UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 8-K/A
Amendment No. 2
CURRENT REPORT
PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED): June 8, 2005
TeamStaff, Inc.
(Exact
name of registrant as specified in its charter)
COMMISSION FILE
NUMBER:
0-18492
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| New Jersey | |
22-1899798 | ||||
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jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) | ||||
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300 Atrium Drive
Somerset, NJ 08873
(Address and zip code of principal
executive offices)
(732) 748-1700
(Registrant's telephone number, including area code
CHECK THE APPROPRIATE BOX BELOW IF THE FORM 8-K FILING IS INTENDED TO SIMULTANEOUSLY SATISFY THE FILING OBLIGATION OF THE REGISTRANT UNDER ANY OF THE FOLLOWING PROVISIONS:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Note: Form 8-K Amendment.
TeamStaff, Inc. has filed to amend its Form 8-K previously filed on June 10, 2005 to include the financial statements and pro forma financial statements relative to its acquisition of RS Staffings Services, Inc. that were not contained in the original filing and in the exhibits attached to the Form 8-K filed on June 10, 2005.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
1. Financial Statements of RS Staffing Services, Inc. for the period ended December 31, 2004 together with report of Independent Auditing Firm
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| Independent Auditors Report | |
F-1 | ||||
| Balance Sheet | |
F-2 | ||||
| Statement of Income | |
F-4 | ||||
| Statement of Changes In Stockholders' Equity | |
F-5 | ||||
| Statement of Cash Flows | |
F-6 | ||||
| Notes to Financial Statements | |
F-8 | ||||
| 2. Unaudited Financial Statements of RS Staffing Services, Inc. as of March 31, 2005 | ||||||
| Historical Balance Sheet as of March 31, 2005 (Unaudited) | |
F-16 | ||||
| Historical Quarterly Income Statements for the Three Months ended March 31, 2005 and March 31, 2004 (Unaudited) | |
F-17 | ||||
| Historical Quarterly Cash Flows for the
three months ended March 31, 2005 and March 31, 2004 (Unaudited) |
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F-18 | ||||
| Notes to Historical Financial Statements | |
F-19 | ||||
| (b) Pro Forma Financial Information prepared as of March 31, 2005 | |
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| Introduction and Notes | |
F-26 | ||||
| Pro Forma Balance Sheet as of March 31, 2005 (Unaudited) | |
F-27 | ||||
| Pro Forma Income Statement for the Six Months Ended March 31, 2005 (Unaudited) | |
F-28 | ||||
| Pro Forma Income Statement for the Twelve Months Ended September 30, 2004 (Unaudited) | |
F-29 | ||||
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SIGNATURE
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.
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TeamStaff, Inc. |
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By: /s/ James D. Houston |
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Name: James D. Houston Title: Vice President of Business and Legal Affairs/General Counsel Date: August 11, 2005 |
[HA & W LOGO] Certified Public Accountants and Business Advisors INDEPENDENT AUDITORS' REPORT ---------------------------- To the Shareholders' of RS Staffing Services, Inc. We have audited the accompanying balance sheet of RS STAFFING SERVICES, INC. (a Georgia Corporation) as of December 31, 2004, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 RS STAFFING SERVICES, INC. as of December 31, 2004, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Habif, Arogeti & Wynne, LLP Atlanta, Georgia February 18, 2005 Habif, Arogeti & Wynne, LLP Glenridge Highlands Two o 5565 Glenridge Connector o Suite 200 Atlanta, Georgia 30342 o 404.892.9651 o Fax 404 876.3913 o www.hawcpa.com An Independent Member of Baker Tilly International o Certified Public Accountants F-1 RS STAFFING SERVICES, INC, BALANCE SHEET DECEMBER 31, 2004 ASSETS ------ Current assets - -------------- Cash $ 592,346 Accounts receivable - trade, net 5,342,282 Accounts receivable - stockholders 5,792 Accounts receivable - related party 8,044 Prepaid expenses 439,056 Deferred income taxes 71,453 ----------- Total current assets 6,458,973 ----------- Property and equipment, at cost - ------------------------------- Computer equipment 196,124 Furniture and fixtures 18,752 Leasehold improvements 44,625 Machinery and equipment 55,947 Vehicles 199,993 ----------- 515,441 Accumulated depreciation (193,331) ----------- 322,110 ----------- Other assets - ------------ Marketable securities 21,320 Deferred income taxes, net of current portion 41,639 Intangible asset, net of accumulated amortization of $36,311 44,351 ----------- 107,310 ----------- $ 6,888,393 =========== See auditors' report and accompanying notes F-2 RS STAFFING SERVICES, INC. BALANCE SHEET DECEMBER 31, 2004 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities - ------------------- Accounts payable $ 326,440 Accrued expenses 1,344,577 Payroll taxes payable 288,941 Income taxes payable 25,016 Line of credit 2,828,011 Notes payable 365,849 Current portion of long-term debt 123,488 ---------- Total current liabilities 5,302,322 ---------- Long term liabilities - --------------------- Long term debt, net of current portion 149,573 ---------- Stockholders' equity - -------------------- Common stock, no par value, 500 shares authorized, issued and outstanding 500 Accumulated other comprehensive income 110 Retained earnings 1,435,888 ---------- 1,436,498 ---------- $6,888,393 ========== See auditors' report and accompanying notes F-3 RS STAFFING SERVICES, INC. STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2004 Net sales $ 41,193,331 Cost of sales 35,121,222 ------------ Gross profit 6,072,109 Selling, general and administrative expenses 4,882,736 ------------ Income from operations 1,189,373 ------------ Other income (expense) Interest expense (149,860) Gain on sale of property and equipment 3,191 Loss on sale of marketable securities (140) Other income 21,447 Settlement loss (186,823) ------------ Total other expense (312,185) ------------ Income before income taxes 877,188 Income tax expense 255,590 ------------ Net income $ 621,598 ============ See auditors' report and accompanying notes F-4 RS STAFFING SERVICES, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 2004 <TABLE> Accumulated Other Total Common Common Comprehensive Retained Stockholders' Shares Stock Income (Loss) Earnings Equity ---------- ------------ ------------------ --------------- ------------------- Balance, January 1, 2004 500 $ 500 $ (3,764) $ 814,290 $ 811,026 Net income - - - 621,598 621,598 Other comprehensive income: Unrealized holding gains arising during period - - 3,874 - 3,874 -------- ------- ------------ ----------- ------------ Balance, December 31, 2004 500 $ 500 $ 110 $ 1,435,888 $ 1,436,498 ======== ======= ============ =========== ============ </TABLE> See auditors' report and accompanying notes F-5 RS STAFFING SERVICES, INC, STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2004 Increase (Decrease) in Cash <TABLE> Cash flows from operating activities - ------------------------------------ Net income $ 621,598 ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 132,208 Deferred taxes 163,247 Loss on disposal of property and equipment (3,191) Gain on sale of marketable securities 140 Changes in assets and liabilities: Accounts receivable - trade (1,319,783) Accounts receivable - stockholders (16) Accounts receivable - affiliates 146,067 Accounts receivable - related party (8,044) Accounts receivable - other 28,510 Income tax receivable 123,528 Prepaid expenses 387,152 Accounts payable (8,597) Accrued expenses 102,548 Payroll taxes payable 76,012 Income taxes payable 20,030 ----------- Total adjustments (160,189) ----------- Net cash provided by operating activities 461,409 ----------- Cash flows from investing activities - ------------------------------------ Web site development costs (15,299) Acquisition of property and equipment (84,642) Proceeds from sale of property and equipment 23,758 ----------- Net cash used by investing activities (76,183) ----------- Cash flows from financing activities - ------------------------------------ Net proceeds on line of credit 550,368 Proceeds from long-term debt 404,873 Principal payments on long-term debt (336,362) Payments on notes payable (395,843) ----------- Net cash provided by financing activities 223,036 ----------- Net increase in cash 608,262 Cash overdraft, beginning of year (15,916) ----------- Cash, end of year $ 592,346 =========== </TABLE> See auditors' report and accompanying notes F-6 RS STAFFING SERVICES, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2004 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - ------------------------------------------------- Amount ------------ Cash paid during the year for interest $145,588 Cash paid during the year for taxes 77,903 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES - ------------------------------------------------------ The Company acquired property and equipment valued at $146,134 by financing the purchase with installment loans. The Company issued a note payable for their workers' compensation insurance premiums. See Note E for additional information. See auditors' report and accompanying notes F-7 RS STAFFING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------ Nature of Operations: - --------------------- RS Staffing Services, Inc. (the Company) was incorporated in 1997, The Company is a contractor engaged in providing professional, administrative, and industrial support personnel to various government agencies and a commercial company at various locations throughout the United States. Revenue Recognition: - -------------------- Revenues are generated as services are provided under fixed labor rates as specified in contracts with customers. Related costs are recognized as incurred. Use of Estimates: - ----------------- The preparation of financial statements in conformity with generally accepted accounting principles 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. Estimates are used for, but not limited to, the accounting for doubtful account, depreciation, taxes, insurance, and contingencies. Actual results could differ from those estimates. Cash in Excess of FDIC Limits: - ------------------------------ The Company maintains cash balances at a financial institution. The accounts are insured by the Federal Deposit Insurance Corporation up to $100,000 per institution. From time to time, the Company's cash balance exceeds such limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant risks on cash. Property and Equipment: - ----------------------- Property and equipment is carried at cost. Expenditures for maintenance and repairs are expensed currently, while renewals and betterments that materially extend the life of an asset are capitalized. The cost of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation, are eliminated from the accounts and any resulting gain or loss is included in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are as follows: Computer equipment 3 years Furniture and fixtures 7 years Leasehold improvements Life of the lease Machinery and equipment 3 years Vehicles 5 years Depreciation expense for the year ended December 31, 2004, was $105,798. F-8 RS STAFFING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - ------------------------------------------------------ Intangible asset: - ----------------- In accordance with Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1), web site development costs were capitalized as an intangible asset. The web site development costs capitalized totaled $15,299 for the year ended December 31, 2004. The capitalized costs are being amortized over a three year period and the related amortization expense for the year ended December 31, 2004 was $26,410. Future amortization for the years ended December 31, are: 2005 $ 26,887 2006 16,979 2007 485 ---------- $ 44,351 ========== Income Taxes: - ------------- Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the reporting depreciation, allowance for doubtful accounts and certain accrued expenses. The deferred tax asset represents the future tax consequences of those differences, which will be deductible when the assets are recovered or settled. Advertising: - ------------ The Company expenses all advertising costs incurred. Advertising expense for the year ended December 31, 2004, was $22,302. F-9 RS STAFFING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE B ACCOUNTS RECEIVABLE - ------------------- The Company extends credit to customers located throughout the United States. The Company does not require collateral for its accounts receivable. Account receivable are carried at fair value. The amount of accounting loss due to credit risk the Company would incur if the parties to the accounts receivable failed to perform according to the terms of the agreement would be the balance of the accounts receivable, net of the allowance for doubtful accounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable and historical collection information. The Company determines if receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management, Accounts receivable as of December 31, 2004, consisted of the following: Amount ------------------ Trade accounts receivable - government agencies $ 5,254,382 Trade accounts receivable - commercial 192,900 ------------------ $ 5,447,282 ================= Trade accounts receivable - billed amounts $ 5,126,532 Trade accounts receivable - unbilled amounts 320,750 ------------------ 5,447,282 Less allowance for doubtful accounts (105,000) ------------------ $ 5,342,282 ================= NOTE C MARKETABLE SECURITIES - --------------------- Investment in marketable securities consists of equity securities and are classified by management as available-for-sale. The securities are recorded at fair market value as of December 31, 2004, with any change in value recorded as other comprehensive income (loss). NOTE D LINE OF CREDIT - -------------- The Company has a line of credit with a financial institution for a maximum of $4,500,000, bearing interest of the prime rate plus 1% per annum. The agreement renewal date is April 30, 2006. The Company is required to make monthly interest payments. The line of credit is secured by all assets of the Company and personally guaranteed by the shareholders of the Company. The Company's outstanding balance as of December 31, 2004, was $2,828,011. The agreement requires the Company to meet certain financial and non-financial covenants. At December 31, 2004, the company was in compliance with these loan covenants. F-10 RS STAFFING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE E NOTES PAYABLE - ------------- The Company obtained a note payable of $372,929 from a financial institution for their workers' compensation insurance premium. The note bears interest at 4.75% per annum and is payable in monthly principal and interest installments of $38,110. The Company also obtained a note payable of $84,382 from the same financial institution for the loss deposit related to the workers' compensation policy. The note bears interest at 4.75% per annum and is payable in monthly principal and interest installments of $8,623. The notes expire in August 2005. At December 31, 2004, the balance outstanding under these notes was $365,849. NOTE F LONG-TERM DEBT - -------------- <TABLE> Amount ----------------- Long-term debt consists of the following as of December 31, 2004: Bank - note payable; secured by a vehicle; interest at 6% per annum; payable in monthly installments of $1,524; maturing in April 2005. $ 5,094 Bank - note payable; secured by a vehicle and personally guaranteed by shareholders; interest at 6.375% per annum; payable in monthly principal and interest installments of $607; maturing in November 2009. 30,596 Bank - note payable; secured by a vehicle; interest at 0% per annum; payable in monthly installments of $1,071; maturing in December 2009. 64,812 Bank - note payable; secured by a equipment; interest at 10.2% per annum; payable in monthly installments of $984; maturing in August 2009. 56,085 Bank - note payable; personally guaranteed by the shareholders and secured by real property owned by the shareholders; interest at 5% per annum; payable in monthly installments of $7,653; maturing in January 2007. 116,474 ------------ Total 273,061 Less current portion (123,488) ------------ Non-current portion of long-term debt $ 149,573 ============ </TABLE> F-11 RS STAFFING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE F LONG-TERM DEBT (CONTINUED) - -------------------------- Aggregate maturities of long-term debt for the years ending December 31, are as follows: 2005 $ 123,488 2006 58,691 2007 30,875 2008 31,287 2009 28,720 --------- $ 273,061 ========= NOTE G INCOME TAXES - ------------ The provision for income taxes consists of the following as of December 31, 2004: Current tax expense $ 140,796 LESS: tax credits utilized (48,453) ---------------- 92,343 Deferred tax-expense 163,247 ---------------- Net income tax expense $ 255,590 ================ The major portion of tax credits relate to prior years. The company was able to utilize the credits due to retroactive changes in the tax laws. The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability at December 31, 2004, are presented below: Current ------- Deferred tax asset: Allowance for doubtful accounts $ 27,941 Accrued expense 43,512 --------------- 71,453 =============== F-12 RS STAFFING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE G INCOME TAXES (CONTINUED) - ------------------------ Non-current - ----------- Deferred tax asset (liability): Accumulated depreciation $ (30,185) Accumulated amortization 9,662 Capital loss carryforward 3,326 Tax credit carryforwards 58,836 ----------- 41,639 ----------- Total deferred tax assets $ 113,092 =========== Federal tax credit carryforwards begin to expire in 2023. NOTE H RELATED PARTY TRANSACTIONS - -------------------------- Accounts receivable - Stockholders: - ----------------------------------- The Company made advances to stockholders, which are non-interest-bearing and are generally due within one year, These advances are unsecured. At December 31, 2004, the amount due from the stockholders for these advances was $5,792. Operating expenses - Rent: - -------------------------- The Company rents office space from an entity with common ownership. The lease expires on June 30, 2009. Rent expense to this related party totaled $74,200 for the year ended December 31, 2004. NOTE I COMMITMENTS AND CONTINGENCIES - ----------------------------- Lease Commitments: - ------------------ The company leases office space under operating lease agreements. Future minimum lease payments under the operating lease for the years ending December 31, are as follows: 2005 $ 72,600 2006 72,600 2007 72,600 2008 72,600 2009 72,600 ---------- $ 363,000 ========== Total rent expense for the year ended December 31, 2004, was $88,494. F-13 RS STAFFING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE I COMMITMENTS AND CONTINGENCIES (CONTINUED) - ----------------------------------------- Self-Insurance Program - Healthcare: - ------------------------------------ The Company maintains a self-insurance program for its employees' health care coverage. The Company is liable for claims up to approximately $103,000 per month for the policy period beginning April 1, 2004 through March 31, 2005. The Company has re-insurance coverage for any losses in excess of these amounts. Self-insurance costs are accrued based on claims reported by employees as of the balance sheet date as well as an estimated liability for claims incurred but not reported by employees to the program administrator as of December 31, 2004. The following is a summary of the Company's liability for healthcare claims for the self-insurance portion of the coverage from April 1 through December 31, 2004: Claims Paid $370,642 Accrued Claims 131,938 -------- Total Paid and Accrued Claims $502,580 ======== The financial statements do not include an accrual for $424,922 which is the potential exposure. As of March 31, 2005 when the policy period ends, any amount remaining as the potential exposure of the self-insurance liability expires. For the year ended December 31, 2004, total premiums paid for re-insurance totaled $268,976 Captive Relationship for Self-Insurance Program - Workers' Compensation - ----------------------------------------------------------------------- The Company maintains a self-insurance program for its workers' compensation coverage. The Company is a participant in a group "captive" program, specific to the staffing industry, for workers compensation coverage. Program premiums are paid based on traditional underwriting practices coupled with usual and customary brokerage and administrative fees while the insurance risk is spread among all participants of the group. The coverage for this group "captive" program is for losses up to $400,000. The Company has re-insurance coverage for any losses in excess of $400,000 per occurrence. Annual premiums paid into the group "captive" program are used to set up a loss fund for each participant in the group and is used to pay claims during the policy year and three years thereafter. The policy period ends each year on September 30. In the third year after the policy end date, after determining the amount of final claims to be paid or reserved, the remaining balance will be refunded to the Company. As of December 31, 2004, the loss fund balance for the policy period ended September 30, 2004 was $276,180. Due to lack of claims history, the Company did not estimate any amount to be refunded. Total workers' compensation expense was $534,302 for the year ended December 31, 2004. Litigations and Claims: - ----------------------- The Company has legal proceedings arising from the normal course of business. The Company is involved in lawsuits brought against it from former employees relating to workers compensation claim for occurred injuries and resulting disability. In aggregate the estimated losses reserved for at December 31, 2004 is $155,823, which was included in accrued expenses. F-14 RS STAFFING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE J EMPLOYEE BENEFIT PLAN - --------------------- The Company maintains a 401 (k) retirement plan for its employees, under which they may defer a portion of their annual compensation, limited to a maximum annual amount as set periodically by the Internal Revenue Service. Employees are eligible to participate upon meeting certain length of service and minimum compensation requirements. NOTE K ECONOMIC DEPENDENCY - ------------------- Major Contracts: - ---------------- The Company provides services under contracts. A major contract is one from which 10% or greater of annual revenues is derived. For the year ended December 31, 2004, the Company had two significant contracts that comprised approximately 25% of total revenues. F-15
RS STAFFING SERVICES, INC. UNAUDITED HISTORICAL BALANCE SHEET AS OF 03/31/05 3/31/2005 --------- ASSETS ------ CURRENT ASSETS - -------------- Cash $1,079,895 Accounts receivable - trade, net 4,862,276 Accounts receivable - stockholders 29,769 Accounts receivable - related party 13,173 Prepaid expenses 362,152 Deferred income taxes 74,509 ---------- Total current assets 6,421,774 ---------- PROPERTY & EQUIPMENT, AT COST - ----------------------------- Computer equipment 199,776 Furniture & fixtures 25,396 Leasehold improvements 44,625 Machinery & equipment 69,836 Vehicles 189,677 ---------- 529,310 Accumulated depreciation (164,220) ---------- 365,090 ---------- OTHER ASSETS - ------------ Marketable securities 22,599 Deferred income taxes, net of current portion 16,908 Intangible asset, net of accumulated amortization 37,629 ---------- 77,136 ---------- TOTAL ASSETS $6,864,000 ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES - ------------------- Accounts payable $199,786 Accrued expenses 1,461,268 Payroll taxes payable 275,064 Income taxes payable 125,613 Line of credit 2,611,990 Notes payable 268,067 Current portion of long-term debt 61,333 ---------- Total current liabilities 5,003,121 ---------- LONG TERM LIABILITIES - --------------------- LTD, net of current portion 187,406 ---------- STOCKHOLDERS' EQUITY - -------------------- Common stock, no par value, 500 shares authorized, issued, and outstanding 500 Accumulated other comprehensive income 1,479 Retained earnings 1,671,494 ---------- TOTAL STOCKHOLDERS' EQUITY 1,673,473 ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $6,864,000 ========== F-16 RS STAFFING SERVICES, INC. UNAUDITED HISTORICAL QUARTERLY INCOME STATEMENTS <TABLE> FOR THE THREE MONTHS ENDED 3/31/2005 3/31/2004 ------------------------------- Net sales $9,929,564 $8,509,324 - --------- Cost of sales 8,454,574 7,170,592 - ------------- ------------------------------- Gross profit 1,474,990 1,338,732 Selling, general and administrative expenses 1,048,710 1,108,706 - -------------------------------------------- ------------------------------- Income from operations 426,280 230,026 ------------------------------- Other income (expense) - ---------------------- Interest expense (46,026) (37,034) Gain (Loss) on sale of property and equipment (86) - Other income 2,725 3,150 ------------------------------- Total other income (expense) (43,387) (33,884) ------------------------------- Income before income taxes 382,893 196,142 Income tax expense 147,287 56,881 ------------------------------- Net income $235,606 $139,261 =============================== </TABLE> F-17 RS STAFFING SERVICES, INC. UNAUDITED HISTORICAL QUARTERLY CASH FLOWS <TABLE> Increase (Decrease) In Cash FOR THE THREE MONTHS ENDED 3/31/2005 3/31/2004 ---------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: - ------------------------------------- NET INCOME $235,606 $139,261 ---------------------------------------- Adjustments to reconcile net income to net cash provided by operating activites: Depreciation and amortization 35,833 29,800 Deferred taxes 21,675 113,760 Gain (Loss) on disposal of property and equipment (86) - Gain (Loss) on sale of marketable securities 90 90 Changes in assets and liabilities: Accounts receivable - trade 480,006 (10,328) Accounts receivable - stockholders (23,977) (577) Accounts receivable - related party (5,129) (12,616) Accounts receivable - other - (74,989) Prepaid expenses 76,904 102,249 Accounts payable (126,654) 266,854 Accrued expenses 116,691 (426,548) Payroll taxes payable (13,877) 163,136 Income taxes payable 100,597 (104,627) ---------------------------------------- TOTAL ADJUSTMENTS 662,073 46,204 ---------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 897,679 185,465 ---------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: - ------------------------------------- Bank of America Certificate of deposit - (100,189) Acquisition of property and equipment (57,866) (84,016) Proceeds from sale of property and equipment 40,000 42,876 ---------------------------------------- NET CASH USED BY INVESTING ACTIVITIES (17,866) (141,329) ---------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: - ------------------------------------- Net proceeds (payments) of line of credit (216,021) 398,272 Proceeds from long-term debt - 335,676 Principal payments on long-term debt (78,461) (113,195) Payments on notes payable (97,782) 40,348 ---------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITES (392,264) 661,101 ---------------------------------------- NET INCREASE IN CASH 487,549 705,237 Cash, beginning of the period 592,346 (15,916) ---------------------------------------- Cash, end of the period $1,079,895 $689,321 ======================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - ------------------------------------------------- Cash paid during the period for interest $46,026 $37,034 Cash paid during the period for taxes $13,572 $0 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES - ------------------------------------------------------ The Company purchased a vehicle valued at $54,138 during the quarter ended 3/31/05 by financing the purchase with installment loans. </TABLE> F-18 RS STAFFING SERVICES, INC. NOTES TO HISTORICAL FINANCIAL STATEMENTS MARCH 31, 2005 NOTE A SUBSEQUENT EVENTS On June 4, 2005, TeamStaff, Inc. completed the acquisition of 100% of the outstanding common stock of RS Staffing, a private company located in Monroe, Georgia, specializing in providing medical and office administration/technical professionals through nationwide schedule contracts with both the General Services Administration ("GSA") and Veteran's Affairs ("VA"). The acquisition was in part financed through a $7 million revolving credit facility obtained through PNC Bank. The terms of the acquisition provided for a purchase price consisting of (i) $1,750,000 of TeamStaff Common Stock, (ii) a secured note of TeamStaff in the principal amount of $3,000,000 (iii) cash in the amount of $3,250,000 and (iv) a potential earn-out payment. The earn-out payment is based upon the following calculation: for every $1.00 of EBITDA for the earn-out period over $1.8 million, the Sellers shall be entitled to $4.00 up to a maximum of $2 million. NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: - --------------------- RS Staffing Services, Inc. (the Company) was incorporated in 1997. The Company is a contractor engaged in providing professional, administrative, and industrial support personnel to various government agencies and a commercial company at various locations throughout the United States. Revenue Recognition: - -------------------- Revenues are generated as services are provided under fixed labor rates as specified in contracts with customers. Related costs are recognized as incurred. Use of Estimates: - ----------------- The preparation of financial statements in conformity with generally accepted accounting principles 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. Estimates are used for, but not limited to, the accounting for doubtful accounts, depreciation, taxes, insurance, and contingencies. Actual results could differ from those estimates. Cash in Excess of FDIC Limits: - ------------------------------ The Company maintains cash balances at a financial institution. The accounts are insured by the Federal Deposit Insurance Corporation up to $100,000 per institution. From time to time, the Company's cash balance exceeds such limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant risks on cash. Property and Equipment: - ----------------------- Property and equipment is carried at cost. Expenditures for maintenance and repairs are expenses currently, while renewals and betterments that materially extend the life of an asset are capitalized. The cost of assets sold, retired, or otherwise disposed of, and the related allowance F-19 for depreciation, are eliminated from the accounts and any resulting gain or loss is included in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are as follows: Computer Equipment 3 years Furniture and Fixtures 7 years Leasehold Improvements Life of the lease Machinery and Equipment 3 years Intangible Asset: - ----------------- In accordance with Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1), web site development costs were capitalized as an intangible asset. The web site development costs capitalized totaled $0 for the period ended March 31, 2005. The capitalized costs are being amortized over a three-year period and the related amortization expense for the three months ended March 31, 2005 and March 31, 2004 were $6,722 and $6,238 respectively. Future amortization for the years ended March 31, are: 2006 $ 10,950 2007 10,950 2008 10,950 2009 4,779 ------------ $ 37,629 ============ Income Taxes: - ------------- Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the reporting depreciation, allowance for doubtful accounts and certain accrued expenses. The deferred tax asset represents the future tax consequences of those differences, which will be deductible when the assets are recovered or settled. NOTE C ACCOUNTS RECEIVABLE The Company extends credit to customers located throughout the United States. The Company does not require collateral for its accounts receivable. Accounts receivable are carried at fair value. The amount of accounting loss due to credit risk the Company would incur if the parties to the accounts receivable failed to perform according to the terms of the agreement would be the balance of the accounts receivable, net of the allowance for doubtful accounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable and historical collection information. The Company determines if receivables are past due based on days outstanding, and amounts are written off when determined to not be collectable by management. F-20 Accounts receivable as of March 31, 2005, consisted of the following: Trade accounts receivable - government agencies $ 4,710,406 Trade accounts receivable - commercial 256,870 ------------- $ 4,967,276 ============= Trade accounts receivable - billed amounts $ 4,022,055 Trade accounts receivable - unbilled amounts 945,221 ------------- 4,967,276 Less allowance for doubtful accounts (105,000) ------------- $ 4,862,276 ============= NOTE D MARKETABLE SECURITIES Investment in marketable securities consists of equity securities and is classified by management as available-for-sale. The securities are recorded at fair market value as of March 31, 2005, with any change in value recorded as other comprehensive income (loss). NOTE E LINE OF CREDIT The Company has a line of credit with a financial institution for a maximum of $4,500,000, bearing interest at the prime plus 1% per annum. The agreement renewal date is April 30, 2006. The Company is required to make monthly interest payments. The line of credit is secured by all assets of the Company and personally guaranteed by the shareholders of the Company. The Company's outstanding balance as of March 31, 2005 was $2,611,990. The agreement requires the Company to meet certain financial and non-financial covenants. At March 31, 2005, the company was in compliance with these loan covenants. Subsequent to March 31, 2005 the line of credit was paid in full in connection with the sale described in Note A. NOTE F NOTES PAYABLE The Company obtained notes payable aggregating $457,311 from a financial institution for their workers' compensation, professional medical services, and general liability insurance premiums. The notes bear interest at 4.75% per annum and are payable in monthly principal and interest installments aggregating $46,733. The notes expire in August 2005. At March 31, 2005, the balance outstanding under these notes was $268,067. NOTE G LONG TERM DEBT Bank - note payable; secured by equipment; interest at 10.2% per annum; payable in monthly installments of $984; maturing in August 2009. $54,117 F-21 Bank - note payable; secured by a vehicle and personally guaranteed by the shareholders; interest at 6.375% per annum; payable in monthly installments of $607; maturing in November 2009. 29,259 Bank - note payable; secured by a vehicle; interest at 0% per annum; payable in monthly installments of $1,071; maturing in December 2009. 61,699 Bank - note payable; secured by a vehicle; interest at 5% per annum; payable in monthly installments of $1,059; maturing in March 2010. 54,138 Bank - note payable; personally guaranteed by the shareholders and secured by real property owned by the shareholders; interest at 5% per annum; payable in monthly installments if $7,653; maturing in January 2007. 49,526 -------- Total $248,739 Less current portion (61,333) -------- Non-current portion of long-term debt $187,406 ======== Aggregate maturities of long-term debt for the years ending March 31, are as follows: 2006 $ 61,333 2007 63,195 2008 41,872 2009 41,872 2010 40,467 -------- $248,739 ======== The shareholders of RS Staffing Services, Inc. purchased the three vehicles and assumed the related notes described above from TeamStaff, Inc. at closing. NOTE H INCOME TAXES The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability at March 31,2005, are presented below: F-22 Current Deferred tax asset: Allowance for doubtful accounts $ 27,941 Accrued expense 46,568 -------- $ 74,509 -------- Non-current Deferred tax asset (liability): Accumulated depreciation $(52,228) Accumulated amortization 11,451 Capital loss carry-forward 3,326 Tax credit carry-forward 54,359 -------- $ 16,908 -------- Total deferred tax assets $ 91,417 ======== Federal tax credit carry-forwards begin to expire in 2023. NOTE I RELATED PARTY TRANSACTIONS Accounts Receivable - Stockholders - ---------------------------------- The Company made unsecured advances to stockholders, which are non-interest bearing and are generally due within one year. At March 31, 2005, the amount due from the stockholders for these advances was $29,769. Operating expenses - Rent: - -------------------------- The Company rents office space from an entity with common ownership. The prior lease was extended and now expires on December 31, 2009. Rent expense to this related party totaled $24,600 and $26,544 for the three months ended March 31, 2005 and March 31, 2004 respectively. NOTE J COMMITMENTS AND CONTINGENCIES Lease Commitments: - ------------------ The Company leases office space under operating lease agreements. Future minimum lease payments under the operating lease for the years ending March 31 are as follows: 2006 $ 72,600 2007 72,600 2008 72,600 2009 72,600 2010 54,450 -------- $344,850 ======== Self-Insurance Program - Healthcare: - ------------------------------------ The Company maintains a self-insurance program for its employees' health care coverage. The Company is liable for claims up to approximately $103,000 per month for the policy period beginning April 1, 2004 through March 31, 2005. The Company has reinsurance coverage for F-23 any losses in excess of these amounts. Self-insurance costs are accrued based on claims reported by employees as of the balance sheet date as well as an estimated liability for claims incurred but not yet reported by employees to the program administrator. As of March 31, 2005, the Company has accrued employee healthcare costs of approximately $45,000. Management believes this accrual accurately reflects its liability under the plan. Health Insurance - Not Self-Insured: - ------------------------------------ During 2004, The Company began offering a new health insurance option to its employees that is not self-insured by the Company. A majority of the Company's employees had switched their health insurance policy and the self-insurance health plan is being phased out. Effective August 1, 2004, the Company began offering an additional benefit to its contract employees, a healthcare reimbursement account (HRA) through a third party administrator (TPA), Axis Administrators, Inc. The existing health plan was converted to a fully funded plan on April 1, 2005 and is not being phased out. Captive Relationship for Self-Insurance Program - Workers' Compensation: - ------------------------------------------------------------------------ The Company maintains a self-insurance program for its workers' compensation coverage. The Company is a participant in a group "captive" program, specific to the staffing industry, for workers' compensation coverage. Program premiums are paid based in traditional underwriting practices coupled with usual and customary brokerage and administrative fees while the insurance risk is spread among all participants in the group. The coverage for this group "captive" program is for losses up to $400,000. The Company has reinsurance coverage for any losses in excess of $400,000 per occurrence. Annual premiums paid into the group "captive" program are used to set up a loss fund for each participant in the group and is used to pay claims during the policy year and three years thereafter. The policy period ends each year on September 30. In the third year after each policy end date, after determining the amount of final claims to be paid or reversed, the remaining balance will be refunded to the Company. The loss fund balance for the policy period ended March 31, 2005 was $311,564. Due to lack of claims history, the Company did not accrue any potential refund under its workers' compensation policy. TeamStaff, Inc will pay any amounts received as a refund by the Company subsequent to the acquisition date to the former shareholders of the Company as additional purchase price consideration in connection with the sale described in Note A. Litigation and Claims: - ---------------------- The Company has legal proceedings arising form the normal course of business. The Company is involved in lawsuits brought against it from former employees relating to discrimination and workers' compensation claims. In aggregate, the estimated loss reserved for at March 31, 2005 is approximately $100,000 that is included in accrued expenses. NOTE K EMPLOYEE BENEFIT PLAN The Company maintains a 401(k) retirement plan for its employees, under which they may defer a portion of their annual compensation, limited to a maximum annual amount as set periodically by the Internal Revenue Service. Employees are eligible to participate upon meeting certain length of service and minimum compensation requirements. NOTE L ECONOMIC DEPENDENCY Major Customer: - --------------- F-24 A major customer is defined as a customer from which the Company derives at least 10% of its sales. The accounts receivable balance as of March 31, 2005 and March 31, 2004 includes approximately $1,690,581 and $1,608,468 respectively from three customers. F-25 TEAMSTAFF AND RS STAFFING PROFORMAS INTRODUCTION: - ------------- On June 4, 2005, TeamStaff, Inc. completed the acquisition of 100% of the outstanding common stock of RS Staffing, a private company located in Monroe, Georgia, specializing in providing medical and office administration/technical professionals through nationwide schedule contracts with both the General Services Administration ("GSA") and Veteran's Affairs ("VA"). The acquisition was in part financed through a $7 million revolving credit facility obtained through PNC Bank. The terms of the acquisition provided for a purchase price consisting of (i) $1,750,000 of TeamStaff Common Stock, (ii) a secured note of TeamStaff in the principal amount of $3,000,000 (iii) cash in the amount of $3,250,000 and (iv) a potential earnout payment. The credit facility was provided to (i) provide for the acquisition of RS Staffing, (ii) refinance the current senior loan facility, and (iii) provide ongoing working capital. The facility has a three year life, contains term and line of credit borrowing options, and is subjec The earnout payment is based upon the following calculation: for every $1.00 of EBITDA for the earnout period over $1.8 million, the Sellers shall be entitled to $4.00 up to a maximum of $2 million. For example, if EBITDA of the business is determined to be $2.3 million or higher, the earnout payment would be $2.0 million. If EBITDA of the business is determined to be $1.8 million or less, the earnout payment would be zero. The attached proforma financial statements include a balance sheet as of March 31, 2005, an income statement for the six months ended March 31, 2005 and an income statement for the twelve months ended September 30, 2004. NOTES: - ------ The proforma adjustments are based on the assumption that going forward, the company will not pay the prior owners of RS Staffing incentives beyond their potential earnout payment. Additionally, certain payments made to family members for consulting, auto, and health insurance will no longer be made. The proforma financials do not include add-backs for what management believes are non-recurring legal and settlement costs approximating $200,000 for the twelve months ended September 30, 2004 and $37,000 for the six months ended March 31, 2005. In addition, the proformas do not include additional gross margin potential related to using TeamStaff RX and Nursing Innovations as RS Staffing teaming partners. F-26 <TABLE> - ------------------------------------------------------------------------------------------------------------------------- HISTORICAL HISTORICAL RS PROFORMA BALANCE SHEET AS OF 03/31/2005 TEAMSTAFF STAFFING PROFORMA PROFORMA (AMOUNTS ARE IN THOUSANDS) 3/31/2005 3/31/2005 ADJUSTMENTS BALANCE SHEET - ------------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS CASH & EQUIVALENTS $ 3,933 $ 1,080 ($ 1,188) $ 3,825 note 1 RESTRICTED CASH - - - - A/R 4,843 4,862 9,705 DEFERRED TAX ASSET 90 75 165 PREPAID W/C 1,160 - - 1,160 OTHER CURRENT ASSETS 1,022 405 42 1,469 note 2 - ------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 11,048 6,422 (1,146) 16,324 - ------------------------------------------------------------------------------------------------------------------------- EQUIPMENT & IMPROVEMENTS FURNITURE & EQUIPMENT 3,285 284 (190) 3,379 COMPUTER EQUIPMENT 469 66 - 535 COMPUTER SOFTWARE 1,134 134 - 1,268 LEASEHOLD IMPROVEMENTS 241 45 - 286 - ------------------------------------------------------------------------------------------------------------------------- TOTAL EQUIPMENTS & IMPROVEMENTS GROSS 5,129 529 (190) 5,468 LESS ACCUMULATED DEP & AM (3,921) (164) 45 (4,040) - ------------------------------------------------------------------------------------------------------------------------- EQUIPMENT & IMPROVEMENTS NET 1,208 365 (145) 1,428 note 3 - ------------------------------------------------------------------------------------------------------------------------- DEFERRED TAX ASSET, NET OF CURRENT PORTION 17,416 17 - 17,433 - ------------------------------------------------------------------------------------------------------------------------- TRADENAME 4,199 - - 4,199 - ------------------------------------------------------------------------------------------------------------------------- GOODWILL 3,390 - 6,526 9,916 note 4 - ------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS PREPAID W/C, NET OF CURRENT PORTION 3,150 - - 3,150 OTHER ASSETS 315 60 85 460 note 2 - ------------------------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS 3,465 60 85 3,610 - ------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 40,726 6,864 $ 5,320 $ 52,910 ========================================================================================================================= - CURRENT LIABILITIES - CURRENT PORTION OF LTD $ 184 $ 2,941 $ 3,888 $ 7,013 note 5 ACCRUED WORKER'S COMPENSATION 1,626 - - 1,626 ACCRUED PAYROLL 1,498 1,315 - 2,813 ACCRUED PENSION LIABILITY 484 - - 484 ACCOUNTS PAYABLE 951 200 - 1,151 ACCRUED EXPENSES & OTHER LIABILITIES 573 547 1,120 - ------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 5,316 5,003 3,888 14,207 - ------------------------------------------------------------------------------------------------------------------------- SUBORDINATED NOTES PAYABLE - - 1,500 1,500 note 6 CONTINGENT NOTES PAYABLE - - - - - - - - LTD, NET OF CURRENT PORTION 241 188 (145) 284 note 7 ACCRUED PENSION LIABILITY 634 - - 634 OTHER LT LIABILITIES - - LIABILITIES FROM DISC OPS 699 - - 699 - ------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 6,890 5,191 5,243 17,324 - ------------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY PREFERRED STOCK - - - - COMMON STOCK ($0.001 PAR VALUE;40M SHARES AUTHORIZED, 18.1M ISSUED) 18 - 18 APIC 66,915 - 1,750 68,665 note 8 RETAINED EARNINGS (32,850) 1,673 (1,673) (32,850) note 9 ACC COMPREHENSIVE LOSSES (223) - - (223) TREASURY STOCK (24) - - (24) - ------------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 33,836 1,673 77 35,586 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 40,726 $ 6,864 $ 5,320 $ 52,910 ========================================================================================================================= NOTE 1 - CASH & EQUIVALENTS: Credit Facility 5,000 Payment to Sellers (3,250) RS line repayment (2,612) Deferred loan charges (127) Related Expenses (199) - --------------------------------------------------------------------------------- Cash & Equivalents Adjustment (1,188) ====== NOTE 2 - DEFERRED LOAN CHARGES (RE: NOTE 1) Current portion 42 Non-current portion 85 ------ Total deferred loan charges 127 ====== NOTE 3 - RS SHAREHOLDERS PURCHASE OF CARS & RELATED (145) NOTE FROM TEAMSTAFF AT CLOSING NOTE 4 - GOODWILL ADJUSTMENT: Purchase Price 8,000 Net Assets Acquired (1,673) Related Expenses 199 - --------------------------------------------------------------------------------- Total 6,526 ===== NOTE 5 - CURRENT PORTION OF LONG TERM DEBT ANALYSIS: Line activation - PNC 5,000 Current portion of $3 million note 1,500 Retire RS line (2,612) - --------------------------------------------------------------------------------- Total 3,888 ===== NOTE 6 - LONG TERM PORTION OF $3 MILLION NOTE 1,500 NOTE 7 - RETIRE THE $145 BALANCE OF THE NOTE FOR CARS (RE: NOTE 2) (145) NOTE 8 - STOCK ISSUED RELATED TO ACQUISITION - 1,206,897 SHARES AT $1.45 1,750 NOTE 9 - ELIMINATE RS STAFFING RETAINED EARNINGS (1,673) </TABLE> F-27 <TABLE> - -------------------------------------------------------------------------------------------------------------------------- HISTORICAL HISTORICAL RS ADJUSTED TEAMSTAFF SIX STAFFING SIX PROFORMA SIX PROFORMA INCOME STATEMENT FOR THE SIX MONTHS MONTHS MONTHS MONTHS ENDED 03-31-05 (AMOUNTS ARE IN ENDED ENDED PROFORMA ENDED THOUSANDS, EXCEPT PER SHARE DATA) 03/31/2005 03/31/2005 CONSOLIDATED ADJUSTMENTS 03/31/2005 - -------------------------------------------------------------------------------------------------------------------------- Revenues $ 21,100 $ 23,050 $ 44,150 $ 44,150 - -------------------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 21,100 23,050 44,150 - 44,150 Cost Of Revenues 15,885 19,733 35,618 35,618 - -------------------------------------------------------------------------------------------------------------------------- GROSS PROFIT 5,215 3,317 8,532 - 8,532 SG&A Exp., Total 6,563 2,905 9,468 (867) 8,601 note 10 Depreciation & Amort., Total 332 72 404 404 Other Operating Expense (Income) - - - - - -------------------------------------------------------------------------------------------------------------------------- OTHER OPERATING EXP., TOTAL 6,895 2,977 9,872 (867) 9,005 OPERATING INCOME (LOSS) (1,680) 340 (1,340) 867 (473) Interest Expense 32 41 73 199 272 note 11 Interest and Invest. Income (132) (9) (141) (141) - -------------------------------------------------------------------------------------------------------------------------- Net Interest Exp (100) 32 (68) 199 131 Other Non-Operating Exp., Total - - - - - -------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE TAXES (1,580) 308 (1,272) 668 (604) Income Tax Expense (601) 149 (452) 222 (230) note 12 - -------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS ($979) $159 ($820) $446 ($374) ========================================================================================================================== Weighted Average Fully Diluted Shares Outstanding 17,567 17,567 18,774 EPS $ (0.06) $ (0.05) $ (0.02) NOTE 10 - SG&A ADJUSTMENTS: this period ----------------- Owners' bonuses (821) Fees paid to family members (46) ----------------- Total (867) ================= NOTE 11 - INTEREST EXPENSE: 6 months interest expense on outstanding new credit facility 144 6 months interest expense on seller note 75 Deferred loan costs 21 RS loan repaid (41) ----------------- Interest Expense Adjustment 199 ================= NOTE 12 - PROFORMA TAX RATE EQUALS TEAMSTAFF HISTORICAL EFFECTIVE TAX RATE </TABLE> F-28 <TABLE> - --------------------------------------------------------------------------------------------------------------------------- HISTORICAL HISTORICAL RS ADJUSTED TEAMSTAFF STAFFING PROFORMA TWELVE TWELVE TWELVE PROFORMA INCOME STATEMENT FOR THE TWELVE MONTHS MONTHS MONTHS MONTHS ENDED 09-30-04 (AMOUNTS ARE IN ENDED ENDED PROFORMA ENDED THOUSANDS, EXCEPT PER SHARE DATA) 9/30/2004 9/30/2004 CONSOLIDATED ADJUSTMENTS 09/30/2004 - --------------------------------------------------------------------------------------------------------------------------- Revenues $ 37,288 $ 37,048 $ 74,336 $ 74,336 - --------------------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 37,288 37,048 74,336 - 74,336 Cost Of Revenues 28,545 32,016 60,561 60,561 - --------------------------------------------------------------------------------------------------------------------------- GROSS PROFIT 8,743 5,032 13,775 - 13,775 SG&A Exp., Total 11,371 3,555 14,926 (372) 14,554 note 13 Depreciation & Amort., Total 409 124 533 533 Other Operating Expense (Income) - - - - - --------------------------------------------------------------------------------------------------------------------------- OTHER OPERATING EXP., TOTAL 11,780 3,679 15,459 (372) 15,087 OPERATING INCOME (LOSS) (3,037) 1,353 (1,684) 372 (1,312) Interest Expense 81 145 226 335 561 note 14 Interest and Invest. Income (271) (20) (291) (291) - --------------------------------------------------------------------------------------------------------------------------- Net Interest Exp (190) 125 (65) 335 270 Other Non-Operating Exp., Total - - - - - --------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE TAXES (2,847) 1,228 (1,619) 38 (1,582) Income Tax Expense (1,083) 688 (395) (207) (602) note 15 - --------------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS ($1,764) $540 ($1,224) $244 ($980) =========================================================================================================================== Weighted Average Fully Diluted Shares Outstanding 15,714 15,714 16,921 EPS $ (0.11) $ (0.08) $ (0.06) NOTE 13 - SG&A ADJUSTMENTS: total ----------------- Owners' bonuses (302) Fees paid to family members (70) ----------------- Total (372) ================= NOTE 14 - INTEREST EXPENSE: Interest expense on outstanding credit facility 288 Interest expense on seller note 150 Deferred loan costs 42 RS loan repaid (145) ----------------- Interest Expense Adjustment 335 ================= NOTE 15 - PROFORMA TAX RATE EQUALS TEAMSTAFF HISTORICAL EFFECTIVE TAX RATE </TABLE> F-29