SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 ON 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-18492

TEAMSTAFF, INC.
(Exact name of registrant as specified in its charter)

NEW JERSEY 22-1899798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 ATRIUM DRIVE, SOMERSET, NEW JERSEY 08873
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (732) 748-1700

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED

NONE

[Cover Page 1 of 2 Pages]

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, $.001 PAR VALUE PER SHARE
(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)

Yes [ ] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

At the close of our second quarter, March 31, 2003, the aggregate
market value of the voting stock of TeamStaff, Inc. (consisting of Common Stock,
$.001 par value per share) held by non-affiliates of the Registrant was
approximately $29,446,000 based upon the closing sales price of $3.04 for such
Common Stock on March 31, 2003 as reported by NASDAQ National Market. At the
close of our fiscal year, September 30, 2003, the aggregate market value of the
voting stock of TeamStaff, Inc. (consisting of Common Stock, $.001 par value per
share) held by non-affiliates of the Registrant was approximately $22,664,000
based upon the closing sales price of $2.23 for such Common Stock on said date
as reported by NASDAQ National Market. On December 12, 2003 there were
15,714,229 shares outstanding of Common Stock of the Registrant.

DOCUMENTS INCORPORATED BY REFERENCE

None

[Cover Page 2 of 2 Pages]

PART I

ITEM 1. BUSINESS

INTRODUCTION

TeamStaff, Inc., a New Jersey corporation, was founded in 1969 as a payroll
service company and has evolved into a leading provider of outsourced business
solutions focusing on human resource services to a wide variety of industries in
50 states. TeamStaff's wholly-owned subsidiaries include TeamStaff Rx, Inc., DSI
Staff ConnXions-Northeast Inc., DSI Staff ConnXions-Southwest Inc., TeamStaff
Solutions, Inc., TeamStaff I, Inc., TeamStaff II, Inc., TeamStaff III, Inc.,
TeamStaff IV, Inc., TeamStaff V, Inc., TeamStaff VI, Inc., TeamStaff Insurance
Services, Inc., TeamStaff VIII, Inc., Employer Support Services, Inc., TeamStaff
IX, Inc., Digital Insurance Services, Inc., HR2, Inc., and BrightLane.com, Inc.
When we use the term TeamStaff, sometimes we will mean TeamStaff and its
subsidiaries.

As of the fiscal year ended September 30, 2003, TeamStaff provided a variety of
employment related services through three business units: (1) Our TeamStaff Rx
unit provides allied health professionals and nurses to doctors' offices and
medical facilities throughout the United States on a temporary or permanent
basis; (2) our payroll services division provides customized payroll management
and tax filing services to select industries, such as construction, and (3) our
professional employer organization, or PEO, division provided comprehensive
human resource management and administrative services, including payroll
administration and payroll tax filing, procurement and administration of
employee benefit plans, procurement and administration of workers' compensation
insurance, management of employment related risks, and assistance in compliance
with employment-related laws and regulations. We believe our medical staffing
subsidiary is one of the top providers in the niche medical imaging field,
placing temporary employees for over 550 clients. Until its sale to Gevity HR,
Inc., completed November 17, 2003, the PEO division provided services to over
1500 client organizations with approximately 17,000 worksite employees. The
payroll processing division processes payrolls for approximately 750 clients
with more than 30,000 employees.

TeamStaff's corporate headquarters is in Somerset, New Jersey and it has offices
located in Clearwater, Florida, Woburn, Massachusetts, and Alpharetta, Georgia.

TeamStaff, Inc. was organized under the laws of the State of New Jersey on
November 25, 1969 and maintains its executive offices at 300 Atrium Drive,
Somerset, New Jersey 08873 where its telephone number is (732) 748-1700.

RECENT DEVELOPMENTS

SALE OF PEO DIVISION ASSETS TO GEVITY HR, INC.

Effective November 17, 2003, TeamStaff sold certain of the assets of the
subsidiaries through which it operated its PEO business to Gevity HR, Inc. for
the sum of $9.5 million in cash, $2.5 million of which has been placed in
escrow. The escrowed sum will be released after 90 days from the November 17,
2003, closing, but is subject to downward adjustment based on any reduction in
annualized administrative fees payable by the former TeamStaff PEO clients. Any
such downward adjustment may be offset by annualized administrative fees of
certain clients produced by former TeamStaff sales representatives during the
90-day period. The assets consisted primarily of client contracts, marketing
agreements and internally developed software for use in reconciling certain
monthly benefit provider invoices. As part of the transaction, Gevity HR, Inc.
agreed, among other things, to hire certain former TeamStaff employees assigned
to the PEO division and assume certain of TeamStaff's lease obligations.
Further, TeamStaff agreed to a non-competition agreement which prohibits us from
engaging in the PEO business for a period of five years. As a result of the
transaction with Gevity HR, Inc., our internal corporate employee staff was
reduced by approximately 95 persons, and our workforce staff was reduced by
approximately 17,000 worksite employees.

As of September 30, 2003, TeamStaff met the criteria for reporting the pending
sale of the PEO division as an asset held for sale and discontinued operations
per Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), and has accounted for
the discontinued operation as such within the consolidated financial statements
and notes to consolidated financial statements included in this Form 10-K
filing.

NEW PRESIDENT AND CHIEF EXECUTIVE OFFICER

On June 18, 2003, T. Kent Smith was appointed TeamStaff's President and Chief
Executive Officer at an initial annual base salary of $250,000. Mr. Smith was
also appointed to TeamStaff's Board of Directors. Effective as of June 18, 2003,
TeamStaff entered into an employment agreement with Mr. Smith. The agreement
expires on September 30, 2005. See "Executive Compensation: Employment
Agreement" for further information.

NEW CHIEF FINANCIAL OFFICER

On September 15, 2003, Rick J. Filippelli was appointed TeamStaff's Vice
President, Finance and Chief Financial Officer at an initial annual base salary
of $225,000. Mr. Filippelli is eligible to receive a bonus of up to 35% of his
base salary. Additionally, Mr. Filippelli was granted an option to purchase
50,000 shares of TeamStaff common stock, one half of which will vest on
September 15, 2004, and the remaining one half will vest on September 15, 2005.
Mr. Filippelli also receives four weeks of annual vacation and is offered
welfare benefit plans, 401(k) and fringe benefits generally made available to
other TeamStaff employees.

NEW PRESIDENT OF TEAMSTAFF RX

On December 12, 2003, Timothy Nieman was appointed as President of TeamStaff Rx
at an initial annual base salary of $175,000. He assumed the responsibilities
formerly held by Elizabeth Hoaglin. Mr. Nieman is eligible to receive a bonus of
up to 40% of his base salary. Additionally, Mr. Nieman was granted an option to
purchase 50,000 shares of TeamStaff common stock, one half of which will vest on
December 12, 2004, and the remaining one half will vest on December 12, 2005.
Mr. Nieman also receives four weeks of annual vacation and is offered welfare
benefit plans, 401(k) and fringe benefits generally made available to other
TeamStaff employees.

SERVICES

I. MEDICAL STAFFING SERVICES

TeamStaff provides medical staffing services through its wholly-owned
subsidiary, TeamStaff Rx, Inc., which has more than 22 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, 2003, this unit generated $58.1 million of
revenue.

TeamStaff Rx focuses its allied health and nurse staffing services in markets
where it places employees on a temporary long-term assignment or on a permanent
basis. TeamStaff Rx employs radiological technologists, diagnostic sonographers,
cardiovascular technologists, radiation therapists, registered nurses and other
medical professionals with hospitals, clinics and therapy centers throughout the
United States. Clients whose staff requirements vary depending on the level of
activity at their facilities are able to secure the services of highly qualified
individuals on an interim basis.

TeamStaff Rx's clients are dependent on temporary staffing to supplement various
internal departments for staffing shortages due to vacations, medical leaves and
other causes. TeamStaff Rx fills its clients' needs by providing qualified
medical personnel on a weekly, monthly, quarterly or longer basis, depending
upon a client's particular staffing objectives. TeamStaff Rx also provides
targeted recruiting and placement for clients for permanent employees.
Additionally, if an employee placed on temporary assignment ultimately is hired
by the client on a permanent basis, TeamStaff Rx usually receives a recruitment
fee from that client.

Our temporary staffing services provide clients the ability to "right size";
that is, to expand or reduce their workforces in response to changing business
conditions. Management believes that these services provide numerous benefits to
the client, such as saving the costs of salary and benefits of a permanent
employee whose services are not needed throughout the year. The client also
avoids the costs, uncertainty and delays associated with searches for qualified
interim employees. TeamStaff Rx's temporary staffing services also allow a
client to avoid administrative

responsibility for payroll, payroll taxes, workers' compensation, unemployment
and medical benefits for these interim employees.

Management believes that its temporary medical staffing services provide a
client with an increased pool of qualified personnel. Since TeamStaff Rx's
temporary staffing employees have access to a wide array of benefits, such as
paid time off, health and life insurance, Section 125 premium conversion plans,
and 401(k) retirement savings plans, TeamStaff believes it will be able to
attract a sufficient pool of personnel to grow this business. These benefits
provide temporary employees with the motivation of permanent workers without
additional benefit and administrative costs to the client.

The current shortage in the availability of certain allied health and nursing
personnel has, in management's opinion, created a strong market opportunity for
TeamStaff Rx. TeamStaff believes that TeamStaff Rx is in a pivotal position to
increase its market share based on its reputation and experience in the
temporary medical staffing industry.

TeamStaff is implementing a new sales and marketing and product development
strategy with respect to its medical staffing division. Historically, TeamStaff
Rx has utilized only a telephonic sales force to generate sales. Over the
upcoming fiscal year, TeamStaff Rx will be expanding its sales organization to
include relationship-based inside and outside sales professionals who maintain
contact with existing and prospective clients. Additionally, our recent product
development efforts have focused on the introduction of our Vendor Integration
Program, which represents a new business strategy for the medical staffing
division. The Vendor Integration Program, or VIP, is intended to provide both
large and middle-market healthcare institutions and facilities the opportunity
to manage their medical staffing needs quickly and efficiently through a
web-based application. The VIP centralizes a client's management of its multiple
orders, vendors and locations and is intended to free the client of paperwork
and time associated with obtaining, tracking and paying for temporary medical
staffing personnel.

II. PAYROLL SERVICES

TeamStaff was originally established as a payroll service firm in 1969 and
continues to provide payroll and tax reporting services to its clients. During
the fiscal year ended September 30, 2003, this unit generated $4.7 million of
revenue. Historically, the payroll division has provided these services
primarily to the construction industry and currently more than 75% of
TeamStaff's approximately 750 payroll service clients are in the construction
industry located in the greater New York metropolitan area. TeamStaff offers
most, if not all, of what other payroll services provide, including the
preparation of payroll checks, direct deposit, government compliance reports,
workers' compensation reports and workers' compensation audit reports as
required by New York State, quarter and year end tax reports, W-2's (including
federal and state magnetic media), and remote processing (via modem or internet)
directly from the clients' offices, as well as certified payrolls. Tax reporting
services include the impounding of tax payments, timely deposit of tax
liability, filing of payroll tax returns, distribution of quarter and year-end
payroll tax statements and timely response to agency inquiries.

III. PROFESSIONAL EMPLOYER ORGANIZATION (PEO)

During the fiscal year ended September 30, 2003, the PEO division generated
$88.0 million of revenue. Effective November 17, 2003, TeamStaff sold certain of
the assets of the subsidiaries through which it operated its PEO business to
Gevity HR, Inc. When a client utilized TeamStaff's PEO services, the client
administratively transferred all or essentially all of its employees to
TeamStaff. TeamStaff thereby became a co-employer of the client's employees and
became responsible for all human resource functions, including payroll, benefits
administration, tax reporting and personnel record keeping. The client still
managed the employees, determined compensation rates and assigned duties in the
same fashion as any employer. The client was, however, relieved of certain
reporting and tax filing requirements and other administrative tasks associated
with employment.

As a PEO service provider, TeamStaff offered, among others, the following
benefits to its clients' employees: comprehensive major medical plans, dental
and vision coverage, life insurance, IRC Code Section 125 premium conversion
plan, 401(k) retirement plan, flexible spending accounts, workers' compensation
cost management and unemployment cost management.

See "Recent Developments: Sale of PEO division assets to Gevity HR, Inc." for
further information.

CUSTOMERS

As of September 30, 2003, TeamStaff's customer base consisted of over 2,800
client companies, representing over 47,000 employees (including client employees
who receive payroll services and are not considered TeamStaff co-employees). Due
to the sale of the PEO division, TeamStaff had a significant reduction in the
number of clients companies and workforce employees. Currently, TeamStaff has
approximately 1300 payroll and medical staffing clients. More than 75% of the
clients in the payroll services division are in the construction industry and
substantially all of the customers of our TeamStaff Rx, Inc. subsidiary are
engaged in the healthcare industry. No single client in any operating unit
constitutes more than 5% of that unit's revenues.

SALES AND MARKETING

TeamStaff maintains payroll and medical staffing sales and marketing personnel
in its Somerset, New Jersey and Clearwater, Florida locations, respectively. Our
medical staffing division sales efforts have primarily been

telephonic, while our payroll services division sales force travels throughout
the metropolitan New York area in an effort to expand our business.

COMPETITION

The payroll services industry is characterized by intense competition. The
principal competitive factors are price and service. Management believes that
Automatic Data Processing, Inc. and Paychex, Inc. are major competitors.
TeamStaff also competes with in-house payroll software sold by numerous
companies, as well as other providers of computerized payroll services,
including banks, and smaller independent companies. The increasing availability
of personal computers and software packages at low cost may result in additional
businesses acquiring such capabilities.

In TeamStaff's medical staffing business the primary competitors are CompHealth,
Aureus Medical Group, Resources On Call, Cross Country Travcorps, Inc., AMN
Healthcare Services, Inc. and Medical Staffing Network Holdings, Inc.

TeamStaff competes with these companies by offering customized products,
personalized service, competitive prices and specialized personnel to satisfy a
client's particular requirements. Management believes that its broad scope of
services and its commitment to quality service differentiate it from its
competition.

INDUSTRY/GOVERNMENT REGULATION

INTRODUCTION

TeamStaff's operations are affected by numerous federal and state laws relating
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. There are essentially three types of federal employment tax
obligations: (i) withholding of income tax requirements; (ii) obligations under
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 staffing employees. These plans include a 401(k) Plan (a
profit-sharing plan with a cash or deferred arrangement, or CODA, under Code
Section 401(k)), a Section 125 plan, group health plans, dental insurance, a
group life insurance plan and a group disability insurance plan. Generally,
employee benefit plans are subject to provisions of both the Code and the
Employee Retirement Income Security Act.

In order to qualify for favorable tax treatment under the Code, the plans must
be established and maintained by an employer for the exclusive benefit of its
employees. In addition to the employer/employee threshold, pension and
profit-sharing plans, including plans that offer CODAs under Code Section 401(k)
and matching contributions under Code Section 401(m), must satisfy certain other
requirements under the Code. These other requirements are generally designed to
prevent discrimination in favor of highly compensated employees to the detriment
of non-highly compensated employees with respect to both the availability of,
and the benefits, rights and features offered in qualified employee benefit
plans.

Employee pension and welfare benefit plans are also governed by ERISA. ERISA
defines "employer" as "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" as "any individual employed by an employer." A
definitive judicial interpretation of "employer" in the context of a PEO
arrangement has not been established, although the Internal Revenue Service
released Rev. Proc. 2002-21 on April 24, 2002, to help clarify the ability of
PEOs to maintain

multiple employer 401(k) plans.

IRS ISSUANCE OF REV. PROC. 2002-21

In April 2002, the IRS issued Rev. Proc. 2002-21. While Rev. Proc. 2002-21 is
intended to describe the steps that may be taken to ensure the qualified status
of defined contribution retirement plans maintained by PEOs for the benefit of
worksite employees, there remain uncertainties regarding the operation and
interpretation of that revenue procedure. Under Rev. Proc. 2002-21, if a PEO
operates a multiple employer retirement plan in accordance with IRS Code Section
413(c), the IRS will not disqualify the retirement plan solely on the grounds
that the plan violates or has violated the exclusive benefit rule. Rev. Proc.
2002-21 also provides that if a PEO's retirement savings plan is not operated as
a multiple employer retirement savings plan, the plan risks disqualification for
violation of the exclusive benefit rule unless a PEO either converts the plan to
a multiple employer plan or terminates the plan by December 31, 2003 for
calendar year plans. TeamStaff maintains a "frozen" retirement savings plan that
is not a multiple employer plan. TeamStaff is in the process of terminating the
"frozen" plan in accordance with Rev. Proc. 2002-21.

STATE REGULATION

As an employer, TeamStaff is subject to all 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 temporary medical staffing and permanent placement
business. These license and registration requirements generally provide for an
evaluation of the operator's background and integrity and periodic or ongoing
monitoring of the medical staffing firm's policies and practices. TeamStaff Rx
is licensed or registered for its temporary allied healthcare staffing services
in the following jurisdictions: Florida, Massachusetts, North Carolina and Rhode
Island and has a license application pending in the State of New Jersey.
TeamStaff Rx is licensed or registered for its temporary nursing business in
California, Kentucky, Maine, Minnesota, North Carolina and Washington and has a
license application pending in Massachusetts. TeamStaff Rx is licensed or
registered for its permanent placement business in Massachusetts and North
Carolina and has a license application pending in New Jersey. We continue to
review applicable statutes and regulations and prepare appropriate applications
for filing.

INFORMATION AND TECHNOLOGY SYSTEMS

Effective August 31, 2001, TeamStaff acquired BrightLane.com, Inc., a technology
company founded in 1999 that provided an online business center. Focusing on the
small business segment, BrightLane developed several patent-pending information
exchange and transaction oriented software solutions to facilitate access across
a variety of essential and Internet deliverable administrative products and
services. Since the acquisition, BrightLane has applied its core competencies
mainly toward internal technology enablement and the integration of various
disparate systems in TeamStaff's operating entities.

TeamStaff developed a web-based remote entry system for the Payroll Services
Division that was launched in August 2003. This product will allow payroll
clients to enter and send payroll data via the Internet. This technology will
enable us to better serve our client base as well as reduce operating costs. It
should also eliminate the need to support the multiple versions of the current
remote processing system installed at client locations and will provide the
payroll services client base with a more efficient and flexible processing tool.

TeamStaff also implemented its new financial and reporting system licensed from
Lawson, effective May 2, 2003.

EMPLOYEES

As of September 30, 2003, TeamStaff employed 245 corporate (non worksite)
employees, both full-time and part-time, including executive officers, a
decrease from 282 during the previous fiscal year. TeamStaff also employed
approximately 17,000 worksite employees (this number excludes payroll services
employees) and approximately 325 temporary employees on client assignments.
TeamStaff believes its relationship with its current employees is satisfactory.
None of TeamStaff's corporate employees is covered by a collective bargaining
agreement.

As a result of the transaction with Gevity HR, Inc. completed on November 17,
2003, we sold our PEO related business. With the consummation of this
transaction, our internal corporate workforce was reduced by approximately 95
persons. Additionally, our worksite employee staff was reduced by approximately
17,000 employees.

RISK FACTORS

You should carefully consider the risks described below with respect to our
operations, businesses and financial condition. The risks and uncertainties
described below are not the only ones facing us. Other risks and uncertainties
that we have not predicted or assessed may also adversely affect us. Some of the
information in this filing contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "anticipate," "believe,"
"intend," "estimate," and "continue" or other similar words. You should read
statements that contain these words carefully for the following reasons:

-- the statements may discuss our future expectations;

-- the statements may contain projections of our future earnings
or of our financial condition; and

-- the statements may state other "forward-looking" information.

SAFE HARBOR STATEMENT

Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
TeamStaff desires to avail itself of certain "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 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, risks related to recently consummated acquisitions as well
as future acquisitions, TeamStaff's ability to increase its revenues and produce
net income, effects of competition and technological changes, risks related to
exposure to personal injury and workers' compensation claims, risks that
TeamStaff's insurers may not provide adequate coverage, risks associated with
compliance with government regulations such as ERISA, state and local employment
regulations, dependence upon key personnel, and TeamStaff's ability to
successfully and timely implement its new business strategy for TeamStaff Rx.

We believe it is important to communicate our expectations to our investors.
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. Before you
invest in us, 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 or business. In such case, the price of our
securities could decline and you may lose all or part of your investment.

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 shareholders' equity. We have historically obtained growth
through acquisitions of other companies and businesses. Under Statements of
Financial Accounting Standards No.141, Business Combinations (SFAS No.141) and
No. 142 Goodwill and Other intangible Assets implemented in June 2001, we are
required to periodically review goodwill and indefinite life intangible assets
for possible impairment. In the event that we are required to write down the
value of any assets under these pronouncements, it may materially and adversely
affect our earnings. See the more detailed discussion appearing as part of our
Management Discussion and Analysis.

OUR FINANCIAL CONDITION MAY BE AFFECTED BY INCREASES IN HEALTH CARE AND WORKERS'
COMPENSATION INSURANCE COSTS.

Health care insurance premiums and workers' compensation insurance coverage
comprise a significant part of our temporary medical staffing operating
expenses. Accordingly, we use managed care procedures in an attempt to

control these costs. Changes in health care and workers' compensation laws or
regulations may result in an increase in our costs and we may not be able to
immediately incorporate such increases into the fees charged to clients because
of our existing contractual arrangements with clients. As a result, any such
increases in these costs could have a material adverse effect on our financial
condition, results of operations and liquidity.

OUR FINANCIAL CONDITION MAY BE AFFECTED BY RISKS ASSOCIATED WITH THE HEALTH AND
WORKERS' COMPENSATION CLAIMS EXPERIENCE OF OUR CLIENTS.

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 the claims experience
of our clients. If the experience of the clients 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 margin. 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 may require an increase or decrease to our reserves, and therefore may
also affect our present and future financial condition.

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 unemployment taxes, health insurance premiums or workers'
compensation insurance rates could increase. Although we employ internal and
external risk management procedures in an attempt to manage our claims
incidence, estimate claims expenses and structure our benefits contracts to
provide 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 service fees to our clients is constrained by contractual
arrangements with clients, a delay could result before such increases could be
reflected in service fees. As a result, such increases could have a material
adverse effect on our financial condition or results of operations.

SIGNIFICANT GROWTH THROUGH ACQUISITIONS MAY ADVERSELY AFFECT OUR MANAGEMENT AND
OPERATING SYSTEMS.

We completed three significant acquisitions during the past four calendar years
and may continue to pursue a strategy of acquiring compatible businesses in the
future. Our growth is making significant demands on our management, operations
and resources, including working capital. If we are not able to effectively
manage our growth, our business and operations will be materially harmed. To
manage growth effectively, we will be required to continue to improve our
operational, financial and managerial systems, procedures and controls, and hire
and train new employees while managing our current operations and employees.
Historically, our cash flow from operations has been insufficient to expand
operations. Sufficient capital may not be available in the future.

OUR PAYROLL BUSINESS MAY BE ADVERSELY AFFECTED IF THERE IS AN ECONOMIC DOWNTURN
IN THE CONSTRUCTION BUSINESS.

Although we have expanded our services to a number of industries, our payroll
service business continues to rely to a material extent on the construction
industry in the greater New York metropolitan area. During the last fiscal year,
construction related business accounted for more than 75% of our payroll service
business' total customers. Accordingly, if there is a slowdown in construction
activities in this area, it will affect our revenues and profitability.
Management believes its reliance on the construction business will continue to
decline as its customer base expands and becomes more diversified.

OUR MEDICAL STAFFING BUSINESS MAY BE ADVERSELY AFFECTED IF THERE IS AN ECONOMIC
DOWNTURN IN THE HEALTHCARE INDUSTRY.

Our medical staffing business is concentrated entirely in the healthcare
industry. The economic downturn in the last two years has caused a reduction in
our clients' utilization of our services. Any continued economic weakness
generally or in the healthcare industry specifically could have an adverse
impact on our results of operations.

OUR BUSINESS MAY BE ADVERSELY AFFECTED DUE TO ECONOMIC CONDITIONS IN SPECIFIC
GEOGRAPHIC MARKETS.

A significant portion of our revenues are derived from California and North
Carolina with respect to our temporary medical staffing division, and the
metropolitan New York City area with respect to our payroll services division.
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 our California, North Carolina and metropolitan New York City area markets.

IF UNFAVORABLE GOVERNMENT REGULATIONS REGARDING TEMPORARY 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. Our operations are affected by numerous federal,
state and local laws and regulations relating to labor, tax, insurance and
employment matters. Many states require licensure or registration of entities
providing temporary 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.

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 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 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 and financial condition.

WE MAY BE HELD LIABLE FOR THE ACTIONS OF OUR TEMPORARY EMPLOYEES AND THEREFORE
INCUR UNFORESEEN LIABILITIES.

A number of legal issues with respect to the employment arrangements among
temporary staffing firms, their clients and temporary 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, temporary
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 subsidiary, we engage in the business of providing
temporary 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, which we deem reasonable under the circumstances, not all of the
potential liability we face will 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. 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 TEMPORARY
HEALTHCARE EMPLOYEES, OUR BUSINESS WOULD BE ADVERSELY IMPACTED.

The maintenance of health and workers' compensation insurance plans that cover
our temporary healthcare employees is a significant part of our business. If we
were unable to secure renewal of contracts for such plans, 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.

OUR BUSINESS WILL SUFFER IF OUR SERVICES ARE NOT COMPETITIVE.

Both the payroll and temporary employee placement industries are characterized
by vigorous competition. 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. We believe that our major competitors with respect to payroll and tax
services are Automatic Data Processing, Inc., Ceridian Corp. and Paychex, Inc.
Our major competitors with respect to temporary medical staffing resources are
CompHealth, Aureus Medical Group, Resources on Call, Cross Country Travcorps,
Inc., AMN Healthcare Services, Inc. and Medical Staffing Network Holdings, Inc.
These companies may have greater financial and marketing resources than we. We
also compete with manual payroll systems and computerized payroll services
provided by banks, and smaller independent companies.

IF WE CANNOT OBTAIN SUFFICIENT LEVELS OF TEMPORARY EMPLOYEES, OUR BUSINESS MAY
BE AFFECTED.

TeamStaff Rx is a temporary employment agency, which depends on a pool of
qualified temporary employees willing to accept assignments for our clients. Its
business is materially dependent upon the continued availability of such
qualified medical temporary personnel. Our inability to secure temporary medical
personnel would have a material adverse effect on our business.

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 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.

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"
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.

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.

ITEM 2. PROPERTIES

OPERATION AND FACILITIES

TeamStaff maintained client payroll processing centers in Somerset, New Jersey;
Houston, Texas; Northampton, Massachusetts; and Clearwater and Boca Raton,
Florida. At the end of September 2003, PEO division payroll administration was
consolidated and centralized to the Clearwater, Florida office. TeamStaff also
had sales service centers that are located in New York, New York; Somerset, New
Jersey; Clearwater and Boca Raton Florida; Alpharetta, Georgia; Houston, Texas;
and Woburn and Northampton, Massachusetts. A sales service center was an office
used primarily or partially for sales efforts and client services.

TeamStaff leases its 19,883 square foot corporate headquarters in Somerset, New
Jersey, as well as offices in Clearwater and Boca Raton, Florida; Alpharetta,
Georgia; Houston, Texas; New York City; and Woburn and Northampton,
Massachusetts. The facilities provide sufficient capacity to meet demands for
the foreseeable future. In the fiscal year ended September 30, 2003, TeamStaff's
total lease expenses were $1.9 million.

The following is summary information on TeamStaff's facilities:

APPROXIMATE EXPIRATION
LOCATION SQUARE FEET DATE TERMS
- -------- ----------- ---- -----

2 Northpoint Drive**** 4,610 7/31/04 $7,299 per month
Suite 760
Houston, TX

1901 Ulmerton Road 32,402 5/31/05 $61,109 per month
Suite 800/450
Clearwater, FL

Corporate Headquarters 15,244 9/30/07 $26,677 per month
300 Atrium Drive
Somerset, NJ

Corporate Headquarters* 4,639 5/30/04 $5,000 per month
300 Atrium Drive
Somerset, NJ

245 Fifth Avenue, Suite 701**** 3,560 7/31/06 $12,652 per month
New York, NY

2650 N. Military Trail** 10,823 7/31/07 $12,216 per month
Suite 300
Boca Raton, FL 33431

800 West Cummings Park 1,900 9/14/05 $4,992 per month
Suite 1500
Woburn, MA

3650 Mansell Road 11,848 11/15/04 $22,969 per month
Suite 200
Alpharetta, GA

136 West Street*** 3,148 9/30/05 $3,798 per month
Northampton, MA

*As part of the transaction with Gevity HR, Inc., Gevity has agreed to reimburse
TeamStaff for the lease and operating costs of this office space through the
expiration of the lease term.

**As part of the transaction with Gevity HR, Inc., Gevity has agreed to sublease
this office space for a six-month period commencing on December 1, 2003.

***As part of the transaction with Gevity HR, Inc., Gevity has agreed to assume
the lease for this office space.

****As a result of the sale of the PEO division, the company will no longer
utilize the facilities at these locations, but continues to have a financial
obligation for the term of the lease.

ITEM 3. LEGAL PROCEEDINGS

In July 2000, TeamStaff made claims for indemnification against the selling
shareholders of the TeamStaff Companies (the Sellers), which were acquired by
TeamStaff in January 1999. The claims consisted of various potential liabilities
and expenses incurred based on breaches of representations and warranties
contained in the acquisition agreement. The Sellers disputed these claims and
attempted to assert claims of their own. On January 12, 2001, TeamStaff entered
into a settlement agreement with the Sellers. Under the settlement agreement,
the Sellers agreed to be liable and responsible for certain potential
liabilities estimated at approximately $0.5 million and agreed that 55,000
shares of TeamStaff common stock, which had been held in escrow since the
acquisition, were to be cancelled and TeamStaff agreed to release 29,915 escrow
shares to the Sellers. TeamStaff retains 75,000 shares in escrow to provide
security for the Seller's obligations. Each party agreed to release each other
from all other claims under the acquisition agreements. No third parties have
contacted TeamStaff seeking payment in the last fiscal year for these potential
liabilities. In the event that TeamStaff incurs liability to third parties with
respect to the claims, TeamStaff would declare an event of default under the
settlement agreement and seek collection from the Sellers.

damages for alleged unpaid contractual services provided to BrightLane, alleging
that the shares (both in number and value) of BrightLane stock provided to the
plaintiff in payment of services were inadequate to pay for the alleged agreed
upon value of services. TeamStaff and BrightLane intend to defend themselves
vigorously in this matter and believes that they have meritorious and valid
defenses to plaintiff's claims. In addition, the former shareholders of
BrightLane have placed approximately 158,000 shares in escrow to provide
indemnification for any claims made by TeamStaff under the acquisition
agreement, subject to a $0.3 million threshold. Some or all of these shares may
be canceled in an amount equal to the amount of any claim or expense in excess
of the threshold. Under the terms of the agreements between TeamStaff and
BrightLane, the value of the shares held in escrow is $8.10/share. It is
possible that an award in favor of Atomic Fusion would result in monetary
damages against TeamStaff, which could not be recovered under the
indemnification provisions because cancellation of the shares in escrow is the
sole method of satisfying these indemnification obligations. On November 20,
2003, the Fulton County Superior Court (to which the action was transferred)
awarded summary judgment in BrightLane's favor on all counts of Atomic Fusion's
complaint except for a beach of contract claim. We intend to continue our
defense in the matter.

As a commercial enterprise and employer and with respect to its
employment-related businesses in particular, TeamStaff is engaged in litigation
from time to time during the ordinary course of business in connection with
employment-relations issues, workers' compensation and other matters. Generally,
TeamStaff is entitled to indemnification or repayment from its former PEO
clients for claims brought by worksite employees related to their employment.
However, there can be no assurance that the client employer will have funds or
insurance in amounts to cover any damages or awards, and as co-employer,
TeamStaff may be subject to liability.

TeamStaff is engaged in no other litigation, the effect of which would be
anticipated to have a material adverse impact on TeamStaff's financial
conditions or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

On August 12, 2003, TeamStaff held its Annual Meeting of Shareholders. The only
matters before the shareholders was the election of two persons as Class I
directors for a term of three years. The persons nominated for election were T.
Stephen Johnson and Ben J. Dyer. The record date for persons eligible to vote
was June 16, 2003 and as of that date there were 15,676,172 shares of common
stock issued and outstanding. Voting of the shares of common stock was on a
noncumulative basis.

Both nominees were elected to the Board of Directors. The results of the vote
were:

Withheld
Authority Votes Cast
Nominees Votes Cast For to Vote Against
-------- -------------- ------- -------

T. Stephen Johnson 12,494,745 210,537 0
Ben J. Dyer 12,494,315 210,967 0

PART II

ITEM 5. MARKET OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

A. PRINCIPAL MARKET

TeamStaff's Common Stock is traded in the over-the-counter market and included
in the National Market System of the National Association of Securities Dealers,
Inc. ("NASDAQ") under the symbol "TSTF." TeamStaff started trading on the
National Market in June 2001. Prior to that date, TeamStaff was trading on the
SmallCap market system.

B. MARKET INFORMATION

The range of high and low sales prices for TeamStaff's Common Stock for the
periods indicated below are:

COMMON STOCK

FISCAL YEAR 2001 HIGH LOW
- ---------------- ---- ---

1st Quarter $6.12 $2.41
2nd Quarter 6.19 4.50
3rd Quarter 8.69 4.59
4th Quarter 10.34 5.75

FISCAL YEAR 2002 HIGH LOW
- ---------------- ---- ---

1st Quarter 7.49 5.16
2nd Quarter 6.35 3.88
3rd Quarter 6.85 4.60
4th Quarter 7.64 2.66

FISCAL YEAR 2003 HIGH LOW
- ---------------- ---- ---

1st Quarter 4.05 2.47
2nd Quarter 3.62 2.48
3rd Quarter 3.09 2.00
4th Quarter 2.70 2.01

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 December 12, 2003, TeamStaff's
Common Stock had a closing price of $2.08 per share.

C. 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 8,216,522 shares of its Common Stock in exchange for
all of the outstanding capital stock of BrightLane. The issuance of 8,216,522
shares includes the issuance of 158,000 shares into escrow to provide for
potential indemnification to TeamStaff for claims against Brightlane covered by
the acquisition agreements and is before deduction for fractional shares, which
were paid in cash. As of December 12, 2003, not all of the BrightLane
shareholders had submitted their capital stock for exchange.

As of December 12, 2003, there were 15,714,229 shares outstanding held of record
by 298 persons. TeamStaff believes it has approximately 2,500 beneficial owners
of its common stock.

E. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

TeamStaff has five equity compensation plans, all of which were approved by its
Board of Directors and its shareholders. There are no equity based plans, which
have not been approved by shareholders. 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. The stock
option plans under which options are outstanding are:

The 1990 Employee Stock Option Plan
The 1990 Non-Executive Director Option Plan
The 1990 Senior Management Plan
The 2000 Employee Stock Option Plan
The 2000 Non-Executive Director Option Plan

Options are no longer being issued under the 1990 Employee Stock Option Plan,
the 1990 Non-Executive Director Option Plan or the 1990 Senior Management Plan
and no options were issued under these plans during the fiscal years ended
September 30, 2003 or 2002.

EQUITY COMPENSATION PLAN INFORMATION

NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCES UNDER
NUMBER OF SECURITIES TO BE WEIGHED AVERAGE EQUITY COMPENSATION
ISSUED UPON EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (a))
------------- ------------------- ------------------- -----------

Equity Compensation Plans 1,506,900* $4.60 501,286
Approved by Security Holders

Equity Compensation Plans Not
Approved by Security Holders 0 0 0

*Subsequent to September 30, 2003 TeamStaff granted options to purchase 50,000
shares of common stock to the new TeamStaff RX President Timothy Nieman which is
reflected above.

ITEM 6. SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS)

2002
2003 As Restated 2001 2000 1999
---- --------------- -------- -------- --------

Revenues $ 62,805 $ 79,820 $ 69,054 $ 46,557 $ 40,033

Direct expenses 50,615 63,796 54,730 37,145 30,574

Gross profit 12,190 16,024 14,324 9,412 9,459

Selling, general & administrative
expenses (includes depreciation
and amortization) 15,095 12,283 9,812 6,866 6,891

(Loss) income from continuing operations (2,905) 3,741 4,512 2,546 2,568

(Loss) income before extraordinary item
and discontinued operations (1,594) 2,974 2,955 1,680 1,834

Extraordinary item net of tax 0 0 (354) 0 0

Discontinued operations net of tax (27,291) 101 (1,251) (729) (58)

(Loss) net income ($ 28,885) $ 3,075 $ 1,350 $ 951 $ 1,776

Earnings per share - Basic
(Loss) income from continuing operations (0.10) $ 0.18 $ 0.34 $ 0.21 $ 0.26
Extraordinary item - - (0.04) - -
(Loss) income from discontinued operations (1.74) 0.01 (0.14) (0.09) (0.01)
Net income (1.84) $ 0.19 $ 0.16 $ 0.12 $ 0.25

Earnings per share - Diluted
(Loss) income from continuing operations (0.10) $ 0.18 $ 0.33 $ 0.21 $ 0.26
Extraordinary item - - (0.04) - -
(Loss) income from discontinued operations (1.74) 0.01 (0.14) (0.09) (0.01)
Net income (1.84) $ 0.19 $ 0.15 $ 0.12 $ 0.25

Weighted average shares outstanding:
Basic 15,732 16,014 8,693 7,954 7,128
Diluted 15,732 16,183 8,907 7,991 7,145

BALANCE SHEET DATA:

Assets from continuing operations 38,168 42,540 42,636 21,775 17,827
Assets held for sale 22,449 51,426 49,224 27,739 18,555
Total Assets 60,617 93,966 91,860 49,514 36,382

Long-term liabilities 1,818 1,418 1,197 6,222 4,502

Liabilities from continuing operations 9,123 10,883 11,406 15,248 9,926
Liabilities held for sale 16,384 18,344 19,311 16,207 9,491
Liabilities 25,507 29,227 30,717 31,455 19,417

Working capital from continuing operations 8,305 17,938 14,636 5,199 4,461

Shareholders' equity $ 35,110 $ 64,739 $ 61,143 $ 18,059 $ 16,965

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD LOOKING AND CAUTIONARY STATEMENTS

Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"1995 Reform Act"). TeamStaff, Inc. desires to avail itself of certain "safe
harbor" provisions of the 1995 Reform Act and is therefore including this
special note to enable TeamStaff to do so. Forward-looking statements included
in this report 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 managements best estimates
based upon current conditions and the most recent results of operations. These
risks include, but are not limited to, risks associated with risks undertaken in
connection with acquisitions, risks from potential workers' compensation claims,
increased insurance costs and required payments, risks from employer/employee
related suits such as discrimination or wrongful termination, risks associated
with payroll and employee related taxes which may require unanticipated payments
by TeamStaff, liabilities associated with TeamStaff's status under certain
federal and state employment laws as a co-employer, effects of competition,
TeamStaff's ability to implement its internet based business and technological
changes, and dependence upon key personnel.

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.

REVENUE RECOGNITION AND CHANGE IN POLICY

As of September 30, 2003, TeamStaff operated three different lines of business
from which it derived substantially all of its revenue: temporary staffing,
payroll services, and professional employer organization (PEO).

TeamStaff accounts for its revenues in accordance with EITF 99-19, Reporting
Revenues Gross as a Principal Versus Net as an Agent. TeamStaff recognizes all
amounts billed to its temporary staffing customers as gross revenue because,
among other things, TeamStaff is the primary obligor in the temporary staffing
arrangement, TeamStaff has pricing latitude, TeamStaff selects temporary
employees for a given assignment from a broad pool of individuals, TeamStaff is
at risk for the payment of its direct costs, whether or not TeamStaff's
customers pay TeamStaff on a timely basis or at all, and TeamStaff assumes a
significant amount of other risks and liabilities as an employer of its
temporary 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 temporary employees which have not yet been billed to the customer
as of the end of the accounting period.

The temporary staffing 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 temporary employees, plus an estimate to
cover overhead expenses and a profit margin. Additionally included in revenue
related to temporary staffing are commissions from permanent placements.
Commissions from permanent placements result from the successful placement of a
temporary employee to a customer's workforce as a permanent employee.

The payroll services revenue is recognized as service is rendered and consists
primarily of administrative service fees charged to clients for the processing
of paychecks as well as preparing quarterly and annual payroll related reports.

In connection with its discontinued operation, TeamStaff's professional employer
organization division revenues historically had been derived from its PEO
division gross billings, which were based on: (i) the payroll cost of its
worksite employees; and (ii) associated payroll taxes, benefit costs, workers'
compensation charges and administrative fees. The gross billings were invoiced
to clients concurrently with each periodic payroll of its worksite employees.
Historically, TeamStaff had included both components of its PEO gross billings
in revenues (gross method) due primarily to the assumption of significant
contractual rights and obligations and other liabilities TeamStaff assumed as an
employer, regardless of whether it actually collected its gross billings. After
discussions with Securities and Exchange Commission staff, and with the
concurrence of its auditors, TeamStaff changed its presentation of PEO revenues
from the gross method to an approach that presented its revenues net of worksite
employee payroll costs (net method) primarily because TeamStaff was not
generally responsible for the output and quality of work performed by the
worksite employees. This change in accounting method reduced both the revenue
and direct costs for fiscal years ended September 30, 2003, 2002 and 2001 by
$409.0 million, $485.1 million and $483.8 million, respectively, but had no
effect on gross profit, operating income or net income (loss). The above amounts
have now been reflected as part of income (loss) from discontinued operations in
the consolidated financial statements. Consistent with this change in revenue
recognition policy, TeamStaff's PEO division direct costs did not include the
payroll costs of its worksite employees. TeamStaff's PEO division direct costs
associated with its revenue generating activities were comprised of all other
costs related to its worksite employees, such as the employer portion of
payroll-related taxes, employee benefit plan premiums and contributions and
workers' compensation insurance premiums. See "Recent Developments: Sale of PEO
division assets to Gevity HR, Inc." for further information.

TeamStaff negotiated the pricing for its various services on a client-by-client
basis based on factors such as market conditions, client needs and services
requested, the client's workers' compensation experience, the type of client
business and the required resources to service the account, among other factors.
Because the pricing was negotiated separately with each client and vary
according to circumstances, TeamStaff's revenue, and therefore its gross margin,
fluctuated based on its client mix.

Direct costs of services are reflected in TeamStaff's Statement of Operations as
"direct expenses" and are reflective of the type of revenue being generated.
Direct costs of the temporary staffing business include wages, employment
related taxes and reimbursable expenses. Payroll services' direct costs includes
salaries and supplies associated with the processing of the payroll service.

GOODWILL AND INTANGIBLE ASSETS

Beginning October 1, 2001, with the adoption of accounting standard (SFAS 142),
TeamStaff no longer amortizes goodwill or indefinite life intangible assets, but
continues to amortize software at its expected useful life. 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.

WORKERS' COMPENSATION

As of the fiscal year ended September 30, 2003, TeamStaff's insurance provider
is Zurich American Insurance Company (Zurich). The program is managed by Cedar
Hill Insurance Agency, Inc. (Cedar Hill), whose duties include underwriting
analysis of potential and current clients, loss control services, and other
program management services. In addition, TeamStaff's workers' compensation
insurance broker, The Hobbs Group, provides claims oversight and also provided
certain underwriting and claims management services. This policy covers
TeamStaff's corporate employees, the worksite employees co-employed by TeamStaff
and its PEO clients, and the temporary employees employed by TeamStaff to
fulfill various client-staffing assignments. TeamStaff does not provide workers'
compensation coverage to non-employees.

The Zurich program originally covered the period March 22, 2002 through March
31, 2003, inclusive. The program contained a large deductible feature of $0.5
million for each claim, with no maximum liability cap. The premium for the
program was paid monthly based upon estimated payroll for the year and is
subject to a policy year end audit, which was completed prior to the end of our
fiscal year end September 30, 2003. The Zurich deductible program was
collateralized by a letter of credit inuring to the benefit of Zurich, and cash
held in a trust account with a third party. The letter of credit for $4.2
million was secured through Fleet, as part of TeamStaff's line of credit. In
connection with the renewal of this program discussed below, Zurich released
this letter of credit. Payments were made to the trust monthly based on
projected claims for the year. Interest on all assets held in the trust is
credited to TeamStaff. Payments for claims and claims expenses will be made from
the trust. Assets in the trust may be adjusted from time to time based on
program claims experience. Claims handling services for the program is provided
by a third party administrator assigned by Cedar Hill. At September 30, 2003,
TeamStaff has a prepaid current asset of $1.5 million for the premiums and the
prepayments made to the trust.

On March 28, 2003, TeamStaff renewed its workers' compensation program with
Zurich for the period from April 1, 2003, through March 31, 2004, inclusive.
(See Note 3 to the consolidated financial statements) The renewal program
contains a large deductible feature of $0.5 million for each claim, with a
maximum liability cap of the greater of 104.41% of manual premium or $15.6
million. The premium for the program is paid monthly based upon estimated
payroll for the year and is subject to a policy year-end audit. The new program
is collateralized by a letter of credit inuring to the benefit of Zurich, and
cash held in a trust account with a third party. The new letter of credit for
$3.5 million was secured through Fleet, as part of TeamStaff's line of credit.
Payments are made to the trust monthly based on projected claims for the year.
Interest on all assets held in the trust is credited to TeamStaff. Payments for
claims and claims expenses will be made from the trust. Assets in the trust may
be adjusted from time to time based on program experience. Claims handling
services for the program are provided by GAB Robins, a third party
administrator. At September 30, 2003, TeamStaff has a prepaid current asset of
$2.1 million for the premiums and the prepayments made to the trust.

In conjunction with the sale of its PEO assets to GevityHR, Inc., TeamStaff
requested a pro rata cancellation of this policy effective as of November 17,
2003. TeamStaff entered into a new workers' compensation program with Zurich
covering TeamStaff's temporary employees. The program is managed by Cedar Hill
and claims handling services for the program are provided by GAB Robins. This
program is a fully-insured, guaranteed cost program that contains no deductible
or retention feature. This new policy will terminate effective April 1, 2004.

TeamStaff's primary workers' compensation insurance provider from January 22,
2001 through March 21, 2002, was Continental Assurance (CNA). This policy
covered its corporate employees, the worksite employees co-employed by TeamStaff
and its PEO clients, and the temporary employees employed by TeamStaff to
fulfill various client-staffing assignments.

The CNA policy originally covered the period from January 22, 2001 through
January 21, 2002, but was extended to March 21, 2002. It was a large deductible
program ($250,000 for each claim) with a maximum liability cap. The premium for
the policy was paid monthly based upon estimated payroll for the year and is
subject to a year-end audit by the provider. TeamStaff also maintained a
separate policy insuring a portion of the maximum deductible cap, which it may
be required to pay if claims exceed a determined number. The policy, including
the extension, insures payment of the maximum cap in excess of the first $2.1
million, which TeamStaff pays, up to $8.7 million. Once the $8.7 million is
exceeded, TeamStaff pays 89.5% of paid claims up to $12.1 million. If the claims
and fixed costs under the policy are less than the amounts TeamStaff paid, plus
investment returns thereon, the insurer is contractually obligated to refund the
difference to TeamStaff.

disclosed, TeamStaff had received a release for those periods from CNA in
January 2001, when TeamStaff accepted CNA as its new insurance carrier.
TeamStaff has denied CNA's claim and, to date, has received $0.2 million back
from the original $0.5 million payment. TeamStaff believes that the remaining
funds should be returned as well. Should TeamStaff be unsuccessful in receiving
a refund of all monies paid, it will be required to absorb these claims.
However, TeamStaff has recorded a liability on its books for the estimated
claims for the two-month extension, which exceeds the $0.3 million disputed
amount. Accordingly, TeamStaff plans to offset this $0.3 million amount from any
monies potentially owed by TeamStaff to CNA. On January 27, 2003, TeamStaff
filed a complaint of unfair or deceptive acts or practices in the business of
insurance against CNA with the New Jersey Division of Insurance. The New Jersey
Division of Insurance referred the matter to the New Jersey Compensation Rating
and Inspection Bureau, which has investigated the complaint and proposed a fine
against CNA and a refund of $0.2 million in policy issuance costs to TeamStaff.
TeamStaff and CNA are attempting to resolve these matters amicably.

Prior to its reclassification as discontinued operations, TeamStaff recorded in
direct expenses a monthly charge based upon its estimate of the year's ultimate
fully developed claims plus the fixed costs charged by the insurance carrier to
support the program. This estimate is established each quarter based in part
upon information provided by TeamStaff's insurers, internal analysis and its
insurance broker. TeamStaff's internal analysis includes a quarterly review of
open claims and a review of historical claims related to the workers'
compensation programs. While management uses available information, including
nationwide loss ratios, to estimate ultimate claims, future adjustments may be
necessary based on actual claims incurred during the policy period. Since the
recorded ultimate expense is based upon a ten-year projection of actual claims
payment and the timing of these payments as well as the interest earned on
TeamStaff's prepayments, TeamStaff also relies on actuarial tables to estimate
its ultimate expense.

As of September 30, 2003, the adequacy of the workers' compensation reserves 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 which may include loss data for claims
incurred during prior policy periods. As disclosed in our Form 10-K for the
fiscal year ended September 30, 2002, TeamStaff has encountered difficulties in
receiving timely reporting of claims from CNA. In the future, similar problems
from our insurance carriers may result in adjustments to our reserves. In
addition, these reserves are for claims that have not been sufficiently
developed due to their relatively young age, and such variables as timing of
payments and investment returns thereon are uncertain or unknown, 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 reserves as deemed appropriate.

EMPLOYEE PENSION PLAN

Effective October 1, 2000, TeamStaff adopted a non-qualified, supplemental
executive retirement plan. As of September 30, 2003, only two former officers
were covered under the SERP plan. TeamStaff records annual amounts relating to
this plan in accordance with calculations which include various actuarial
assumptions, such as discount rates and assumed rates of return. TeamStaff
reviews its actuarial assumptions on an annual basis and makes modifications to
the assumptions based on current rates and trends when it is deemed appropriate
to do so.

SERP participants also are provided with a split dollar life insurance policy,
insuring the life of the participant until the participant reaches age 65. Under
the terms of an agreement between each participant and TeamStaff, although the
participant is the owner of the Policy, each participant has collaterally
assigned his Policy to TeamStaff to secure repayment of the premiums through
either its cash surrender value or the Policy proceeds. Additionally, pursuant
to the agreement, the participant's right to the Policy vests and becomes
nonforfeitable 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 agreement), TeamStaff will release
the collateral assignment of the Policy provided the participant releases
TeamStaff from all obligations it may have with respect to the participant
(including those under the SERP). Under the agreement, TeamStaff is required to
pay all Policy premium costs. However, given the uncertainty of TeamStaff's
ability to continue to maintain this payment arrangement in light of certain of
the provisions of the Sarbanes-Oxley Act of 2002, TeamStaff had, with the former
President and Chief Executive Officer's consent, deferred paying Policy premiums
on his behalf. TeamStaff paid the former President and Chief Executive Officer a
bonus in the amount of Policy premiums covering the period through September 30,
2003, grossed-up to cover allocable income taxes.

During fiscal 2003, two events were recognized as curtailments under SFAS No.
88. Donald Kelly was relieved of his duties as Chief Financial Officer. A
curtailment charge related to this event of $254,000 was recognized during the
second quarter. Donald Kappauf relinquished his positions as President and Chief

Executive Officer. A curtailment charge related to this event of $445,000 was
taken during the third quarter. TeamStaff is not aware of any other events that
might constitute settlement or curtailment under SFAS No. 88.

DEFERRED TAXES

TeamStaff accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
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.

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.

In connection with its discontinued operation, TeamStaff believed that the
success of its PEO business was heavily dependent on its ability to collect
these service fees for several reasons, including (i) the large volume and
dollar amount of transactions processed by TeamStaff, (ii) the periodic and
recurring nature of payroll, upon which the service fees were based, and (iii)
the fact that TeamStaff was at risk for the payment of its direct costs
regardless of whether its clients paid their service fees. To mitigate this
risk, TeamStaff established very tight credit policies. TeamStaff generally
required its clients to pay their service fees no later than one day prior to
the applicable payroll date. In addition, TeamStaff maintained the right to
terminate its Client Service Agreement and associated worksite employees or to
require prepayment, letters of credit or other collateral upon deterioration in
a client's financial position or upon nonpayment by a client. As a result of
these efforts, the outstanding balance of accounts receivable and subsequent
losses related to customer nonpayment had historically been very low as a
percentage of revenues.

FISCAL YEAR 2003 AS COMPARED TO FISCAL YEAR 2002-CONTINUING OPERATIONS

TeamStaff's revenues for the fiscal years ended September 30, 2003 and 2002 were
$62.8 million and $79.8 million, respectively, which represents a decrease of
$17.0 million, or 21.3%, over the prior year fiscal year. Decreased revenues in
TeamStaff's Medical Staffing division accounted for approximately $16.7 million
less revenue. This decrease has partially been attributed to our closing of the
division's Houston, Texas office in April 2002. This office was primarily
involved in staffing per diem nurses in the local Houston market. Our Medical
Staffing business places predominantly long term temporary medical personnel in
assignments that average at least thirteen weeks compared to per diem staffing,
which are typically staffed on an hourly or daily basis. The overhead necessary
to support per diem nursing did not justify keeping this location in operation.
In addition, due to the increased number of temporary medical staffing companies
that have appeared over the last few years, our Medical Staffing business
segment is facing increased competition from a number of companies. While many
of these companies had traditionally concentrated in the nursing market, they
have expanded their operations into markets, such as imaging personnel staffing,
where TeamStaff Rx has concentrated, and which previously were substantially
less competitive. Also contributing to the decrease in revenues is the recent
practice among hospitals of forcing overtime to permanent staff and replacing
temporary positions with permanent hires. Longer term, we believe the demand for
temporary medical personnel will increase, driven, in part, by an aging
population and an improving economy.

Direct expenses were $50.6 million for the fiscal year ended September 30, 2003
and $63.8 million for last year, representing a decrease of $13.2 million, or
20.7 %. This decrease is a direct result of the lower consolidated revenues. As
a percentage of revenue, direct expenses for the fiscal years ended September
30, 2003 and 2002 were 80.6% and 79.9%, respectively.

Gross profits were $12.2 million and $16.0 million for the fiscal years ended
September 30, 2003 and 2002, respectively, a decrease of $3.8 million, or 23.9%.
This decrease is attributed to the reduction in our Medical Staffing revenue.
Gross profits, as a percentage of revenue, were 19.4% and 20.1% for the fiscal
years ended September 30, 2003 and 2002, respectively

Selling, general and administrative (SG&A) expenses for the fiscal years ended
September 30, 2003 and 2002 were $14.8 million and $12.1 million respectively,
representing an increase of $2.7 million or 22.2%. The overall

increase in SG&A is primarily attributable to an accrual for severance agreement
obligations related to TeamStaff's former President and Chief Executive Officer
and former Chief Financial Officer under their severance agreements and the SERP
of $2.6 million.

Depreciation and amortization for the fiscal years ended September 30, 2003 and
2002 were $0.3 million and $0.2 million respectively.

Interest and other income was $0.6 million and $1.1 million for the fiscal years
ended September 30, 2003 and 2002, respectively, a decrease of $0.5 million.
This decrease is primarily attributable to the reduction in late payment fees
received by our Medical Staffing division due to a more competitive pricing
environment, and referral fees received in fiscal 2002 due to the closing of the
Houston Medical Staffing service office.

Interest and other expense was $0.2 million for the fiscal years ended September
30, 2003 and 2002

Income tax benefit from continuing operations for the fiscal year ended
September 30, 2003 was $0.9 million versus income tax expense of $1.7 million
for the fiscal ended September 30, 2002. These tax benefits in 2003 are a result
of losses from operations.

Loss from continuing operations for the fiscal year ended September 30, 2003 was
$1.6 million or $.10 per fully diluted share, as compared to income from
continuing operations of $3.0 million or $0.18 per fully diluted share for the
same period last year. This decrease is due to the decreased performance of
TeamStaff's Medical Staffing division and the accrual for TeamStaff's potential
obligations to its former Chief Executive Officer and Chief Financial Officer
under their severance agreement and under its SERP.

Losses from discontinued operations net of tax for the fiscal year ended
September 30, 2003 was $27.3 million compared to income from discontinued
operations net of tax of $0.1 million for the same period last year. This
decrease is predominantly due to the after-tax write down of impaired goodwill
and the intangibles related to the Wachovia relationship of $25.4 million. See
"Recent Developments: Sale of PEO division assets to Gevity HR, Inc." for
further information.

Net loss for the fiscal year ended September 30, 2003 was $28.9 million or $1.84
per fully diluted share, as compared to net income of $3.1 million or $0.19 per
fully diluted share for the same period last year.

FISCAL YEAR 2002 AS COMPARED TO FISCAL YEAR 2001 AS RESTATED-CONTINUING
OPERATIONS

The results below reflect a restatement of the balance sheet and statement of
income for the September 30, 2001 fiscal year end. As discussed in Note 13 of
the financial statements included in this Form 10-K, the restatement has been
required in order to properly reflect certain footnote disclosures and
adjustments regarding the Company's supplemental executive retirement plan
adopted on October 1, 2000.

TeamStaff's revenues for the fiscal years ended September 30, 2002 and 2001 were
$79.8 million and $69.1 million respectively, which represents an increase of
$10.7 million or 15.6%. Our Medical Staffing business continued its strong
growth, growing $10.4 million, or 16.2%, over fiscal year 2001

Direct expenses were $63.8 million for the fiscal year ended September 30, 2002
and $54.7 million for the comparable period of fiscal year 2001, representing an
increase of $9.1 million or 16.6%. This increase was attributable to the revenue
growth in our Medical Staffing business. As a percentage of revenue, direct
expenses for 2002 and 2001 were 79.9% and 79.3%, respectively.

Gross profit was $16.0 million and $14.3 million for the fiscal years ended
September 30, 2002 and 2001, respectively, representing an increase of $1.7
million or 11.9%. Gross profit, as a percentage of revenue, was 20.1% and 20.7%
for the fiscal years ended September 30, 2002 and 2001, respectively.

Selling, general and administrative (SG&A) expenses for the fiscal years ended
September 30, 2002 and 2001 were $12.1 million and $9.4 million, respectively,
representing an increase of $2.7 million or 28.1%. The SG&A expenses in the
Medical Staffing business grew by $1.1 million, in order to support its growing
business. Corporate overhead grew by $1.4 million which was mainly due to: $0.2
million in acquisition costs incurred in two aborted PEO acquisition efforts;
$0.2 million due to a bonus given to the Chief Executive Officer upon the
successful negotiation of TeamStaff's new workers' compensation policy; $0.2
million due to investment banking fees and related costs incurred with respect
to the analysis of strategic alternatives associated with the Medical Staffing
business; $0.3

million in higher corporate insurance associated with the growth of TeamStaff as
well as due to much higher rate increases throughout the insurance market; and
$0.3 million in costs associated with TeamStaff's year-end accounting issues
associated with the restatement of 2001 and the hiring of new auditors.

Depreciation and amortization for the fiscal years ended September 30, 2002 and
2001 were $0.2 million and $0.4 million, respectively. As a result of
implementing SFAS No.142 as of October 1, 2001, TeamStaff has ceased amortizing
any indefinite life intangible assets and goodwill. In the fiscal year ended
September 30, 2001, we amortized $0.2 million in intangible assets and goodwill.

Interest and other income for the fiscal years ended September 30, 2002 and 2001
were $1.1 million and $1.0 million, respectively, representing an increase of
$0.1 million or 16.5%. Of this increase, $0.2 million relates to increased late
payment fee income in the Medical Staffing business, and $0.1 million reflects
the referral fees TeamStaff is receiving as a result of the referral to a third
party of certain of the former Medical Staffing business when we closed our
Houston Medical Staffing service office in April 2002. This was reduced somewhat
by lower interest rates on overnight investments.

Interest and other expense were $0.2 million in the fiscal year ended September
30, 2002 as compared to $0.4 million in fiscal year ended September 30, 2001,
representing a decrease of $0.2 million or 60.1%. These decreases were due to
the retirement of our debt facility with FINOVA Capital effective August 31,
2001.

Income tax expense, before the impact of an extraordinary item, for the fiscal
year ended September 30, 2002 was $1.7 million versus $2.1 million fiscal 2001.
TeamStaff's effective tax rate was 36.6% and 41.8% for the fiscal years ended
September 30, 2002 and 2001, respectively. The decrease in the effective tax
rate relates primarily to non-deductible goodwill, which, as of October 1, 2001,
is no longer amortized as a result of implementing SFAS No. 142.

Income before discontinued operations and extraordinary item for the fiscal
years ended September 30, 2002 and 2001 were $3.0 million or $.18 per fully
diluted share and $3.0 million or $.33 per fully diluted share, respectively.
Both business units' profitability increased over last year as reported in
TeamStaff's Segment Reporting disclosure. See "Recent Developments: Sale of PEO
division assets to Gevity HR, Inc." for further information.

The extraordinary item net of taxes pertains to the unamortized financing costs
and fees, associated with the FINOVA loans, written off when these loans were
retired early in April and August 2001. These loans had a remaining life at the
time of payment of approximately two years (April 2003).

Income after-tax from discontinued operations for the fiscal year ended
September 30, 2002 was $0.1 million compared to losses after-tax from
discontinued operations of $1.3 million for the same period of the prior year.
This favorable improvement was due to the favorable settlement of workers'
compensation claims offset by an increase in our CNA workers' compensation
reserves.

Net income for the fiscal year ended September 30, 2002 was $3.1 million, or
$0.19 per fully diluted share, as compared to $1.3 million, or $0.15 per fully
diluted share, for the fiscal year ended September 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities in the fiscal year 2003 was $6.8 million
compared to $1.3 million in fiscal 2002. The change in cash from operations
compared to last year relates to a loss from continuing operations in 2003
compared to income from continuing operations in 2002, increases in deferred
taxes and increase in restricted cash primarily associated with potential
obligations to our former Chief Executive Officer and Chief Financial Officer's
under their SERP agreements.

Cash used in investing activities of $0.4 million was primarily related to
internally developed capitalized software of $0.2 million, additional fees
incurred for Lawson implementation for $0.1 million and software license fees of
$0.1 million.

The cash used in financing activities of $0.9 million was primarily due to
spending $0.8 million in repurchasing 251,214 shares of TeamStaff stock in
fiscal 2003.

As of September 30, 2003, TeamStaff had cash and cash equivalents of $4.3
million and net accounts receivable of $4.9 million. The amount of available
cash includes cash held for future payroll and other related taxes payable on a
quarterly basis. Management believes its existing cash will be sufficient to
support cash needs for at least the next twelve months. TeamStaff anticipates
that it will continue to sustain losses from operations during the first three
quarters of fiscal 2004 and, based on the projected timetable for the
implementation of its new business strategy for TeamStaff Rx, will not realize
profits from operations until the fourth quarter of fiscal 2004. In the event
TeamStaff's business strategy for TeamStaff Rx requires additional time to fully
implement, or proves unsuccessful in the marketplace, TeamStaff could continue
to sustain losses throughout the next fiscal year.

On July 22, 1999, the Board of Directors authorized the repurchase up to 3% of
the outstanding shares of TeamStaff's common stock. On November 19, 2002, the
Board of Directors authorized an additional repurchase of up to $1.0 million in
common stock. Since inception through September 30, 2003, we have repurchased
581,470 shares at an average cost of $4.18 per share for a total cost of $2.4
million. These share repurchases are reflected as treasury shares in these
financial statements and will eventually be retired. As of September 30, 2003,
TeamStaff retired 28,456 shares of treasury stock. As of December 1, 2003,
TeamStaff retired an additional 546,014 shares of treasury stock.

On April 9, 2002, TeamStaff entered into a revolving loan facility with Fleet
National Bank ("Fleet"). The total outstanding loan amount cannot exceed at any
one time the lesser of $7.0 million or the sum of 85% of qualified accounts
receivable, less an amount reserved by Fleet to support direct debit processing
exposure. The annual interest rate is either the Fleet prime rate or LIBOR, at
the discretion of TeamStaff, and is currently 4.00%. The facility is
collateralized by substantially all of the assets of TeamStaff, including its
accounts receivables. The facility is subject to certain covenants including,
but not limited to, interest rate coverage of 2.0 to 1.0, total liabilities to
tangible net worth ratio of 2.0 to 1.0, and minimum working capital of $10.0
million.

Effective March 21, 2003, TeamStaff and Fleet agreed to a renewal of the
revolving loan facility, which now expires on March 31, 2004. The terms of the
facility are substantially as described above, except that the total outstanding
loan amount at any one time cannot exceed the lesser of $6.0 million or the sum
of 85% of the qualified accounts receivable less an amount reserved by Fleet. At
September 30, 2003, the sole outstanding amount of the facility represented an
outstanding letter of credit in the amount of $3.5 million issued with respect
to TeamStaff's workers' compensation program with Zurich effective April 1, 2003
described above. During the year, Fleet amended the agreement by deleting
covenants related to interest rate coverage and replaced it with minimum
earnings before interest expense and minimum working capital covenants. At
September 30, 2003, TeamStaff was not in compliance with the earnings before
interest expense and minimum working capital covenants. Fleet has agreed to
waive the requirements as of September 30, 2003. TeamStaff and Fleet are working
to determine new covenants for the remaining quarters of the loan. In connection
with the sale of certain PEO assets to Gevity HR, Inc., we were required to
obtain the consent of Fleet to the transaction. As part of its agreement to the
sale of PEO assets (which served as collateral for the loan) Fleet required that
we provide substitution collateral in the form of a $3,500,000 deposit at Fleet.
This deposit may be considered restricted cash in that until the parties review
the loan conditions, we may not use it for general purposes.

Payments Due By Period
----------------------
Obligations Less than
(Amounts in Thousands) Total 1 year 1-3 years 4-5 years
----- ------ --------- ---------

Long-term debt $ 155 $ 61 $ 94 $ 0
Operating leases 4,363 1,816 2,084 463
Workers' compensation(1) 2,723 2,723 0 0
Pension liability(2) 1,724 1,010 249 465
Severance(3) 1,391 782 406 203
-------- -------- ------- -------
Total Obligations $ 10,356 $ 6,392 $ 2,833 $ 1,131
======== ======== ======= =======

- ----------
(1) Payments required in October and November 2003. Policy cancelled effective
November 17, 2003. See Note 3 "Subsequent Events: Discontinued Operations"
in Notes to Consolidated Financial Statements.
(2) Represents pension liability for the former CEO and former CFO.
(3) Represents accrual for termination agreements with former CEO and former
CFO. This amount is included within accrued payroll on Teamstaff's balance
sheet.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" ("SFAS 148"), that is applicable to financial statements issued for
fiscal years ending after December 15, 2002. In addition, interim disclosure
provisions are applicable for financial statements issued for interim periods
beginning after December 15, 2002. This standard amends SFAS 123 and provides
guidance to companies electing to voluntarily change to the fair value method of
accounting for stock-based compensation. In addition, this standard amends SFAS
123 to require more prominent and more frequent disclosures in financial
statements regarding the effects of stock-based compensation.

corporation, partnership, trust, or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights or
(b) has equity investors that do not provide sufficient financial resources for
the entity to support its activities. FIN No. 46 requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entity's activities or is
entitled to receive a majority of the entity's residual returns or both.
Currently this standard has not had an impact on TeamStaff's consolidated
financial statements.

In April 2003, FASB issued Statements of Financial Accounting Standards No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities"
("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under FASB Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS 149 is
generally effective for contracts entered into or modified after June 30, 2003.
Currently this standard has not had an impact on TeamStaff's consolidated
financial statements.

In May 2003, FASB issued Statements of Financial Accounting Standards No. 150
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003. Currently
this standard has not had an impact on TeamStaff's consolidated financial
statements.

ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

TeamStaff does not undertake trading practices in securities or other financial
instruments and therefore does not have any material exposure to interest rate
risk, foreign currency exchange rate risk, commodity price risk or other similar
risks, which might otherwise result from such practices. TeamStaff has no
material interest rate risk, except with respect to our workers' compensation
programs, and is not materially subject to fluctuations in foreign exchange
rates, commodity prices or other market rates or prices from market sensitive
instruments. In connection with TeamStaff's workers' compensation programs,
prepayments of future claims are 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 future periods
decrease, TeamStaff's workers' compensation expense would increase because
TeamStaff would be entitled to less interest income on the deposited funds.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On April 10, 2002, the Board of Directors of TeamStaff and its Audit Committee
decided to change independent public accountants from Arthur Andersen LLP to
PricewaterhouseCoopers, LLP for the fiscal year ending September 30, 2002. The
change was made due to the uncertainties surrounding Arthur Andersen, LLP at the
time.

Arthur Andersen's reports on TeamStaff's consolidated financial statements for
each of the years ended September 30, 2001 and 2000 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. During the years ended
September 30, 2001 and 2000 and through the date hereof, there were no
disagreements with Arthur Andersen on any matter of accounting principle or
practice, financial statement disclosure, or auditing scope or procedure which,
if not resolved to Arthur Andersen's satisfaction, would have caused them to
make reference to the subject matter in connection with their report on our
consolidated financial statements for such years; and there were no reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K.

During the years ended September 30, 2001 and 2000 and through April 10, 2002 ,
TeamStaff did not consult PricewaterhouseCoopers with respect to the application
of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on its
consolidated financial statements, or any other matters or reportable events as
set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

At a meeting held on December 10, 2002, prior to concluding their audit for
fiscal 2002, PricewaterhouseCoopers expressed its opinion to the Audit Committee
of TeamStaff that there were material weaknesses in TeamStaff's

system of internal controls, including the adequacy, competency and reliability
of operational and financial information, information systems and finance
personnel. PricewaterhouseCoopers further stated that information had come to
its attention, that if further investigated may materially impact the fairness
or reliability of the previously issued financial statements for fiscal year
2001 and/or the financial statements to be issued for fiscal year 2002.
PricewaterhouseCoopers also stated that due to an accounting error in the
treatment of a supplemental retirement plan, a restatement and a reaudit of
fiscal 2001 would be required but it declined the engagement for the reaudit of
fiscal year 2001.

In December 2002, PricewaterhouseCoopers further advised TeamStaff that it
believed it would be essential to employ a new Chief Financial Officer and
conditioned the continuance of its audit for fiscal 2002 on the employment of a
new Chief Financial Officer. Pricewaterhouse-Coopers acknowledged that in view
of the foregoing, it was likely that TeamStaff would be unable to make a timely
filing of its annual report for fiscal year 2002.

In response to the foregoing advice from PricewaterhouseCoopers, the Audit
Committee recommended to the Board of Directors that TeamStaff's Chief Financial
Officer be relieved of his duties immediately, and a search for a new Chief
Financial Officer be commenced. The Board accepted and implemented the
recommendations of the Audit Committee in full. We have since retained a new
Chief Financial Officer and have established, and will continue to establish,
new policies and procedures designed to improve the reliability and reporting of
operational and financial information.

Our consolidated financial statements for Fiscal 2001 were audited by Arthur
Andersen which is no longer licensed to practice before the Securities and
Exchange Commission. Therefore, the restatement of Fiscal 2001 required the
reaudit of the Fiscal 2001 financial statements. PricewaterhouseCoopers advised
the Audit Committee that it would not accept an engagement for the reaudit of
Fiscal 2001 due to its concerns regarding the internal control issues described
above. In light of the need to engage a new auditor for Fiscal 2001, the Audit
Committee determined that the interests of TeamStaff were best served by
engaging new independent accountants willing to audit both Fiscal 2001 and
Fiscal 2002.

On December 13, 2002, the Audit Committee dismissed PricewaterhouseCoopers and
engaged Lazar Levine & Felix LLP to serve as TeamStaff's independent public
accountants. In conducting the audit for fiscal year ended September 30, 2002,
Lazar expanded its testing of TeamStaff's internal controls, including
information technology controls, to include the fiscal year ended September 30,
2001. This procedure was followed since the Arthur Anderson work papers were not
readily available for review by Lazar and to investigate the concerns regarding
internal controls raised by PricewaterhouseCoopers. As a result of this expanded
testing, no material weaknesses in the systems was revealed and, based on these
results, Lazar concluded that only an audit of one restatement adjustment, as
discussed below, was appropriate and not a full reaudit of the Fiscal 2001
consolidated financial statements.

Prior to its dismissal, PricewaterhouseCoopers had advised the Audit Committee
that, in PricewaterhouseCoopers' opinion, TeamStaff should not have applied
pension plan accounting to its supplemental retirement plan adopted on October
1, 2000, resulting in a material error requiring the restatement of the fiscal
year 2001 financial statements. This would have resulted in an additional
after-tax charge to earnings of approximately $408,000 in fiscal year 2001.
TeamStaff had engaged an independent firm to design the plan and had reviewed
the plan's accounting treatment with Arthur Andersen prior to its certification
of TeamStaff's fiscal year 2001 financial statements. Lazar advised the Audit
Committee that it had undertaken its own analysis of the appropriate accounting
treatment for the supplemental retirement plan. Lazar determined that the plan
is indeed a pension plan and TeamStaff had accounted for it as such.
Nevertheless, Lazar determined that a restatement of TeamStaff's fiscal year
2001 financial statements was appropriate due to the omission of a note in the
fiscal year 2001 consolidated financial statements containing certain required
disclosures for the plan. Further, an adjustment in the expense calculation of
the plan resulted in a reduction in net income after-tax for fiscal year 2001 of
$76,000 from $1,424,000 to $1,348,000.

In light of the foregoing, TeamStaff determined that the conclusions reached by
PricewaterhouseCoopers concerning TeamStaff's internal controls and financial
and operational systems were not supported by Lazar's independent analysis or
TeamStaff's own assessment of its financial and operational systems.

During the period of PricewaterhouseCoopers's engagement, which commenced on
April 10, 2002, there were no disagreements with PricewaterhouseCoopers on any
matter of accounting principle or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to PricewaterhouseCoopers 's
satisfaction, would have caused them to make reference to the subject matter in
connection with their report on TeamStaff's consolidated financial statements.
PricewaterhouseCoopers did not report on our consolidated financial statements

for any fiscal year. PricewaterhouseCoopers expressed its opinion to the Audit
Committee that there were material weaknesses in our system of internal
controls, including the adequacy, competency and reliability of operational and
financial information, information systems and finance personnel, as described
above.

During the years ended September 30, 2002 and 2001 and the interim periods up to
and including the date of Lazar's engagement, TeamStaff did not consult Lazar
with respect to the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on its consolidated financial statements, or any other matters
or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation
S-K.

The Audit Committee retained Lazar to serve as our independent accountants for
the fiscal year ending September 30, 2003. The audit services provided by Lazar
consist of examining financial statements, reviewing filings with the Securities
and Exchange Commission, and consulting in regard to various accounting matters
as permitted under the Sarbanes-Oxley Act of 2002.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:

Our management, under the supervision and with the participation of our chief
executive officer and chief financial officer, conducted an evaluation of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-14(c)) within 90 days of the filing date of this Annual Report
on Form 10-K. Based on their evaluation, our chief executive officer and
controller have concluded that as of the Evaluation Date, our disclosure
controls and procedures are effective to ensure that all material information
required to be filed in this Annual Report on Form 10-K has been made known to
them.

CHANGES IN INTERNAL CONTROLS:

TeamStaff implemented its new financial and reporting system licensed from
Lawson, effective May 2, 2003.

In accordance with Section 202 of the Sarbanes-Oxley Act of 2002 and the rules
of the United States Securities and Exchange Commission promulgated thereunder,
the Audit Committee of the Board of Directors adopted policies and procedures
for the pre-approval of audit and permissible non-audit services effective as of
May 6, 2003. These policies and procedures require that all audit and otherwise
permissible non-audit services performed by TeamStaff's independent auditors be
pre-approved by the Audit Committee. These policies and procedures have been
shared and reviewed with TeamStaff's auditors. In compliance with the disclosure
requirements of the Sarbanes-Oxley Act of 2002.

Additionally, in response to the passage of the Sarbanes-Oxley Act of 2002,
TeamStaff, among other actions, formed a Disclosure Committee comprised of
various members of our management team. The Disclosure Committee is charged
with, among other things, reviewing and developing policies and procedures to
enhance our disclosure controls and procedures as well as with reviewing our
periodic reports and other public disclosures. On September 9 and 10, 2003,
representatives of the Disclosure Committee and the Chief Financial Officer met
with consultants engaged by TeamStaff to formalize the process for compliance
with Section 404 of the Sarbanes Oxley Act of 2002. The Disclosure Committee
anticipates that the sale of the assets of the PEO division will have an impact
on the overall design of its internal control framework and will refine the
Section 404 compliance process to reflect the cessation of this business.

Other than as described above, there have been no significant changes, including
corrective actions with regard to significant deficiencies or material
weaknesses in our internal controls or in other factors that could significantly
affect these controls subsequent to the Evaluation Date set forth above.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of TeamStaff as of December 12, 2003 are as
follows:

NAME AGE OFFICE
- --------------------------------------------------------------------------------------------

T. Stephen Johnson 54 Chairman of the Board of Directors Class 1

Karl W. Dieckmann 75 Vice-Chairman Class 2

Martin Delaney 60 Director Class 3

Ben J. Dyer 55 Director Class 1

Rocco J. Marano 75 Director Class 3

T. Kent Smith 47 President, Chief Executive Officer, Director Class 3

Rick J. Filippelli 47 Vice President, Finance, Chief Financial Officer

Edmund Kenealy 41 Vice President, General Counsel

Wayne Lynn 59 Chief Operating Officer, PEO Division

Timothy Nieman 44 President, TeamStaff Rx, Inc.

Gerard A. Romano 46 Corporate Controller

Our board is classified into three classes which are each elected in staggered
three year terms. Class 1 consists of T. Stephen Johnson and Ben J. Dyer and the
term expires in 2006; Class 2 consists of Karl Dieckmann and a vacancy with a
term expiring in 2004 and Class 3 consists of Rocco Marano, T. Kent Smith and
Martin Delaney, with a term expiring in 2005.

Martin J. Delaney joined 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 managed the Engineering,
Technology and Management Services Groups. From 1948 to 1980, Mr. Dieckmann was
employed by the Allied Signal Corporation (now Honeywell Corporation) in various
capacities including President, Semet Solvay Division; Executive Vice President,
Industrial Chemicals Division; Vice President Technical -- Fibers Division;
Group General Manager -- Fabricated Products Division; and General Manager --
Plastics Division, as well as various positions with the Chemicals Division.

Ben J. Dyer joined the Board of Directors in December 2002. Mr. Dyer is
currently a general partner of Cordova Intellimedia Ventures and is President of
Innovations Publishing, LLC, an Atlanta based company, which provides a
subscription-based online catalog of emerging technology ventures. He also
chairs the editorial boards of Catalyst magazine in Atlanta. In the 1980s Mr.
Dyer served as chairman and CEO of Comsell, Inc., a pioneering multimedia
development firm and was president and a director of the de novo Enterprise
National Bank. Mr. Dyer founded Intellimedia Sports, Inc. in 1992 to create the
ESPN-branded sports instruction category in the CD-ROM industry. He was earlier
a founder of Peachtree Software, Inc. and served as its President from 1977 to
September 1983. He currently serves on a number of private and nonprofit boards
including PMFM, Quellan, FundRaisingInfo.com and Georgia Advanced Technology
Ventures. He concentrates his community activities on higher education and has
been president of the Georgia Tech Alumni Association, a director of the Georgia
Tech Foundation and chairman of the Alumni Advisory Board for Tech's School of
Industrial & Systems Engineering. He is currently Chairman of the Georgia Tech
Research Corporation (through December 31, 2003), is a Senior Fellow of the
Center for Entrepreneurship and Corporate Growth at Emory University's Goizueta
Business School, and serves on the advisory boards of the Georgia Tech Research
Institute and Georgia State University's Robinson College of Business. Mr. Dyer
holds a Bachelors degree in Industrial Engineering from Georgia Tech and an MBA
in finance from Georgia State University.

Rick J. Filippelli assumed his current position as Vice President and Chief
Financial Officer in September 2003. Prior to joining TeamStaff, Mr. Filippelli
spent approximately two years as Chief Financial Officer of Rediff.com, a
publicly traded global information technology company. From 1985 through 2001
Mr. Filippelli held various financial positions including that of Chief
Financial Officer with Financial Guaranty Insurance Company ("FGIC"), a
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 BS in Accounting from Brooklyn College and is a
Certified Public Accountant as well as a member of the American Institute of
Certified Public Accountants.

Elizabeth L. Hoaglin joined TeamStaff as President of the TeamStaff Rx Division
in 1994, when TeamStaff acquired RADS Technology, Inc. ("RADS"), of which she
was President and founder. Ms. Hoaglin served as President of TeamStaff Rx until
December 12, 2003, when Timothy Nieman assumed that role. Ms. Hoaglin
established RADS in 1980 in Clearwater, FL. This was the first temporary
staffing firm that specialized in placing radiology professionals. In 1983, RADS
began providing traveler technologists to hospitals and clinics nationwide. In
1984, RADS began staffing radiation therapy, providing a niche market for
Therapists, Dosimetrists and Medical Physicists. Prior to starting RADS, Ms.
Hoaglin was a Radiological Technologist herself, graduating from Saint Anthony's
Hospital in St. Petersburg, Florida. Ms. Hoaglin worked as a technologist for
major hospitals and physicians office for over fifteen years. Ms. Hoaglin is
active in numerous professional, business and civic organizations and frequently
writes articles for publication in the radiology industry's journals.

T. Stephen Johnson has been Chairman of the Board of TeamStaff since September
2001. 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 and a Director 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 Director, Inc., a company
specializing in providing financial services for unbanked individuals and Vice
Chairman of Florida Bank.

Edmund C. Kenealy has been Vice President, General Counsel of TeamStaff since
November 2001. Mr. Kenealy joined TeamStaff as Vice President, Legal &
Regulatory Affairs (PEO Division) in October 2000 upon its acquisition of HR2,
Inc., where he was Vice President, General Counsel and Vice President,
Operations. Prior to joining HR2, Inc. in April 1998, Mr. Kenealy was Assistant
General Counsel of ManagedComp, Inc. from 1993 to 1998. He was previously
associated with the Boston offices of Nutter, McClennen & Fish and Skadden,
Arps, Slate, Meagher & Flom. He is a graduate of Dartmouth College and the
Vanderbilt University School of Law. He is admitted to practice in Massachusetts
and the District of Columbia.

Wayne R. Lynn joined TeamStaff as Area Vice President in October 2000, when
TeamStaff acquired HR2, Inc., of which he was Chief Executive Officer and a
principal owner. In March 2002, Mr. Lynn was appointed Chief Operating Officer
of TeamStaffTeamStaff's PEO Division. Prior to his 7-year involvement in the PEO
industry, Mr. Lynn was engaged in the insurance industry for more than 20 years.
He served as President and CEO of Founders Financial Corporation, a publicly
owned insurance holding company, from 1981 to 1987 and as President and CEO of
Capital Investors Life Insurance Company from 1987 to 1994. He also served on
the Board of Directors of Gulf/Bay Bank of Tampa, Florida, and South Trust Bank
of Florida. Mr. Lynn is a graduate of the U.S. Naval Academy, the U.S. Navy
Supply Corps School, and the U.S. Navy Transportation Management School. Mr.
Lynn has also completed numerous graduate level business management courses at
the California State University at Hayward, California. He has held licenses to
sell Life, Health, and Property/Casualty Insurance, Variable Annuities and
Securities. He is currently licensed as an insurance third-party administrator.

Rocco Marano served as member of the Board of Directors from July 1999 thru
September 2001. He rejoined the Board of Directors in November 2002. Mr. Marano,
a prominent telecommunications executive, is the retired chairman and President
of Bellcore, Inc. a Bell Communications research and engineering entity formerly
owned by the seven Bell regional communications companies. He has also served as
Chairman of Horizon Blue Cross/Blue Shield of New Jersey.

Timothy Nieman was appointed President of TeamStaff Rx on December 12, 2003.
Prior to joining TeamStaff, Mr. Nieman operated an independent consulting firm
providing advisory services to the human capital and staffing industries. Mr.
Nieman was employed with Spherion Corporation and its predecessor, Norrell
Services Corporation, from January 1985 through September 2002, where he held a
number of positions, including Senior Vice President and General Manager of
Spherion's Enthusian business unit, which provided application service provider
interfaces

for the contingent workforce and financial services arenas. Prior to assuming
his role with Enthusian, Mr. Nieman held the position of Vice President of
Integration, overseeing the merger between Norrell and Interim, as well as a
number of executive operational and sales leadership positions with Norrell. Mr.
Nieman received his Bachelor's in Business Administration in 1984 from the
University of Memphis.

Gerard A. Romano has been Corporate Controller of TeamStaff since he joined
TeamStaff in September 2001. Prior to joining TeamStaff, he was Vice President
of Administration at Jet Aviation from December of 2000 to September of 2001.
Prior to Jet Aviation, he was employed by the PQ Corporation from January of
1980 through December of 2000, where he held various positions including Vice
President and Chief Financial Officer of PQ's European Joint Venture, Akzo-PQ
Silica, Director of Corporate Development and Director of Financial Planning and
Analysis. He is a graduate of William Paterson University.

T. Kent Smith was appointed Chief Executive Officer, President and a member of
the Board of Directors in June, 2003. From January 2000 to January 2003, Mr.
Smith served as the President of HoneyBaked Ham Company and Chief Executive
Officer of the Heavenly Ham Company. From 1998 to 1999, Mr. Smith was the Senior
Vice President of Organization Services. Prior to that, Mr. Smith served in
various executive positions for Norrell Corporation from 1987 to 1998, including
Senior Vice President, Service Operations, Vice President and Chief Information
Officer and Vice President, Finance & Strategic Planning. Mr. Smith received a
Masters in Business Administration from the University of Virginia and is a
graduate of Vanderbilt University.

MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION IN COMPENSATION DECISIONS

Martin J. Delaney, Karl W. Dieckmann and T. Stephen Johnson served on the
Management Resources and Compensation Committee during the last fiscal year
ended September 30, 2003. There are no interlocks between TeamStaff's Directors
and Directors of other companies.

MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES

During the fiscal year ended September 30, 2003, the Board of Directors met on 8
occasions. During the fiscal year ended September 30, 2003, non-employee
directors met on 4 occasions, two of which were by telephone conference call.

The Board of Directors has four committees: Audit, Management Resources and
Compensation, Executive, and Corporate Governance and Nominating Committees.

For the fiscal year ended September 30, 2003, the members of the committees, and
a description of the duties of the Committees were as follows:

Audit Committee. 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. During the fiscal year
ended September 30, 2003, the Audit Committee met on eighteen occasions.

The Audit Committee adopted a written charter governing its actions effective
June 14, 2000. Until August 12, 2003, the members of the audit committee were
Martin Delaney, Karl W. Dieckmann, T. Stephen Johnson, and Rocco J. Marano. T.
Stephen Johnson resigned his position on the audit committee on August 12, 2003.
All four of these members of TeamStaff's Audit Committee were "independent"
within the definition of that term as provided by Rule 4200(a)(14) of the
listing standards of the National Association of Securities Dealers. Martin
Delaney was elected as its chairman and Rocco J. Marano has been designated as
an "Audit Committee financial expert" in accordance with the Sarbanes Oxley Act
of 2002 and the regulations promulgated thereunder.

Management Resources and Compensation Committee. The Management Resources and
Compensation Committee functions include administration of TeamStaff's 2000
Employee Stock Option Plan and Non-Executive Director Stock Option Plan and
negotiation and review of all employment agreements of executive officers of
TeamStaff. The Management Resources and Compensation Committee's members are
Martin J. Delaney, Karl W. Dieckmann, and T. Stephen Johnson. Karl W. Dieckmann
was elected as its chairman. The Compensation Committee was renamed the
Management Resources and Compensation Committee on August 12, 2003. During the
fiscal year ended September 30, 2003, the committee met on nine occasions.

Corporate Governance and Nominating Committee. The Nominating Committee
functions include the review of all candidates for a position on the board of
directors including existing directors for renomination and reports its findings
with recommendations to the Board. The Nominating Committee solicits candidates
on behalf of TeamStaff to fill any vacancy on the Board. The Nominating
Committee performs such other duties and assignments as directed by the Chairman
or the Board but shall have no power to add or remove a director without the
approval of the Board. During the fiscal year, the Nominating Committee members
were Karl W. Dieckmann, Donald W. Kappauf and T. Stephen Johnson. Karl W.
Dieckmann served as its chairman. The committee was renamed the Corporate
Governance and Nominating Committee effective as of August 12, 2003. On that
date, Ben J. Dyer was appointed to the committee and named its chairman. Donald
W. Kappauf has resigned from the Board and is no longer a member of the
Nominating Committee. Nominating and Corporate Governance Committee members as
of December 5, 2003 are Ben J. Dyer, Karl W. Dieckmann and T. Stephen Johnson.
During the fiscal year ended September 30, 2003, the committee did not meet.

Executive Committee. The Board of Directors created an Executive Committee
effective September 4, 2001. Until the relinquishment by Donald W. Kappauf of
his responsibilities as Chief Executive Officer, the members were Karl W.
Dieckmann, T. Stephen Johnson and Donald W. Kappauf. T. Kent Smith was elected
to the committee in Mr. Kappauf's place. Executive committee members as of
December 5, 2003 are Karl W. Dieckmann, T. Stephen Johnson and T. Kent Smith. T.
Stephen Johnson serves as its chairman. This committee did not meet during the
fiscal year ended September 30, 2003.

No member of the Board of Directors or any committee failed to attend or
participate in fewer than 75% of the meetings of the Board or committee on which
such member serves.

CODE OF ETHICS

On June 20, 2003, TeamStaff distributed a company-wide Code of Ethics and
Business Conduct and Code of Ethics for Chief Executive Officer, Chief Financial
Officer and Controller. Additionally, both the Codes were posted on TeamStaff's
internal intranet website. A copy of the Code of Ethics for Chief Executive
Officer, Chief Financial Officer and Controller is attached to this Annual
Report on Form 10-K as Exhibit No. 14. These Codes were adopted by TeamStaff's
Board of Directors, and provide employees with a confidential method of
reporting suspected Code violations.

ITEM 11. EXECUTIVE COMPENSATION

The following provides certain summary information concerning compensation
during the years ended September 30, 2003, 2002 and 2001 paid to or earned by
TeamStaff's Chief Executive Officer and each of the executive officers and key
employees of TeamStaff who received in excess of $100,000 in compensation during
the last fiscal year.

LONG TERM
NAME AND ANNUAL COMPENSATION COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS/SAR'S
------------------ ---- ------ ----- ----- -------------

T. Kent Smith 2003 $ 70,192 $ 35,616 -0- 400,000
Chief Executive Officer 2002 -0- -0- -0- -0-
2001 -0- -0- -0- -0-

Donald W. Kappauf* 2003 $300,000 -0- $175,201 -0-
Former CEO 2002 $300,000 $477,500 $ 26,163 -0-
2001 $267,130 $200,000 $ 46,268 300,000

Wayne R. Lynn 2003 $150,000 -0- $ 15,589 -0-
2002 $139,615 $ 30,000 $ 15,589 50,000
2001 $117,949 $ 5,000 $ 15,589 22,500

Elizabeth Hoaglin 2003 $127,423 -0- $ 3,600 -0-
2002 $114,250 $149,289 $ 3,600 50,000
2001 $ 95,159 $173,885 $ 3,600 10,000

Edmund Kenealy 2003 $159,944 $ 27,200 $ 15,871 -0-
2002 $135,000 $ 25,000 $ 15,859 50,000
2001 $100,000 $ 15,000 $ 15,859 10,000

Gerard A. Romano 2003 $144,962 $ 24,650 $ 7,200 10,000
2002 $135,002 $ 15,000 $ 7,615 -0-
2001 $ 7,789 $ 25,000 -0- 20,000

*Mr. Kappauf relinquished his responsibilities as President and CEO effective
June 18, 2003. He terminated his employment effective September 30, 2003.

TeamStaff provides normal and customary life and health insurance benefits to
all of its employees including executive officers. TeamStaff has a 401(k) plan
that is voluntary.

COMPENSATION OF DIRECTORS

From October 1, 2002 through November 18, 2002, the Chairman and Vice-Chairman
of the Board each received $2,500 per month. Non-Employee Directors received
$1,500 per board meeting and $1,000 per non-board meeting, related travel
expenses, and $600 for each committee meeting attended. The Directors' Plan also
provides that directors, upon joining the Board, and for one (1) year
thereafter, will be entitled to purchase restricted stock from TeamStaff at a
price equal to 80% of the closing bid price on the date of purchase up to an
aggregate purchase price of $50,000.

Effective November 19, 2002, the Board established new cash compensation terms
for the members of the Board and committees. The Chairman and Vice-Chairman of
the Board each receive $3,000 per month. The Chairman of the Audit Committee
receives $2,500 per month. All other non-employee Directors receive $1,667 per
month. Effective as of August 12, 2003, the Chairman of the Nominating and
Corporate Governance Committee also receives $2,500 per quarter. All
non-employee Board members receive $1,500 for each Board meeting attended and
$600 for each committee meeting attended (unless the member is Chairman of the
committee). The Chairman of each committee receives $1,000 for each committee
meeting attended. Non-employee directors may also receive $1,000 per meeting
with executives that do not constitute Board or Committee meetings. Non-employee
Board members also receive reimbursement of their related travel expenses. The
Directors' 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.

EMPLOYMENT AGREEMENTS

Effective as of June 18, 2003, TeamStaff entered into an employment agreement
with T. Kent Smith pursuant to which Mr. Smith serves as TeamStaff's President
and Chief Executive Officer. The agreement expires on September 30, 2005. Under
the terms of the agreement, Mr. Smith is paid an annual base salary of $250,000
and is eligible to receive a bonus of up to 50% of his base salary based on the
achievement of revenue, income and other objectives established by the
Management Resources and Compensation Committee. Mr. Smith also was granted an
option to purchase 400,000 shares of TeamStaff common stock, one-fourth of which
vested on June 18, 2003, one-fourth of which will vest one year thereafter, and
the remainder of which will vest on June 18, 2005. Mr. Smith also receives four
weeks annual vacation and is offered welfare benefit plans, 401(k) and fringe
benefits generally made available to other TeamStaff employees. The agreement
provides, among other things, that Mr. Smith will be paid a severance payment of
three months of his base salary if Mr. Smith and TeamStaff do not enter into a
new employment agreement by September 30, 2005. Additionally, the agreement
provides for certain post-termination payments depending upon the reason for the
termination of Mr. Smith's employment. The agreement also provides for the
payment of nine months of base salary and the provision of certain other
benefits should Mr. Smith's employment terminate in connection with a change in
control, as defined in the agreement.

Effective September 15, 2003, Rick J. Filippelli was appointed TeamStaff's Vice
President, Finance and Chief Financial Officer at an initial annual base salary
of $225,000. Mr. Filippelli is eligible to receive a bonus of up to 35% of his
base salary. Additionally, Mr. Filippelli was granted an option to purchase
50,000 shares of TeamStaff common stock, one half of which will vest on
September 15, 2004, and the remaining one half will vest on September 15, 2005.
Mr. Filippelli also receives four weeks of annual vacation and is offered
welfare benefit plans, 401(k) and fringe benefits generally made available to
other TeamStaff employees.

Effective January 1, 2003, TeamStaff entered into a one-year employment
agreement with Edmund C. Kenealy pursuant to which Mr. Kenealy currently serves
as Vice President, General Counsel, at an annual salary of $160,000. In
addition, Mr. Kenealy is entitled to receive an increase in annual compensation
as of October 1, 2003 and a bonus to be determined based on the achievement of
certain performance criteria determined as of the commencement of each fiscal
year. Mr. Kenealy receives certain other benefits granted to other TeamStaff
employees, including health and other insurance benefits, as well as a car
allowance of $500 per month and three weeks annual vacation.

Effective January 1, 2003, TeamStaff entered into a one-year employment
agreement with Wayne R. Lynn pursuant to which Mr. Lynn currently serves as
Chief Operating Officer of TeamStaff's PEO Division, at an annual salary of
$150,000 . In addition, Mr. Lynn is entitled to receive a yearly increase in
annual compensation as of March 19, 2003 and a bonus to be determined based on
the achievement of certain performance criteria determined as of the
commencement of each fiscal year. Mr. Lynn receives certain other benefits
granted to other TeamStaff employees, including health and other insurance
benefits, as well as a car allowance of $500 per month and three weeks annual
vacation.

TeamStaff entered into an employment agreement with Mr. Donald Kappauf,
TeamStaff's former President and Chief Executive Officer effective April 2, 2001
and terminating on September 30, 2003. As of June 18, 2003, Mr. Kappauf agreed
to relinquish his position as President and Chief Executive Officer of
TeamStaff. Mr. Kappauf terminated his employment effective as of September 30,
2003. Under the terms of this agreement, Mr. Kappauf's base compensation was
initially $230,000, increasing to $300,000 commencing September 1, 2001, and
subject to yearly increases thereafter at the discretion of the compensation
committee. For the fiscal year ended September 30, 2003, Mr. Kappauf received a
base salary of $300,000. Mr. Kappauf also was entitled to an annual bonus based
on the achievement of certain performance criteria as determined by the
compensation committee.

In addition, Mr. Kappauf received certain other benefits including insurance
benefits as are provided to all other executives, a car lease allowance in the
maximum amount of $1,000 per month, participation in the supplemental executive
retirement plan and a split dollar life insurance arrangement. The agreement
also provided for the grant of 300,000 stock options, which vested in annual
increments of one third commencing on the date of the agreement. TeamStaff also
entered into a severance agreement with Mr. Kappauf, as described below, which
governed the termination of his employment and certain other events including a
change of control of TeamStaff.

TeamStaff entered into an employment agreement with Mr. Donald Kelly,
TeamStaff's former Chief Financial Officer, effective April 2, 2001 and
terminating on September 30, 2003. In June 2003, Mr. Kelly notified TeamStaff
that he would be terminating his employment on July 2, 2003 purportedly for
"good reason," as defined in his severance agreement, as described below. Under
the terms of his employment agreement, Mr. Kelly's base compensation was
initially $170,000, increasing to $200,000 commencing September 1, 2001, and
subject to yearly increases thereafter at the discretion of the compensation
committee. For the fiscal year ended September 30, 2003, Mr. Kelly received a
base salary of $200,000. Mr. Kelly also was entitled to a bonus based on the
achievement of certain performance criteria as determined by the compensation
committee.

In addition, Mr. Kelly received certain other benefits including insurance
benefits as are provided to all other executives, a car allowance in the amount
of $800 per month, participation in the supplemental executive retirement plan
and a split dollar life insurance arrangement. The agreement also provided for
the grant of 150,000 stock options, which vested in annual increments of one
third commencing on the date of the agreement. TeamStaff also entered into a
severance agreement with Mr. Kelly, as described below, which governs the
termination of his employment and certain other events including a change of
control of TeamStaff.

The split dollar life insurance agreements and supplemental retirement plan were
approved by the Compensation Committee of the Board during the 2000 fiscal year
and implemented effective October 1, 2000. Under the terms of the SERP, a
participant receives 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 becomes a participant. Payment of benefits commences when the
participant reaches 65 years of age. The benefit under the SERP is 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 contingent on the
participant's reaching age 55; provided, however, a participant's benefit
becomes fully vested upon a change of control, as defined in the SERP, if within
two years of the change of control there is a material change in the
participant's job title or responsibilities or if the participant's employment
is terminated by TeamStaff for any reason other than conviction for theft or
embezzlement from TeamStaff. Additionally, if a participant retires by means of
total disability (as defined in the SERP), the participant's benefit

becomes fully vested and benefit payments commence as of the disability
retirement date. The SERP does not provide a death benefit. Mr. Kappauf and Mr.
Kelly are the only SERP participants at the present time.

SERP participants also are provided with a split dollar life insurance policy,
insuring the life of the participant until the participant reaches age 65.
Although the participant is the owner of the Policy, TeamStaff pays all Policy
premiums. Each participant has 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 vests 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 will release the collateral
assignment of the Policy provided the participant releases TeamStaff from all
obligations it may have with respect to the participant (including those under
the SERP). However, given the uncertainty of TeamStaff's ability to continue to
maintain this payment arrangement in light of certain of the provisions of the
Sarbanes-Oxley Act of 2002, TeamStaff had, with the President and Chief
Executive Officer's consent, deferred paying Policy premiums on behalf of the
Chief Executive Officer, pending review of the SERP to comply with the
Sarbanes-Oxley Act. For the fiscal quarter ended December 31, 2002, TeamStaff
paid the Chief Executive Officer a bonus in the amount of the Policy premiums,
grossed-up to cover allocable income taxes. Pursuant to the severance agreement
with Mr. Kappauf, in the event he were terminated for cause, he would be
entitled only to his accrued compensation, which means his base salary,
reimbursement of business expenses, vacation pay and earned but unpaid bonuses
to the date of termination. "Cause" is defined to include conviction of a
felony, an intentional and continual failure to substantially perform his duties
or an intentional failure to follow or perform a lawful direction of the Board
of Directors. If Mr. Kappauf were terminated for disability or death, he would
be entitled to his accrued compensation and certain other payments, such as the
pro rata bonus amount. The pro rata bonus amount is defined as the amount equal
to the greater of the most recent annual bonus amount paid or the annual bonus
paid or payable for the full fiscal year ended prior to the termination, in
either case pro-rated through the date of death or disability. In the event that
Mr. Kappauf's employment terminated for any other reason, the agreement provides
for payment of his accrued compensation, a pro rata bonus amount, a bonus amount
allocated to the remainder of the term of his employment agreement, his base
salary through the remainder of the term of his employment agreement, a
severance payment equal to one year's base compensation, a payment equal to the
cost of health and other similar benefits for a period of two years and costs
associated with outplacement services.

On June 18, 2003, Donald W. Kappauf relinquished his positions of President and
Chief Executive Officer of TeamStaff. In light of the circumstances regarding
the relinquishment by Mr. Kappauf of his positions, Mr. Kappauf may have had
reason to terminate his employment with TeamStaff for "good reason" and exercise
his rights under the severance agreement. The term good reason includes "a
change in the [e]xecutive's status, title, position or responsibilities . . .."
In addition, TeamStaff may have been required to contribute funds to an
irrevocable trust to meet the premium obligations of the split dollar life
insurance policy granted to Mr. Kappauf in connection with the SERP. TeamStaff
and Mr. Kappauf have reached a definitive agreement concerning the payment of
his severance payments and the creation and funding of the trust. Under the
agreement, among other things, TeamStaff will pay Mr. Kappauf's severance
benefits over a 48 month period and contribute, initially, three years of
premiums (approximately $249,000) to the irrevocable trust, which is reflected
as restricted cash as of September 30, 2003.

The severance agreement with Mr. Kelly has terms which are substantially similar
to those described above for Mr. Kappauf. Until December 10, 2002, Mr. Kelly
held the positions of Chief Financial Officer, Vice President, Finance and
Secretary of TeamStaff. As a result of the previously disclosed change in his
duties, the former Chief Financial Officer may have had "good reason" to
terminate his employment with TeamStaff and may have claims for the severance
payments and benefits provided by the severance agreement. The term good reason
includes "a change in the [e]xecutive's status, title, position or
responsibilities ...." In June 2003, Mr. Kelly notified the Board of Directors
that he would terminate his employment, effective July 2, 2003, for "good
reason" and exercise his rights under the severance agreement. Additionally, the
change in Mr. Kelly's duties may have caused his benefits under the SERP to
become fully vested. In the event that Mr. Kelly's exercise of these rights is
appropriate, such termination is deemed proper, and Mr. Kelly is eligible to
receive all potential compensation under the severance agreement and the SERP,
TeamStaff may be required to make payments, either directly to Mr. Kelly, in the
case of the severance agreement, or to a trust, in the case of any payments to
be made pursuant to the SERP. TeamStaff and the former Chief Financial Officer
are currently negotiating the terms of the payment of the benefits provided by
the severance agreement and the funding of irrevocable grantor trust. However,
there can be no assurance that an agreement can be reached. In the absence of
such an agreement, TeamStaff may be required to fully fund the trust and make
certain lump sum payments and provide certain other benefits required by the
severance agreement. As of September 30, 2003, TeamStaff has reflected $636,000
as restricted cash for this potential obligation.

MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

This report is submitted by the management resources and compensation committee
of the Board of Directors of TeamStaff. During the fiscal year ended September
30, 2003, the management resources and compensation committee was responsible
for reviewing TeamStaff's stock option plans and reviewing and approving
compensation matters concerning the executive officers.

Overview and Philosophy. TeamStaff uses its compensation program to achieve the
following objectives:

- To provide compensation , as determined by the management resources
and compensation committee, that attracts, motivates and retains the
talented, high caliber officers and employees necessary to achieve
TeamStaff's strategic objectives;

- To align the interest of officers with the success of TeamStaff;

- To align the interest of officers with stockholders by including
long-term equity incentives; and

- To increase the long-term profitability of TeamStaff and,
accordingly, increase stockholder value.

TeamStaff also recognizes that the possibility of a termination without cause
after a change in control of TeamStaff can create significant distractions for
its key management personnel due to the uncertainties inherent in such
situations. Under such circumstances, it is in the best interests of TeamStaff
to:

- establish incentives to induce key executives and employees to remain
in the employ of TeamStaff during the period a change of control transaction is
under consideration,

- ensure executives agree to any restrictive covenant necessary to
effectuate a transaction in the interests of the TeamStaff's shareholders, and

- align the interests of key employees with the shareholders with
respect to specific transactions that may increase shareholder value but would
also result in a change of control.

Compensation under the executive compensation program is comprised of cash
compensation in the form of base salary, bonus compensation and automobile
allowances. Executives are also granted severance plans providing various
benefits upon a change of control of TeamStaff or termination of employment. In
addition, the compensation program includes various other benefits, including
medical and insurance plans, TeamStaff's 401(k) Plan, which plans are generally
available to all employees of TeamStaff. The committee considers the eligibility
of certain executive officers in a supplemental executive retirement plan
("SERP") as discussed below.

The principal factors which the management resources and compensation committee
considered with respect to each officer's compensation package for fiscal year
ended September 30, 2003 are summarized below. The management resources and
compensation committee may, however, in its discretion, apply different or
additional factors in making decisions with respect to executive compensation in
future years.

Base Salary. Compensation levels for each of TeamStaff's officers, including the
Chief Executive Officer, are generally set within the range of salaries that the
management resources and compensation committee believes is paid to officers
with comparable qualifications, experience and responsibilities at similar
companies. In setting compensation levels, the management resources and
compensation committee takes into account such factors as (i) TeamStaff's past
performance and future expectations, (ii) individual performance and experience
and (iii) past salary levels. The management resources and compensation
committee does not assign relative weights or ranking to these factors, but
instead makes a determination based upon the consideration of all of these
factors as well as the progress made with respect to TeamStaff's long-term goals
and strategies. Base salary, while reviewed annually, is only adjusted as deemed
necessary by the management resources and compensation committee in determining
total compensation for each officer. Base salary levels for each of TeamStaff's
officers, other than the Chief Executive Officer, were also based in part upon
evaluations and recommendations made by the Chief Executive Officer.

Equity Incentives. The management resources and compensation committee believes
that stock participation aligns officers' interests with those of the
stockholders. In addition, the management resources and compensation committee
believes that equity ownership by officers help to balance the short-term focus
of annual incentive compensation with

a longer-term view and may help to retain key executive officers. Long-term
incentive compensation, generally granted in the form of stock options, allows
the officers to share in any appreciation in the value of TeamStaff's common
stock.

In making stock option grants, the management resources and compensation
committee considers general corporate performance, individual contributions to
TeamStaff's financial, operational and strategic objectives, the Chief Executive
Officer's recommendations, level of seniority and experience, existing levels of
stock ownership, previous grants of restricted stock or options, vesting
schedules of outstanding restricted stock or options and the current stock
price. With respect to the compensation determination for the fiscal year ended
September 30, 2003, TeamStaff employed a new Chief Executive Officer and a new
Chief Financial Officer and the management resources and compensation committee
awarded these new officers employee stock options as part of their compensation
plans. During the fiscal year ended September 30, 2003, the management resources
and compensation committee approved the grant of 518,000 options, 460,000 of
which were granted to executive officers.

Other Benefits. TeamStaff also has various broad-based employee benefit plans.
Executive officers participate in these plans on the same terms as eligible,
non-executive employees, subject to any legal limits on the amounts that may be
contributed or paid to executive officers under these plans. TeamStaff offers a
stock incentive plan and a 401(k) plan, which allows employees to invest in a
wide array of funds on a pre-tax basis. TeamStaff also maintains insurance and
other benefit plans for its employees, including executive officers of
TeamStaff.

During the fiscal year ended September 30, 2001, the management resources and
compensation committee created the supplemental executive retirement plan or
SERP to provide retirement benefits comparable with plans offered executives in
comparable positions at other companies. Each corporate executive whose
eligibility is specifically approved by the management resources and
compensation committee will receive a benefit sufficient to provide lump sum
annual payments equal to approximately one-third of the participant's base
salary in effect on the date the participant enters the Plan for a period of 15
years. Payment of benefits commences upon the executive's reaching 65 years of
age. The commencement of benefit payments is accelerated in the event the
participant becomes totally disabled prior to retirement. A split dollar life
insurance policy also is in place for each participant. The split dollar life
insurance policy is designed to provide either a death benefit if the employee
dies prior to retirement age, or, if the employee attains retirement age, the
funds necessary for the payment of the SERP retirement benefit at retirement
through the application of the policy's cash surrender value. At the present
time, no current executive officers are participants in the SERP. Donald Kappauf
and Donald Kelly, former executive officers, were the only participants in the
SERP. The SERP became effective on October 1, 2000.

Chief Executive Officer Compensation. In the fiscal year ended September 30,
2003, until he relinquished his duties as Chief Executive Officer in June 2003,
Mr. Donald Kappauf, received a base salary at the annual rate of $300,000, which
was equal to his base salary for the prior year. In the fiscal year ended
September 30, 2002, Mr. Kappauf's base salary of $300,000 represented a 12.3%
increase from his base salary in fiscal 2001. The 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. Mr. Kappauf did not receive a bonus during the fiscal year
ended September 30, 2003 but he did receive severance benefits under his
severance agreement dated May 2002, which represented, in part, a pro rata bonus
based on his prior year's bonus payment. The terms of Mr. Kappauf's employment
compensation were determined primarily pursuant to his employment agreement,
which was entered into in April 2001.

In June, 2003, T. Kent Smith was employed as TeamStaff's new Chief Executive
Officer. Mr. Smith's compensation is determined pursuant to an employment
agreement dated June 18, 2003, which provides for base compensation of $250,000
per annum and a bonus, in the discretion of the management resources and
compensation committee, of up to 50 % of his base salary. Mr. Smith was also
awarded options to purchase 400,000 shares of Common Stock exercisable at $3.00
per share subject to certain vesting requirements. During the interim period
between June 18, 2003 and the end of fiscal 2003, Mr. Smith was awarded a bonus
of $35,616 in light of the difficult circumstances under which Mr. Smith was
employed and the success he achieved in stabilizing TeamStaff's operations.

The management resources and compensation committee approved severance
agreements for certain key executive employees that provide for the payment of
six months base compensation in the event of a termination without cause.

Tax Deductibility of Executive Compensation. Section 162(m) of the Code limits
the tax deduction to TeamStaff to $1 million for compensation paid to any of the
executive officers unless certain requirements are met. The management resources
and compensation committee has considered these requirements and the
regulations. It is the management resources and compensation committee's present
intention that, so long as it is consistent with its overall

compensation objectives, substantially all executive compensation be deductible
for United States federal income tax purposes. The management resources and
compensation committee believes that any compensation deductions attributable to
options granted under the employee stock option plan currently qualify for an
exception to the disallowance under Section 162(m). Future option grants to
executive officers under the TeamStaff employee stock option plans will be
granted by the management resources and compensation committee.

By the Management Resources and
Compensation Committee of
the Board of Directors of TeamStaff, Inc.

T. Stephen Johnson
Karl W. Dieckmann
Martin Delaney

OPTION/SAR GRANTS IN LAST FISCAL YEAR

OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)

Percentage of
No. of Securities Total Options/
Underlying Granted in Fiscal Exercise of Base
Name Options Granted Year Price Per Share Expiration Date
---- --------------- ---- --------------- ---------------

T. Kent Smith 400,000 77% $3.00 6/18/2008
Rick J. Filippelli 50,000 10% $2.29 9/15/2008
Elizabeth Hoaglin 0 0% - -
Edmund Kenealy 0 0% - -
Wayne Lynn 0 0% - -
Gerard A. Romano 10,000 2% $3.00 11/19/2007

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES

The following table sets forth information with respect to the named executive
officers concerning exercise of stock options and SARs during the last fiscal
year and the value of unexercised options and SARs held as of the year ended
September 30, 2003.

NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AS OF OPTIONS AS OF
ACQUIRED SEPTEMBER 30, 2003 SEPTEMBER 30, 2003
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- -----------------------------------------------------------------------------------------------

T. Kent Smith 0 $0 100,000/300,000 $0/$0
Rick J. Filippelli 0 $0 0/50,000 $0/$111,500
Elizabeth Hoaglin 0 $0 67,142/0 $0/$0
Edmund Kenealy 0 $0 35,000/25,000 $0/$0
Wayne Lynn 0 $0 47,500/25,000 $0/$0
Gerard A. Romano 0 $0 20,000/10,000 $0/$0

(1) Based upon a closing sales price of the Common Stock at $2.23 per share on
September 30, 2003.

STOCK OPTION PLANS

In April 1990, the Board of Directors adopted the 1990 Employees Stock Option
Plan (the "1990 Plan"), which was approved by shareholders in August 1990. The
1990 Plan provided for the grant of options to purchase up to 285,714 shares of
TeamStaff's common stock. Under the terms of the 1990 Plan, options granted
thereunder may be designated as options which qualify for incentive stock option
treatment ("ISOs") under Section 422A of the Code, or options which do not so
qualify ("Non-ISO's").

In April 1990, the Board of Directors adopted the Non-Executive Director Stock
Option Plan (the "Director Plan"), which was approved by shareholders in August,
1991 and amended in March 1996. The Director Plan provided for issuance of a
maximum of 142,857 shares of common stock upon the exercise of stock options
arising under the Director Plan.

In April 1990, the Board of Directors adopted and in August, 1990, TeamStaff's
shareholders approved the Senior Management Incentive Plan (the "Management
Plan") for use in connection with the issuance of stock, options and other stock
purchase rights to executive officers and other key employees and consultants
who render significant services to TeamStaff and its subsidiaries. A total of
1,428,571 shares of common stock were reserved for issuance under the Management
Plan.

The forgoing plans have expired and options are no longer being granted under
these plans.

2000 EMPLOYEE STOCK OPTION PLAN

In the fiscal year 2000, the Board of Directors and shareholders approved the
adoption of the 2000 Employees Stock Option Plan (the "2000 Plan") to provide
for the grant of options to purchase up to 1,714,286 shares of TeamStaff's
common stock to all employees, including senior management. The 2000 Plan
replaces the 1990 Employee Plan and Senior Management Plans, both of which
expired. Under the terms of the approved 2000 Plan, options granted there under
may be designated as options which qualify for incentive stock option treatment
("ISOs") under Section 422A of the Code, or options which do not so qualify
("Non-ISO's"). As of September 30, 2003, there were 109,995 options outstanding
under the 2000 Plan.

The 2000 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 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 in the 2000 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 Corporation held by the optionee for at least
six months prior to exercise.

NON-EXECUTIVE DIRECTOR PLAN

In fiscal 2000, the Board of Directors and stockholders approved the adoption of
the 2000 Non-Executive Director Stock Option Plan (the "Director Plan") to
provide for the grant of options to non-employee directors of TeamStaff. Under
the terms of the Director Plan, each non-executive director is automatically
granted an option to purchase 5,000 shares upon joining the Board and each
September 1st, pro rata, based on the time the director has served in such
capacity during the previous year. The Directors' Plan also provides that
directors, upon joining the Board, and for one (1) year thereafter, will be
entitled to purchase restricted stock from TeamStaff at a price equal to 80% of
the closing bid price on the date of purchase up to an aggregate purchase price
of $50,000. The Director Plan replaced the previous Director Plan that expired
in April 2000.

Under the Director Plan, the exercise price for options granted under the
Director Plan shall be 100% of the fair market value of the common stock on the
date of grant. Until otherwise provided in the Stock Option Plan, the exercise
price of options granted under the 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 Director Plan, expires
five (5) years from the date of grant. The 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 Committee will make all
determinations of the interpretation of the Director Plan. Options granted under
the Director Plan are not qualified for incentive stock option treatment. As of
September 30, 2003, there were 75,000 options held by directors outstanding
under the Director Plan.

SHAREHOLDER RETURN PERFORMANCE PRESENTATION

Set forth herein is a line graph comparing the total returns (assuming
reinvestment of dividends) of TeamStaff's common stock, the Standard and Poor
Industrial Average, and an industry composite consisting of a group of four peer
issuers selected in good faith by TeamStaff. TeamStaff's common stock is listed
for trading in the NASDAQ National market and is traded under the symbol "TSTF".

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
SEPTEMBER 2003

<Table>
<Caption>
1998 1999 2000 2001 2002 2003

Teamstaff Inc $100.00 $103.01 $ 92.49 $166.55 $78.03 $ 60.00
S&P 500 $100.00 $127.81 $144.78 $106.24 $84.48 $105.09
Peer Group $100.00 $ 62.93 $177.37 $126.79 $63.95 $ 62.97
</Table>

NOTES

(1) Assumes that the value of the investment in TeamStaff's Common Stock and
each index was $100 on September 30, 1998 and that dividends were
reinvested at years ended September 30th.

(2) Industry composite includes Administaff, Gevity HR, Team America Corp.,
Cross Country Healthcare, Medical Staffing Network Holdings, On Assignment,
and Rehabcare Group. 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. Management does not believe
there are any publicly held entities that compete with all TeamStaff's
business segments.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of December 12, 2003 with
respect to each director, each of the named executive officers as defined in
Item 402(a)(3), and directors and executive officers of TeamStaff as a group,
and to the persons known by TeamStaff to be the beneficial owner of more than
five percent of any class of TeamStaff's voting securities. At December 12,
2003, TeamStaff had 15,714,229 outstanding.

Number of Shares Percent of Company's
Name of Shareholder Currently Owned (1) Outstanding Stock
- -------------------------------------------------------------------------------

Martin J. Delaney (2) 68,663 0.4%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

Karl W. Dieckmann (3) 102,352 0.7%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

Ben J. Dyer (4) 22,526 0.1%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

Rick J. Filippelli (5) 0 0.0%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

Elizabeth Hoaglin (6) 67,428 0.4%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

T. Stephen Johnson (7) 274,011 1.7%
C/o T. Stephen Johnson &
Associates, Inc.
3650 Mansell Road, Suite 200
Alpharetta, GA 30022

Edmund Kenealy (8) 68,031 0.4%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

Wayne Lynn (9) 79,620 0.5%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

Rocco Marano (10) 28,857 0.2%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

Timothy Nieman (11) 0 0.0%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

Gerard A. Romano (12) 25,000 0.2%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

T. Kent Smith (13) 100,000 0.6%
C/o TeamStaff, Inc.
300 Atrium Drive
Somerset, NJ 08873

Wachovia Corp (14) 2,822,417 18.0%
One First Union Center
Charlotte, NC 28288

Nationwide Financial Services (15) 2,256,488 14.3%
One Nationwide Plaza
Mail Stop 01-12-13
Columbus, OH 43215

All officers and directors as a
group (12) persons 836,488 5.3%
(2,3,4,5,6,7,8,9,10,11,12,13)

(1) Ownership consists of sole voting and investment power except as
otherwise noted.

(2) Includes options to purchase 16,428 shares of TeamStaff's common stock
and excludes unvested options to purchase 5,000 shares of TeamStaff's
common stock. Also includes warrants to purchase 10,000 shares of
TeamStaff's common stock.

(3) Includes options to purchase 16,428 shares of TeamStaff's common stock
and excludes unvested options to purchase 5,000 shares of TeamStaff's
common stock.

(4) Includes options to purchase 5,000 shares of TeamStaff's common stock
and excludes unvested options to purchase 5,000 shares of TeamStaff's
common stock.

(5) Excludes unvested options to purchase 50,000 shares of TeamStaff's
common stock.

(6) Includes options to purchase 67,142 shares of TeamStaff's common stock.

(7) Includes an aggregate of 147,790 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 10,000 shares of TeamStaff's common stock, and
excludes unvested options to purchase 5,000 shares of TeamStaff's
common stock.

(8) Includes options to purchase 60,000 shares of TeamStaff's common stock.

(9) Includes options to purchase 47,500 shares of TeamStaff's common stock
and excludes unvested options to purchase 25,000 shares of TeamStaff's
common stock.

(10) Includes warrants to purchase 2,000 shares of TeamStaff's common stock,
options to purchase 5,000 shares of TeamStaff's common stock and
excludes unvested options to purchase 5,000 shares of TeamStaff's
common stock.

(11) Excludes unvested options to purchase 50,000 shares of TeamStaff's
common stock.

(12) Includes options to purchase 25,000 shares of TeamStaff's common stock
and excludes unvested options to purchase 5,000 shares of TeamStaff's
common stock.

(13) Includes options to purchase 100,000 shares of TeamStaff's common stock
and excludes unvested options to purchase 300,000 shares of TeamStaff's
common stock.

(14) Wachovia Corporation obtained these shares in connection with the
acquisition of BrightLane completed as of August 31, 2001.

(15) Nationwide Financial Services obtained these shares in connection with
the acquisition of BrightLane completed as of August 31, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For information concerning employment and severance agreements with, and
compensation of, the Corporation's executive officers and directors, see
"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 August 31,2001, TeamStaff, Inc. completed its acquisition of
BrightLane. As a result of a reverse subsidiary merger with a subsidiary of
TeamStaff, BrightLane is now a wholly owned subsidiary of TeamStaff.

In connection with the transaction, persons holding BrightLane options to
acquire approximately 2.1 million BrightLane shares (the equivalent of
approximately 481,000 TeamStaff shares) exercised their options. TeamStaff made
recourse loans of approximately $1.0 million principal amount to the holders of
these options to assist them in payment of tax obligations incurred with
exercise of the options. The loans are repayable upon the earlier of (i) sale of
the TeamStaff shares or (ii) three years. As of September 30, 2003,
approximately $0.7 million of these loans has been repaid or forgiven. All loans
must be repaid in cash with the exception of one loan. Under the terms of
TeamStaff's employment agreement with an executive officer of TeamStaff's
BrightLane subsidiary, the loan ($131,000) was forgiven over a two-year period
of time. One of our current directors, Ben J. Dyer, was a former shareholder of
Brightlane, and received a loan in the amount of $67,840 in connection with the
transaction. The loan was on the same terms as provided to all other option
holders of BrightLane. The loan was made and repaid prior to Mr. Dyer joining
the Board.

Wachovia Corporation, through an affiliate held all of the BrightLane Series B
Preferred stock, and therefore owns 2,822,417 shares of TeamStaff's Common Stock
(approximately 18%). In addition, Nationwide Financial Services, Inc. held all
of the BrightLane Series C Preferred stock, and therefore owns 2,256,488 shares
of TeamStaff's Common Stock (approximately 14%).

As part of its acquisition of BrightLane, completed in August 2001, TeamStaff
entered into a two-year, extendable marketing relationship with First Union
Corporation (renamed Wachovia). The Wachovia relationship provided TeamStaff
with the ability to market its PEO services to Wachovia's small business
customers through Wachovia's network of small business bankers. TeamStaff
received written notice from Wachovia terminating the agreement effective as of
October 14, 2003. Wachovia Corporation continues as a major shareholder of
TeamStaff's stock.

Under the terms governing the transaction, certain option holders were
restricted from selling TeamStaff shares acquired from the exercise of their
BrightLane options for a period of up to two years. T. Stephen Johnson and his
spouse, Mary Johnson, also a former director of BrightLane, were the only option
holders who exercised their options and who were subject to these lockup
provisions. Due to the significant rise in TeamStaff's stock price and the
significant increase in the amount of the tax loans to be made to T. Stephen
Johnson and Mary Johnson, the Board of Directors of TeamStaff concluded it would
be more appropriate to allow Mr. and Mrs. Johnson to sell a portion of their
TeamStaff shares to cover their tax liability rather than carry a large loan
receivable on TeamStaff's financial statements. The Board therefore agreed to
allow the sale of up to 40% of Mr. and Mrs. Johnson's option shares
(approximately 56,230 TeamStaff shares) as an exempt transaction under SEC Rule
16(b)(3).

Under the terms of the agreements governing the BrightLane transaction,
TeamStaff agreed to register for resale shares obtained by former BrightLane
shareholders who would be deemed "affiliates" under SEC rules and regulations.
The registration statement includes 6,096,946 shares of common stock owned by
these persons. Certain former shareholders of BrightLane, who are selling
security holders, including First Union Corporation, Nationwide Financial
Services and T. Stephen Johnson agreed to the terms of a "lockup" agreement
whereby they have agreed that the shares of TeamStaff obtained by them may only
be sold as follows: commencing on the first anniversary of the transaction
(August 31, 2002) 50% of the acquired shares may be sold and commencing on the
second anniversary the remaining shares may be sold. The Board of Directors has
reserved the right to release all of part of the shares from the lockup prior to
its expiration.

In addition, three persons who served as directors of TeamStaff, John H. Ewing,
Rocco J. Marano and Charles R. Dees, Jr. agreed to step down as directors upon
consummation of the transaction with BrightLane. Effective September 4, 2001,
these persons resigned as directors. In connection with the termination of their
services, these individuals received 1,000 warrants for each year of service on
the TeamStaff Board of Directors (an aggregate of 16,000 warrants). The grant of
the warrants was approved by the Board of Directors as an exempt transaction
under SEC Rule 16(b)(3).

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

As described in greater detail earlier in this Annual Report on Form 10-K (see
Item 9 - "Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure), Lazar Levine & Felix LLP served as our independent
auditor for the fiscal year ended September 30, 2003 and PricewaterhouseCoopers
LLP and Arthur Andersen, LLP served as our independent auditors during the
fiscal year ended September 30, 2002. As described above, Lazar Levine & Felix
LLP also provided audit services to us in connection with the audit of our
financial statements for the fiscal year ended September 30, 2002. The following
table presents the total fees paid for professional audit and non-audit services
rendered by our independent auditors for the audit of our annual financial
statements for the years ended September 30, 2003, and September 30, 2002, and
fees billed for other services rendered by our independent auditors during those
periods.

Fiscal Years Ended September 30,
2003 2002
-------- --------

Audit Fees (1) $284,000 $503,000
Audit-Related Fees (2) 34,000 0
Tax Fees (3) 186,000 130,000
All Other Fees (4) 24,000 231,000
-------- --------
Total $528,000 $864,000
======== ========

(1) Audit services consist of audit work performed in the preparation 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. During the fiscal year ended September
30, 2002, we paid and/or accrued an aggregate of $293,000 to
PricewaterhouseCoopers, $15,000 to Arthur Andersen, and $195,000 to Lazar,
Levine & Felix LLP for fees related to the audit of our financial statements.

(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, employee benefit plan audits, and special
procedures required to meet certain regulatory requirements. During the fiscal
year ended September 30, 2002, we did not pay any additional fees to our
auditing firms for any assurance and related services related to such firms'
audit services other than as reported under the caption "Audit Fees."

(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. During the fiscal year ended September 30, 2002,
we paid and/or accrued an aggregate of $26,000 to PricewaterhouseCoopers and
$104,000 to Lazar, Levine & Felix LLP for tax provision review and tax
compliance services.

(4) Other services consist of those service not captured in the other
categories. During the fiscal year ended September 30, 2003, we paid and/or
accrued an aggregate of $24,000 to Lazar, Levine & Felix LLP. During the fiscal
year ended September 30, 2002, we paid and/or accrued an aggregate of $231,000
in fees to PricewaterhouseCoopers for various due diligence, advisory services
and benefit reconciliations.

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.

PART IV

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.

2. All other schedules have been omitted since the required information
is not applicable or because the information required is included in
the Consolidated Financial Statements or the notes thereto.

3. Exhibit List

The exhibits designated with an asterisk (*) are filed herewith. All
other exhibits have been previously filed with the Commission and,
pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32, are incorporated by
reference to the document referenced in brackets following the
descriptions of such exhibits.

EXHIBIT
NO. DESCRIPTION
2.1 --Plan and Agreement of Merger and Reorganization dated as of October
29, 1998 among the Company, the merger corporations (as defined), the
TeamStaff Entities and certain individuals and trusts as shareholders
of the TeamStaff entities (filed as Exhibit A to Proxy Statement of
Digital Solutions, Inc, dated November 12, 1998).

2.2 --Form of Asset Purchase Agreement dated as of April 7, 2000 by and
between TeamStaff, Inc., TeamStaff V, Inc. Outsource International,
Inc., and Synadyne I, Inc., Synadyne II, Inc., Synadyne III, Inc.,
Synadyne IV, Inc., Synadyne V, Inc., Guardian Employer East LLC and
Guardian Employer West LLC.

2.3 --Agreement and Plan of Merger by and among TeamStaff, Inc., TeamSub,
Inc and BrightLane.com, Inc., dated as of March 6, 2001, as amended by
Amendment No. 1 dated as of March 21, 2001 and Amendment No. 2 dated as
of April 6, 2001 (filed as Appendix A to the Proxy Statement/prospectus
filed on August 7, 2001, SEC File no. 333-61730, as part of
Registrant's Registration Statement on Form S-4).

2.4 --Form of Asset Purchase Agreement between TeamStaff, Inc and Gevity
HR, Inc. dated as of November 14, 2003 (filed as Exhibit 2 to Form 8K
dated November 14, 2003)

3.1 --Amended and Restated Certificate of Incorporation (filed as Exhibit A
to Definitive Proxy Statement dated May 1, 2000 as filed with the
Securities and Exchange Commission).

3.2 --Form of Form of Certificate of Designation of Series A Preferred
Stock (filed as Exhibit 3.1 to Form 8-K dated April 6, 2001).

3.3 --Amended By-Laws of Registrant adopted as of May 15, 2001 (filed as
Exhibit 3.4 to the Registration Statement on Form S-4 File No.
333-61730).

3.4 --Amended and restated by-laws of Registrent adopted as of August 29,
2001 (filed as Exhibit 3,5 to the Registrant's Form S-3 filed on
December 19,2001)

4.1 --Form of the Common Stock Certificate (Exhibit 4.1 to Registration
Statement on Form S-18, File No. 33-46246-NY).

4.2 --2000 Employee Stock Option Plan (filed as Exhibit B to the Proxy
Statement dated as of March 8, 2000 with respect to the Annual meeting
of Shareholders held on April 13, 2000).

4.3 --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).

10.1 --Form of Employment Agreement between TeamStaff, Inc. and Donald
Kappauf dated as of April 2, 2001 (filed as Exhibit 10.1 to the
Registrants Proxy Statement/Prospectus on form S-4 File No. 333-61730)

10.2 --Form of Employment Agreement between TeamStaff, Inc. and Donald Kelly
dated as of April 2, 2001 (filed as Exhibit 10.2 to the Registrants
Proxy Statement/Prospectus on form S-4 File No. 333-61730)

10.3 --Lease dated May 30, 1997 for office space at 300 Atrium Drive,
Somerset, New Jersey (Exhibit 10.6.1 to Form 10-K for the fiscal year
ended September 30, 1997).

10.4 --Form of Agreement between TeamStaff Inc. and Donald & Co. Securities,
Inc. (filed as Exhibit 10.27 to Form S-3/A dated June 28, 2000).

10.5 --Employment Agreement dated October 1, 1999 between TeamStaff, Inc.and
Donald Kappauf (filed as Exhibit 10.32 to Form S-3/A dated June 28,
2000).

10.6 --Employment Agreement dated October 1, 1999 between TeamStaff, Inc.and
Donald Kelly (filed as Exhibit 10.33 to Form S-3/A dated June 28,
2000).

10.7 --Form of Stock Purchase Agreement dated as of April 6, 2001 between
TeamStaff, Inc. and BrightLane.com, Inc. with respect to purchase of
Series A Preferred Stock (filed as Exhibit 10.1 to Form 8-K dated April
6, 2001).

10.8 --Form of Registration Rights Agreement dated as of April 6, 2001
between TeamStaff, Inc. and BrightLane.com, Inc. (filed as Exhibit 10.2
to Form 8-K dated April 6, 2001).

10.9 --Form of Marketing Agreement dated as of April 11, 2001 between First
Union Corporation and TeamStaff, Inc.

10.10 --Form of Voting Agreement provided by BrightLane Shareholders as
provided in the Agreement and Pla 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.

10.11 --Form of Escrow Agreement between TeamStaff, Inc. and BrightLane
Shareholders with respect to the placement of 150,000 shares into
escrow by the BrightLane shareholders (filed as Appendix B to the proxy
statement/prospectus filed on August 7, 2001 SEC File No. 333.61730).

10.12 --Form of Severance Agreement dated as of May 22, 2002 between the
Registrant and Donald Kappauf.

10.13 --Form of Severance Agreement dated as of May 22, 2002 between the
Registrant and Donald Kelly.

10.14 --Form of Loan and Security Agreement dated as of April 9, 2002 by and
among the Registrant, its subsidiaries and Fleet National Bank

10.15 --Form of Master Note dated as of April 9, 2002 by and by and among the
Registrant, its subsidiaries and Fleet National Bank.

10.16* --Form of Employment Agreement made as of June 18, 2003 between
TeamStaff, Inc. and T. Kent Smith.

14.1* --Code of Ethics for Chief Executive Officer, Chief Financial Officer
and Controller.

21.0* --Subsidiaries of Registrants.

23.1* --Consent of Lazar Levine and Felix LLP.

31.1 --Certification of Chief Executive Officer pursuant to Section 17 CFR
240.13a-14(a) or 17 CFR 240.15d-14(a)

31.2 --Certification of Chief Financial Officer pursuant to Section 17 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

(b) Reports on Form 8-K

On August 18, 2003, TeamStaff filed a report on Form 8-K under Item 5
Other Events and Item 9 Regulation FD Disclosure in connection with its
earnings release for the fiscal quarter ended June 30, 2003.

On September 2, 2003, TeamStaff filed a report on Form 8-K in
connection with its employment of Rick J. Filippelli as its Vice
President, Finance and Chief Financial Officer.

(d) Valuation of qualifying accounts. See Schedule I annexed to the
financial statements.

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.

/s/T. Kent Smith
-------------------------------------
T. Kent Smith
President and Chief Executive Officer

/s/ Rick Filippelli
-------------------------------------
Rick Filippelli
Vice President Finance and Chief
Financial Officer

Dated: December 22, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

/s/ T. Stephen Johnson Chairman of the Board December 22, 2003
- ------------------------
T. Stephen Johnson

/s/ Karl W. Dieckmann Vice-Chairman of the Board December 22, 2003
- ------------------------
Karl W. Dieckmann

/s/ Martin J. Delaney Director December 22, 2003
- ------------------------
Martin J. Delaney

/s/ Ben J. Dyer Director December 22, 2003
- ------------------------
Ben J. Dyer

/s/ Rocco Marano Director December 22, 2003
- ------------------------
Rocco Marano

/s/ T. Kent Smith President, Chief Executive December 22, 2003
- ------------------------ Officer and Director
T. Kent Smith

TEAMSTAFF, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Report Of Independent Public Accountants F-2

Report Of Predecessor Independent Public Accountants F-3

Consolidated Balance Sheets As Of September 30, 2003 and 2002 F-4

Consolidated Statements Of Income and Comprehensive Income For The Years Ended
September 30, 2003, 2002, and 2001 F-6

Consolidated Statements Of Shareholders' Equity For The Years Ended
September 30, 2003, 2002, and 2001 F-7

Consolidated Statements Of Cash Flows For The Years Ended
September 30, 2003, 2002, and 2001 F-8

Notes To Consolidated Financial Statements F-9

Schedule I -- Valuation And Qualifying Accounts For The Years Ended
September 30, 2003, 2002, and 2001 S-1

Schedules other than those listed above have been omitted as they are either not
required or because the related information has been included in the notes
to consolidated financial statements

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
TeamStaff, Inc.
Somerset, NJ:

We have audited the accompanying consolidated balance sheets of TeamStaff, Inc.
as of September 30, 2003 and 2002, and the related consolidated statements of
income and comprehensive income, shareholders' equity, and cash flows for the
years then ended. Our audits also included the financial statement schedule
listed in Part IV, Item 15. 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 audit.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeamStaff, Inc. as of September
30, 2003 and 2002, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.

The financial statements of TeamStaff, Inc. as of September 30, 2001, and for
the years ended September 30, 2001 and 2000, before the restatement described in
Note (13), were audited by other auditors who have ceased operations and whose
report dated January 1, 2002, expressed an unqualified opinion on those
statements. We audited the adjustments described in Note (13) that were applied
to restate the 2001 financial statements, and in our opinion, such adjustments
are appropriate and have been properly applied. However, we were not engaged to
audit or apply any procedures to the 2001 financial statements of the Company,
other than with respect to such adjustments and, accordingly we do not express
an opinion or any other form of assurance on the 2001 financial statements taken
as a whole.

Lazar, Levine & Felix LLP

New York, NY
December 1, 2003

F-2

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of

TeamStaff, Inc.:

We have audited the accompanying consolidated balance sheets of TeamStaff, Inc.
and subsidiaries as of September 30, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended September 30, 2001. These financial statements and the
schedule referred to below 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 conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeamStaff, Inc. and
subsidiaries as of September 30, 2001 and 2000, and the results of their
operations and their cash flows for the three years in the period ended
September 30, 2001 in conformity with accounting principles generally accepted
in the United States.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to the financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Roseland, New Jersey
December 31, 2001 (except for Note 11, as to which the date is January 1, 2002)

THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSON LLP IN
CONNECTION WITH TEAMSTAFF, INC.'S FILING ON FORM 10-K FOR THE YEAR ENDED
SEPTEMBER 30, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP IN CONNECTION WITH THIS FILING ON FORM 10-K.

F-3

TEAMSTAFF, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2003 AND 2002
(AMOUNTS IN THOUSANDS)

Page 1 of 2

2003 2002
-------- --------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,329 $ 12,455
Restricted cash 1,264 129
Accounts receivable, net of allowance for doubtful accounts
of $142 and $17 at September 30, 2003 and 2002 4,926 7,617
Deferred tax asset - 1,791
Prepaid workers' compensation 3,645 2,341
Other current assets 1,447 3,069
-------- --------
Total current assets 15,611 27,402
-------- --------

EQUIPMENT AND IMPROVEMENTS:
Equipment 2,628 2,603
Computer equipment 1,073 1,025
Computer software 1,060 606
Leasehold improvements 146 129
-------- --------
4,907 4,363

Less - accumulated depreciation and amortization (3,689) (3,341)
-------- --------
Equipment and improvements, net 1,218 1,022
-------- --------

DEFERRED TAX ASSET 14,875 6,680

TRADENAME 4,199 4,199

AMORTIZED INTANGIBLE-PENSION - 612

GOODWILL 1,710 1,710

OTHER ASSETS 555 915

ASSETS HELD FOR SALE 22,449 51,426
-------- --------

TOTAL ASSETS $ 60,617 $ 93,966
======== ========

The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.

F-4

TEAMSTAFF, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2003 AND 2002
(AMOUNTS IN THOUSANDS)

Page 2 of 2

2003 2002
-------- --------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt $ 61 $ 59
Accounts payable 669 1,400
Accrued payroll 2,856 1,784
Deferred tax liability 538 -
Accrued expenses and other current liabilities 3,181 6,222
-------- --------
Total current liabilities 7,305 9,465

LONG-TERM DEBT, net of current portion 94 147
ACCRUED PENSION LIABILITY 1,724 1,271
LIABILITIES HELD FOR SALE 16,384 18,344
-------- --------
Total liabilities 25,507 29,227
-------- --------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value; authorized 5,000 shares;
0 issued and outstanding - -
Common stock, $.001 par value; authorized 40,000 shares;
issued 16,267 and 16,229; outstanding 15,714 and
15,899, respectively 16 16
Additional paid-in capital 65,256 65,200
Accumulated retained (deficit) earnings (27,572) 1,313
Accumulated comprehensive losses (273) (142)
Treasury stock, 553 and 330 shares at cost, respectively (2,317) (1,648)
-------- --------
Total shareholders' equity 35,110 64,739
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 60,617 $ 93,966
======== ========

The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.

F-5

TEAMSTAFF, INC. AND SUBSIDIARIES

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

For the Years Ended September 30,
2001
2003 2002 As Restated
-------- -------- -----------

REVENUES $ 62,805 $ 79,820 $ 69,054

DIRECT EXPENSES 50,615 63,796 54,730
-------- -------- --------
Gross profit 12,190 16,024 14,324

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 14,766 12,085 9,433

DEPRECIATION AND AMORTIZATION 329 198 379
-------- -------- --------

(Loss) income from continuing operations (2,905) 3,741 4,512
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 588 1,057 911
Interest expense (220) (167) (419)
Other income (expense) 13 60 48
-------- -------- --------

381 950 540
-------- -------- --------
(Loss) income before tax (2,524) 4,691 5,052

INCOME TAX BENEFIT (EXPENSE) 930 (1,717) (2,097)
-------- -------- --------
(Loss) income before extraordinary item and discontinued operations (1,594) 2,974 2,955

EXTRAORDINARY ITEM - EARLY EXTINGUISTMENT OF DEBT, NET OF TAX BENEFIT OF $256 - - (354)

(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX BENEFIT (EXPENSE) OF
$2,946, $(68), AND $834 (27,291) 101 (1,253)
-------- -------- --------
Net (loss) income (28,885) 3,075 1,348

OTHER COMPREHENSIVE EXPENSE:
Minimum pension liability adjustment, net of tax (131) (79) (63)
-------- -------- --------

COMPREHENSIVE INCOME $(29,016) $ 2,966 $ 1,285
======== ======== ========

EARNINGS PER SHARE - BASIC
(Loss) income from continuing operations before extraordinary item $ (0.10) $ 0.18 $ 0.34
Extraordinary item - - (0.04)
(Loss) income from discontinued operations (1.74) 0.01 (0.14)
-------- -------- --------
Net (loss) income $ (1.84) $ 0.19 $ 0.16
======== ======== ========

EARNINGS PER SHARE - DILUTED
(Loss) income from continuing operations before extraordinary item $ (0.10) $ 0.18 $ 0.33
Extraordinary item - - (0.04)
(Loss) income from discontinued operations (1.74) 0.01 (0.14)
-------- -------- --------
Net (loss) income $ (1.84) $ 0.19 $ 0.15
======== ======== ========

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC 15,732 16,014 8,693
======== ======== ========

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND EQUIVALENTS OUTSTANDING - DILUTED 15,732 16,183 8,907
======== ======== ========

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

F-6

TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002, AND 2001
(AMOUNTS IN THOUSANDS)

Accumulated
Additional Retained Receivable Other Total
Common Stock Paid-In Earnings/ From Treasury Stock Comprehensive Shareholders
Shares Amount Capital (Deficit) Shareholder Shares Amount Loss Equity
-----------------------------------------------------------------------------------------------------

BALANCE,
September 30, 2000 7,975 $ 8 $ 21,297 $ (3,110) $ - 35 $ (136) $ - $ 18,059

Common stock repurchased - - - - - 52 (366) - (366)
Exercise of stock options 17 - 16 - - - - - 16
Exercise of stock warrants 73 - 179 - - - - - 179
Common stock issued in
connection with the
acquisition of BrightLane 8,066 8 41,892 - - - - - 41,900
Common stock issued in
connection with the
acquisition of HR2 89 - 300 - - - - - 300
Settlement of certain
escrow shares (55) - (340) - - - - - (340)
Stock sold to director 10 40 - - - - - 40
Receivable from shareholder
in connection with
option exercise 14 - 90 - (90) - - - -
Non-cash compensation expense
related to warrants - - 70 - - - - - 70
Minimum pension
liability adjustment (63) (63)
Net income, as restated - - - 1,348 - - - - 1,348
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
September 30, 2001 16,189 16 63,544 (1,762) (90) 87 (502) (63) 61,143
As Restated

Common stock repurchased - - - - - 243 (1,146) - (1,146)
Exercise of stock options 37 - 129 - - - - - 129
Exercise of stock warrants 3 - 14 - - - - - 14
Repayment of loan
to Shareholder - - - - 90 - - - 90
Income tax benefit from stock
options exercised - - 1,513 - - - - - 1,513
Minimum pension liability
adjustment - - - - - - - (79) (79)
Net income - - - 3,075 - - - - 3,075
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, 16,229 16 65,200 1,313 - 330 (1,648) (142) 64,739
September 30, 2002

Common stock repurchased
to treasury - - - - - 251 (782) - (782)
Common stock retirement
from treasury (28) - (113) - - (28) 113 - -
Common stock issued in
connection with buyout
obligation of Corporate
Staffing Concepts 27 - 79 - - - - - 79
Minimum pension liability
adjustment - - - - - - - (131) (131)
Stock sold to director 39 90 - - - - - 90
Net loss - - - (28,885) - - - - (28,885)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
September 30, 2003 16,267 $ 16 $ 65,256 $(27,572) $ - 553 $ (2,317) $ (273) $ 35,110
==================================================================================================================================

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

F-7

TEAMSTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

For the Years Ended September 30,
2001
2003 2002 As Restated
-------- -------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income from continuing operations $ (1,594) $ 2,974 $ 2,601
Adjustments to reconcile net income to net
cash provided by operating activities, net of acquired businesses:
Deferred income taxes (1,083) 1,173 (123)
Depreciation and amortization 329 198 379
Provision for doubtful accounts 128 - 46
Non-cash write-off of deferred financing cost - - 435
Pension amortization 612 58 59
Non-cash compensation expense related to warrants - - 70
Changes in operating assets and liabilities, net of acquired businesses:
Decrease (increase) in accounts receivable 2,563 2,259 (3,010)
Decrease (increase) in other current assets 320 (4,296) (466)
(Increase) in other assets (4,963) (117) (1,326)
(Decrease) increase in accounts payable, accrued
expenses and other current liabilities (2,162) (733) 3,085
(Increase) decrease in restricted cash (1,135) - 246
Increase in pension liability 453 267 1,004
Change in net assets held for sale 27,017 (3,169) 278
(Loss) from discontinued operations (27,291) 101 (1,251)
-------- -------- --------

Net cash (used in) provided by operating activities (6,806) (1,285) 2,027

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of equipment and leasehold improvements (525) (449) (113)
Acquisition of businesses, net of cash acquired - - 12,151
Earn out provision on prior acquisition 79 - -
-------- -------- --------

Net cash (used in) provided by investing activities (446) (449) 12,038

CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of treasury stock 113 - -
Principal payments on long-term debt - - (6,983)
Payments on revolving line of credit - - (899)
Net proceeds from issuance of preferred stock - - 3,500
Repayments on capital leases obligations (51) (57) (49)
Net proceeds from issuance of common stock, net of expenses (23) - 40
Net proceeds from the exercise of stock options and warrants - 144 195
Common shares repurchased (782) (1,146) (366)
Repayment of loan from Shareholder - 90 -
Net comprehensive expense on pension (131) (79) (63)
Income tax benefit on stock options exercised - 1,512 -
-------- -------- --------
Net cash (used in) provided by financing activities (874) 464 (4,625)

Net (decrease) increase in cash and cash equivalents (8,126) (1,270) 9,440
-------- -------- --------

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,455 13,725 4,285
-------- -------- --------

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,329 $ 12,455 $ 13,725
======== ======== ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $ 144 $ 168 $ 1,892
Income taxes 556 1,190 797
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
Fair value of escrow shares received in settlement - - 340
Note receivable in connection with sale of regional office (El Paso) - 125 425
Retirement of preferred stock - - 3,500
Receivable from shareholder in connection with option exercised - - 90

During fiscal 2001 TeamStaff issued common stock valued at $41.9 million in
connection with the acquisition of BrightLane.com and HR2.

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

F-8

TEAMSTAFF, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND BUSINESS:

TeamStaff, Inc., a New Jersey corporation, was founded in 1969 as a
payroll service company and has evolved into a leading provider of
outsourced business solutions focusing on human resource services to a
wide variety of industries in 50 states. TeamStaff's corporate
headquarters is in Somerset, New Jersey and it has offices located in
Clearwater, Florida, Woburn, Massachusetts, and Alpharetta, Georgia.
TeamStaff's wholly-owned subsidiaries include TeamStaff Rx, Inc., DSI
Staff ConnXions-Northeast Inc., DSI Staff ConnXions-Southwest Inc.,
TeamStaff Solutions, Inc., TeamStaff I, Inc., TeamStaff II, Inc.,
TeamStaff III, Inc., TeamStaff IV, Inc., TeamStaff V, Inc., TeamStaff
VI, Inc., TeamStaff Insurance Services, Inc., TeamStaff VIII, Inc.,
Employer Support Services, Inc., TeamStaff IX, Inc., Digital Insurance
Services, Inc., HR2, Inc., and BrightLane.com, Inc. When we use the
term TeamStaff, sometimes we will mean TeamStaff and its subsidiaries.

As of the fiscal year ended September 30, 2003, TeamStaff provided a
variety of employment related services through three business units:
(1) Its TeamStaff Rx unit provides medical allied health professionals
and nurses to doctors' offices and medical facilities throughout the
United States on a temporary or permanent basis; (2) the payroll
services division provides customized payroll management and tax filing
services to select industries, such as construction, and (3) the
professional employer organization, or PEO, division provided
comprehensive human resource management and administrative services,
including payroll administration and payroll tax filing, procurement
and administration of employee benefit plans, procurement and
administration of workers' compensation insurance, management of
employment related risks, and assistance in compliance with
employment-related laws and regulations. We believe our medical
staffing subsidiary is one of the top providers in the niche medical
imaging field, placing temporary employees for over 550 clients. The
payroll processing division processes payrolls for approximately 750
clients with more than 30,000 employees. BrightLane, an acquired
business unit that is not engaged in the provision of employment
related services, applies many of its core competencies towards
internal technology enablement and the integration of various disparate
systems used in TeamStaff's operating entities.

Effective November 17, 2003, TeamStaff sold certain of the assets of
the subsidiaries through which it operated its PEO business to Gevity
HR, Inc. for the sum of $9.5 million in cash, $2.5 million of which has
been placed in escrow. The escrowed sum will be released after 90 days
from the November 17, 2003, closing, but is subject to downward
adjustment based on any reduction in annualized administrative fees
payable by the former TeamStaff PEO clients. Any such downward
adjustment may be offset by annualized administrative fees of certain
clients produced by former TeamStaff sales representatives during the
90-day period. The assets sold consisted primarily of client contracts,
marketing agreements and internally developed software for use in
reconciling certain benefit provider monthly invoices. As part of the
transaction, Gevity HR, Inc. agreed, among other things, to hire
certain former TeamStaff employees assigned to the PEO division and
assume certain of TeamStaff's lease obligations. Further, TeamStaff
agreed to a non-competition agreement which prohibits us from engaging
in the PEO business for a period of five years. As a result of the
transaction with Gevity, our internal corporate employee staff was
reduced by approximately 95 persons, and our workforce staff was
reduced by approximately 17,000 worksite employees. See also Note 3
"Subsequent Events/Discontinued Operations".

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION-

The accompanying consolidated financial statements include the accounts
of TeamStaff, Inc. and its subsidiaries, all of which are wholly owned.
The results of operations of acquired companies within the period
reflected have been included in the consolidated financial statements
from the date of acquisition. All significant intercompany balances and
transactions have been eliminated in the consolidated financial
statements.

The financial statements related to fiscal year 2001 contained in these
financial statements have been restated to reflect certain adjustments
which are described in detail in Note 13.

USE OF ESTIMATES-

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

F-9

REVENUE RECOGNITION-

TeamStaff accounts for its revenues in accordance with EITF 99-19,
Reporting Revenues Gross as a Principal Versus Net as an Agent.
TeamStaff recognizes all amounts billed to its temporary staffing
customers as gross revenue because, among other things, TeamStaff is
the primary obligor in the temporary staffing arrangement, TeamStaff
has pricing latitude, TeamStaff selects temporary employees for a given
assignment from a broad pool of individuals, TeamStaff is at risk for
the payment of its direct costs, whether or not TeamStaff's customers
pay TeamStaff on a timely basis or at all, and TeamStaff assumes a
significant amount of other risks and liabilities as an employer of its
temporary 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 temporary employees which have not yet
been billed to the customer as of the end of the accounting period.

The Medical Staffing 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 temporary
employees, plus an estimate to cover overhead expenses and a profit
margin. Additionally, included in revenue related to medical staffing
are commissions from permanent placements. Commissions from permanent
placements result from the successful placement of a medical staffing
employee to a customer's workforce as a permanent employee.

The Payroll services revenue is recognized as service is rendered and
consists primarily of administrative service fees charged to clients
for the processing of paychecks as well as preparing quarterly and
annual payroll related reports.

In connection with its discontinued operation, TeamStaff's professional
employer organization division revenues historically had been derived
from its PEO division gross billings, which were based on: (i) the
payroll cost of its worksite employees; and (ii) associated payroll
taxes, benefit costs, workers' compensation charges and administrative
fees. The gross billings were invoiced to clients concurrently with
each periodic payroll of its worksite employees. Historically,
TeamStaff had included both components of its PEO gross billings in
revenues (gross method) due primarily to the assumption of significant
contractual rights and obligations and other liabilities TeamStaff
assumed as an employer, regardless of whether it actually collected its
gross billings. After discussions with Securities and Exchange
Commission staff, and with the concurrence of its auditors, TeamStaff
changed its presentation of PEO revenues from the gross method to an
approach that presented its revenues net of worksite employee payroll
costs (net method) primarily because TeamStaff was not generally
responsible for the output and quality of work performed by the
worksite employees. This change in accounting method reduced both the
revenue and direct costs for fiscal years ended September 30, 2003,
2002 and 2001 by $409.0 million, $485.1 million and $483.8 million,
respectively, but had no effect on gross profit, operating income
(loss) or net income (loss). The above amounts have now been reflected
as part of income (loss) from discontinued operations in the
consolidated financial statements. Consistent with this change in
revenue recognition policy, TeamStaff's PEO division direct costs did
not include the payroll costs of its worksite employees. TeamStaff's
PEO division direct costs associated with its revenue generating
activities were comprised of all other costs related to its worksite
employees, such as the employer portion of payroll-related taxes,
employee benefit plan premiums and contributions and workers'
compensation insurance premiums.

CONCENTRATIONS OF CREDIT RISK-

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. TeamStaff
monitors the financial health of these banking institutions.

TeamStaff's customer base consists of over 1,300 client companies,
representing approximately 30,000 employees (including payroll services
employees) as of September 30, 2003. TeamStaff's client base is broadly
distributed throughout a wide variety of industries; however, more than
75% of the customers in the payroll processing area are in the
construction industry and substantially all of TeamStaff-Rx customers
are in the healthcare industry. Credit, when given, is generally
granted on an unsecured basis.

CASH EQUIVALENTS-

For purposes of the statements of cash flows, TeamStaff considers all
liquid investments purchased with a maturity of three months or less to
be cash equivalents.

F-10

RESTRICTED CASH-

Restricted cash is in connection with a security deposit held for
BrightLane's office lease, an ACH processing agreement with SunTrust
Bank and for SERP obligations related to the former CEO and former CFO.

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.

In connection with its discontinued operation, TeamStaff believed that
the success of its PEO business was heavily dependent on its ability to
collect these service fees for several reasons, including (i) the large
volume and dollar amount of transactions processed by TeamStaff, (ii)
the periodic and recurring nature of payroll, upon which the service
fees were based, and (iii) the fact that TeamStaff was at risk for the
payment of its direct costs regardless of whether its clients paid
their service fees. To mitigate this risk, TeamStaff established very
tight credit policies. TeamStaff generally required its clients to pay
their service fees no later than one day prior to the applicable
payroll date. In addition, TeamStaff maintained the right to terminate
its Client Service Agreement and associated worksite employees or to
require prepayment, letters of credit or other collateral upon
deterioration in a client's financial position or upon nonpayment by a
client. As a result of these efforts, the outstanding balance of
accounts receivable and subsequent losses related to customer
nonpayment had historically been very low as a percentage of revenues.

FAIR VALUE-

TeamStaff has financial instruments, none of which is held for trading
purposes. TeamStaff estimates that the fair value of all financial
instruments at September 30, 2003 and 2002, does not differ materially
from the aggregate carrying values of these financial instruments
recorded in the accompanying balance sheets. The estimated fair value
amounts have been determined by TeamStaff using available market
information and appropriate valuation methodologies. Considerable
judgment is necessarily required in interpreting market data to develop
the estimates of fair value, and, accordingly, the estimates are not
necessarily indicative of the amounts that TeamStaff could realize in a
current market exchange.

EQUIPMENT AND IMPROVEMENTS-

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
lease term or estimated useful life for leasehold improvements.

ACQUIRED INTANGIBLE ASSETS-

As of September 30, 2003
------------------------
Gross
Carrying Accumulated
Amount Amortization Net
(Amounts in thousands) -------- ------------ ---

Amortized intangible assets
Pension 729 (729) -
=== ==== =

As of September 30, 2002
------------------------
Gross
Carrying Accumulated
Amount Amortization Net
-------- ------------ ---

Amortized intangible assets
Pension 729 (117) 612
======== ==== ===

Aggregate Amortization Expense
For year ended 9/30/03 $ 612
========

Tradename $ 4,199
========

F-11

IMPAIRMENT OF WACHOVIA RELATIONSHIP INTANGIBLES:

Intangible assets that are subject to amortization are reviewed for
potential impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable. Assets not subject to
amortization are tested for impairment at least annually. As part of
its acquisition of BrightLane, completed in August 2001, TeamStaff
entered into a two-year, extendable marketing relationship with First
Union Corporation (renamed Wachovia). The Wachovia relationship was
intended to provide TeamStaff with the ability to market its PEO
services to Wachovia's small business customers through Wachovia's
network of small business bankers. The relationship did not produce the
anticipated number of PEO clients or worksite employees. During the
fiscal quarter ended March 31, 2003, TeamStaff determined that, based
on estimated future cash flows, the carrying amount of the Wachovia
marketing relationship, which was assigned to TeamStaff's PEO reporting
segment, exceeded its fair value by $5.7 million; accordingly, an
impairment loss of that amount, as indicated by an independent outside
valuation, was recognized and was included in impairment of intangible
assets. TeamStaff has received written notice from Wachovia terminating
the current agreement effective as of October 14, 2003. TeamStaff has
therefore written-off the full remaining value of the Wachovia
relationship, $1.2 million during the third fiscal quarter 2003. The
impairment of these intangible assets is included in discontinued
operations.

TeamStaff determined that no impairment of its tradename existed as of
September 30, 2003. TeamStaff will continue to review annually its
remaining indefinite life intangible assets for possible impairment or
loss of value.

GOODWILL
(Amounts in thousands)

Medical
Staffing
--------

Balance as of September 30, 2002 $1,710
Goodwill impairment writedown -
Goodwill adjustment during year -
------
Balance as of September 30, 2003 $1,710
======

IMPAIRMENT OF GOODWILL:

Goodwill is assigned to specific reporting units and, in accordance
with SFAS 142, is reviewed for possible impairment at least annually or
more frequently upon the occurrence of an event or when circumstances
indicate that a reporting unit's carrying amount may be greater than
its fair value. As of the fiscal quarter ended December 31, 2002,
TeamStaff carried a total of $27.2 million in goodwill. During the
fiscal quarter ended March 31, 2003, TeamStaff determined that the
carrying amount of the PEO reporting segment exceeded its fair value,
which was estimated based on the present value of expected future cash
inflows and the market approach which compares TeamStaff to other
comparable entities. The decision to test for impairment was based on a
variety of factors, including, but not limited to, the overall downturn
in the nation's economy, the relatively recent substantial decrease in
the number of TeamStaff PEO worksite employees, the performance of the
Wachovia marketing relationship, the reduced valuations of individual
PEOs by various market analysts and the associated market downgrade in
the PEO industry generally. Accordingly, a goodwill impairment loss of
$20.4 million, as indicated by an independent outside valuation, was
recognized in the PEO reporting unit for the fiscal quarter ended March
31, 2003. The goodwill impairment loss is included in discontinued
operations. No further goodwill impairment loss was recognized during
the fiscal year.

LONG-LIVED ASSETS-

TeamStaff reviews it long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Management of TeamStaff believes that no
such events or changes in circumstances have occurred though September
30, 2003. 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.

WORKERS' COMPENSATION-

TeamStaff applies loss-development factors to its open years' 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. (See Note 8)

INCOME TAXES-

TeamStaff accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis
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.

F-12

RECLASSIFICATIONS

Certain reclassifications have been made to prior years amounts to
conform to the current year presentation.

STOCK-BASED COMPENSATION

Stock-based compensation for employees and directors is recognized
using the intrinsic value method under APB No. 25. TeamStaff uses the
fair value method for options issued to non-employees. For disclosure
purposes, pro forma net income (loss) impacts are provided as if the
fair market value method has been applied.

In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which was
effective October 1, 1996, the fair value of option grants is estimated
on the date of grant using the Black-Scholes option-pricing model for
proforma footnote purposes with the following assumptions; dividend
yield of 0%, risk-free interest rate of 2.58%, 4.16%, and 4.59% in
2003, 2002, and 2001 respectively, and expected option life of 4 years.
Expected volatility was assumed to be 73%, 72%, and 74% in 2003, 2002,
and 2001, respectively.

As permitted by SFAS 123, TeamStaff has chosen to continue to account
for its employee stock-based compensation at their intrinsic value in
accordance with Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as
all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings
per share if the company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, as amended, to stock-based employee compensation.

(Amounts in thousands, except per 2001
share data) 2003 2002 As Restated
---- ---- -----------

Net income(loss), as reported $(28,885) $3,075 $1,348
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (471) (627) (655)
-------- ------ ------
Pro forma net income (loss) $(29,356) $2,448 $ 693
======== ====== ======
Earnings (loss) per share Basic:
As reported $ (1.84) $ 0.19 $ 0.16
======== ====== ======
Pro forma $ (1.87) $ 0.15 $ 0.08
======== ====== ======
Earnings (loss) per share Diluted:
As reported $ (1.84) $ 0.19 $ 0.15
======== ====== ======
Pro forma $ (1.87) $ 0.15 $ 0.08
======== ====== ======

See also "Recent Accounting Standards" regarding implementation of SFAS
148.

EARNINGS (LOSS) PER SHARE-

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

In accordance with SFAS 128, the following table reconciles basic
shares outstanding to fully diluted shares outstanding.

F-13

Years Ended September 30,
(Amounts in thousands,
except per share data)
2001
As
2003 2002 Restated
------- ------ --------

Weighted average number of common shares
outstanding - Basic 15,732 16,014 8,693
Incremental shares for assumed conversions
of stock options/warrants - 169 214
------ ------ -----
Weighted average number of common and
equivalent shares outstanding-Diluted 15,732 16,183 8,907
====== ====== =====

Stock options and warrants outstanding at September 30, 2003, 2002, and
2001 to purchase 1,456,900, 257,298, and 157,006 shares of common stock
respectively were not included in the computation of Diluted EPS as
they were antidilutive.

COMPREHENSIVE INCOME(LOSS):

TeamStaff has comprehensive losses resulting from its Supplemental
Executive Retirement Plan (SERP) (See Notes 12 and 13). When
TeamStaff's SERP obligations were measured at September 30, 2003, the
amount of the Projected Benefits Obligation (PBO) exceeded the recorded
SERP liability. This was due to the fact that rates earned on fixed
income investments steadily decreased. The discount rates used in the
PBO calculations dropped from 7.5% in September 2001 to 6.5% in
September 2002, and to 5.5% in 2003. These changes resulted in a
comprehensive loss net of tax in fiscal year 2003 of $131,000, in
fiscal year 2002 of $79,000 and in fiscal year 2001 of $63,000. No
other sources of comprehensive gains or losses occurred.

RECENT ACCOUNTING STANDARDS:

On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure" ("SFAS 148"), that is applicable to financial
statements issued for fiscal years ending after December 15, 2002. In
addition, interim disclosure provisions are applicable for financial
statements issued for interim periods beginning after December 15,
2002. This standard amends SFAS 123 and provides guidance to companies
electing to voluntarily change to the fair value method of accounting
for stock-based compensation. In addition, this standard amends SFAS
123 to require more prominent and more frequent disclosures in
financial statements regarding the effects of stock-based compensation.
TeamStaff will implement SFAS 148 in the first fiscal quarter 2003.

In January 2003, FASB Interpretation No. 46 ("FIN No. 46"),
"Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51," was issued. In general, a
variable interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either (a) does
not have equity investors with voting rights or (b) has equity
investors that do not provide sufficient financial resources for the
entity to support its activities. FIN No. 46 requires a variable
interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest
entity's activities or is entitled to receive a majority of the
entity's residual returns or both. Currently this standard has not had
an impact on TeamStaff's consolidated financial statements.

In April 2003, FASB issued Statements of Financial Accounting Standards
No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
and for hedging activities under FASB Statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities". SFAS 149 is generally
effective for contracts entered into or modified after June 30, 2003.
Currently this standard has not had an impact on TeamStaff's
consolidated financial statements.

In May 2003, FASB issued Statements of Financial Accounting Standards
No. 150 "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and
equity. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003. Currently this standard has not had an
impact on TeamStaff's consolidated financial statements.

(3) SUBSEQUENT EVENT/DISCONTINUED OPERATIONS:

F-14

agreements and internally developed software for use in reconciling
certain benefit provider monthly invoices. As part of the transaction,
Gevity HR, Inc. agreed, among other things, to hire certain former
TeamStaff employees assigned to the PEO division and assume certain of
TeamStaff's lease obligations.

In conjunction with the sale of its PEO assets to Gevity HR, Inc.,
TeamStaff requested a pro rata cancellation of its workers'
compensation policy with Zurich effective as of November 17, 2003.
TeamStaff entered into a new workers' compensation program with Zurich
covering TeamStaff's temporary employees. The program is managed by
Cedar Hill and claims handling services for the program are provided by
GAB Robins. This program is a fully-insured, guaranteed cost program
that contains no deductible or retention feature. This new policy will
terminate effective April 1, 2004.

As of September 30, 2003, TeamStaff met the criteria for reporting the
pending sale of the PEO division as an asset held for sale and
discontinued operations per SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", and has accounted for the discontinued
operation as such within the consolidated financial statements and
notes to consolidated financial statements included in this Form 10-K
filing.

The following chart details assets and liabilities held for sale:

For Fiscal Years Ended September 30,
2003 2002
------- -------

ASSETS
Accounts Receivable $14,191 $15,618
Other current assets 353 764
------- -------
Total current assets 14,544 16,382
------- -------
Fixed assets 4,874 4,196
Accumulated depreciation (2,547) (1,653)
------- -------
Net fixed assets 2,327 2,543
------- -------
Goodwill 5,390 25,457
Intangible assets 10 6,910
Other assets 178 134
------- -------
Total assets $22,449 $51,426
======= =======

LIABILITIES
Accounts payable $ 1,199 $ 2,431
Accrued payroll 13,905 14,885
Accrued expenses and other current liabilities 859 571
------- -------
Total current liabilities 15,963 17,887
------- -------
Client security deposits 421 457
------- -------
Total liabilities $16,384 $18,344
======= =======

Net revenues for the PEO segment for fiscal years ended September 30,
2003, 2002, and 2001 were $88.0 million, $101.0 million, and $96.9
million respectively.

TeamStaff estimates the loss generated on both the sale of the PEO
assets to Gevity HR, Inc., as well as the company's decision to
discontinue its PEO operations, to be within the $0.5 million to $1.0
million range. This estimate includes the writedown of goodwill and
fixed assets, and the severance payout to affected employees. This
range is also based on estimates of the anticipated amount in escrow to
be released after 90 days from date of sale and the uncertainty of a
sublease of soon to be unoccupied office space.

The following information regarding historical PEO acquisitions are now
included in discontinued operations:

Corporate Staffing Concepts: Effective January 2, 2002, TeamStaff
acquired the accounts and related assets of Corporate Staffing Concepts
LLC, a PEO entity operating primarily in western Massachusetts and
Connecticut, for $275,000 paid at closing, and stock, which would be
paid in connection with an earn out in one year, based upon the number
of worksite employees remaining from the accounts being acquired. On
January 10, 2003, by mutual agreement, TeamStaff fully settled its earn
out obligations to Corporate Staffing Concepts LLC by agreeing to pay
the sum of $250,000 in cash and to issue 27,500 shares of TeamStaff
Common Stock valued at $79,000, bringing the total purchase price to
approximately $604,000. The additional purchase price of $329,000 as a
result of the earn out was recorded as additional goodwill.

Sale of El Paso Regional Office: In September 2001, TeamStaff sold its
regional PEO office in El Paso, Texas. The business was sold for
$925,000: $500,000 in cash at closing and $425,000 to be paid in 17
equal monthly installments from October 2001 until February 2003. The
gain on sale of this transaction was $50,000.

F-15

(4) INCOME TAXES:

At September 30, 2003, TeamStaff has available operating loss
carryforwards of approximately $21.0 million to reduce future periods'
taxable income. Substantially all of the operating loss carryforwards
were acquired in connection with the acquisition of BrightLane on
August 31, 2001 (See Note 6). The carryforwards expire in various years
beginning in 2004 and extending through 2021. TeamStaff also has tax
credits available of approximately $1.1 million to reduce future
taxable income that begin to expire in 2020. In accordance with IRS
regulations, the utilization of operating losses acquired from
BrightLane are limited to approximately $2.1 million per year.

TeamStaff has recorded a $14.9 million and a $8.5 million deferred tax
asset at September 30, 2003 and 2002, respectively. This represents
management's estimate of the income tax benefits to be realized upon
utilization of its net operating losses and tax credits as well as
temporary differences between the financial statement and tax bases of
certain assets and liabilities, for which management believes
utilization to be more likely than not. In fiscal 2003, 2002, and 2001,
TeamStaff reduced its tax provision by $0.3 million, $0.2 million and
$0.2 million respectively for certain tax credits which were available
to TeamStaff

In order for TeamStaff to realize the operating loss carryforward and
the tax credits, TeamStaff would have to generate approximately $41.0
million in future taxable income. Management believes TeamStaff's
operations can generate sufficient taxable income to realize this
deferred tax asset as a result of the past five years of profitability
and its ability to meet its operating plan.

An analysis of TeamStaff's deferred tax asset and liability is as
follows-

Years Ended September 30,
-------------------------
(Amounts in thousands) 2003 2002
-------- --------

Deferred income tax asset:
Net operating loss carry forwards and tax credits $ 14,456 $ 8,162
Workers' compensation reserves -- (227)
Allowance for doubtful accounts 121 101
Depreciation expense (12) (12)
Professional fees -- 172
Pension 248 142
Other items, net 62 133
-------- --------
14,875 8,471
-------- --------
Deferred income tax liability:
Workers' compensation reserves (683) --
Other items, net 145 --
-------- --------
(538) --
-------- --------
Net deferred tax asset $ 14,337 $ 8,471
======== ========

The components of the income tax expense for income taxes from
continuing operations are summarized as follows-

Years Ended September 30,
(Amounts in thousands)
2001
2003 2002 As Restated
------- ------- -----------

Current expense $ 153 $ 544 $ 1,974
Deferred (benefit) expense (1,083) 1,173 123
------- ------- -------
Total (benefit) expense $ (930) $ 1,717 $ 2,097
======= ======= =======

The following table indicates the significant elements contributing to
the difference between the Federal statutory rates and TeamStaff's
effective tax rate-

Years Ended September 30,
2001
2003 2002 As Restated
---- ---- -----------

Federal statutory rate (34)% 34% 34%
State taxes, net of federal income tax benefit (7) 8 8
Tax credits (7) (5) (5)
Goodwill amortization 0 0 6
Valuation allowance 11 0 0
Other 0 0 (1)
-- -- --
(37)% 37% 42%
== == ==

F-16

The tax benefits associated with the exercise of non-qualified stock
options reduce taxes currently payable by $1.5 million for 2002. Such
benefits are credited to additional paid-in capital.

(5) DEBT:

On April 9, 2002, TeamStaff entered into a revolving loan facility with
Fleet National Bank ("Fleet"). The total outstanding loan amount cannot
exceed at any one time the lesser of $7.0 million or the sum of 85% of
qualified accounts receivable, less an amount reserved by Fleet to support
direct debit processing exposure. The annual interest rate is either the
Fleet prime rate or LIBOR, at the discretion of TeamStaff, and is currently
4%. The facility is collateralized by substantially all of the assets of
TeamStaff, including its accounts receivable. The facility is subject to
certain covenants including, but not limited to, interest rate coverage of
2.0 to 1.0, total liabilities to tangible net worth ratio of 2.0 to 1.0,
and minimum working capital of $10.0 million.

Effective March 21, 2003, the Company and Fleet agreed to a renewal of the
revolving loan facility, which now expires on March 31, 2004. The terms of
the facility are substantially as described above, except that the total
outstanding loan amount at any one time cannot exceed the lesser of $6.0
million or the sum of 85% of the qualified accounts receivable less an
amount reserved by Fleet. At September 30, 2003, the sole outstanding
amount of the facility represented an outstanding letter of credit in the
amount of $3.5 million issued with respect to TeamStaff's workers'
compensation program with Zurich effective April 1, 2003 described above.
During the year, Fleet amended the agreement by deleting covenants related
to interest rate coverage and replaced it with minimum earnings before
interest expense and minimum working capital covenants. At September 30,
2003, TeamStaff was not in compliance with the earnings before interest
expense and minimum working capital covenants. Fleet has agreed to waive
the requirements as of September 30, 2003. TeamStaff and Fleet are working
to determine new covenants for the remaining quarters of the loan. In
connection with the sale of certain PEO assets to Gevity HR, Inc., we were
required to obtain the consent of Fleet to the transaction. As part of its
agreement to the sale of PEO assets (which served as collateral for the
loan) Fleet required that we provide substitution collateral in the form of
a $3,500,000 deposit at Fleet. This deposit may be considered restricted
cash in that until the parties review the loan conditions, we may not use
it for general purposes.

During fiscal year 2001 TeamStaff had a long-term credit facility from
FINOVA Capital Corporation totaling $12.5 million. Substantially all assets
of TeamStaff secured the credit facility. The facility was comprised of (i)
two three-year term loans each for $2.5 million, with a five-year
amortization, at prime plus 3%; (ii) a three-year term loan for $4.0
million, with a five-year amortization, at prime plus 3% and (iii) a $3.5
million revolving line of credit at prime plus 1% secured by certain
accounts receivable of TeamStaff. The credit facility was subject to
success fees for each of the $2.5 million term loans in the amounts of
$200,000, $225,000 and $250,000 due on the anniversary dates of the loan.
In addition the $4.0 million term loan was subject to annual success fees
at the beginning of each loan year in the amount of $0.5 million. The
credit facility was subject to certain covenants including, but not limited
to, a debt to net worth ratio, a minimum net worth and a minimum debt
service coverage ratio, as defined.

In connection with the BrightLane acquisition, TeamStaff repaid
approximately $8.3 million of total outstanding debt (including interest
and related financing fees) owed to FINOVA Capital Corporation during 2001.
The loan facility with FINOVA was terminated. Of this amount approximately
$3.8 million was paid in April 2001 and the remaining $4.5 million was paid
in September 2001. As a result, TeamStaff wrote off $0.4 million of
unamortized financing costs and paid additional fees of $0.2 million. This
has been recorded as an extraordinary loss on the early extinguishment of
debt of $0.4 million, net of tax benefit of $0.3 million in fiscal year
2001.

Long-term debt from continuing operations at September 30, 2003 and 2002
consists of the following- (Amounts in thousands)

2003 2002
----- -----

Capital leases $ 155 $ 206
Less- Current portion (61) (59)
----- -----
Long-term debt $ 94 $ 147
===== =====

Maturities of long-term debt as of September 30, 2003 are as follows-
(Amounts in thousands)

Years Ending
September 30,
-------------

2004 $ 61
2005 94
----
$155
====

F-17

(6) BUSINESS COMBINATIONS/DISPOSITIONS:

ACQUISITION OF BRIGHTLANE.COM

In connection with the transaction, persons holding BrightLane options to
acquire approximately 2.1 million BrightLane shares (the equivalent of
approximately 481,000 TeamStaff shares) exercised their options. TeamStaff
made recourse loans of approximately $1.0 million principal amount to the
holders of these options to assist them in payment of tax obligations
incurred with exercise of the options. The loans are repayable upon the
earlier of (i) sale of the TeamStaff shares or (ii) three years. As of
September 30, 2002, approximately $0.7 million of these loans has been
repaid or forgiven and $0.3 million remains outstanding. All loans must be
repaid in cash with the exception of one loan. Under the terms of
TeamStaff's employment agreement with an executive officer of TeamStaff's
BrightLane subsidiary, the loan ($131,000) has been forgiven over a
two-year period.

(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

Accrued expenses and other current liabilities at September 30, 2003 and
2002 consist of the following- (Amounts in thousands)

2003 2002
------ ------

Workers' compensation insurance $1,658 $1,673
Bank overdraft 731 1,874
Other 792 2,675
------ ------
$3,181 $6,222
====== ======

(8) COMMITMENTS AND CONTINGENCIES:

LEASES-

Minimum payments under noncancellable lease obligations at September 30,
2003 are as follows- (Amounts in thousands)

Years Ending September 30,
--------------------------

2004 $1,816*
2005 1,458
2006 626
2007 463
------
$4,363
======

Rent expense under all operating leases was $1.9 million in 2003, $1.8
million in 2002, and $1.2 million in 2001.

*The PEO office located in Boca Raton, Florida has been subleased by Gevity
HR, Inc for a term of 6 months for $76,000. This amount excludes lease
obligations assumed by Gevity HR, Inc. as of December 1, 2003. (See Note 3)

WORKERS' COMPENSATION POLICY-

As of the fiscal year ended September 30, 2003, TeamStaff's insurance
provider is Zurich American Insurance Company (Zurich). The program is
managed by Cedar Hill Insurance Agency, Inc. (Cedar Hill), whose duties
include underwriting analysis of potential and current clients, loss
control services, and other program management services. In addition,
TeamStaff's workers' compensation insurance broker, The Hobbs Group,
provides claims oversight and also provided certain underwriting and claims
management services. This policy covers TeamStaff's corporate employees,
the worksite employees co-employed by TeamStaff and its PEO clients, and
the temporary employees employed by TeamStaff to fulfill various
client-staffing assignments. TeamStaff does not provide workers'
compensation coverage to non-employees.

F-18

a letter of credit inuring to the benefit of Zurich, and cash held in a
trust account with a third party. The letter of credit for $4.2 million was
secured through Fleet, as part of TeamStaff's line of credit. In connection
with the renewal of this program discussed below, Zurich released this
letter of credit. Payments were made to the trust monthly based on
projected claims for the year. Interest on all assets held in the trust is
credited to TeamStaff. Payments for claims and claims expenses will be made
from the trust. Assets in the trust may be adjusted from time to time based
on program claims experience. Claims handling services for the program is
provided by a third party administrator assigned by Cedar Hill. At
September 30, 2003, TeamStaff has a prepaid current asset of $1.5 million
for the premiums and the prepayments made to the trust.

On March 28, 2003, TeamStaff renewed its workers' compensation program with
Zurich for the period from April 1, 2003, through March 31, 2004,
inclusive. (See Note 3 to the consolidated financial statements) The
renewal program contains a large deductible feature of $0.5 million for
each claim, with a maximum liability cap of the greater of 104.41% of
manual premium or $15.6 million. The premium for the program is paid
monthly based upon estimated payroll for the year and is subject to a
policy year-end audit. The new program is collateralized by a letter of
credit inuring to the benefit of Zurich, and cash held in a trust account
with a third party. The new letter of credit for $3.5 million was secured
through Fleet, as part of TeamStaff's line of credit. Payments are made to
the trust monthly based on projected claims for the year. Interest on all
assets held in the trust is credited to TeamStaff. Payments for claims and
claims expenses will be made from the trust. Assets in the trust may be
adjusted from time to time based on program experience. Claims handling
services for the program are provided by GAB Robins, a third party
administrator. At September 30, 2003, TeamStaff has a prepaid current asset
of $2.1 million for the premiums and the prepayments made to the trust.

In conjunction with the sale of its PEO assets to GevityHR, Inc., TeamStaff
requested a pro rata cancellation of this policy effective as of November
17, 2003. TeamStaff entered into a new workers' compensation program with
Zurich covering TeamStaff's temporary employees. The program is managed by
Cedar Hill and claims handling services for the program are provided by GAB
Robins. This program is a fully-insured, guaranteed cost program that
contains no deductible or retention feature. This new policy will terminate
effective April 1, 2004.

TeamStaff's primary workers' compensation insurance provider from January
22, 2001 through March 21, 2002, was Continental Assurance (CNA). This
policy covered its corporate employees, the worksite employees co-employed
by TeamStaff and its PEO clients, and the temporary employees employed by
TeamStaff to fulfill various client-staffing assignments.

The CNA policy originally covered the period from January 22, 2001 through
January 21, 2002, but was extended to March 21, 2002. It was a large
deductible program ($250,000 for each claim) with a maximum liability cap.
The premium for the policy was paid monthly based upon estimated payroll
for the year and is subject to a year-end audit by the provider. TeamStaff
also maintained a separate policy insuring a portion of the maximum
deductible cap, which it may be required to pay if claims exceed a
determined number. The policy, including the extension, insures payment of
the maximum cap in excess of the first $2.1 million, which TeamStaff pays,
up to $8.7 million. Once the $8.7 million is exceeded, TeamStaff pays 89.5%
of paid claims up to $12.1 million. If the claims and fixed costs under the
policy are less than the amounts TeamStaff paid, plus investment returns
thereon, the insurer is contractually obligated to refund the difference to
TeamStaff.

As part of the two-month extension, which was negotiated in January 2002,
TeamStaff was required to pay $0.5 million, which CNA asserted was owed to
cover costs for claims incurred during the policy years 1997 - 1999. As
previously disclosed, TeamStaff had received a release for those periods
from CNA in January 2001, when TeamStaff accepted CNA as its new insurance
carrier. TeamStaff has denied CNA's claim and, to date, has received $0.2
million back from the original $0.5 million payment. TeamStaff believes
that the remaining funds should be returned as well. Should TeamStaff be
unsuccessful in receiving a refund of all monies paid, it will be required
to absorb these claims. However, TeamStaff has recorded a liability on its
books for the estimated claims for the two-month extension, which exceeds
the $0.3 million disputed amount. Accordingly, TeamStaff plans to offset
this $0.3 million amount from any monies potentially owed by TeamStaff to
CNA. On January 27, 2003, TeamStaff filed a complaint of unfair or
deceptive acts or practices in the business of insurance against CNA with
the New Jersey Division of Insurance. The New Jersey Division of Insurance
referred the matter to the New Jersey Compensation Rating and Inspection
Bureau, which has investigated the complaint and proposed a fine against
CNA and a refund of $0.2 million in policy issuance costs to TeamStaff.
TeamStaff and CNA are attempting to resolve these matters amicably.

Prior to its reclassification as discontinued operations, TeamStaff
recorded in direct expenses a monthly charge based upon its estimate of the
year's ultimate fully developed claims plus the fixed costs charged by the
insurance carrier to support the program. This estimate is established each
quarter based in part upon information provided by TeamStaff's insurers,
internal analysis and its insurance broker. TeamStaff's internal analysis
includes a quarterly review of open claims and a review of historical
claims related to the workers' compensation programs. While management uses
available information, including nationwide loss ratios, to estimate
ultimate claims, future adjustments may be necessary based on actual claims
incurred during the policy period. Since the recorded ultimate expense is
based upon a ten-year projection of actual claims payment

F-19

and the timing of these payments as well as the interest earned on
TeamStaff's prepayments, TeamStaff also relies on actuarial tables to
estimate its ultimate expense.

As of September 30, 2003, the adequacy of the workers' compensation
reserves 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 which may
include loss data for claims incurred during prior policy periods. As
disclosed in our Form 10-K for the fiscal year ended September 30, 2002,
TeamStaff has encountered difficulties in receiving timely reporting of
claims from CNA. In the future, similar problems from our insurance
carriers may result in adjustments to our reserves. In addition, these
reserves are for claims that have not been sufficiently developed due to
their relatively young age, and such variables as timing of payments and
investment returns thereon are uncertain or unknown, 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 reserves as deemed appropriate.

PAYROLL TAXES

TeamStaff has received notices from the IRS concerning misapplication of
payroll tax payments between its legal entities, which if not resolved
favorably, may result in interest and penalties. To date, TeamStaff has
been working with the IRS to resolve these discrepancies and has had some
interest and penalties abated. TeamStaff believes that after the IRS
applies all the funds correctly, all significant interest and penalties
will be abated.

LEGAL PROCEEDINGS

In July 2000, TeamStaff made claims for indemnification against the selling
shareholders of the TeamStaff Companies (the Sellers), which were acquired
by TeamStaff in January 1999. The claims consisted of various potential
liabilities and expenses incurred based on breaches of representations and
warranties contained in the acquisition agreement. The Sellers disputed
these claims and attempted to assert claims of their own. On January 12,
2001, TeamStaff entered into a settlement agreement with the Sellers. Under
the settlement agreement, the Sellers agreed to be liable and responsible
for certain potential liabilities estimated at approximately $0.5 million
and agreed that 55,000 shares of TeamStaff common stock, which had been
held in escrow since the acquisition, were to be cancelled and TeamStaff
agreed to release 29,915 escrow shares to the Sellers. TeamStaff retains
75,000 shares in escrow to provide security for the Seller's obligations.
Each party agreed to release each other from all other claims under the
acquisition agreements. No third parties have contacted TeamStaff seeking
payment in the last fiscal year for these potential liabilities. In the
event that TeamStaff incurs liability to third parties with respect to the
claims, TeamStaff would declare an event of default under the settlement
agreement and seek collection from the Sellers.

TeamStaff's subsidiary, BrightLane, is party to a suit brought by one of
its former shareholders (Atomic Fusion, Inc. v. BrightLane.com, Inc. Civil
Action No ONS02246OE, Fulton County State Court, Georgia). The plaintiff
seeks damages for alleged unpaid contractual services provided to
BrightLane, alleging that the shares (both in number and value) of
BrightLane stock provided to the plaintiff in payment of services were
inadequate to pay for the alleged agreed upon value of services. TeamStaff
and BrightLane intend to defend themselves vigorously in this matter and
believes that they have meritorious and valid defenses to plaintiff's
claims. In addition, the former shareholders of BrightLane have placed
approximately 158,000 shares in escrow to provide indemnification for any
claims made by TeamStaff under the acquisition agreement, subject to a $0.3
million threshold. Some or all of these shares may be canceled in an amount
equal to the amount of any claim or expense in excess of the threshold.
Under the terms of the agreements between TeamStaff and BrightLane, the
value of the shares held in escrow is $8.10/share. It is possible that an
award in favor of Atomic Fusion would result in monetary damages against
TeamStaff, which could not be recovered under the indemnification
provisions because cancellation of the shares in escrow is the sole method
of satisfying these indemnification obligations. On November 20, 2003, the
Fulton County Superior Court (to which the action was transferred) awarded
summary judgment in BrightLane's favor on all counts of Atomic Fusion's
complaint except for a breach of contract claim. We intend to continue our
defense in the matter.

As a commercial enterprise and employer and with respect to its businesses
as a professional employer organization, payroll services and temporary and
permanent staffing, TeamStaff is engaged in litigation from time to time
during the ordinary course of business in connection with
employment-relations issues, workers' compensation and other matters.
Generally, TeamStaff is entitled to indemnification or repayment from its
PEO clients for claims brought by worksite employees related to their
employment. However, there can be no assurance that the client employer
will have funds or insurance in amounts to cover any damages or awards, and
as co-employer, TeamStaff may be subject to liability.

TeamStaff is engaged in no other litigation, the effect of which would be
anticipated to have a material adverse impact on TeamStaff's financial
conditions or results of operations.

F-20

EMPLOYMENT AGREEMENTS

Effective as of June 18, 2003, TeamStaff entered into an employment
agreement with T. Kent Smith pursuant to which Mr. Smith serves as
TeamStaff's President and Chief Executive Officer. The agreement expires on
September 30, 2005. Under the terms of the agreement, Mr. Smith is paid an
annual base salary of $250,000 and is eligible to receive a bonus of up to
50% of his base salary based on the achievement of revenue, income and
other objectives established by the Management Resources and Compensation
Committee. Mr. Smith also was granted an option to purchase 400,000 shares
of TeamStaff common stock, one-fourth of which vested on June 18, 2003,
one-fourth of which will vest one year thereafter, and the remainder of
which will vest on June 18, 2005. Mr. Smith also receives four weeks annual
vacation and is offered welfare benefit plans, 401(k) and fringe benefits
generally made available to other TeamStaff employees. The agreement
provides, among other things, that Mr. Smith will be paid a severance
payment of three months of his base salary if Mr. Smith and TeamStaff do
not enter into a new employment agreement by September 30, 2005.
Additionally, the agreement provides for certain post-termination payments
depending upon the reason for the termination of Mr. Smith's employment.
The agreement also provides for the payment of nine months of base salary
and the provision of certain other benefits should Mr. Smith's employment
terminate in connection with a change in control, as defined in the
agreement.

Effective September 15, 2003, Rick J. Filippelli was appointed TeamStaff's
Vice President, Finance and Chief Financial Officer at an initial annual
base salary of $225,000. Mr. Filippelli is eligible to receive a bonus of
up to 35% of his base salary. Additionally, Mr. Filippelli was granted an
option to purchase 50,000 shares of TeamStaff common stock, one half of
which will vest on September 15, 2004, and the remaining one half will vest
on September 15, 2005. Mr. Filippelli also receives four weeks of annual
vacation and is offered welfare benefit plans, 401(k) and fringe benefits
generally made available to other TeamStaff employees.

Effective January 1, 2003, TeamStaff entered into a one-year employment
agreement with Elizabeth Hoaglin pursuant to which Ms. Hoaglin currently
serves as President, TeamStaff Rx, Inc., at an annual salary of $130,000.
In addition, Ms. Hoaglin is entitled to receive a bonus to be determined
based on the achievement of certain performance criteria determined as of
the commencement of each fiscal year. Ms. Hoaglin receives certain other
benefits granted to other TeamStaff employees, including health and other
insurance benefits, as well as a car allowance of $300 per month and four
weeks annual vacation.

Effective January 1, 2003, TeamStaff entered into a one-year employment
agreement with Edmund C. Kenealy pursuant to which Mr. Kenealy currently
serves as Vice President, General Counsel, at an annual salary of $160,000.
In addition, Mr. Kenealy is entitled to receive an increase in annual
compensation as of October 1, 2003 and a bonus to be determined based on
the achievement of certain performance criteria determined as of the
commencement of each fiscal year. Mr. Kenealy receives certain other
benefits granted to other TeamStaff employees, including health and other
insurance benefits, as well as a car allowance of $500 per month and three
weeks annual vacation.

Effective January 1, 2003, TeamStaff entered into a one-year employment
agreement with Wayne R. Lynn pursuant to which Mr. Lynn currently serves as
Chief Operating Officer of TeamStaff's PEO Division, at an annual salary of
$150,000 . In addition, Mr. Lynn is entitled to receive a yearly increase
in annual compensation as of March 19, 2003 and a bonus to be determined
based on the achievement of certain performance criteria determined as of
the commencement of each fiscal year. Mr. Lynn receives certain other
benefits granted to other TeamStaff employees, including health and other
insurance benefits, as well as a car allowance of $500 per month and three
weeks annual vacation.

TeamStaff entered into an employment agreement with Mr. Donald Kappauf,
TeamStaff's former President and Chief Executive Officer effective April 2,
2001 and terminating on September 30, 2003. As of June 18, 2003, Mr.
Kappauf agreed to relinquish his position as President and Chief Executive
Officer of TeamStaff. Mr. Kappauf terminated his employment effective as of
September 30, 2003. Under the terms of this agreement, Mr. Kappauf's base
compensation was initially $230,000, increasing to $300,000 commencing
September 1, 2001, and subject to yearly increases thereafter at the
discretion of the compensation committee. For the fiscal year ended
September 30, 2003, Mr. Kappauf received a base salary of $300,000. Mr.
Kappauf also was entitled to an annual bonus based on the achievement of
certain performance criteria as determined by the compensation committee.

In addition, Mr. Kappauf received certain other benefits including
insurance benefits as are provided to all other executives, a car lease
allowance in the maximum amount of $1,000 per month, participation in the
supplemental executive retirement plan and a split dollar life insurance
arrangement. The agreement also provided for the grant of 300,000 stock
options, which vested in annual increments of one third commencing on the
date of the agreement. TeamStaff also entered into a severance agreement
with Mr. Kappauf, as described below, which governed the termination of his
employment and certain other events including a change of control of
TeamStaff.

F-21

TeamStaff entered into an employment agreement with Mr. Donald Kelly,
TeamStaff's former Chief Financial Officer, effective April 2, 2001 and
terminating on September 30, 2003. In June 2003, Mr. Kelly notified
TeamStaff that he would be terminating his employment on July 2, 2003
purportedly for "good reason," as defined in his severance agreement, as
described below. Under the terms of his employment agreement, Mr. Kelly's
base compensation was initially $170,000, increasing to $200,000 commencing
September 1, 2001, and subject to yearly increases thereafter at the
discretion of the compensation committee. For the fiscal year ended
September 30, 2003, Mr. Kelly received a base salary of $200,000. Mr. Kelly
also was entitled to a bonus based on the achievement of certain
performance criteria as determined by the compensation committee.

In addition, Mr. Kelly received certain other benefits including insurance
benefits as are provided to all other executives, a car allowance in the
amount of $800 per month, participation in the supplemental executive
retirement plan and a split dollar life insurance arrangement. The
agreement also provided for the grant of 150,000 stock options, which
vested in annual increments of one third commencing on the date of the
agreement. TeamStaff also entered into a severance agreement with Mr.
Kelly, as described below, which governs the termination of his employment
and certain other events including a change of control of TeamStaff.

The split dollar life insurance agreements and supplemental retirement plan
were approved by the Compensation Committee of the Board during the 2000
fiscal year and implemented effective October 1, 2000. Under the terms of
the SERP, a participant receives 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 becomes a participant. Payment of
benefits commences when the participant reaches 65 years of age. The
benefit under the SERP is 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 contingent on the participant's reaching age
55; provided, however, a participant's benefit becomes fully vested upon a
change of control, as defined in the SERP, if within two years of the
change of control there is a material change in the participant's job title
or responsibilities or if the participant's employment is terminated by
TeamStaff for any reason other than conviction for theft or embezzlement
from TeamStaff. Additionally, if a participant retires by means of total
disability (as defined in the SERP), the participant's benefit becomes
fully vested and benefit payments commence as of the disability retirement
date. The SERP does not provide a death benefit. Mr. Kappauf and Mr. Kelly
are the only SERP participants at the present time.

SERP participants also are provided with a split dollar life insurance
policy, insuring the life of the participant until the participant reaches
age 65. Although the participant is the owner of the Policy, TeamStaff pays
all Policy premiums. Each participant has 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 vests 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 will release the collateral assignment of the Policy provided the
participant releases TeamStaff from all obligations it may have with
respect to the participant (including those under the SERP). However, given
the uncertainty of TeamStaff's ability to continue to maintain this payment
arrangement in light of certain of the provisions of the Sarbanes-Oxley Act
of 2002, TeamStaff had, with the President and Chief Executive Officer's
consent, deferred paying Policy premiums on behalf of the Chief Executive
Officer, pending review of the SERP to comply with the Sarbanes-Oxley Act.
For the fiscal quarter ended December 31, 2002, TeamStaff paid the Chief
Executive Officer a bonus in the amount of the Policy premiums, grossed-up
to cover allocable income taxes. Pursuant to the severance agreement with
Mr. Kappauf, in the event he were terminated for cause, he would be
entitled only to his accrued compensation, which means his base salary,
reimbursement of business expenses, vacation pay and earned but unpaid
bonuses to the date of termination. "Cause" is defined to include
conviction of a felony, an intentional and continual failure to
substantially perform his duties or an intentional failure to follow or
perform a lawful direction of the Board of Directors. If Mr. Kappauf were
terminated for disability or death, he would be entitled to his accrued
compensation and certain other payments, such as the pro rata bonus amount.
The pro rata bonus amount is defined as the amount equal to the greater of
the most recent annual bonus amount paid or the annual bonus paid or
payable for the full fiscal year ended prior to the termination, in either
case pro-rated through the date of death or disability. In the event that
Mr. Kappauf's employment terminated for any other reason, the agreement
provides for payment of his accrued compensation, a pro rata bonus amount,
a bonus amount allocated to the remainder of the term of his employment
agreement, his base salary through the remainder of the term of his
employment agreement, a severance payment equal to one year's base
compensation, a payment equal to the cost of health and other similar
benefits for a period of two years and costs associated with outplacement
services.

F-22

Kappauf have reached a definitive agreement concerning the payment of his
severance payments and the creation and funding of the trust. Under the
agreement, among other things, TeamStaff will pay Mr. Kappauf's severance
benefits over a 48 month period and contribute, initially, three years of
premiums (approximately $249,000) to the irrevocable trust, which is
reflected as restricted cash as of September 30, 2003.

The severance agreement with Mr. Kelly has terms which are substantially
similar to those described above for Mr. Kappauf. Until December 10, 2002,
Mr. Kelly held the positions of Chief Financial Officer, Vice President,
Finance and Secretary of TeamStaff. As a result of the previously disclosed
change in his duties, the former Chief Financial Officer may have had "good
reason" to terminate his employment with TeamStaff and may have claims for
the severance payments and benefits provided by the severance agreement.
The term good reason includes "a change in the [e]xecutive's status, title,
position or responsibilities . . . ." In June 2003, Mr. Kelly notified the
Board of Directors that he would terminate his employment, effective July
2, 2003, for "good reason" and exercise his rights under the severance
agreement. Additionally, the change in Mr. Kelly's duties may have caused
his benefits under the SERP to become fully vested. In the event that Mr.
Kelly's exercise of these rights is appropriate, such termination is deemed
proper, and Mr. Kelly is eligible to receive all potential compensation
under the severance agreement and the SERP, TeamStaff may be required to
make payments, either directly to Mr. Kelly, in the case of the severance
agreement, or to a trust, in the case of any payments to be made pursuant
to the SERP. TeamStaff and the former Chief Financial Officer are currently
negotiating the terms of the payment of the benefits provided by the
severance agreement and the funding of irrevocable grantor trust. However,
there can be no assurance that an agreement can be reached. In the absence
of such an agreement, TeamStaff may be required to fully fund the trust and
make certain lump sum payments and provide certain other benefits required
by the severance agreement. As of September 30, 2003, TeamStaff has
reflected $636,000 as restricted cash for this potential obligation.

(9) SHAREHOLDERS' EQUITY:

Stock Warrants-

The following is a summary of the outstanding warrants to purchase
TeamStaff's common stock at September 30, 2003:

Exercise Price Number of Shares of
Exercise Period Exercise Period Per Common Common Stock
From To Share Reserved
--------------- --------------- -------------- -------------------

January 1999 January 2004 5.25 21,428
December 2000 December 2005 3.20 10,000
September 2001 September 2006 5.16 16,000
------
47,428
======

During the fiscal year ending September 30, 2003, TeamStaff granted no
warrants and 58,856 warrants expired unexercised. During 2003, no warrants
were exercised. During the fiscal year ended September 30, 2002, TeamStaff
granted no warrants and no warrants expired unexercised. During 2002, 3,286
warrants were exercised for net proceeds of $14,000. During the fiscal year
ended September 30, 2001, TeamStaff granted 26,000 additional warrants and
69,140 warrants expired unexercised. For warrants issued to third parties
for services, TeamStaff utilizes the Black-Scholes option pricing model to
determine fair value and compensation expense. The fair value of the grants
issued in 2001 and other stock based compensation was determined to be
$70,000, and was included in selling, general and administrative expenses
in the accompanying statements of income for the year ended September 30,
2001.

STOCK OPTION PLANS -

The 1990 Employees Stock Option Plan (the "1990 Plan") provided for the
grant of options to purchase up to 285,714 shares of TeamStaff's common
stock. Under the terms of the 1990 Plan, options granted thereunder may be
designated as options which qualify for incentive stock option treatment
("ISOs") under Section 422A of the Code, or options which do not so qualify
("Non-ISO's").

The 1990 Non-Executive Director Stock Option Plan (the "Director Plan")
provided for issuance of a maximum of 142,857 shares of common stock upon
the exercise of stock options arising under the Director Plan.

The 1990 Senior Management Incentive Plan (the "Management Plan") provided
for the issuance of stock, options and other stock purchase rights to
executive officers and other key employees and consultants who render
significant services to TeamStaff and its subsidiaries. A total of
1,428,571 shares of common stock were reserved for issuance under the
Management Plan.

F-23

The forgoing plans have expired and options are no longer being granted
under these 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") 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") under Section 422A of the Code, or options which do not so qualify
("Non-ISO's").

The 2000 Plan is administered by the Compensation Committee designated by
the Board of Directors. The Compensation Committee has the discretion to
determine the eligible employees to whom, and the times and the price at
which, options will be granted; whether such options shall be ISOs or
Non-ISOs, subject to applicable law; the periods during which each option
will be exercisable; and the number of shares subject to each option. The
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 Corporation held by the optionee for at least six months prior
to exercise.

NON-EXECUTIVE DIRECTOR PLAN

In fiscal 2000, the Board of Directors and stockholders approved the
adoption of the 2000 Non-Executive Director Stock Option Plan (the
"Director Plan") to provide for the grant of options to non-employee
directors of TeamStaff. Under the terms of the Director Plan, each
non-executive director is automatically granted an option to purchase 5,000
shares upon joining the Board and each September 1st, pro rata, based on
the time the director has served in such capacity during the previous year.
The Directors' Plan also provides that directors, upon joining the Board,
and for one (1) year thereafter, will be entitled to purchase restricted
stock from TeamStaff at a price equal to 80% of the closing bid price on
the date of purchase up to an aggregate purchase price of $50,000. The
Director Plan replaced the previous Director Plan that expired in April
2000.

Under the Director Plan, the exercise price for options granted under the
Director Plan shall be 100% of the fair market value of the common stock on
the date of grant. Until otherwise provided, the exercise price of options
granted under the 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 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 Committee will
make all determinations of the interpretation of the Director Plan. Options
granted under the Director Plan are not qualified for incentive stock
option treatment.

F-24

The following tables summarize the activity in TeamStaff's stock option
plans for the years ended September 30, 2003, 2002, and 2001:

NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE FAIR VALUE
-----------------------------------------------------------

Options outstanding,
September 30, 2000 351,541 $5.00
--------------------------------
Granted 597,785 $4.75 $2.77
Exercised (46,009) $4.56
Cancelled (28,048) $6.01
--------------------------------
Options outstanding,
September 30, 2001 875,269 $4.82
--------------------------------
Granted 256,430 $5.87 $3.47
Exercised (38,210) $3.39
Cancelled (100,847) $6.85
--------------------------------
Options outstanding,
September 30, 2002 992,642 $4.94
--------------------------------
Granted 558,000 $2.96 $1.42
Exercised - -
Cancelled (141,170) $5.15
--------------------------------
Options outstanding,
September 30, 2003 1,409,472 $3.97
================================

As of September 30, 2003, 2002, and 2001, 917,472, 666,642, and 440,762
options, respectively, were exercisable.

WEIGHTED WEIGHTED WEIGHTED
RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 9/30/03 LIFE PRICE AT 9/30/03 PRICE
- ------------- ---------- --------- -------- ----------- --------

$2.27 - 4.55 738,990 3.8 $ 3.21 296,990 $ 3.57
$4.55 - 6.82 635,482 2.4 $ 5.19 585,482 $ 5.10
$6.82 - 9.10 25,000 2.7 $ 8.05 25,000 $ 8.05
$9.10 - 11.37 10,000 2.9 $ 10.18 10,000 $ 10.18

During 2003, 2002, and 2001 , TeamStaff repurchased 251,214, 242,945, and
51,855 shares respectively of its common stock for $781,341, $1,146,000,
and $366,000 respectively. As of September 30, 2003, TeamStaff retired
28,456 shares of treasury stock. As of December 12, 2003, TeamStaff retired
an additional 546,014 shares of treasury stock.

(10) SEGMENT REPORTING:

As a part of continuing operations, TeamStaff operates two different lines
of business: medical staffing and payroll services.

TeamStaff currently provides temporary and permanent staffing for allied
healthcare professionals and nurses with hospitals, clinics and therapy
centers. Medical staffing enables clients to attain management and
productivity goals by matching highly trained professionals and technical
personnel to specific project requirements.

Through its Payroll Services business segment, TeamStaff provides basic
payroll services to its clients, approximately 75% of which are in the
construction industry. Services provided include the preparation of payroll
checks, filing of payroll taxes, government reports, W-2's, remote
processing directly to the client's offices and certified payrolls.

All corporate expenses, amortization of goodwill (until October 1, 2001),
interest expense, as well as depreciation on corporate assets and
miscellaneous charges, are reflected in a separate unit called Corporate.

TeamStaff has changed its segment reporting as of October 1, 2002. The
voucher processing service business is now managed and reported in the
Payroll Services group. BrightLane costs have been allocated to Corporate
since BrightLane provides information technology services to the entire
company. Prior year figures have been adjusted to conform to the current
year presentation.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. TeamStaff evaluates the
performance of its business lines based on pre-tax income.

F-25

The following table represents the financial results for each of
TeamStaff's segments: (Amounts in thousands)

Medical Payroll
Staffing Services Corporate Consolidated
-------- -------- --------- ------------

2003
Revenues $ 58,119 $ 4,686 $ - $ 62,805

Depreciation and amortization 138 9 182 329
Income/(loss) from continuing
operations 3,805 1,580 (8,290) (2,905)
Interest income 525 - 63 588
Interest expense (25) - (195) (220)
Other income - - 13 13
Income/(loss) from continuing
operations before income taxes 4,306 1,580 (3,362) (2,524)
Capital spending 170 215 140 525
Total assets from continuing
operations $ 18,353 $ 2,252 $ 17,563 $ 38,168

2002

Revenues $ 74,866 $ 4,954 $ - $ 79,820

Depreciation and amortization 141 12 45 198
Income/(loss) from continuing
operations 7,652 2,057 (5,968) 3,741
Interest income 886 - 171 1,057
Interest expense (15) - (152) (167)
Other income 60 - - 60
Income/(loss) from continuing
operations before income taxes 8,583 2,057 (5,949) 4,691
Capital spending 184 6 259 449
Total assets from continuing
operations $ 16,873 $ 3,969 $ 21,698 $ 42,540

2001 AS RESTATED

Revenues $ 64,442 $ 4,612 $ - $ 69,054

Depreciation and amortization 270 64 45 379
Income/(loss) from continuing
operations 7,262 1,830 (4,580) 4,512
Interest income 669 - 242 911
Interest expense (234) (36) (149) (419)
Other income - - 48 48
Income/(loss)from continuing
operations before income taxes
and extraordinary item 7,697 1,794 (4,439) 5,052
Capital spending 75 - 38 113
Total assets from continuing
operations $ 10,561 $ 2,794 $ 29,281 $ 42,636

TeamStaff has no revenue derived outside of the United States.

F-26

(11) QUARTERLY FINANCIAL DATA (UNAUDITED):
(Amounts in thousands, except per share data)

First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------

Fiscal 2003
Net revenues $ 18,457 $ 16,378 $ 14,654 $ 13,316
Gross profit 3,523 3,163 2,901 2,603
Income (loss) before extraordinary item and
discontinued operations 273 (790) (886) (191)
Loss from discontinued
operations net of tax (187) (25,168) (1,378) (558)
Net income (loss) 86 (25,957) (2,264) (750)
Earnings per share - Basic and
Diluted $ .01 $ (1.65) $ (0.14) $ (0.05)

First Quarter Second Quarter Third Quarter Fourth
As Restated As Restated As Restated Quarter
------------- -------------- ------------- --------------

Fiscal 2002
Net revenues $ 21,265 $ 19,523 $ 19,397 $ 19,635
Gross profit 4,511 3,943 3,928 3,642
Income before extraordinary item and
discontinued operations 1,195 871 611 297
(Loss) from discontinued
operations net of tax (568) (426) 1,426 (331)
Net income 627 445 2,037 (34)
Earnings per share - Basic and Diluted $ 0.04 $ 0.03 $ 0.13 $ 0.00

First Quarter Second Quarter Third Quarter Fourth Quarter
As Restated As Restated As Restated As Restated
------------- -------------- ------------- --------------

Fiscal 2001
Net revenues $ 15,305 $ 15,886 $ 17,307 $ 20,556
Gross profit 3,083 3,200 3,619 4,422
Income before extraordinary item and
discontinued operations 543 573 707 1,132
Extraordinary item net of tax - - (143) (211)
Loss from discontinued
operations net of tax 79 (291) (164) (877)
Net income 622 282 400 44
Earnings per share - Basic and Diluted $ 0.07 $ 0.03 $ 0.05 $ 0.01

F-27

(12) EMPLOYEE BENEFIT PLANS:

As of September 30, 2003, TeamStaff maintained two defined contribution
pension plans for the benefit of its non-worksite employees. The first,
the Digital Solutions, Inc. and Affiliated Corporations 401(k) Savings
Plan, was "frozen" by TeamStaff as of January 1, 1999. TeamStaff is
terminating this plan in accordance with the provisions of Rev. Proc.
2002-21, providing a method for the termination of single employer
plans maintained by professional employer organizations. No deferrals
or other contributions currently are made to that plan.

TeamStaff also maintained The TeamStaff Retirement Savings Plan. This
plan was assumed by Gevity HR, Inc., effective November 17, 2003, as
part of their purchase of the PEO operating segment. The TeamStaff Plan
is designed to qualify as a multiple employer plan as described in
Section 413(c) of the Internal Revenue Code. Additionally, because plan
participants have their own account, manage their own plan investments
and make their own investment decisions from a broad range of
investment options, TeamStaff believes that it is afforded protection
from liability for participants' investment decisions under Section
404(c) of the Code. Any TeamStaff corporate employee (including its
medical and technical staffing employees), is eligible for
participation in the TeamStaff Plan upon completing three months of
service with TeamStaff. TeamStaff provides a discretionary matching
contribution of 25% of each of the first 4% of a participant's elective
contributions under the TeamStaff Plan. TeamStaff recorded expense for
this matching of $67,000 in fiscal 2003 and $58,000 in fiscal 2002. A
participant is always fully vested in his elective contributions. A
participant's interest in TeamStaff discretionary matching
contributions vests in accordance with the following schedule:

Years of Service: Vested Interest:
------------------ ----------------

Less than 1 Year of Service 0%
1 Year, but less than 2 Years 25%
2 Years, but less than 3 Years 50%
3 Years, but less than 4 Years 75%
4 Years or more 100%

TeamStaff received a favorable determination letter regarding the
TeamStaff Plan's tax qualified status on June 25, 1999. The TeamStaff
Plan, and the frozen Digital Solutions Plan, both were audited by
independent auditors for the plan years ended December 31, 2002 and
December 31, 2001, in connection with their required From 5500 Annual
Reports filed with the Pension and Welfare Benefits Administration for
the plan year ended December 31, 2002.

Effective October 1, 2000, TeamStaff adopted a non-qualified,
supplemental retirement plan covering certain corporate officers of
TeamStaff (the "SERP"). Under the terms of the SERP, a participant
receives 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 becomes a participant. Payment of benefits commences
when the participant reaches 65 years of age. The benefit under the
SERP is 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 contingent on the participant's reaching age 55;
provided, however, a participant's benefit becomes fully vested upon a
change of control, as defined in the SERP, if within two years of the
change of control there is a material change in the participant's job
title or responsibilities or if the participant's employment is
terminated by TeamStaff for any reason other than conviction for theft
or embezzlement from TeamStaff.

Additionally, if a participant retires by means of total disability (as
defined in the SERP), the participant's benefit becomes fully vested
and benefit payments commence as of the disability retirement date. The
SERP does not provide a death benefit. TeamStaff's former Chief
Executive Officer and its former Chief Financial Officer are the only
SERP participants.

SERP participants also are provided with a split dollar life insurance
policy ("Policy"), insuring the life of the participant until the
participant reaches age 65. Although the participant is the owner of
the Policy, TeamStaff pays all Policy premiums. Each participant has
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 vests 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 will release
the collateral assignment of the Policy provided the participant
releases TeamStaff from all obligations the Corporation may have with
respect to the participant (including those under the SERP).

The following table illustrates TeamStaff's changes in benefit costs
and pension benefit obligations for the fiscal years ending September
30, 2003 and September 30, 2002 under the SERP .

Fiscal Year
-----------
(Amounts in thousands) 2003 2002
---- ----

Change in Benefit obligation
Benefit obligation at beginning of year $ 1,271 $ 1,004
Service cost 17 58
Interest Cost 91 77
Actuarial (gain)/loss 345 132
------- -------
Benefit obligation at end of year $ 1,724 $ 1,271
======= =======
Reconciliation of funded status
Funded status $(1,724) $(1,271)
Unrecognized net actuarial (gain)/loss 455 240
Unrecognized prior service cost 0 612
------- -------
Net amount recognized $(1,269) $ (419)
======= =======
Amounts recognized in the statement of financial
position consist of:
Accrued benefit liability $(1,724) $(1,271)
Intangible asset 0 612
Accumulated other comprehensive income 455 240
------- -------
Net amount recognized $(1,269) $ (419)
======= =======
Weighted-average assumptions as of September 30:
Discount rate 5.50% 6.50%
Expected return on plan assets N/A N/A
Rate of compensation increase N/A N/A
Components of net periodic benefit cost
Service cost $ 17 $ 58
Interest cost 91 77
Amortization of prior service cost 29 58
Recognized actuarial (gain)/loss 14 1
------- -------
Net periodic benefit cost $ 151 $ 194
======= =======
Other disclosure items at end of year:
Projected benefit obligation $ 1,724 $ 1,271
======= =======
Accumulated benefit obligation $ 1,724 $ 1,271
======= =======
Fair value of plan assets - -
======= =======

There are no plan assets.

During fiscal 2003, two events were recognized as curtailments under
SFAS No. 88. Donald Kelly was relieved of his duties as Chief Financial
Officer. A curtailment charge related to this event of $254,000 was
recognized during the second quarter. Donald Kappauf relinquished his
positions as President and Chief Executive Officer.

F-28

A curtailment charge related to this event of $445,000 was taken during
the third quarter. TeamStaff is not aware of any other events that
might constitute settlement or curtailment under SFAS No. 88.

(13) RESTATEMENT OF FINANCIAL STATEMENTS FOR FISCAL YEAR END SEPTEMBER 30, 2001:

Effective October 1, 2000, TeamStaff adopted a non-qualified,
supplemental retirement plan covering certain corporate officers of
TeamStaff (the "SERP"). SERP participants also are provided with a
split dollar life insurance policy ("Policy"), insuring the life of the
participant until the participant reaches age 65. (Refer to Note 11
Employee Benefit Plans.) TeamStaff incorrectly accounted for the above
programs and did not disclose them in the fiscal year end September 30,
2001 financial statements. TeamStaff expensed the contributions made to
the split dollar policies in the amount of $188,000. Had TeamStaff
properly accounted for the above plan in fiscal year 2001 an additional
$76,000 of expense would have been recognized on an after tax basis.
The chart below details items affected by the restatement:

September 30, 2001 September 30, 2001
(Amounts in thousands) As Reported As Restated*
------------------ ------------------

BALANCE SHEET:
Amortized intangible assets $ 900 $ 1,571
Other assets 1,567 1,661
Accrued expenses and other
current liabilities 8,466 8,365
Accrued pension liability 0 1,004
Accumulated comprehensive losses 0 (63)
Accumulated retained earnings (1,686) (1,762)

STATEMENTS OF INCOME:
Selling, general, and
administrative expenses $ 23,264 $23,395
Income from operations 3,409 3,278
Income before income tax expense 3,094 2,963
Income tax expense 1,316 1,261
Income before extraordinary item 1,778 1,702
Net income 1,424 1,348
Other comprehensive expense,
net of tax: minimum pension
liability adjustment 0 (63)
Comprehensive income 1,424 1,285

*The 2001 restatement shown above does not reflect discontinued
operations.

In conducting the audit for the fiscal year ended September 30, 2002,
the auditors expanded their testing of TeamStaff's system of internal
controls, including information technology controls, to include the
prior year ended September 30, 2001. This was done to investigate
concerns regarding controls raised by the predecessor auditor,
PricewaterhouseCoopers. As a result of this testing, it was determined
that there where no material weaknesses in TeamStaff's system of
internal controls and accordingly only an audit of the restatement
adjustment was required.

F-29

SCHEDULE I

TEAMSTAFF, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002, AND 2001
(Amounts in thousands)

(c) Additions
Charged to
(b) (reversed (d)
Balance at from) Costs Deductions - (e) Balance
Beginning of and Net Write- at End of
(a) Description Year Expenses Offs Year
- ---------------------- ------------ ------------- ------------ -----------

Allowance for doubtful
accounts, year ended-
September 30, 2003 $ 17 $125 $ (0) $142
==== ==== ===== ====
September 30, 2002 $ 92 $ (0) $(75) $ 17
==== ==== ===== ====
September 30, 2001 $144 $ 68 ($120) $ 92
==== ==== ===== ====

S-1