SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
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 MUCHO, INC.
(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
MARCH 31, 2001 WAS 6,955,266.
TEAM MUCHO, INC. AND SUBSIDIARIES
MARCH 31, 2001
INDEX
PART I. FINANCIAL INFORMATION
PAGE
NO.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - March 31, 2001 (unaudited)
and December 31, 2000 ..................................................................................... 3
Condensed Consolidated Statements of Operations -- Three-month periods
ended March 31, 2001 (unaudited) and 2000 (unaudited)...................................................... 5
Condensed Consolidated Statements of Cash Flows - Three-month periods
ended March 31, 2001 (unaudited) and 2000 (unaudited)..................................................... 6
Condensed Consolidated Statement of Changes in Shareholders' Equity - Three-month
period ended March 31, 2001 (unaudited)................................................................... 8
Notes to Condensed Consolidated Financial Statements...................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................................... 16
Signatures.................................................................................................... 16
Note: Item 3 of Part I and Items 1 through 5 of Part II are omitted because they
are not applicable.
2
TEAM MUCHO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
(000'S OMITTED EXCEPT SHARE DATA)
MARCH 31 DECEMBER 31,
2001 2000
------------- -------------
(RESTATED &
UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 1,912 $ 10,925
Receivables:
Trade, net of allowance for doubtful accounts of $200 and $200, respectively 1,901 1,978
Unbilled revenues 12,683 8,792
Other receivables 1,277 1,461
------------- -------------
Total receivables 15,861 12,231
------------- -------------
Prepaid expenses 678 332
Deferred income tax asset 520 420
------------- -------------
Total Current Assets 18,971 23,908
------------- -------------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION 1,818 1,581
------------- -------------
OTHER ASSETS:
Intangibles, primarily goodwill, net 33,272 26,732
Cash surrender value of life insurance policies 762 587
Deferred income tax asset 249 249
Other 711 297
------------- -------------
Total Other Assets 34,994 27,865
------------- -------------
Total Assets $ 55,783 $ 53,354
============= =============
Continued on next page
3
TEAM MUCHO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
(000'S OMITTED EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2001 2000
---------------- ---------------
(RESTATED &
UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 1,091 $ 1,954
Capital lease obligations, current portion 105 103
Debt, current portion 810 -
Stock repurchase obligation - 11,622
Accrued compensation 11,724 8,367
Accrued payroll taxes and insurance 3,746 3,967
Accrued workers' compensation liability 685 630
Federal and state income taxes payable - 72
Other accrued expenses 3,107 1,996
---------------- ---------------
Total Current Liabilities 21,268 28,711
---------------- ---------------
LONG-TERM LIABILITIES:
Debt, less current portion 8,440 -
Capital lease obligations, less current portion 100 127
Accrued workers' compensation liability 220 198
Client deposits 623 349
Deferred compensation 762 587
---------------- ---------------
Total Liabilities 31,413 29,972
---------------- ---------------
CONVERTIBLE PREFERRED STOCK, FACE AMOUNT OF $11,000 AND
$10,000, RESPECTIVELY 4,803 3,625
---------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 45,000,000 shares authorized, 9,677,632
and 9,603,558 issued, and 6,955,266 and 6,881,192 outstanding, respectively 45,317 45,001
Other (26) (28)
Accumulated deficit (11,258) (10,750)
---------------- ---------------
34,033 34,223
Less - Treasury stock, 2,722,366 shares, at cost (14,466) (14,466)
---------------- ---------------
Total Shareholders' Equity 19,567 19,757
---------------- ---------------
Total Liabilities and Shareholders' Equity $ 55,783 $ 53,354
================ ===============
See Notes to Condensed Consolidated Financial Statements.
4
TEAM MUCHO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(000'S OMITTED EXCEPT SHARE DATA)
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
2001 2000
----------- -----------
(RESTATED & (UNAUDITED)
UNAUDITED)
REVENUES $ 97,234 $ -
----------- -----------
DIRECT COSTS:
Salaries and wages 83,654 -
Payroll taxes, workers' compensation
and other direct costs 9,551 -
----------- -----------
Total direct costs 93,205 -
----------- -----------
GROSS PROFIT 4,029 -
----------- -----------
EXPENSES:
Administrative salaries 2,349 1,502
Other selling, general and
administrative expenses 1,218 584
Restructuring cost 41 -
Depreciation and amortization 519 49
----------- -----------
Total operating expenses 4,127 2,135
----------- -----------
OPERATING LOSS (98) (2,135)
Interest expense, net (142) (141)
----------- -----------
LOSS BEFORE INCOME TAXES (240) (2,276)
Income tax expense (15) -
----------- -----------
NET LOSS (255) (2,276)
Preferred stock dividends (253) -
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (508) $ (2,276)
=========== ===========
Basic and diluted loss per common share $ (0.07) $ (0.89)
Weighted average number of shares used in per share computation 6,896,000 2,546,052
See Notes to Condensed Consolidated Financial Statements.
5
TEAM MUCHO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(000'S OMITTED)
THREE MONTHS ENDED
--------------------
MARCH 31, MARCH 31,
2001 2000
-------- --------
(RESTATED & (UNAUDITED)
UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (255) $ (2,276)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities, excluding the impact of acquisitions
Depreciation and amortization 519 49
Expenses paid by stock and warrants - 691
Change in other assets and liabilities (519) 515
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (255) (1,021)
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (399) (559)
Cash used in acquisitions (4,250) -
Other (41) (53)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,690) (612)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - 3,251
Proceeds from bank borrowings 7,554 -
Notes payable and short-term borrowing repaid - (561)
Payment of stock repurchase obligation (11,622) -
Other - (10)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,068) 2,680
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,013) 1,047
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 10,925 74
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,912 $ 1,121
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 9 $ 30
Income tax paid $ 134 $ -
See Notes to Condensed Consolidated Financial Statements.
6
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the three month period ended March 31, 2000, the Company acquired $30,000
of property and equipment under capital leases, satisfied accrued interest
through the issuance of warrants valued at $127,000, recorded compensation
expense of $34,000 upon the granting of non-qualified stock options and
satisfied accounts payable for goods and services performed through the issuance
of common stock valued at $680,000.
During the three-month period ended March 31, 2001, the Company acquired certain
assets of Professional Staff Management, Inc. and as partial consideration
issued common stock valued at $241,000 and Series A convertible preferred stock
with a face amount of $1,000,000 and warrants valued at $75,000.
During the three month period ended March 31, 2001, the Company had accrued
preferred stock dividends payable in kind equivalent of $253,000 in connection
with the $11,000,000 face value of preferred stock.
7
TEAM MUCHO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(000'S OMITTED EXCEPT SHARE DATA)
Common Stock Treasury Stock
------------------------ -------------------------- Accumulated
Number Value Other Number Value Deficit Total
---------- ------------ --------- ------------ ------------ ------------ ---------
Balance at December 31, 2000 9,603,558 $ 45,001 $ (28) (2,722,366) $ (14,466) $ (10,750) $ 19,757
Shares issued 74,074 241 - - - - 241
Warrants - 75 - - - - 75
Amortization of deferred compensation - - 2 - - - 2
Preferred stock dividends - - - - - (253) (253)
Net loss - - - - - (255) (255)
---------- ------------ --------- ------------ ------------ ------------ ---------
Balance at March 31, 2001 - restated 9,677,632 $ 45,317 $ (26) (2,722,366) $ (14,466) $ (11,258) $ 19,567
========== ============ ========= ============ ============ ============ =========
See Notes to Condensed Consolidated Financial Statements.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
TEAM Mucho, Inc. (the "Company"), an Ohio Corporation, is a Business Process
Outsourcing ("BPO") Company specializing in human resources. TEAM Mucho, Inc.
was created by the December, 2000 reverse merger of online business center
Mucho.com, Inc. and TEAM America Corporation, a market leader in human resource
(PEO) services. TEAM America Human Resources currently has the number-one PEO
market share position in Ohio, Utah, Nevada, Oregon, Idaho, Tennessee and
Mississippi, and top-five positions in Northern and Southern California. TEAM
America's Single-Point-Of-Contact Human Resource Solution(TM) includes payroll,
benefits administration, on-site and online employee and employer communications
and self-service, employment practices and human resources risk management,
workforce compliance administration and severance management.
TEAM Mucho, Inc. was formed by the merger of TEAM America Corporation and
Mucho.com, Inc. in a transaction accounted for under the purchase method of
accounting as a reverse acquisition. Mucho was treated as the acquiring company
for accounting purposes because its shareholders controlled more than 50% of the
post transaction combined company. The historical earnings per share and share
amounts of the Company have been retroactively restated for all periods
presented in these consolidated financial statements to give effect to the
conversion ratio utilized in the merger with TEAM America Corporation. As a
result, all share amounts and earnings per share are presented in TEAM America
Corporation equivalent shares.
No results of operations of TEAM America Corporation are included in the March
31, 2000 statement of operations, as the acquisition of TEAM America Corporation
occurred on December 28, 2000.
NOTE 2 - UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial statements should be read in conjunction with the audited
financial statements contained in TEAM Mucho, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 2000. The financial statements for the quarter
ended March 31, 2001 include the results of TEAM Mucho, Inc. for the entire
quarter and the results from the acquisition of substantially all of the assets
of Professional Staff Management, Inc. ("PSMI"), a Utah corporation, since the
acquisition date (March 13, 2001). The financial statements for the quarter
ended March 31, 2000 include only the results of Mucho.
Effective January 1, 2001, the Company changed its financial reporting period to
a 52/53-week year ending the Saturday closest to December 31. The Company
believes that capturing monthly information on a 4-4-5 week basis in each
quarter will provide better comparability of quarterly and monthly results.
Since March 31, 2001 was a Saturday, this change had no financial statement
impact.
The March 31, 2001 condensed consolidated balance sheets, statement of
operations, statements of cash flows, and statement of changes in shareholders'
equity included herein, have been restated to reflect errors resulting primarily
from revisions to purchase accounting related to the acquisition of TEAM America
by Mucho.com, and from errors in the valuation of workers' compensation
reserves. Revenue of $237,000 was recognized in the first quarter relating to
receivables acquired from TEAM America. Revenue of $237,000 recognized in the
first quarter should have been recognized in the second quarter. A correction
was also made to the calculation of the number of shares used in per share
computation. The impact of this restatement to earnings for the quarter ended
March 31, 2001 is as follows (in thousands except per share amounts):
AS ORIGINALLY
REPORTED ADJUSTMENTS AS RESTATED
------------- ----------- -----------
Net sales $ 97,471 $ (237) $ 97,234
Direct costs 93,126 79 93,205
-------- -------- --------
Gross profit $ 4,345 $ (316) $ 4,029
Operating income (loss) $ 212 $ (310) $ (98)
Net income (loss) $ 50 $ (305) $ (255)
Net loss attributable to common shareholders $ (203) $ (305) $ (508)
Basic loss per share $ (0.02) $ (0.05) $ (0.07)
Number of shares used in per share computation 9,618 (2,722) 6,896
9
NOTE 3 - PURCHASE OF ASSETS OF PROFESSIONAL STAFF MANAGEMENT, INC.
On March 13, 2001, the Company acquired certain of the assets of PSMI. The
acquisition was accounted for under the purchase method of accounting. The
purchase price of $6,491,000 for these assets included cash of $4,250,000,
seller financing of $1,000,000, shares of common stock of TEAM Mucho, Inc.
(74,074 shares with a fair market value of $241,000 at the date of the
acquisition) and convertible preferred stock with a face amount of $1,000,000
and warrants. The preferred stock was assigned an estimated fair value of
$925,000 and the warrants were assigned an estimated fair value of $75,000. The
purchase price was allocated to the assets acquired based on their relative fair
market value with the excess allocated to goodwill. Goodwill of $6,391,000 was
recorded related to this transaction and will be amortized over 20 years.
NOTE 4 - ACCOUNTING POLICIES
The financial statements should be read in conjunction with the audited
financial statements contained in TEAM Mucho, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 2000.
In fiscal 2001, the Company will be developing software for internal use.
Therefore, effective January 1, 2001, the Company has adopted the policy of
capitalizing certain costs of computer software developed for internal use and
web site development costs in accordance with Statement of Position (SOP) 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for Internal
Use," and EITF 00-02, "Accounting for Web Site Developments Costs."
NOTE 5 - LOSS PER SHARE
Loss per share was determined in accordance with SFAS No. 128. There were no
differences to reconcile net (loss) for basic and diluted earnings per share
purposes.
NOTE 6 - PRO-FORMA RESULTS
The following table sets forth the pro-forma results of operations for the
three-month periods ended March 31, 2001 and 2000.
The pro-forma results of operations from the three-month period ended March 31,
2000 include the unaudited results of Mucho and the pro-forma results of TEAM
America and PSMI as if they were acquired by Mucho as of January 1, 2000. The
primary adjustments from the historical results of the acquired entities include
amortization of goodwill, preferred stock dividends and interest.
The pro-forma results of operations from the three-month period ended March 31,
2001 include the unaudited results of Mucho, including TEAM America and the
pro-forma results of PSMI as if it had been acquired by Mucho as of January 1,
2000. The primary adjustments from the historical results of the acquired
entities include amortization of goodwill, preferred stock dividends and
interest.
(000'S OMITTED EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000
--------- ---------
Revenue $ 123,963 $ 132,305
Operating loss $ (50,000) $ (2,246)
Net loss $(282,000) $ (2,613)
Net loss attributable to common shareholders $(550,000) $ (2,881)
Basic and diluted loss per common share $ (0.08) $ (1.10)
Weighted average number of shares outstanding 6,896 2,620
NOTE 7 - BANK LINE OF CREDIT
Concurrent with the acquisition of TEAM America Corporation, the Company entered
into a credit agreement (the "Credit Agreement"). The Credit Agreement provided
for an initial advance of $4,000,000, which was made to the Company on January
3, 2001. The Credit Agreement also provides for acquisition loans up to an
aggregate of an additional $14,000,000. In March 2001,
10
the Company made a $4,250,000 draw against the acquisition loan for the purchase
of substantially all of the assets of PSMI. Additionally, the Credit Agreement
provides for the issuance of letters-of-credit of up to $2,000,000. In January
2001, the Company replaced an existing letter-of-credit for $750,000 with a
letter-of-credit under the Credit Agreement. As part of the PSMI acquisition,
there was $1 million of seller financing that is supported by a $1 million
letter-of-credit. The Company has $8,000,000 remaining under the Credit
Agreement.
Interest due under the Credit Agreement is payable monthly in arrears at prime
plus 1% or at LIBOR plus 3.50%, as specified by the Company at the date of the
advance, for both the initial advance and acquisition loans. The initial advance
of $4,000,000 is payable in 42 equal monthly installments of principal and
interest, beginning in February 2003. The $4,250,000 draw on March 13, 2001 is
payable in 63 equal monthly installments of principal and interest beginning
April 2001.
Further, any additional acquisition loans are payable in equal monthly
installments of principal and interest, beginning the month after an acquisition
loan is received, through July 2006 (the maturity date of the Credit Agreement).
The acquisition loan commitments shall terminate, to the extent not borrowed, by
January 2003. The Credit Agreement is secured by substantially all of the assets
of the Company and includes certain quarterly financial and non-financial
covenants. The financial covenants include a minimum current ratio, interest
coverage ratio, fixed charge coverage ratio, maximum annual lease obligations,
minimum earnings before interest, taxes, depreciation and amortization, maximum
operating losses, consolidated senior debt leverage ratio, and parent senior
debt leverage ratio. At March 31, 2001, the Company was in compliance with all
financial covenants or had obtained necessary waivers.
NOTE 8 - STOCK REPURCHASE
Concurrent with the acquisition of TEAM America Corporation by the Company, TEAM
America Corporation made a tender offer to its shareholders to purchase up to
50% of the outstanding TEAM America Corporation common shares at $6.75 per
share. A total of approximately 1,722,000 shares were tendered for a total cost
of approximately $11,622,000. This liability is shown on the December 31, 2000
consolidated balance sheet as "Stock repurchase obligation" in current
liabilities. In January 2001, this obligation was settled. Tendered shares, plus
shares held in treasury stock by TEAM America Corporation prior to the
acquisition, are reflected as treasury stock on the post acquisition
consolidated balance sheet.
NOTE 9 - INCOME TAXES
No provision for income taxes has been provided for the period ended March 31,
2000 due to operating losses for that period. At December 31, 2000, the Company
had net operating loss carryforwards (NOL's) available for federal tax purposes
of approximately $6,700,000 that are subject to annual limits and begin to
expire in 2019. At March 31, 2001, the provision for income taxes includes state
and local income taxes not subject to state operating loss carryforwards and
federal provision less eligible NOL's.
The effective state and local tax rate for the quarter ended March 31, 2001
differs from the statutory rates due to non-deductible goodwill and utilization
of eligible NOL's.
NOTE 10 - PREFERRED STOCK
On December 28, 2000, in connection with the acquisition of TEAM America
Corporation, the Company issued 100,000 shares of Series A mandatorily
redeemable convertible preferred stock for total net proceeds of $9,425,000. The
proceeds of the preferred stock issuance were used to partially fund the TEAM
America Corporation treasury stock purchase in January 2001 and were allocated
$3,625,000 to preferred stock, $3,000,000 to common stock and $2,800,000 to
warrants.
Effective January 1, 2001, the preferred shareholders and the Company agreed to
eliminate the mandatory redemption feature of the preferred shares, therefore,
accretion to the redeemable amount has ceased. However, under certain
conditions, the preferred shareholders may "put" their shares to the Company,
therefore, the preferred stock is not included in Shareholders' Equity. In
connection with the elimination of the mandatory redemption feature, the
preferred stock agreement was amended such that the Company is committed to
complete a secondary offering of common stock in which the preferred
shareholders can participate, prior to June 28, 2004. In the event the Company
fails to complete the secondary offering, the preferred shareholders will be
granted a secondary lien on the assets of the Company.
In March 2001, the Company issued an additional 10,000 shares of Series A
convertible preferred stock with a face amount of $1,000,000 in connection with
the acquisition of the assets of PSMI. The proceeds were allocated $75,000 to
warrants and
11
$925,000 to preferred stock. At March 31, 2001, the Company had accrued
preferred stock dividends payable in kind equivalent to $253,000.
NOTE 11 - RESTRUCTURING COSTS
During the quarter ended March 31, 2001, the Company incurred restructuring
costs, in conjunction with the TEAM America Corporation acquisition, related to
relocation of certain key executives in connection with exiting its headquarters
in California and relocating to Columbus, Ohio. These relocations were made in
order to allow the company to focus on its PEO business in conjunction with a
de-emphasis on its online business center business. All such costs will be
expensed when incurred and are expected to be incurred prior to December 31,
2001.
12
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company operated as Mucho.com, Inc. ("Mucho") through December 28, 2000,
and, on that date, merged with TEAM America Corporation in a transaction
accounted for as a reverse acquisition, with Mucho treated as the acquiring
company and TEAM America Corporation treated as the target company. At the date
of the merger, the Company changed its name to TEAM Mucho, Inc.
The December 31, 2000 balance sheet of the Company includes the balance sheet of
Mucho consolidated with the balance sheet of TEAM America Corporation, after the
application of purchase accounting. No results of operations of TEAM America
Corporation are included in the March 31, 2000 consolidated statement of
operations included in this Quarterly Report.
The following table 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/A No. 1, as well as the factors set forth under the caption
"Forward-Looking Information" below. The results of TEAM America Corporation for
the three months ended March 31, 2000 are included for comparison because TEAM
America Corporation was the registrant for that period. The Company operates in
the business process outsourcing segment. The tables below are presented to
facilitate comparison between current period results and the historical results
of the entities.
In view of the rapidly changing nature of the Company's business, its limited
operating history, the acquisition of TEAM America Corporation on December 28,
2000 and the acquisition of the assets of PSMI on March 13, 2001, the Company
believes that an historical comparison of revenue and operating results is not
necessarily meaningful and should not be relied upon as an indication of future
performance.
The assets acquired from PSMI are operated as a division ("TEAM PSMI") of the
Company, and the results of operations of TEAM PSMI for the period from March
14, 2001 through March 31, 2001 are included in the table below.
(000'S OMITTED) (000'S OMITTED)
THREE MONTHS ENDED
THREE MONTHS ENDED MARCH 31, 2001 MARCH 31,
--------------------------------------------------------- -------------------------
2000 2000
-------- --------
TEAM TEAM TEAM
MUCHO AMERICA PSMI TOTAL MUCHO AMERICA
-------- -------- -------- -------- -------- --------
Revenue $ 41 $ 90,482 $ 6,711 $ 97,234 $ - $ 96,983
Gross profit 41 3,746 242 4,029 - 3,956
Operating income (loss) (566) 388 80 (98) (2,135) 444
Interest expense (6) (136) - (142) (141) (30)
Income (loss) before taxes (572) 252 80 (240) (2,276) 414
Net income (loss) $ (573) $ 238 $ 80 $ (255) $ (2,276) $ 151
Net income (loss) attributable
to common shareholders $ (573) $ (15) $ 80 $ (508) $ (2,276) $ 151
The TEAM America column in the above March 31, 2001 table for the three months
ended March 31, 2001 includes $253,000 of preferred stock dividends.
13
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
REVENUES
Consolidated revenues were $97,234,000 for the three months ended March 31,
2001, compared to Mucho revenue of $0 for the comparable three-month period
ended March 31, 2000. The TEAM America division accounted for $90,482,000 of the
revenue and TEAM PSMI accounted for $6,711,000 of revenue from March 14 through
March 31, 2001. Revenue growth was negatively impacted by a decline in the
current nationwide financial climate which has caused a number of the company's
customers to reduce payroll, or to postpone plans for expansion. Further, the
Company continues to review the overall quality of its client base, focusing on
those with lower risk and higher margin.
DIRECT COSTS/GROSS PROFIT
For the quarter ended March 31, 2001 consolidated direct costs were $93,205,000,
or 95.86% of revenue, and the gross margin was $4,029,000, or 4.14%. The TEAM
America division reduced its direct costs from $93,027,000, or 95.92%, to
$86,736,000, or 95.86%. The Company expects increases in workers' compensation
billings in the fourth quarter of 2000 and continued conservative underwriting
of workers' compensation risks to contribute to increases in gross profit in
future quarters. The gross margin for TEAM PSMI is lower than TEAM America
during the first quarter of the year due to differences in contract billing
terms.
OPERATING EXPENSES
For the quarter ended March 31, 2001, consolidated operating expenses were
$4,127,000, or 4.24% of revenue, compared to $2,135,000 for Mucho in the first
quarter of 2000. Mucho decreased its operating expense by $1,528,000, with
$980,000 in payroll related reductions and $548,000 in other selling, general
and administrative reductions. TEAM America reduced its operating expenses by
$154,000 primarily with payroll related reductions of $343,000 offsetting
increases in selling, general and administrative expenses of $159,000. TEAM PSMI
has lower operating expenses as a percent of revenue since many of its corporate
overhead costs are included in TEAM America's overhead.
OPERATING INCOME (LOSS)
For the period ended March 31, 2001, the consolidated operating loss was
$98,000, compared to a loss of $2,135,000, for Mucho in the comparable quarter
in 2000. Mucho's improvement of $1,569,000 was due to expense reduction.
INTEREST INCOME (EXPENSE)
For the quarter ended March 31, 2001, the consolidated interest expense was
$142,000, compared to interest expense of $141,000 for Mucho in the first
quarter of 2000. During 2000, Mucho converted or repaid most of its
interest-bearing obligations and reduced interest to $6,000 in the first quarter
of 2001. TEAM Mucho, Inc. borrowed $4,000,000 from a bank pursuant to a Credit
Agreement in January 2001. In March 2001, the Company borrowed an additional
$4,250,000 pursuant to the same Credit Agreement in connection with the
acquisition of the assets of PSMI.
INCOME TAX EXPENSE
No provision for income taxes has been provided for the period ended March 31,
2000 due to operating losses for that period. At March 31, 2001, the Company had
net operating loss carryforwards available for federal tax purposes of
approximately $6,700,000, which are subject to annual limitations, for use in
2001 and thereafter. For the quarter ended March 31, 2001, the provision for
income taxes of $15,000 includes state and local income taxes not subject to
state operating loss carryforwards and a federal provision less eligible NOL's.
NET INCOME (LOSS) AND EARNINGS PER SHARE
The net loss for the quarter ended March 31, 2001, was $255,000, or $.04 per
share, compared to a net loss for the quarter ended March 31, 2000 of
$2,276,000, or $0.89 per share. Preferred stock dividends of $253,000 for the
quarter ended March 31, 2001 resulted in a net loss attributable to common
shareholders of $508,000, or $.07 per share. The historical earnings per share
and share amounts of the Company have been retroactively restated to give effect
to the merger with TEAM America Corporation. As a result, all share amounts and
earnings per share are presented in TEAM America Corporation equivalent shares.
14
The weighted average number of shares outstanding at March 31, 2000 and 2001
excludes options and warrants from the calculation because they are
anti-dilutive. Additionally, preferred stock convertible into common stock was
excluded from the March 2001 calculation of weighted average number of shares
outstanding because they are anti-dilutive.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had a working capital deficit of $2,297,000, a
$2,506,000 improvement over the December 2000 working capital deficit of
$4,803,000.
In connection with the merger with TEAM America Corporation and related
financing, the Company incurred expenses of approximately $1,200,000 that were
appropriately capitalized as goodwill or debt issuance costs, which are
non-current assets. As of March 31, 2001, all such costs have been paid, or
accrued, thus significantly contributing to the working capital deficit.
The Company expects to continue to improve its working capital position in the
near future. 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
quarter ended March 31, 2001, the EBITDA was $421,000 compared to a negative
EBITDA of $2,086,000 for Mucho in March 2000. The improvement of $2,507,000
included a reduction of the Mucho negative EBITDA by $1,593,000 and a
contribution of $914,000 from combined PEO operations.
Net cash used by operating activities was $255,000 for the three months ended
March 31, 2001 compared with $1,021,000 used in operating activities for the
three months ended March 31, 2000. The $766,000 improvement was due to the
decrease in net loss from period to period, net of the impact on working
capital. During the three months ended March 31, 2000, the Company paid $691,000
in expenses through the issuance of stock and warrants.
Net cash used in investing activities was $4,690,000 for the three months ended
March 31, 2001 compared to $612,000 for the three months ended March 31, 2000.
The primary reason for the increase was the use of $4,250,000 of cash to
purchase the assets of PSMI in March 2001. Additions to property and equipment
were $399,000 in the first quarter of March 2001 compared to $559,000 in the
first quarter of March 2000. The change was due to a reduction in expenditures
by Mucho as part of its plan to restructure its online business center
operations.
Net cash used in financing activities was $4,068,000 for the three months ended
March 31, 2001 compared with net cash provided by financing activities of
$2,680,000 for the three months ended March 31, 2000. In March 2000, the Company
sold common stock for $3,251,000 and used $561,000 to repay borrowed funds. In
January 2001, the Company paid $11,622,000 in connection with a stock repurchase
agreement from December 2000. In January 2001, the Company borrowed $4,000,000
from a bank and paid $403,000 in related fees for the bank line. In March 2001,
the Company borrowed an additional $4,250,000 in connection with the acquisition
of the assets of PSMI.
The Company's acquisition line at March 31, 2001 was $18,000,000. At that date,
the Company had borrowed $8,250,000 against that line and had letters of credit
totaling $1,750,000 issued on its behalf, leaving an available balance of
$8,000,000 for future acquisitions.
The Company does not expect significant growth in its operating costs for the
foreseeable future as it integrates its internet business with the PEO business
of both TEAM America and TEAM PSMI. The Company's long-term plan for
strengthening its financial position continued with the acquisition of the
assets of PSMI. This acquisition strengthened its existing operating base in
California, Ohio and Utah and expanded the Company into the new and growing
market of Nevada. TEAM PSMI's net income and EBITDA generated during the period
from March 14 to March 31, 2001 are expected to improve in subsequent full
quarters of operations.
The Company has approximately $6,700,000 in tax net operating carryforwards for
partial use in 2001 and for subsequent years. The Company expects to generate
sufficient cash flow from combined operations and from the utilization of tax
loss carryforwards to meet its operating expenses and to service its debt.
15
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, 2000 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.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the
first quarter ended March 31, 2001:
NONE
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 MUCHO, INC.
BY: /s/ JOSE C. BLANCO
------------------------------------
Chief Financial Officer and
Authorized Signing Officer
December 10, 2001
16