1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21533
TEAM AMERICA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 31-1209872
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 EAST WILSON BRIDGE ROAD 43085
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (614) 848-3995
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No
THE NUMBER OF SHARES OF REGISTRANT'S ONLY CLASS OF COMMON STOCK OUTSTANDING ON
JULY 31, 2000 WAS 4,341,999.
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
JUNE 30, 2000
INDEX
PART I. FINANCIAL INFORMATION
PAGE
NO.
---
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -- June 30, 2000 (unaudited)
and December 31, 1999............................................................................... - 3 -
Condensed Consolidated Statements of Operations -- Three-month and six-month periods
ended June 30, 2000 (unaudited) and 1999 (unaudited and restated)................................... - 5 -
Condensed Consolidated Statements of Cash Flows -- Three month and six-month periods
ended June 30, 2000 (unaudited) and 1999 (unaudited and restated)................................... - 6 -
Condensed Consolidated Statement of Changes in Shareholders' Equity-
Six-month period ended June 30, 2000 (unaudited).................................................... - 7 -
Notes to Condensed Consolidated Financial Statements................................................ - 8 -
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................. - 9 -
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................................................... - 14 -
Signature.................................................................................................... - 15 -
Exhibit Index................................................................................................ - 16 -
Note: Item 3 of Part I and Items 1 through 5 of Part II are omitted because they
are not applicable.
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
$(000's) OMITTED
JUNE 30, DECEMBER 31,
2000 1999
----------------- -----------------
(UNAUDITED) (AUDITED)
CURRENT ASSETS:
Cash $ 4,433 $ 3,087
Receivables:
Trade, net of allowance for doubtful accounts of $200 and $200 3,094 4,413
Unbilled revenues 8,453 10,515
Refundable income taxes 174 851
Employee advances 143 130
----------------- -----------------
Total receivables 11,864 15,909
Prepaid expenses 681 450
Deferred income tax asset 246 246
----------------- -----------------
TOTAL CURRENT ASSETS 17,224 19,692
----------------- -----------------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
AND AMORTIZATION 1,451 1,645
----------------- -----------------
OTHER ASSETS:
Goodwill and non-compete agreements, net 25,148 25,715
Cash surrender value of life insurance policies 727 596
Mandated benefit/security deposits 171 174
Other assets 33 64
----------------- -----------------
TOTAL OTHER ASSETS 26,079 26,549
----------------- -----------------
TOTAL ASSETS $ 44,754 $ 47,886
================= =================
See Notes to Condensed Consolidated Financial Statements.
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
$(000's) OMITTED
JUNE 30, DECEMBER 31,
2000 1999
----------------- -----------------
(UNAUDITED) (AUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 60 $ 688
Line of credit 1,800 1,500
Note payable to related party 115 900
Accrued compensation 6,992 8,947
Accrued payroll taxes and insurance 4,698 5,006
Accrued workers' compensation costs 1,800 1,476
Other accrued expenses 460 999
Client deposits 425 456
----------------- -----------------
TOTAL CURRENT LIABILITIES 16,350 19,972
----------------- -----------------
LONG-TERM LIABILITIES:
Deferred rent 26 26
Deferred compensation liability 695 593
Deferred taxes 23 23
----------------- -----------------
TOTAL LONG-TERM LIABILITIES 744 642
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value:
Common Stock, 10,000,000 shares authorized 4,967,515 issued
and outstanding 28,755 28,755
Excess purchase price (84) (84)
Retained earnings 1,833 1,483
----------------- -----------------
30,504 30,154
Less-Treasury stock, 625,516 and 634,516 shares respectively, at cost (2,844) (2,882)
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 27,660 27,272
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 44,754 $ 47,886
================= =================
See Notes to Condensed Consolidated Financial Statements.
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
$(000's) OMITTED
3 MONTHS ENDED 6 MONTHS ENDED
------------------------------------- -------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
----------------- ---------------- ----------------- ----------------
(UNAUDITED (UNAUDITED
(UNAUDITED) RESTATED) (UNAUDITED) RESTATED)
REVENUES 106,722 101,379 203,705 192,033
Salaries and wages 93,237 87,001 176,987 164,197
Payroll taxes, workers' compensation
and other direct costs 9,073 10,657 18,350 20,580
----------------- ---------------- ----------------- ----------------
Total 102,310 97,658 195,337 184,779
----------------- ---------------- ----------------- ----------------
GROSS PROFIT 4,412 3,721 8,368 7,254
----------------- ---------------- ----------------- ----------------
Administrative salaries 1,944 1,949 4,003 3,782
Other selling, general and administrative
expenses 1,360 1,388 2,356 2,877
Depreciation and amortization 461 448 918 870
----------------- ---------------- ----------------- ----------------
Total operating expenses 3,765 3,785 7,277 7,529
----------------- ---------------- ----------------- ----------------
OPERATING INCOME 647 (64) 1,091 (275)
Interest expense (34) (31) (64) (37)
----------------- ---------------- ----------------- ----------------
INCOME BEFORE TAXES 613 (95) 1,027 (312)
Income Tax Expense (414) (70) (677) (91)
----------------- ---------------- ----------------- ----------------
NET INCOME (LOSS) 199 (165) 350 (403)
----------------- ---------------- ----------------- ----------------
EARNING PER SHARE
Basic 0.5 (0.4) .08 (0.9)
Diluted 0.5 (0.4) .08 (0.9)
SHARES OUTSTANDING
Basic 4,335 4,338 4,334 4,410
Diluted 4,352 4,371 4,356 4,444
See Notes to Condensed Consolidated Financial Statements.
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
$(000's) OMITTED
JUNE 30, DECEMBER 31,
2000 1999
----------------- -----------------
(UNAUDITED
(UNAUDITED) RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 350 (403)
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 918 870
(Increase) decrease in operating assets:
Trade receivables 1,319 515
Unbilled receivables 2,062 (5,025)
Prepaid expenses (231) (422)
Mandated benefits/deposits 3 (3)
Other 709 (23)
Increase (decrease) in operating liabilities:
Accounts payable (628) 1,309
Accrued expenses and other payables (536) (1,116)
Accrued compensation (1,955) 3,929
Client deposits (31) 65
Deferred liabilities 102 80
----------------- -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,082 (224)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (120) (297)
Increases in cash surrender value of life insurance policies (131) (48)
Non-compete agreements 0 (210)
Acquisitions costs, net of cash obtained 0 (27)
----------------- -----------------
NET CASH (USED IN) INVESTING ACTIVITIES (251) (582)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowing 300 2,800
Proceeds from notes payable issued - 1,700
Notes payable and short-term borrowing repaid (785) (2,450)
Purchase of treasury stock - (2,500)
Stock price guarantee payment - (169)
----------------- -----------------
NET CASH (USED IN) FINANCING ACTIVITIES (485) (619)
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,346 (1,425)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,087 5,010
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 4,433 3,585
================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period of interest $ 92 $ 35
----------------- -----------------
Cash paid during the period for income taxes $ 283 $ 900
================= =================
See Notes to Condensed Consolidated Financial Statements.
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2000
$(000's) OMITTED
COMMON STOCK TREASURY STOCK
-------------------------- --------------------------- EXCESS RETAINED
NUMBER VALUE NUMBER VALUE PURCHASE PRICE EARNINGS TOTAL
--------- -------------- ---------- ------------- -------------- ----------- ------------
Balance
December 31, 1999 4,968 $ 28,755 635 $ (2,882) (84) $ 1,483 $ 27,272
Shares issued - - (9) 38 - - 38
Net income - - - - - 350 350
--------- -------------- ---------- ------------- ------------ ----------- ------------
Balance
June 30, 2000 4,968 $ 28,755 626 $ (2,844) (84) $ 1,833 $ 27,660
========= ============== ========== ============= ============ ========== ============
See Notes to Condensed Consolidated Financial Statements.
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TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying interim condensed consolidated financial statements as
of June 30, 2000 and for the three-month and six month periods then ended are
unaudited. However, in the opinion of management, these interim statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position, results of
operations and cash flows of TEAM America Corporation. The interim condensed
consolidated financial statements as of June 30, 1999 have been restated to
reflect a $711,000 increase in direct costs for the three months ended March 31,
1999, and a $789,000 increase in direct costs for the three months ended June
30, 1999 to reflect the timing of additional costs in 1999 as described in the
Company's Form 10-K for the year ended December 31, 1999. These adjustments
reduced net income as previously reported from $307,000, or $.07 per share, to a
loss of $(165,000), or $(.04) per share and from $491,000, or $.11 per share, to
a loss of $(403,000), or ($.09) per share for the six months ended June 30,
1999.
NOTE 2 - ACCOUNTING POLICIES
The financial statements should be read in conjunction with the audited
financial statements contained in TEAM America Corporation's Form 10-K Annual
Report for the year ended December 31, 1999.
NOTE 3 - EARNINGS PER SHARE
Earnings per share were determined in accordance with SFAS No. 128.
There were no differences to reconcile to determine net income (loss) for basic
and diluted earnings per share purposes. The effects of dilutive common stock
equivalents were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- -------------------------------------
JUNE 30, JUNE 30,
-------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ----------------- ---------------- ----------------
Weighted average shares outstanding 4,334,870 4,337,675 4,341,999 4,410,440
Dilutive shares from stock options 17,496 - 21,998 -
Shares earned but still in escrow from
acquisitions - 33,103 - 33,103
----------------- ----------------- ---------------- ----------------
Diluted shares outstanding 4,352,374 4,370,778 4,353,937 4,443,543
----------------- ----------------- ---------------- ----------------
NOTE 4-MERGER
On February 7, 2000 the Company signed a definitive Agreement and Plan
of Merger to be acquired by Global Employment Solutions, Inc. On April 13, 2000,
this agreement was terminated. As a result of the termination, Mucho.com, Inc.,
("Mucho.com") a corporation controlled by a former officer and director of the
Company, made an offer to purchase all of the outstanding common stock of TEAM
America at a price of $6.75 per share, or approximately $29.4 million. On April
14, 2000, the Company entered into a letter of intent with Mucho.com whereby
Mucho.com agreed to purchase up to 50% of Team America's common stock at $6.75
per share and give shares of Mucho.com to the remaining shareholders of TEAM
America, subject to the execution of a definitive agreement.
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On June 16, 2000, the Company entered into an Agreement and Plan of
Merger with Mucho.com. Under the terms of the definitive merger agreement, a
newly-formed subsidiary of the Company will merge with and into Mucho.com, and
Mucho.com will be the surviving entity and a wholly owned subsidiary of the
Company. In connection with the merger, the Mucho.com shareholders will receive
up to $5,925,925 shares of the Company's common stock in exchange for their
shares of Mucho.com., subject to an escrow agreement for 2,222,222 shares. As
part of the merger, the Company's shareholders will be entitled to tender their
shares for $6.75 per share in cash through a self-tender offer for up to 50% the
Company's outstanding common stock. The merger will be subject to certain
conditions, including regulatory and stockholder approval of both companies.
Upon consummation of the merger, the Company will change its name to TEAM Mucho,
Inc.
NOTE 5 - PREFERRED STOCK
The Company is authorized to issue 11,000,000 shares of capital stock,
no par value, of which 500,000 are designated as Class A voting preferred
shares, 500,000 are designated as Class B nonvoting preferred shares, and
10,000,000 are shares of common stock. None of the preferred shares are issued
or outstanding.
NOTE 6 - BANK LINE OF CREDIT
The Company has borrowed $1,800,000 against an original line of credit
of $3,500,000. Currently, the line is under review by the bank and the Company
while the Company continues its merger activities and its efforts to obtain new
debt and/or equity.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the condensed
consolidated financial statements of the Company and the notes thereto and the
other financial information included elsewhere in this Quarterly Report on Form
10-Q, as well as the factors set forth under the caption "Forward-Looking
Information" below.
The following table sets forth results of operations for the three-month and six
month periods ended June 30, 2000 and 1999 expressed as a percentage of
revenues. The June 30, 1999 results have been restated to reflect a $789,000
increase and a $1,500,000 in direct costs for the three months and six months
then ended. See Note 1 to Notes to Condensed Consolidated Financial Statements:
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- -------------------------------------
JUNE 30, JUNE 30,
-------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ----------------- ---------------- ----------------
Revenue 100.0% 100.0% 100.0% 100.0%
Direct costs:
Salaries and wages 87.4 85.8 86.9 85.5
Payroll taxes, workers' compensation and
other direct costs 8.5 10.5 9.0 10.7
----------------- ----------------- ---------------- ----------------
Gross profit 4.1 3.7 4.1 3.8
Operating Expenses:
Administrative payroll and payroll other 1.8 1.9 2.0 2.0
Other selling general and administrative
expenses 1.3 1.4 1.2 1.5
Depreciation and amortization 0.4 0.5 0.4 0.4
----------------- ----------------- ---------------- ----------------
Total operating expenses 3.5 3.8 3.6 3.9
----------------- ----------------- ---------------- ----------------
Operating income (loss) 0.6 (0.1) 0.5 (0.1)
Interest income (expense) - - - -
----------------- ----------------- ---------------- ----------------
Income (loss) before taxes 0.6 (0.1) 0.5 (0.1)
Provision for income taxes (0.4) (0.1) (0.3) (0.1)
----------------- ----------------- ---------------- ----------------
Net income (loss) 0.2 (0.2) 0.2 (0.2)
================= ================= ================ ================
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THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
REVENUES
Revenues increased 5.3%, to $106,722,000, in the three months ended June 30,
2000 from $101,379,000 in the three months ended June 30, 1999. The increase was
caused by normal growth from period to period; however, the Company did
terminate some marginal accounts at the close of the fourth fiscal quarter of
1999. This caused a reduction in the rate of growth of revenue from the second
quarter of 1999 to the second quarter of 2000.
DIRECT COSTS/GROSS PROFIT
Direct costs increased 4.8%, to $102,310,000, in the three months ended June 30,
2000 from $97,658,000 in the three months ended June 30, 1999. Salaries and
wages for worksite employees rose 7.2%, while the costs of taxes and insurances
decreased 14.9% primarily due to lower costs for workers' compensation and for
other direct costs. Gross profit increased 18.6% to $4,412,000 in the three
months ended June 30, 2000 from $3,721,000 in the three months ended June 30,
1999 and increased to 4.1% of revenues in the second quarter of 2000 compared to
3.7% of revenues in the second quarter of 1999. The lower margin in 1999
reflects the impact of the restatement of $789,000 in direct costs. The margin
in the second quarter of 2000 continues to reflect the lower fees charged in the
acquired locations compared to the core business in the Midwest.
OPERATING EXPENSES
Total operating expenses decreased 0.5%, to $3,765,000, in the three months
ended June 30, 2000 from $3,785,000 in the three months ended June 30, 1999.
Salaries and wages decreased 0.3% to $1,944,000 in the second quarter of 2000
from $1,949,000 in the second quarter of 1999. Elimination of personnel related
to acquired companies and changes in personnel offset additions to corporate
staff in management and technical positions and normal increases for existing
employees. These additions have helped to improve both direct and administrative
cost controls in 2000.
Other selling, general and administrative expenses decreased 2.0%, to
$1,360,000, or 1.3% of revenue, in the three months ended June 30, 2000 from
$1,388,000, or 1.4% of revenue, in the three months ended June 30, 1999.
Included in selling, general and administrative expense was a net write-off of
$161,000 to bad debt expense. Excluding that write-off, the decrease in other
selling, general and administrative would have been 13.6%, or 1.1% of revenue.
Reduction in commissions and office expense were responsible for the majority of
the decrease.
Depreciation and amortization rose 2.9%, to $461,000, in the three-months ended
June 30, 2000 from $448,000 in the three-months ended June 30, 1999. The
increase comes from the depreciation arising from the additional hardware and
software purchases for the TEAM DirectTM operating system.
OPERATING INCOME
Operating income in the quarter ended June 30, 2000 increased to $647,000, or
0.6% of revenue, from a net operating loss of $(64,000), or (0.1)% of revenue,
in the second quarter of 1999. The $789,000 restated charge to direct costs in
1999 was included in the $(64,000) loss. The $711,000 improvement was due to the
$691,000 improvement in gross margin while keeping total selling, general and
administrative costs relatively constant.
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INTEREST INCOME (EXPENSE)
Net interest expense increased to $34,000 in the six months ended June 30, 2000
compared to expense of $31,000 in the three months ended June 30, 1999. Interest
rates were higher in 2000, while the average debt outstanding was lower.
INCOME TAX EXPENSE
Income tax expense was $414,000 for the three months ended June 30, 2000,
compared to $70,000 in the three months ended June 30, 1999. The tax expense
includes approximately $90,000 per quarter for the non-deductibility of goodwill
amortization for income tax purposes.
NET INCOME (LOSS) AND EARNINGS PER SHARE
Net income was $199,000, or $.05 per share, in the three months ended June 30,
2000 compared to a loss of $(165,000), or $(.04) per share, in the three months
ended June 30, 1999. The increase was due primarily to the improvement in gross
margin net of taxes.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
REVENUES
Revenues increased 6.1%, to $203,705,000, in the six months ended June 30, 2000
from $192,033,000 in the six months ended June 30, 1999. The increase was caused
by normal growth from period to period; however, the Company did terminate some
marginal accounts at the close of the fourth fiscal quarter of 1999. This caused
a reduction in the rate of growth of revenue from the first quarter of 1999 to
the first six months of 1999 to the six months of 2000.
DIRECT COSTS/GROSS PROFIT
Direct costs increased 5.7%, to $195,377,000, in the six months ended June 30,
2000 from a restated $184,779,000 in the six months ended June 30, 1999.
Salaries and wages for worksite employees rose 7.8% while the costs of taxes and
insurances decreased 10.8% primarily due to lower costs for workers'
compensation and for other direct costs. Gross profit increased 15.4% to
$8,368,000 in the six months ended June 30, 2000 from a restated $7,254,000 in
the six months ended June 30, 1999 and increased to 4.1% of revenues in the
first six months of 2000 compared to a restated 3.8% of revenues in the first
six months of 1999. The lower margin in 1999 reflects the impact of the
restatement of $1,500,000 in direct costs. The margin in the first six months of
2000 continues to reflect the lower fees charged in the acquired locations
compared to the core business in the Midwest.
OPERATING EXPENSES
Total operating expenses decreased 3.3%, to $7,277,000, or 3.6% of revenue , in
the six months ended June 30, 2000 from $7,529,000 or 3.9% of revenue in the six
months ended June 30, 1999. Salaries and wages rose 5.8% to $4,003,000 in the
first six months of 2000 from $3,782,000 in the first six months of 1999. The
increases are due to additions to corporate staff in management and technical
positions during the second half of 1999 and to normal increases for existing
employees. These additions have helped to improve both direct and administrative
cost controls.
Other selling, general and administrative expenses decreased 18.1%, to
$2,356,000, or 1.2% of revenue, in the six months ended June 30, 2000 from
$2,877,000 or 1.5% of revenue, in the six months ended June 30, 1999. This
decrease in other operating expenses was due, in large part, to increased
spending in the first quarter of 1999 for the change of printed materials for
all acquired companies to the "TEAM America" brand name. Reductions also were
made in costs associated with commissions, phone and insurance, while bad debt
expense increased by $161,000. Excluding that bad debt write-off, the decrease
in other selling, general and administrative expenses would have been 23.7%.
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Depreciation and amortization rose 5.5%, to $918,000, in the six-months ended
June 30, 2000 from $870,000 in the six-months ended June 30, 1999. The increase
comes from the depreciation arising from the additional hardware and software
purchases for the TEAM DirectTM operating system and from increases in amounts
of goodwill from the acquisitions.
OPERATING INCOME
Operating income in the six months ended June 30, 2000 increased to $1,091,000,
or 0.5%, from a restated net operating loss of $(275,000), or (0.1)%, in the
first six months of 1999. The $1,500,000 restated charge to direct costs in 1999
was the included in the $(275,000) operating loss. The $1,366,000 improvement
was due to the $1,114,000 improvement in gross margin and the net reduction of
$252,000 in selling , general and administrative costs.
INTEREST INCOME (EXPENSE)
Net interest expense increased to $64,000 in the six months ended June 30, 2000
compared to expense of $37,000 in the six months ended June 30, 1999. The 1999
results reflect interest expense net of interest income from the $2,500,000
borrowed to acquire 500,000 shares of common stock in February of 1999.
INCOME TAX EXPENSE
Income tax expense was $677,000 for the six months ended June 30, 2000, compared
to a restated $91,000 in the six months ended June 30, 1999. The tax expense
includes approximately $90,000 per quarter for the non-deductibility of goodwill
amortization for income tax purposes.
NET INCOME (LOSS) AND EARNINGS PER SHARE
Net income was $350,000, or $.08 per share, in the six months ended June 30,
2000 compared to a restated loss of $(403,000), or $(.09) per share, in the six
months ended June 30, 1999. The increase was due primarily to the improvement in
gross margin net of taxes. Average shares outstanding declined to 4,335,000 in
the first six months of 2000 from 4,410,000 in the first six months of 1999 as a
result of the repurchase by the Company of 500,000 shares in February 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had a working capital balance of $874,000, a
$1,154,000 improvement over the December 31, 1999 working capital deficit of
$280,000. The Company's primary source of liquidity and capital resources has
historically been its internal cash flow from operations and its EBITDA
(Earnings before Interest, Taxes, Depreciation and Amortization). For the six
months ended June 30, 2000, EBITDA was $2,009,000 compared to $595,000 for the
six months ended June 30, 1999.
Net cash provided by (used in) operating activities was $2,082,000 and
$(224,000) in the six months ended June 30, 2000 and 1999, respectively. For the
six months ended June 30, 2000, the increase was due to improvements in net
income, and a decrease in both trade and unbilled receivables, net of decreases
in accounts payable and accrued expenses. During the same six month period in
1999, the build up in receivables and prepaid expenses exceeded the increase in
accounts payable and accrued expenses.
Net cash used in investing activities was $251,000 in the six months ended June
30, 2000, compared to $582,000 in the six months ended June 30, 1999. In 1999,
$210,000 was paid to former executives of the Company for a covenant not to
compete in connection with their resignation from the Company and for a
cancellation of their employment agreements.
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During the first quarter of 1999, the Company acquired 500,000 shares of common
stock from its former Chairman and founder for $2,500,000. The Company financed
this stock acquisition by borrowing $800,000 on its line of credit with a bank
and giving a $1,700,000 promissory note with a 5.75% interest rate to the former
Chairman with $700,000 due upon demand; $450,000 of this loan was repaid during
the first six months of 1999. During the first six months of 2000, the note to
the former chairman was reduced from $900,000 to $115,000.
During the first six months of 1999 the Company borrowed from and repaid to a
bank $2,000,000. During the second quarter of 2,000, the Company increased its
bank line to $1,800,000 by borrowing $300,000. Currently the line is under
review by the bank and the Company while the Company continues its merger
activities and its efforts to obtain new debt and/or equity.
In connection with an acquisition in 1998, the Company guaranteed the price of
68,468 shares at $10.25 per share. During the first six months of 1999, $89,000
was paid under this guarantee arrangement and $80,000 was paid in a reflected
agreement.
Presently, the Company has no material commitments for capital expenditures.
Primary uses of cash may include acquisitions, the size and timing of which
cannot be predicted. However, the Company is limited in its ability to continue
to acquire other PEO companies unless it can raise additional capital since most
acquisitions involve the payment of cash and the issuance of stock for the
purchase price and may also require some additional working capital following
acquisition.
The Company believes that existing cash, cash equivalents and internally
generated funds will be sufficient to meet the Company's presently anticipated
working capital and capital expenditure requirements, excluding acquisitions of
other PEO's, for the foreseeable future. To the extent that the Company needs
additional capital resources, the Company believes that it will have access to
bank financing and other alternative sources of capital. However, there can be
no assurances that additional financing will be available on terms favorable to
the Company, or at all.
The Company has not paid dividends in 1996 through June 30, 2000, and does not
expect to pay a dividend in the foreseeable future.
INFLATION
The Company believes the effects of inflation have not had a significant impact
on its results of operations or financial condition.
FORWARD-LOOKING INFORMATION
Statements in the preceding discussion that indicate the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements.
Additional information concerning factors that could cause actual results to
differ materially from those suggested in the forward-looking statements is
contained under the caption "Business-Risk Factors" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 filed with the
Securities and Exchange Commission and may be amended from time to time.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and shareholder values
of the Company may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict.
Shareholders are cautioned not to put undue reliance on forward-looking
statements. In addition, the Company does not have any intention or obligation
to update forward-looking statements after the date hereof, even if new
information, future events, or other circumstances have made them incorrect or
misleading. For those statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K since March
31, 2000.
(i) Current Report on Form 8-K, dated April 13, 2000, filed with
the Securities and Exchange Commission on April 14, 2000
(Items 5 and 7).
(ii) Current Report on Form 8-K, dated April 20, 2000, filed with
the Securities and Exchange Commission on April 20, 2000
(Items 5 and 7).
(iii) Current Report on Form 8-K, dated June 20, 2000, filed with
the Securities and Exchange Commission on June 21, 2000 (Items
5 and 7).
(iv) Current Report on Form 8-KA, dated June 20, 2000, filed with
the Securities and Exchange Commission on June 29, 2000 (Items
5 and 7).
(b) Exhibits:
27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEAM AMERICA CORPORATION
/s/ THOMAS L. GERLACHER
-----------------------
Chief Financial Officer and
Authorized Signing Officer
August 14, 2000
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
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27* Financial Data Schedule
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*In SEC EDGAR-filed document only