circumstances (including a defined change in control), and provide for salary continuance for specified periods of generally no more than a year.

During the fiscal year ended September 30, 2007,2009, the Company terminated certain officersmanagement and executives,staff personnel, and as a result, incurred severance related expenses of approximately $0.7$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 result, incurred severance related expenses of approximately $0.2 million (included in selling, general and administrative expense); at September 30, 20072008 the remaining liability from these arrangements was approximately $11,000,$74,000, which iswas included in accrued expenses.

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 Staffing ServicesTeamStaff 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.

(11) SHAREHOLDERS’ EQUITY:

(11) SHAREHOLDERS’ EQUITY:
Stock Warrants-

The following is a summary of the outstanding warrants to purchase TeamStaff’s common stock at September 30, 2007:


Warrants
Exercise Period FromExercise Period ToExercise Price Per
Common Share
Number of Shares of
Common Stock Reserved
November 2004November 2007$2.50598,000

During the fiscal year endingended September 30, 2007,2009, TeamStaff granted no warrants, no warrants expired unexercised and no warrants were exercised. During the fiscal year endingended September 30, 2006,2008, TeamStaff granted no warrants, 26,000149,500 warrants expired unexercised and no warrants were exercised. During the fiscal year endingAt September 30, 2005, TeamStaff issued 598,000 warrants as part of a private placement offering. During 2005,2009, there are no warrants expired unexercised and no warrants were exercised. Through November 2007 no warrants were exercised and the 598,000 warrants expired.outstanding.

F-20


Stock Option Plans -

2000 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, 2007,2009 and 2008, there were 149,0004,500 and 17,000 options, respectively, outstanding under the 2000 Plan.

The 2000 Plan is administered by the Management Resources and Compensation Committee of the Board of Directors (‘‘(“The Compensation Committee’’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



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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 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 Compensation Committee can also permit the payment of the exercise price in the common stock of the Company 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“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 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 2007, 2006 and 2005 through 2009 there were no purchase spurchases of discounted restricted stock. The 2000 Director Plan replaced the previous Director Plan that expired in April 2000. As of September 30, 2007,2009 and 2008, there were 87,50010,625 and 15,625 options, respectively, held by directors outstanding.

Under the 2000 Director Plan, the exercise price for options granted 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 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 treat ment.

Effective January 19, 2007, the Boardtreatment.

The fair value of Directors agreed to change the compensation terms for non-employee Board members. The Board agreed to forego all cash compensation in lieu of restricted stock grants. Each non-employee Board member will receive an initial grant under the Company’s 2006 Plan of 15,000 shares of restricted stock following the 2007 annual meeting of shareholders. Additionally, for each Board committee on which such non-employee Board member serves, the Board member will receive a grant of 2,500 shares of restricted stock following the 2007 annual meeting of shareholders. On October 3, 2007, 120,000 shares of restricted stock were issued. Fifty percent (50%) 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 onpreviously issued options at the date of grant by 20%, withhistorically was estimated using the remaining fifty percent (50%) vesti ng one year thereafter. In accordance with FAS 123(R) theBlack-Scholes option pricing model. The Company will not recognize expensetook 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 120,000 shares of this award until it is probable that these performance conditions will be achieved. Such charges could be material


historical data.

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in future periods. Future annual grants shall be determined by the Compensation Committee. Non-employee Board members also receive reimbursement of their Board travel, cell phone and similar expenses.

F-21


The following tables summarize the activity in TeamStaff’s various stock option plans for the years ended September 30, 2007, 2006,2009 and 2005:


2008:
                
Number of
Shares
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Pretax
Intrinsic
Value
 Weighted   
Options outstanding, September 30, 20041,226,941$3.593.6$0
 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 
Granted315,000$1.89     
Exercised     
Cancelled(223,941$4.27    (26,500) $9.47 
Options outstanding, September 30, 20051,318,000$3.073.4$0
   
Options outstanding, September 30, 2008 32,625 $8.09 1.8 $0 
Granted30,000$1.29     
Exercised     
Cancelled(455,000$3.98    (17,500) $9.12 
Options outstanding, September 30, 2006893,000$2.652.6$0
Granted  
Exercised  
Cancelled(656,500$2.68  
Options outstanding, September 30, 2007236,500$2.202.2$0
   
Options outstanding, September 30, 2009 15,125 $6.30 1.6 $0 
   

As of September 30, 2007, 2006,2009 and 2005, 236,500, 863,000 and 1,283,0002008, all options respectively, had vested and were exercisable.

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 the fiscal year and the exercise price, times the number of 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.

The weighted average fair value of options granted during fiscal 2005 and 2006 was $0.84 and $0.43, respectively. There were no options granted during fiscal 2007.

2006 Long Term Incentive Plan

(“2006 Plan”)

The Board of Directors adopted 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 Plan equals the sum of: (a) 5,000,000 shares of common stock; (b) any shares subject to awards granted under the 2000 Plan and the 2000 Director 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 Compensation Committee. The 2006 Plan authorizes the Compensation 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 Compensation Committee deems appropriate.

Terms and Conditions of Awards.Awards. The Compensation 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



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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 Plan, the Compensation Committee determines the provisions, terms and conditions of each award. The Compensation 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 Compensation 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 st ockstock 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 Compensation Committee over a performance period as prescribed by the Compensation 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 Compensation Committee from time to time prior to granting the performance shares or cash awards.

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Exercise Price.Price. The 2006 Plan authorizes the Compensation 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 Compensation 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 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.

A summary of activity in restricted stock is as follows:


        
Number Of
Shares
Weighted
Average
Grant-Date
Fair Value
 Weighted 
Restricted stock issued in 2006 and outstanding, September 30, 2006220,000$1.70
 Number Of Average Grant- 
 Shares Date Fair Value 
Restricted stock outstanding, September 30, 2007 55,000 $5.32 
Granted230,000$1.07 147,500 $2.58 
Issued(40,000$1.23  (21,250) $3.32 
Cancelled(190,000$1.47  (28,334) $4.58 
Restricted stock outstanding, September 30, 2007220,000$1.33
     
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 the year ended September 30, 2009, TeamStaff granted 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 charge of $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 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, 20072009 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 1,054,5006,160,409 shares of common stock for issuance under various option, shares and warrant plans and arrangements. At December 31, 2007

F-23


During the amountfiscal year ended September 30, 2009, the Company did not issue any equity grants of reservedsecurities to its board members. However, on October 13, 2009, the Board of Directors approved the issuance of 42,500 shares was 576,500.of restricted stock to the Company’s non-employee directors. Such decrease was a resultshares were vested on the grant date. The estimated expense that will be recognized in the first quarter of expired warrants, offset byfiscal 2010 approximates $57,000.
Subsequent to September 30, 2009, the Company approved a grant of options to non-executive directors.



Tablepurchase 30,000 shares of Contents

TreasuryCommon Stock

During 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 years 2007, 20062010. Such options will vest and 2005, TeamStaff did not repurchase anybecome 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.

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 QuarterSecond QuarterThird QuarterFourth Quarter
Fiscal Year 2007    
Net revenues$16,720$17,045$16,613$16,504
Gross profit2,5392,4812,9763,034
(Loss) income from operations(810(1,026(24043
Loss from continuing operations (1)(698(1,011(1,291(374
Income (loss) from discontinued operations net of tax (2)1851048(1,562
Net loss(513(1,001(1,243(1,936
Income (loss) per share – Basic and Diluted$(0.03$(0.05$(0.06$(0.10

(Amounts in thousands, except per share data)
 First QuarterSecond QuarterThird QuarterFourth Quarter
Fiscal Year 2006    
Net revenues$18,630$17,721$17,862$17,431
Gross profit3,0602,9163,0072,802
Loss from operations(659(663(503(583
Loss from continuing operations (3)(489(507(345(17,196
Income (loss) from discontinued operations net of tax (4)4712954,539(15
Net (loss) income(18(2124,194(17,211
Loss per share – Basic and Diluted$(0.01$(0.01$0.22$(0.89

                 
  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 QuarterSecond QuarterThird QuarterFourth Quarter
Fiscal Year 2005    
Net revenues$8,352$8,765$11,303$18,855
Gross profit1,5591,7251,8103,128
Loss from operations(1,353(1,413(1,702(490
Loss from continuing operations(800(849(1,050(366
Income (loss) from discontinued operations net of tax221228(200327
Net loss(579(621(1,250(39
Loss per share – Basic and Diluted$(0.03$(0.04$(0.07$(0.00
                 
  First Quarter  Second Quarter  Third Quarter  Fourth Quarter 
Fiscal 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)Loss from continuing operationsReflects impairment charge in the 3rdfourth quarter on TeamSTaff Rx intangible assets of $2.3 million.
(2)Revenues for the 2nd, 3rd and 4th4th quarter of fiscal year 2007 includes charges2008 include retroactive billings for Teamstaff GS in the amount of $1.5 million, for RS Staffing legal costs$2.1 million and $7.2 million, respectively, described in Note 10.
(2)Loss from discontinued operations, net of tax, in the 4th quarter of fiscal year 2007 of $1.6 million includes a charge of $1.5 million for the writedown of assets from fair market value to carrying value for Nursing Innovations per diem as described in Note 4.
(3)Loss from continuing operations in the 4th quarter of fiscal year 2006 of $17.1 million includes the establishment of deferred tax asset valuation allowance of $16.9 million as described in Note 5.
(4)Income from discontinued operations, net of tax, in the 3rd quarter of fiscal year 2006 of $4.4 million includes gain from the    sale of DSI as described in Note 4.

(13)EMPLOYEE BENEFIT PLANS:

As of September 30, 2007,2009, TeamStaff and its subsidiaries currently maintain twoa defined contribution orand a supplemental pension plans


plan.

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As of January 1, 2004, TeamStaff adopted the TeamStaff 401(k) Plan (the ‘‘401(k) Plan’’“401(k) Plan”) for the benefit of its eligible internal and temporary staffing employees. Any TeamStaff corporate employee and any TeamStaff Rx temporary staffing(non worksite) employee is immediately eligible upon hire for participation in the 401(k) Plan upon completing one year of service with TeamStaff.Plan. TeamStaff may 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 of $27,000, $35,000,$13,000 and $76,000$18,000 respectively, in fiscal year 2007, 20062009 and 2005.2008. A participant is always fully vested in his or her elective contributions and vest in Company matching contributions over a four year period.

RS Staffing Services 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 Services did not provide a discretionary matching contribution. Effective January 1, 2006, the Company terminated the RS Staffing Plan. RS Staffing Services employees who were eligible for the 401 (k) Plan adopted in 2004 were given the opportunity to roll their money over into the 401(k) 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.F-24


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 the 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 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 65th 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 oblig ationsobligations the Company may have had with respect to the participant (including those under the SERP).



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The following table illustrates TeamStaff’s changes in benefit costs and pension benefit obligations for the fiscal years ended September 30, 20072009 and September 30, 20062008 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
 20072006
Change in benefit obligation  
Benefit obligation at beginning of year$598$872
Service cost
Interest Cost2820
Benefits paid(280(294
Actuarial loss
Benefit obligation at end of year$346$598
Change in plan assets  
Employer contribution$280$294
Benefits paid(280(294
Fair value of plan assets at end of year$$
Reconciliation of funded status  
Funded status$(346$(598
Unrecognized net actuarial (gain)/loss55147
Net amount recognized$(291$(451
Amounts recognized in the consolidated balance sheet consist of:  
Accrued benefit liability$(346$(598
Accumulated other comprehensive income55147
Net amount recognized$(291$(451
Assumptions used to determine benefit obligations at September 30:  
Discount rate used to determine net periodic benefit costs and benefit obligations3.003.00

 200720062005
Components of net periodic benefit cost are as follows:   
Interest cost$28$19$32
Recognized actuarial loss433663
Net periodic benefit cost715595
Settlement charges5782193
Total benefit cost$128$137$288
Other disclosure items at end of year:   
Accumulated benefit obligation$346$598$872
Fair value of plan assets
Increase in minimum liability included in other comprehensive income$(100$(117$(255

For unfunded plans, contributions to the SERP are the benefit payments made to participants. For years ended September 30, 2009 and 2008, TeamStaff made $280,000 in benefit payments during fiscal year 2007, $294,000 during fiscal year 2006of $70,000 and $588,000 during fiscal year 2005. The following$280,000, respectively. There are no benefit payments are expectedremaining related to be paid in future fiscal years:


the SERP.
Fiscal year endingPension Benefits
2008$280,000
2009$71,000


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During fiscal year 2004, TeamStaff and plan participants agreed on optional payment forms effectively accelerating benefit payments. Beginning in fiscal year 2004 and ending in fiscal year 2009, the SERP settles liabilities by paying benefit obligations to participants. Each quarter, a settlement charge will bewas recognized to account for settling of liabilities. A settlement charge of $57,000, $82,000$8,000 and $193,000$38,000 was recognized during fiscal 2007, 20062009 and 2005,2008, respectively.

The FASB issued SFAS No. 158, ‘‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans’’ which was adopted in the fiscal year ended September 30, 2007 with no effect on the Company’s consolidated financial statements.

(14) ECONOMIC DEPENDENCY:

A major customer is defined as a customer from which the Company derives at least 10% of its revenues. For fiscal year ended September 30, 2007, two RS Staffing Services customers each represent 10% or more of the Company’s overall consolidated revenues. For the fiscal year ended September 30, 2007, RS Staffing Services2009, Teamstaff GS generated approximately 63.6%98.2% of the Company’s overall consolidated revenues from agencies of the United States Government.

For fiscal year ended September 30, 2006, one RS Staffing Services customer represents 10% or more 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, RS Staffing Services2008, Teamstaff GS generated approximately 56.3%96.7% of the Company’s overall consolidated revenues from agencies of the United States Government.

Through 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 $5.7$11.4 million and $5.3$11.9 million at September 30, 20072009 and 2006,2008, 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)NASDAQ LISTING:

TheSUBSEQUENT EVENTS:

Management evaluated subsequent events through January 19, 2010, the date the Company’s common stockfinancial 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 currently traded on The Nasdaq Global Market under the symbol ‘‘TSTF.’’ date that these financial statements are issued.
Disposition of TeamStaff Rx Assets
On December 31, 2007,28, 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, bid priceand (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 a share(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 Company’s common stockAsset 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 $0.70. Ifterminated, 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 failsannounced 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 meet any of the continued listing standards of The Nasdaq Global Market,resign from such positions in connection with the Company’s common stockstrategic shift in its current business plan. Mr. Filippelli’s resignation as President and Chief Executive Officer will be delisted from The Nasdaq Global Market. These continued listing standards include specifically enumerated criteria, such as a $1.00 minimum closing bid price.

On July 6, 2007,become effective at the Company received a Nasdaq Staff Deficiency Letter from The Nasdaq Stock Market notifying the Company that the closing price per shareend of the Company’s common stock was below the $1.00 minimum bid price requirement for 30 consecutive trading days and that, as a result, the Company no longer meets The Nasdaq Stock Market’s minimum bid price requirement for continued listing set forth in Marketplace Rule 4450(a)(5). Nasdaq providedJanuary 2010. Mr. Filippelli has agreed to assist the Company with 180 calendar days, or until January 2, 2008,its transition to regain compliance. To regain compliancea new Chief Executive Officer. The Company’s Board has established a search committee to identify candidates for Chief Executive Officer. In connection with the minimum bidforegoing, 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 grant 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 requirement,of the options shall be equal to closing bid price of the Company’s common stock muston 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 above $1.00exercisable for a minimumperiod of ten consecutive trading days duringtwelve (12) months following the 180-day compliancetermination date, but in no event after the expiration of the exercise period. If this occurs, Nasdaq will provideIn 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 with written notification of compliance. However, ifor for good reason (as defined in the Company does not regain compliance by January 2, 2008 its common stock will be delisted from T he Nasdaq Global Market. As of January 2, 2008 the Company did not regain compliance and on January 4, 2008, the Company received a notice that its common stock will be delisted. Nasdaq rules permit the Company to appeal any delisting determinationemployment agreement) by the Nasdaq staffExecutive, 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 Nasdaq Listings Qualifications Panelseverance 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 Company intendstermination 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 appeal such determination. Its appeal will stayhis death, the suspensionExecutive’s estate would be entitled to receive all compensation accrued but not paid as of the termination date and delisting of its common stock pendingcontinued participation in our health and welfare plans for a decisionperiod not to exceed 18 months from the termination date. If the Executive’s employment is terminated by a Nasdaq Listing Qualifications Panel. In addition, the Company’s board of directors has authorized the approval of a reverse stock split in orderus for “cause” or by him without “good reason,” he is not entitled to facilitate its ability to regain compliance with the continuing listing standards of The Nasdaq Global Market. any additional compensation or benefits other than his accrued and unpaid compensation.

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In the event that suchwithin 180 days of a delisting determination was based solely on non-compliance with“Change in Control”, as defined in the minimum bid price rule,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, 2010, 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, 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 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 permittedbased on performance targets and other key objectives established by the Management Resources and Compensation Committee.
Ms. Presuto received a grant of options to transfer the listingpurchase 75,000 shares of its 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 Nasdaq Capital Market ifoptions are exercisable for a period of five years at a per share exercise price equal to the Company satisfies all criteria for initial inclusionclosing price of the Company’s common stock on such market other than compliance with the minimum bid price requirement. 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 transfer,Change of Control, as defined in the Nasdaq Marketplace Rulesagreement, (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 wouldshall 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



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granted an additional 180 calendar days entitled to complysuch payment whether or not her employment with the minimum bid price rule while on The Nasdaq Capital Market. The 180-day compliance period relates exclusivelyCompany 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 Company’s bid price deficiency. The Company may be delisted duringlargest amount as will result in no portion of such aggregate payments being subject to the 180-day period for failure to maintain compliance with any other listing requirement which occurs during this period.

If the Company’s common stock were to be delisted from The Nasdaq Capital Market, tradingexcise tax imposed by Section 4999 of the common stock most likely willCode. The priority of the reduction of excess parachute payments shall be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securitiesdiscretion 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 as the Pink Sheets or the OTC Bulletin Board. At present, no assurances can be given that the Company will be successful in remaining listed on The Nasdaq Global Market or The Nasdaq Capital Market.agreements.

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Table of Contents

SCHEDULE I

TEAMSTAFF, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2006,2009 AND 20052008
(Amounts in thousands)


                 
    (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 $  $  $  $ 
                 
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 
(a) Description(b) Balance at
Beginning of Year
(c) Additions
Charged to
Costs and Expenses
(d) Deductions –
Net Write-Offs
(e) Balance at
End of Year
Year Ended September 30, 2007 
(1) 
Allowance for doubtful accounts on trade receivables$44$126$(153$17
Deferred tax valuation allowance$11,053$790$$11,843
Year Ended September 30, 2006
Allowance for doubtful accounts on trade receivables$8$98$(62$44
Deferred tax valuation allowance$$16,851$(5,798$11,053
Year Ended September 30, 2005
Allowance for doubtful accounts on trade receivables$4$15$(11$8Reflects reclassification of discontinued operations in 2009.

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