<PAGE>   1

                    SECURITIES AND EXCHANGE COMMISSION DRAFT

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

         FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2000.

                                       OR

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

         FOR THE TRANSITION PERIOD FROM _____________ TO ___________.

                         Commission File Number: 0-11380

                              STAFF BUILDERS, INC.
             (Exact name of Registrant as specified in its charter)

DELAWARE                                                11-2650500
---------------------------------          ------------------------------------
(State or other jurisdiction               (I.R.S. Employer Identification No.)
of incorporation or organization)

1983 MARCUS AVENUE, LAKE SUCCESS, NY                     11042
----------------------------------------               ----------
(Address of Principal executive offices)               (Zip Code)

Registrant's telephone number, including area code:  (516) 750-1600


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

                      CLASS A COMMON STOCK, $.01 PAR VALUE
                      CLASS B COMMON STOCK, $.01 PAR VALUE

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 and (2) has been subject to such filing
requirements for the past 90 days.
                           Yes [X]          No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___

The aggregate market value of the voting stock (Class A and Class B Common
Stock, assuming conversions of Class B Common Stock into Class A Common Stock on
a share for share basis) held by non-affiliates of the registrant based on the
closing price of such stock on June 23, 2000 was $8,534,458.

The number of shares of Class A Common Stock and Class B Common Stock
outstanding on June 23, 2000 was 23,338,912 and 292,885 shares, respectively.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE

<PAGE>   2




PART I.

ITEM 1.   DESCRIPTION OF BUSINESS

GENERAL

Staff Builders, Inc. ("Staff Builders" or the "Company") is a Delaware
corporation which was incorporated in New York in 1978 and reincorporated in
Delaware in May 1983. Unless the context otherwise requires, all references to
the "Company" include the company and its subsidiaries. The Company is a
national provider of medical supplemental staffing services.

The Company's medical supplemental staffing services are provided through its
wholly-owned subsidiary, ATC Healthcare Services, Inc. ("ATC"). The Company also
provided information technology staffing services through its majority owned
subsidiary, Chelsea Computer Consultants, Inc. ("Chelsea") until September 17,
1999 when it sold its entire interest in Chelsea. The Company acquired ATC in
July 1994. In September 1996, the Company purchased 20.9% of the outstanding
common stock of Chelsea and purchased an additional 60.9% in October 1997.

On September 17, 1999, prior to the spin-off of TLCS, the Company sold its
entire interest in Chelsea for total consideration of $17.5 million. The $17.5
million of cash received was used to pay off approximately $8.4 million of
borrowings under the Company's acquisition line of credit, approximately $4
million of borrowings under the Company's revolving line of credit and $500
thousand paid to a former principal of Chelsea. The remaining $4.6 million of
cash was used to pay down Tender Loving Care Health Care Services, Inc. ("TLCS")
revolving line of credit. The Company's interest in Chelsea was sold at a loss
of approximately $1.1 million.

SPIN-OFF TRANSACTION

On March 22, 1999, the Company's Board of Directors approved a plan to separate
its home health care business from its supplemental staffing business and to
create a separate, publicly-traded company engaged exclusively in providing home
health care services. To accomplish this separation of its businesses, the
Company's Board of Directors established a new, wholly-owned subsidiary, TLCS,
which acquired 100% of the outstanding capital stock of the Company's
subsidiaries engaged in the home health care business. The spin-off was effected
on October 20, 1999 through a pro rata distribution to the Company's
stockholders of all the shares of common stock of TLCS owned the Company (the
"Distribution"). The Distribution was made by issuing one share of TLCS common
stock for every two shares of the Company's common stock outstanding on October
12, 1999 (the "Record Date). Based upon the 23,619,388 shares of the Company's
common stock outstanding ("the Record Date"), 11,809,694 shares of TLCS common
stock were distributed to holders of the Company's common stock after the
spin-off. The Company's supplemental staffing business remained with the
Company.

The Board of Directors believes that the spin-off was in the best interests of
the Company and its stockholders. One of the principal benefits of the spin-off
was the creation of a separate and distinct identity for the supplemental
staffing business of the Company. This separation should allow financial
analysts and institutional investors to better understand that business. It also
enhanced the Company's ability to obtain financing outside an environment of
tighter government regulation of the home health care industry and reduced
government reimbursement for the provision of home health care services.


<PAGE>   3




OPERATIONS

Revenues were $115.0 million, $94.7 million and $68.4 million in Fiscal 2000,
1999 and 1998, respectively. Revenue increased because of growth of existing
licensees and the acquisition of new licensees.

The Company provides supplemental staffing to health care facilities through its
network of 51 offices in 24 states, of which 48 are operated by 32 licensees and
three are owned and operated by the Company (the "Staffing Division"). The
Staffing Division offers its clients a skills list of qualified health care
associates in over 55 job categories ranging from the highest level of specialty
nurse including critical care, neonatal and labor and delivery, to medical
administrative staff, including third party billers, administrative assistants,
claims processors, collection personnel and medical records clerks. The nurses
provided to clients include registered nurses, licensed practical nurses and
certified nursing assistants. Allied health staffing includes mental health
technicians, a variety of therapists (including speech, occupational and
physical), radiology technicians and phlebotomists.

Clients rely on the Company to provide a flexible labor force to meet
fluctuation in census and business and help the facility acquire a specifically
needed skill. The Company's medical staffing professionals also fill in for
absent employees and enhance a client's core staff with temporary workers during
peak seasons.

Clients benefit from their relationship with the Company because of its
expertise in providing properly skilled medical staffing employees to a facility
in an increasingly tight labor market. The Staffing Division has developed a
skills checklist for clients to provide information concerning a prospective
employee's skill level. Clients also benefit from no longer having to concern
themselves with the payment of employee wages, benefits, payroll taxes, workers
compensation and unemployment insurance because these are processed through the
Company.

The Staffing Division also operates a Travel Nurse Program whereby qualified
nurses, physical therapists and occupational therapists are recruited on behalf
of the clients who require such services on a long-term basis. These individuals
are recruited from the United States and foreign countries, including Great
Britain, Australia and New Zealand to perform services on a long-term basis in
the United States.

The Staffing Division has contracted with a management entity for the
recruitment of the foreign nurses. The management entity must arrange for the
nurses' and therapists' immigration, licensing certifications as well as their
living accommodations while employed in the United States.

When the Company first acquired the Staffing Division in 1994, its client base
was composed predominantly of hospitals. Currently, the Staffing Division has
expanded its client base to include nursing homes, physician practice management
groups, managed care facilities, insurance companies, surgery centers, community
health centers and schools. By diversifying its client list, the Company lessens
the risk that regulatory or industry sector shifts in staffing usage will
materially affect the Company's staffing revenues.

Approximately 30% of the supplemental staffing revenues are attributable to an
ATC licensee operation located in Long Island, NY operated by a corporation, the
majority of the stock of which is owned by two family members of the Company's
executive officers.

During fiscal years 2000, 1999, and 1998, no single client accounted for more
than 10% of the revenues of the Company.


<PAGE>   4

LICENSEE PROGRAM

The Staffing Division's licensing program is one of the core differentiating
factors between the Company and most of its competition. The program grants each
licensee a vested interest in the success of both his or her individual branch
as well as the Company as a whole. After paying an initial license fee of
$19,500 in exchange for his or her own exclusive territory determined based on
demographic, economic and competitive studies, the licensee is paid a royalty
equal to approximately 60% of gross profit (in general, the difference between
the amount so invoiced and the payroll and related expenses for such field
employees). The licensee has the right to develop the territory to its fullest
potential. For example, a licensee can open a satellite office in the area if
they believe there will be an appropriate return on the investment. The licensee
also handles marketing and recruiting within the assigned territory. The Company
works closely with the licensee to ensure the best approach and strategy for the
licensee and the profitability of the location. All locations must be approved
by the Company prior to signing a lease. Various management reports are provided
to the offices to assist them with ongoing analysis of their medical staffing
operations. The Company pays and distributes the payroll for the direct service
personnel who are all employees of the Company, administers all payroll
withholdings and payments, bills the customers and receives and processes the
accounts receivable. The licensees are responsible for providing an office and
paying related expenses for administration including rent, utilities and costs
for administrative personnel.

For Fiscal 2000, 1999 and 1998, total staffing licensee distributions of
approximately $15.8 million, $12.3 million and $8.8 million, respectively, were
included in the Company's general and administrative expenses.

The Company grants a ten-year initial license term. The licensee has an option
to extend the term for two additional five-year renewal terms, subject to the
licensee adhering to the operating procedures and conditions for renewal set
forth in the licensee agreement. When the Company converts an independently
owned staffing business into a licensee, the Company negotiates the terms of the
conversion on a transaction-by-transaction basis, depending on the size of the
business and the location.

Sales of licenses are subject to compliance with Federal and particular state
franchise laws. If the Company fails to comply with the franchise laws, rules
and regulations of the particular state relating to offers and sales of
franchises, the Company will be unable to engage in offering or selling
franchises in or from such state. To offer and sell franchises, the Federal
Trade Commission requires the Company to furnish to prospective licensees a
current franchise offering disclosure document. The Company has used a Uniform
Franchise Offering Circular ("UFOC") to satisfy this disclosure obligation. The
Company must update its UFOC annually or upon the occurrence of certain material
events. If a material event occurs, the Company must stop offering and selling
franchises until the UFOC is updated. In addition, certain states require the
Company to register or file its UFOC with such states and to provide prescribed
disclosures. The Company is required to obtain an effective registration of its
franchise disclosure document in New York State and certain other registration
states. The Company is currently updating its UFOC, and expects to file it with
New York State in July 2000; therefore the Company is not currently offering any
new franchises. Approval by New York State will enable the Company to offer the
staffing franchise in 38 states. The Company expects to resume offering
franchises in the summer of 2000.

PERSONNEL; RECRUITING AND TRAINING

The Company employs approximately 2000 individuals who render staffing services
and approximately 230 full time administrative and management personnel.
Approximately 160 of these administrative

<PAGE>   5

employees are located at the branch offices and 70 are located at the
administrative offices in Lake Success, New York and Atlanta, Georgia.

The Company screens personnel to ensure that they meet all eligibility
standards. This screening process includes skills testing, reference checking,
professional license verification, personal interviews and a physical
examination. In addition, new employees receive an orientation on the Company's
policies and procedures prior to their initial assignment. The Company is not a
party to any collective bargaining agreement and considers its relationship with
its supplemental staffing employees to be satisfactory.

It is essential to recruit and retain a qualified staff of staffing associates
who are available to be placed on assignment as needed. Besides advertising in
the local classifieds and conducting local public relations projects, the
Company's Staffing Division offers a variety of benefit programs to assist in
recruiting high quality medical staffing professionals. This package provides
employees access to medical, dental, life and disability insurance, a 401(k)
plan, opportunities for Continuing Education Credits (CEUs), partnerships with
various vendors for discount programs (e.g. uniforms, vacations and cruises,
credit cards, appliances and cars), recognition programs and referral bonus
programs. In addition, the Company provides its Staffing Division licensees a
full-service human resources department to support the Staffing Division offices
with policies and procedures as well as the day-to-day issues of the field
staff.


<PAGE>   6




SALES AND MARKETING

The Company begins a marketing education program as soon as a licensee becomes
operational. This program details the entire sales process. The program stresses
sales techniques, account development and retention as well as basic sales
concepts and skills. Through interactive lectures, role plays and sales
scenarios, participants are immersed in the sales program.

To provide ongoing sales support, the Company furnishes licensees with a variety
of tools. A corporate representative is continuously available to help with
prospecting, customer identification and retention, sales strategies, and
developing a comprehensive office sales plan. In addition, various guides and
brochures have been developed to focus a licensee's attention to critical areas
in the sales process.

Each licensee in the Staffing Division is responsible for generating sales in
his or her territory. Licensees are taught to do this through a variety of
methods in order to diversify their sales conduits. The primary method of
seeking new business is to call on health care facilities in the local area.
Cold calls and referrals are often used to generate leads. Advertising in yellow
page phone books is also utilized. Once granted an interview, the licensee is
instructed to emphasize the highlights of the Company's services.

For Corporate-owned offices, the sales and marketing is very similar to an
licensee operation, except the branch managers are more closely supervised than
the licensee operations, who by the nature of being a licensee, personally have
a financial interest in the success of their operation.

INSURANCE

The Company maintains errors and omissions insurance for the supplemental
staffing division: medical professional and general liability insurance
providing for coverage in a maximum amount of $1 million per claim, subject to a
limitation of $3 million for all claims in any single year.

COMPETITION

The medical staffing industry is extremely fragmented, with numerous local and
regional providers nationwide providing nurses and other staffing solutions to
hospitals and other health care providers. As HMOs and other managed care groups
expand, so too must the medical staffing companies that service those customers.
In addition, momentum for consolidation is increasing among smaller players,
often venture capital-backed, who are trying to win regional and even national
accounts. Because the temporary staffing industry is dominated generally by
large national companies that do not specialize in medical staffing, the
Staffing Division management believes that its specialization will give it a
competitive edge. In addition, its franchise program gives each licensee an
incentive to compete actively in his or her local marketplace.

SERVICE MARKS

The Company believes that its service trademark and the ATC logo have
significant value and are important to the marketing of its supplemental
staffing services. These marks are registered with the United States Patent and
Trademark Office. The ATC trademark will remain in effect through January 9,
2010 for use with nursing care services and healthcare services. These marks are
each renewable for an additional ten-year period, provided the Company continues
to use them in the ordinary course of business.
<PAGE>   7

ITEM 2.   PROPERTIES

The Company's business leases its administrative facilities in Atlanta, Georgia
and Lake Success, New York. The Lake Success office lease for approximately
12,000 square feet of office space expires on November 2007 and provides for a
current annual rent of $282,840 and is subject to a 3.5% annual escalation. The
Atlanta office lease for approximately 1,800 square feet of office space expires
on March 2002 and provides for a current annual rent of approximately $39,800.
The Company is also subletting an additional 1,900 square feet in an adjoining
office to the current space for an annual rent of $39,000. The term expires in
March 2001 with a renewal option. The Company believes that its administrative
facilities are sufficient for its needs and that it will be able to obtain
additional space as needed.

The Company's licensees lease substantially all of their locations from
landlords unaffiliated with the Company or any of its executive officers or
directors. There are currently 51 staffing offices including three operated by
the Company and 48 licensee staffing offices operated by 32 licensees. One of
the supplemental staffing offices operated by the Company subleases the office
space from TLCS and one licensee office subleases the office space from the
Company. The remaining licensee offices are owned by licensees or are leased by
the licensee from third-party landlords. The Company believes that it will be
able to renew or find adequate replacement offices for all leases which are
scheduled to expire in the next twelve months at comparable costs.

ITEM 3.  LEGAL PROCEEDINGS

Albert Gallatin

On September 20, 1995, the United States Attorney for the Eastern District of
Pennsylvania alleged that between 1987 and 1989, a corporation, substantially
all assets and liabilities of which were acquired by a subsidiary of TLCS in
1993, submitted false claims to Medicare. The alleged false claims were made
before TLCS acquired that corporation in 1993. There have been significant
discussions with the office of the United States Attorney which TLCS believes
are likely to lead to a settlement of the outstanding claims for approximately
$600 thousand, the conclusion of which is pending final government approval of
the payment and other settlement items. The Company is likely to be a signatory
to any such settlement agreement; however, pursuant to agreement, the Company
will be indemnified by TLCS for any obligations arising out of this matter.

Ali Waris

On July 17, 1998, the Federal government ordered that a complaint filed by Ali
Waris, the former owner of a home health care agency purchased by the Company in
1993, be unsealed and served upon Staff Builders, Inc. and Targa Group, Inc., a
former licensee (franchisee) of the Company. The government has elected not to
intervene in the action, in which Mr. Waris claimed damages for alleged
violations for the False Claims Act by the Company in connection with payments
claimed by the Company on its cost report for consulting services. The case was
dismissed pursuant to the Company's motion and Mr. Waris appealed. The appeal
has been stayed by the Court pending finalization of a proposed settlement,
whereby the cost report issues will be settled directly with the United States
Government in exchange for the withdrawal of Mr. Waris' lawsuit. The Company is
likely to be a signatory to any such settlement agreement; however, pursuant to
agreement, the Company will be indemnified by TLCS for any obligations arising
out of this matter.


The Company is a defendant in several civil actions which are routine and
incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent.


<PAGE>   8

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of Fiscal 2000.



<PAGE>   9



PART II.
ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK
          AND RELATED STOCKHOLDER MATTERS

(A)       MARKET INFORMATION

The Company has outstanding two classes of common equity securities: Class A
Common Stock and Class B Common Stock. These two classes were created by a
recapitalization of the Company's Common Stock that was completed in October
1995. The Company's Class A Common Stock is traded in the over-the-counter
market and quoted on the OTC Bulletin Board System under the symbol "SBLI."

The following table sets forth, for the indicated Fiscal periods, the high and
low sale prices for the Class A Common Stock for each quarter during the Fiscal
year ended February 28, 1999 and February 29, 2000, as reported by the Nasdaq
National Market. Effective with the close of business on January 29, 1999, the
Company's Class A Common Stock was delisted from the Nasdaq National Market and
was immediately thereafter quoted on the OTC Bulletin Board.

<TABLE>
<CAPTION>

                                                                     HIGH       LOW
<S>                                                                 <C>        <C>
Fiscal Year Ended February 28, 1999
1st quarter ended May 31, 1998                                      $2.47      1.28
2nd quarter ended August 31, 1998                                    1.69       .50
3rd quarter ended November 30, 1998                                   .87       .34
4th quarter ended February 28, 1999                                   .69       .09

Fiscal Year Ended February 29, 2000
1st quarter ended May 31, 1999                                       $.52      $.16
2nd quarter ended August 31, 1999                                     .53       .13
3rd quarter ended November 30, 1999                                   .48       .16
4th quarter ended February 29, 2000                                   .41       .17
</TABLE>



There is no established public trading market for the Company's Class B Common
Stock, which has ten votes per share and upon transfer is convertible
automatically into one share of Class A Common Stock, which has one vote per
share.

(B)       HOLDERS

As of July 12, 2000, there were approximately 292 holders of record of Class A
Common Stock (including brokerage firms holding stock in "street name" and other
nominees) and 413 holders of record of Class B Common Stock.

(C)       DIVIDENDS

Since its organization, the Company has not paid any dividends on its shares of
Class A and Class B Common Stock. Management anticipates that for the
foreseeable future all earnings will be retained for use in its business and,
accordingly, it does not intend to pay cash dividends. The payment of dividends
is subject to restriction under the current credit facility.



<PAGE>   10



SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>


                                                   FEBRUARY    FEBRUARY    FEBRUARY    FEBRUARY     FEBRUARY
                                                   29, 2000    28, 1999    28, 1998    28, 1997     29, 1996
                                                  ----------- ----------- ----------- ----------- ------------
<S>                                              <C>          <C>         <C>         <C>         <C>
CONSOLIDATED OPERATIONS DATA:
Revenues                                           $ 114,994    $ 94,694     $68,360    $ 42,770      $31,178
Income (loss) from continuing operations             (2,683)       (369)     (1.252)         429        (230)
Loss from discontinued operations                      (557)     (1,031)       (210)          --           --

Net income (loss)                                   $(3,240)    $(1,400)    $(1,462)      $  429     $  (230)

Income (loss) per common share-basic
     Income (loss) from continuing operations         $(.11)      $(.02)      $(.05)        $.02       $(.01)
     Loss from discontinued operations                 (.03)       (.04)       (.01)          --           --
                                                  ----------- ----------- ----------- ----------- ------------
     Net income (loss)                                $(.14)      $(.06)      $(.06)        $.02       $(.01)
                                                  =========== =========== =========== =========== ============
Income (loss) per common share - diluted:
     Income (loss) from continuing operations         $(.11)      $(.02)      $(.05)        $.02       $(.01)
     Loss from discontinued operations                 (.03)       (.04)       (.01)          --           --
                                                  ----------- ----------- ----------- ----------- ------------
     Net income (loss)                                $(.14)      $(.06)      $(.06)        $.02       $(.01)
                                                  =========== =========== =========== =========== ============
Weighted average common shares outstanding:
     Basic                                            23,623      23,162      23,939      23,668       23,598
     Diluted                                          23,623      23,162      23,939      24,577       25,504

CONSOLIDATED BALANCE SHEET DATA:

Total assets                                        $ 39,607     $45,004    $ 29,581    $ 22,009      $12,636

Long-term debt and other liabilities                  15,766          25      16,022       9,858        2,684

Total liabilities                                     28,914      31,689      21,270      12,713        4,199

Stockholders' equity                                  10,693      13,315       8,311       9,296        8,437
</TABLE>



Staff Builders, Inc. did not pay any cash dividends on its common stock during
any of the periods set forth in the table above. Certain prior period amounts
have been reclassified to conform with the Fiscal 2000 presentation.





<PAGE>   11



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


The following discussion and analysis provides information, which the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere herein.

This discussion contains forward-looking statements that are subject to a number
of known and unknown risks that, in addition to general economic, competitive
and other business conditions, could cause actual results, performance and
achievements to differ materially from those described or implied in the
forward-looking statements.

The Company is subject to significant external factors which could significantly
impact its business. These factors could cause future results to differ
materially from historical trends.

Results of Operation

Years Ended February 29, 2000 ("Fiscal 2000"), February 28, 1999 ("Fiscal 1999")
and February 28, 1998 ("Fiscal 1998").

REVENUES: Total revenues increased by approximately $20.3 million or 21.4% to
$115.0 million in Fiscal 2000 from $94.7 million in Fiscal 1999. This increase
is due to an increase in revenues for certain locations which had already been
in operation during Fiscal 1999 but were experiencing higher sales growth, and
independent agencies which had joined the Company during various times
throughout Fiscal 1999 and Fiscal 2000 and were operating for an entire year.
Total revenues increased by approximately $26.3 million or 38.5% to $94.7
million in Fiscal 1999 from $68.4 million in Fiscal 1998. This increase is
primarily due to the increase in the number of locations from 46 in Fiscal 1998
to 58 in Fiscal 1999.

SERVICE COSTS: Service costs were 77.1%, 78.0% and 78.3% of total revenues in
Fiscal 2000, 1999 and 1998, respectively. Service costs represent the direct
costs of providing services to patients or clients, including wages, payroll
taxes, travel costs, insurance costs, medical supplies and the cost of
contracted services.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
increased by approximately $5.0 million or 25.7% to $24.3 million in Fiscal 2000
from $19.3 million in Fiscal 1999. The increase is mainly related to the overall
growth of the business. The Company pays royalties to its licensees based upon
approximately 60% of the gross profit of the licensee office. The growth in
revenues increased royalty expense by approximately $2.9 million or 39.7% to
$10.2 million in Fiscal 2000 from $7.3 million in Fiscal 1999. The increase is
also due to the Company hiring additional personnel because of its relocation of
its corporate headquarters from Atlanta, Georgia to Lake Success, New York.

General and administrative expenses increased by approximately $7.3 million or
60.4% to $19.3 million in Fiscal 1999 from $12.0 million in Fiscal 1998. The
main part of the increase is due growth of the business and increase in related
royalty expense.

DEPRECIATION AND AMORTIZATION: Depreciation and amortization expenses relating
to fixed assets and intangible assets increased by approximately $89 thousand or
15.5% to $664 thousand in Fiscal 2000 from $575 thousand in Fiscal 1999. This
increase is mainly due to the purchase and placing in service of

<PAGE>   12


approximately $3.6 million of computer equipment which was necessary to build
the computer infrastructure to handle the current and future growth of the
business. Charges for depreciation and amortization expenses decreased $117
thousand or 16.9% from $692 thousand in Fiscal 1998 to $575 thousand in Fiscal
1999. This decrease is mainly due to the reduction in the costs of amortizing
goodwill created from acquisitions partially offset by the increase in
depreciation of fixed asset additions.

INTEREST EXPENSE, NET: Interest expense was $1.2 million, $1.2 million and $751
thousand in Fiscal 2000, 1999 and 1998, respectively. Interest expense increased
due to the level of borrowings of the Company in congruence with the increased
levels of its accounts receivables generated through the growth in revenue.

RELOCATION EXPENSES: During Fiscal 2000, the Company incurred one-time
relocation charges related to the expenses of moving its corporate offices from
Atlanta, Georgia to Lake Success, New York. These costs primarily include travel
and lodging, as well as the costs for the physical movement of Company's
equipment and records to the New York location.

NON RECURRING SPIN-OFF AND FINANCING COSTS: During Fiscal 2000, the Company
incurred one-time spin-off costs of approximately $700 thousand related to the
spin-off of TLCS. These costs included legal fees, accounting fees, consultants
and printing costs. In addition, the Company incurred one-time financing fees of
approximately $400 thousand which were incurred because of the restructuring of
the Company's borrowing agreement with its asset based lending institution
necessitated by the spin-off of TLCS.

PROVISION (BENEFIT) FOR INCOME TAXES: The provision (benefit) for income taxes
reflects an effective rate of 3.9%, (16.0%) and (31.2%) in Fiscal 2000, 1999 and
1998, respectively.

The provision from income taxes in Fiscal 2000 consists of state capital and
minimum taxes. The book benefit for the net operating losses generated in Fiscal
2000 was offset by recording a valuation allowance. Such valuation allowance was
recorded because management does not believe that the utilization of the tax
benefits from operating losses, and other temporary differences are "more likely
than not" to be realized, as required by generally accepted accounting
principles (GAAP).

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $3.0 million for Fiscal 2000,
which consisted primarily of the increase of accounts payable and accrued
expenses of $5.1 million offset by cash provided from operations which consisted
of the net loss of $(3.2) million which included non-cash items consisting
primarily of depreciation and amortization of $664 thousand and provision for
doubtful accounts of $651 thousand.

Net cash provided by investing activities was $4.8 million in Fiscal 2000, which
consisted of the disposition of short term assets of discontinued operations of
$4.2 million and disposition of long term assets of discontinued operations of
$3.5 million offset by $2.9 million of fixed asset purchases.

Net cash used in financing activities was $7.6 million in Fiscal 2000, which
consisted primarily of the decrease in the due under secured credit facility of
$7.5 million.

Net cash used in operating activities was $7.6 million in Fiscal 1999, which
consisted primarily of the increase in accounts receivable of $9.9 million and
cash provided from operations which consisted of the net loss of $(1.4) million
which included non-cash items consisting primarily of depreciation and

<PAGE>   13


amortization of $575 thousand and the increase to the allowance for doubtful
accounts of $1.6 million. Offsetting these uses of cash was the increase in
accounts payable and accrued expenses of $2.8 million.

Net cash used in investing activities was $500 thousand in Fiscal 1999, which
consisted of the acquisition of short term assets from discontinued operations
of $4.2 million, the acquisition of long term assets from discontinued
operations of $3.5 million and the purchase of fixed assets of $1.2 million
offset by the contribution of discontinued operations by TLCS of $8.6 million.

Net cash from financing activities was $7.4 million in Fiscal 1999 which
consisted of the increase in the intercompany loan of $7.9 million offset by a
$519 thousand reduction in bank debt. On September 17, 1999, the Company sold
its entire interest in Chelsea for total consideration of $17.5 million. The
cash received of $17.5 million was used to pay off approximately $8.4 million of
borrowings under the Company's acquisition line of credit, approximately $4.0 of
borrowings under the Company's revolving line of credit and $500 thousand paid
to a former principal of Chelsea. The remaining $4.6 million of cash was used to
pay down TLCS's revolving line of credit. The Company's interest in Chelsea was
sold at a loss of approximately $1.1 million.

On September 24, 1999, the Company entered into an amended and restated loan and
security agreement with a bank ("Loan Agreement") which expired on February 29,
2000. The Loan Agreement permitted the Company to borrow up to 75% of eligible
accounts receivable, up to the maximum amount of $15 million. The borrowings
under the credit facility bore interest at 2.0% over the prevailing prime
lending rate. In addition, the Company paid a monthly collateral management fee
of $3 thousand and .375% per annum of the daily unused portion of the credit
facility. The Company paid bank fees of $170 thousand in connection with the
execution of the Loan Agreement and facility fees of $131 thousand on November
30, 1999. The Company paid an additional $206 thousand of facility fees in
Fiscal 2000.

In March 2000, the Company secured a new financing facility ("New Facility")
with a new lending institution for a $20 million revolving loan. The New
Facility was used to repay borrowings under the Loan Agreement. Under the New
Facility, the Company may borrow up to $20 million based upon having sufficient
collateral calculated at 85% of the Company's accounts receivable. Interest on
the New Facility is 2% over the prevailing prime lending rate. There is also a
 .5% annual fee for the unused portion of the total loan availability.

The Company's working capital was $13.1 million at February 29, 2000.

Management believes that working capital generated from operations, together
with other credit facilities, will be sufficient to meet the currently
anticipated working capital and capital expenditure requirements of our
operations.

EFFECT OF INFLATION

The rate of inflation was immaterial during Fiscal 2000. In the past, the
effects of inflation on salaries and operating expenses have been offset by the
Company's ability to increase its charges for services rendered. The Company
anticipates that it will be able to continue to do so in the future. The Company
continually reviews its costs in relation to the pricing of its services.

RECENTLY ISSUED ACCOUNTING STANDARDS

During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company does not engage in derivative
or hedging activities and does not expect the adoption of this new

<PAGE>   14

accounting pronouncement to have a material effect, if any, on its financial
condition or results of operations.

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are typically identified by the
inclusion of phrases such as "the Company anticipates", "the Company believes"
and other phrases of similar meaning. These forward looking statements are based
on the Company's current expectations. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors that may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. The potential risks and
uncertainties which would cause actual results to differ materially from the
Company's expectations are as follows:

BUSINESS CONDITIONS - The Company must continue to establish and maintain close
working relationships with physicians and physician groups, managed care
organizations, hospitals, clinics, nursing homes, social service agencies and
other health care providers. There can be no assurance that the Company will
continue to establish or maintain such relationships. The Company expects
additional competition will develop in future periods given the increasing
market demand for the type of services offered.

ATTRACTION AND RETENTION OF LICENSEES AND EMPLOYEES - Maintaining quality
licensees, managers and branch administrators will play a significant part in
the future success of the Company. The Company's professional nurses and other
health care personnel are also key to the continued provision of quality care to
the Company's patients. The possible inability to attract and retain qualified
licensees, skilled management and sufficient numbers of credentialed health care
professional and para-professionals and information technology personnel could
adversely affect the Company's operations and quality of service. Also, because
of the travel nurse program is dependent upon the attraction of skilled nurses
from overseas, such program could be adversely affected by immigration
restrictions limiting the number of such skilled personnel who may enter and
remain in the United States.

SATISFACTORY FINANCING - The Company entered into the New Facility on March 29,
2000. Management cannot provide assurance that the Company will remain in
compliance with the covenants of the new financing agreement. If the Company
does not remain in compliance with the covenants, the bank could immediately
call the amounts due under the New Facility and payable. If this were to happen,
the Company would have to seek alternative financing, which may not be available
on acceptable terms to the Company. The line of credit available to the Company
is $20 million. Management cannot provide assurance that the available line of
credit will be sufficient on a going forward basis to provide sufficient funds
to operate the business.

YEAR 2000 - The Company has made upgrades to substantially all of its computer
systems and equipment. The installation of these upgrades was completed in all
material respects as of December 1999. Such upgrades served to satisfy the
anticipated impacts of the so-called Year 2000 issue on our information
technology systems. As of May 31, 2000, the Company has not experienced any
materially important business disruptions or system failures as a result of Year
2000 issues, nor is it aware of any Year 2000 issues that have impacted its
payor sources, suppliers or other significant third parties to an extent
significant to the Company. However, Year 2000 compliance has many elements and
potential consequences, some of which may not be foreseeable or may be realized
in future periods. Consequently, there can be no assurance that unforeseen
circumstances may not arise, or that the Company will not in the future identify
equipment or systems which are not Year 2000 compliant.


<PAGE>   15





ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

STAFF BUILDERS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                             PAGE
<S>                                                                                          <C>
INDEPENDENT AUDITORS' REPORT                                                                 F-1
CONSOLIDATED FINANCIAL STATEMENTS:

     Consolidated Balance Sheets as of
        February 29, 2000 and February 28, 1999                                              F-2

     Consolidated Statements of Operations
        for the Years ended February 29, 2000,
        February 28, 1999 and February 28, 1998                                              F-3

     Consolidated Statements of Stockholders' Equity
        for the Years ended February 29, 2000,
        February 28, 1999 and February 28, 1998                                              F-4

     Consolidated Statements of Cash Flows
        for the Years ended February 29, 2000,
        February 28, 1999 and February 28, 1998                                              F-5

     Notes to Consolidated Financial Statements                                              F-6

FINANCIAL STATEMENT SCHEDULE FOR THE YEARS ENDED
     FEBRUARY 29, 2000, FEBRUARY 28, 1999
     AND FEBRUARY 28, 1998

        II - Valuation and Qualifying Accounts                                               F-36
</TABLE>

All other schedules were omitted because they are not required, not applicable
or the information is otherwise shown in the financial statements or the notes
thereto.


<PAGE>   16



INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors
   of Staff Builders, Inc.:

We have audited the accompanying consolidated balance sheets of Staff Builders,
Inc. and subsidiaries (the "Company") as of February 29, 2000 and February 28,
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
29, 2000. Our audits also included the financial statement schedule listed in
the Table of Contents. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Staff Builders, Inc. and
subsidiaries at February 29, 2000 and February 28, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended February 29, 2000 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.


/s/  Deloitte & Touche LLP

Jericho, New York
June 22, 2000



<PAGE>   17



STAFF BUILDERS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

                                                                                   FEBRUARY 29,      FEBRUARY 28,
                                                                                       2000              1999
                                                                                   ------------      ------------
<S>                                                                               <C>                   <C>
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                                                     $        394      $        197
     Accounts receivable, net of allowance
          for doubtful accounts of $2,528
          and $1,877, respectively                                                       25,653            26,270
     Prepaid expenses and other current assets                                              194               184
     Net short term assets of discontinued operations                                        --             4,225
                                                                                   ------------      ------------
               Total current assets                                                      26,241            30,876

FIXED ASSETS, net                                                                         4,892             1,539
GOODWILL AND OTHER INTANGIBLE ASSETS, net                                                 8,246             8,995
OTHER ASSETS                                                                                228               132
NET LONG TERM ASSETS OF DISCONTINUED OPERATIONS                                              --             3,462
                                                                                   ------------      ------------
TOTAL                                                                              $     39,607      $     45,004
                                                                                   ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                                              $      2,201      $      2,660
     Accrued expenses                                                                     7,374             3,567
     Accrued payroll and payroll related expenses                                         3,341             2,174
     Current portion of long-term debt                                                      232                43
     Due under secured credit facility                                                       --            23,220
                                                                                   ------------      ------------
               Total current liabilities                                                 13,148            31,664

LONG-TERM DEBT                                                                              592                --
DUE UNDER SECURED CREDIT FACILITY                                                        15,149                --
OTHER LIABILITIES                                                                            25                25
                                                                                   ------------      ------------
TOTAL LIABILITIES                                                                        28,914            31,689
                                                                                   ------------      ------------

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS' EQUITY:
     Common stock -
          Class A Common Stock - $.01 par value; 50,000,000 shares authorized;
          23,331,252 and 23,307,129 outstanding at February 29, 2000
          and February 28, 1999, respectively                                               233               233

          Class B Common Stock - $.01 par value; 1,554,936 shares authorized;
          300,545 and 312,251 outstanding at February 29, 2000
          and February 28, 1999, respectively                                                 3                 3
     Additional paid-in-capital                                                          13,522            12,904
     Retained earnings (accumulated deficit)                                             (3,065)              175
                                                                                   ------------      ------------
               Total stockholders' equity                                                10,693            13,315
                                                                                   ------------      ------------
TOTAL                                                                              $     39,607      $     45,004
                                                                                   ============      ============
</TABLE>


                 See notes to consolidated financial statements
<PAGE>   18

STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                                     Years Ended
                                                                    February 29,     February 28,      February 28,
                                                                       2000              1999               1998
                                                                   ------------      ------------      ------------
<S>                                                                <C>               <C>               <C>
CONTINUING OPERATIONS:
REVENUES:

     Service revenues                                              $    114,994      $     94,505      $     68,205
     Sales of licensees and fees, net                                        --               189               155
                                                                   ------------      ------------      ------------
          Total revenues                                                114,994            94,694            68,360
                                                                   ------------      ------------      ------------


OPERATING EXPENSES:
     Service costs                                                       88,673            73,902            53,524
     General and administrative expenses                                 24,261            19,301            12,034
     Depreciation and amortization                                          664               575               692
     Interest expense, net                                                1,201             1,207               751
     Other expense, net                                                   1,364               148             3,178
     Relocation expenses                                                    270                --                --
                                                                   ------------      ------------      ------------
       Total operating expenses                                         116,433            95,133            70,179
                                                                   ------------      ------------      ------------

OPERATING LOSS                                                           (1,439)             (439)           (1,819)
OTHER EXPENSES:
    Non recurring spin-off and financing costs                            1,144                --                --
                                                                   ------------      ------------      ------------

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                      (2,583)             (439)           (1,819)

PROVISION (BENEFIT) FOR INCOME TAXES                                        100               (70)             (567)
                                                                   ------------      ------------      ------------

LOSS FROM CONTINUING OPERATIONS                                          (2,683)             (369)           (1,252)
                                                                   ------------      ------------      ------------

     Income (loss) from discontinued operations (net of income
       taxes of $284, $293, and $33 for the years ended
       February 29, 2000 and February 28, 1999 and 1998,
       respectively)                                                        580            (1,031)             (210)
     Loss on sale of discontinued operations                             (1,137)               --                --
                                                                   ------------      ------------      ------------
LOSS FROM DISCONTINUED OPERATIONS                                          (557)           (1,031)             (210)
                                                                   ------------      ------------      ------------

 NET LOSS                                                          $     (3,240)     $     (1,400)     $     (1,462)
                                                                   ============      ============      ============

LOSS PER COMMON SHARE - BASIC:
  Loss from continuing operations                                  $       (.11)     $       (.02)     $       (.05)
  Loss from discontinued operations                                        (.03)             (.04)             (.01)
                                                                   ------------      ------------      ------------
  Net loss                                                         $       (.14)     $       (.06)     $       (.06)
                                                                   ============      ============      ============

LOSS PER COMMON SHARE - DILUTED:
   Loss from continuing operations                                 $       (.11)     $       (.02)     $       (.05)
   Loss from discontinued operations                                       (.03)             (.04)             (.01)
                                                                   ------------      ------------      ------------
   Net loss                                                        $       (.14)     $       (.06)     $       (.06)
                                                                   ============      ============      ============
WEIGHTED AVERAGE COMMON
     SHARES OUTSTANDING
     Basic                                                               23,623            23,162            23,939
                                                                   ============      ============      ============
     Diluted                                                             23,623            23,162            23,939
                                                                   ============      ============      ============
</TABLE>


                 See notes to consolidated financial statements


<PAGE>   19


STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                                       RETAINED
                                                 COMMON STOCK            PREFERRED      ADDITIONAL     EARNINGS
                                          --------------------------       STOCK         PAID-IN     (ACCUMULATED
                                            SHARES          AMOUNT        CLASS A        CAPITAL       DEFICIT)        TOTAL
                                          ----------      ----------     ----------     ----------   ------------    ----------
<S>                                       <C>             <C>            <C>            <C>          <C>             <C>
Balances, March 1, 1997                   23,806,331      $      238     $        1     $    6,154    $    3,037     $    9,430

Additional common stock issued in
   connection with 1987 acquisition              171                                                                         --

Exercise of common stock warrants              5,000                                                                         --

Common stock issued-employee
  stock purchase plan                        254,101               2                                                          2

Net loss                                                                                                  (1,462)        (1,462)
                                          ----------      ----------     ----------     ----------    ----------     ----------

Balances, February 28, 1998               24,065,603             240              1          6,154         1,575          7,970

Contribution of Chelsea by TLCS                                                              8,597                        8,597

Additional common stock issued in
  connection with a 1987 acquisition          26,935                                                                         --

Exercise of stock options                     20,000                                                                         --

Purchase and retirement of common
   stock                                  (5,088,060)            (50)                                                       (50)

Conversion of preferred stock into
  common stock                             4,269,820              43             (1)                                         42

Common stock issued -  employee stock
   purchase plan                             325,082               3                                                          3

Net effect of liabilities transferred
   from TLCS                                                                                (1,847)                      (1,847)

Net loss                                                                                                  (1,400)        (1,400)

                                          ----------      ----------     ----------     ----------    ----------     ----------

Balances, February 28, 1999               23,619,380             236             --         12,904           175         13,315

Common stock issued                           12,417                                                                         --

Forgiveness of debt by TLCS                                                                    618                          618

Net loss                                                                                                  (3,240)        (3,240)
                                          ----------      ----------     ----------     ----------    ----------     ----------

Balances, February 29, 2000               23,631,797      $      236     $       --     $   13,522    $   (3,065)    $   10,693
                                          ==========      ==========     ==========     ==========    ==========     ==========
</TABLE>

                 See notes to consolidated financial statements


<PAGE>   20




STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
                                                                                                    YEARS ENDED
                                                                                    --------------------------------------------
                                                                                    FEBRUARY 29,    FEBRUARY 28,    FEBRUARY 28,
                                                                                        2000            1999            1998
                                                                                    ------------    ------------    ------------
<S>                                                                                 <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
            Net loss                                                                $   (3,240)     $   (1,400)     $   (1,462)
            Adjustments to reconcile net loss to net cash provided by (used in)
              operations:
                     Depreciation and amortization                                         664             575             692
                     Provision for doubtful accounts, net of
                     write-offs                                                            651           1,612              30
                     Deferred income taxes                                                  --            (439)         (1,233)
                     Write-off of goodwill and other intangibles                            --              --           3,010
                     Goodwill from acquisitions                                             --            (812)         (1,123)
            Change in operating assets and liabilities:
                     Accounts receivable                                                   (34)         (9,900)         (6,310)
                     Prepaid expenses and other current assets                             (10)            (31)            (66)
                     Other assets                                                          (96)            (12)             48
                     Accounts payable and accrued expenses                               5,082           2,827           3,519
                                                                                    ----------      ----------      ----------
                      Net cash provided by (used in) operating activities                3,017          (7,580)         (2,895)
                                                                                    ----------      ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
            Purchases of fixed assets                                                   (2,902)         (1,219)           (230)
            Net short term assets of discontinued operations                            (5,497)          5,497              --
            Net long term assets of discontinued operations                             13,184         (13,184)             --
            Acquisitions, net of cash acquired                                              --            (225)         (2,062)
            Contribution of Chelsea by TLCS                                                 --           8,594              --
                                                                                    ----------      ----------      ----------
                      Net cash  provided (used in) by investing activities               4,785            (537)         (2,292)
                                                                                    ----------      ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
            Reduction in bank debt                                                         (43)           (519)           (452)
            Principal repayments of capital leases                                          --              --            (109)
            Increase (decrease) in due under secured credit
            facility                                                                    (7,453)          7,941           5,943
                                                                                    ----------      ----------      ----------
                       Net cash (used in) provided by financing activities              (7,605)          7,422           5,491
                                                                                    ----------      ----------      ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      197            (695)            304

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                            197             892             588
                                                                                    ----------      ----------      ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $      394      $      197      $      892
                                                                                    ==========      ==========      ==========

SUPPLEMENTAL DATA:

Cash paid for:
   Interest                                                                         $    1,896      $    1,282      $      762
                                                                                    ==========      ==========      ==========
   Income taxes                                                                     $       --      $       --      $       --
                                                                                    ==========      ==========      ==========
   Fixed assets purchased through capital leases                                    $      933      $       --      $       --
                                                                                    ==========      ==========      ==========
</TABLE>

                 See notes to consolidated financial statements

<PAGE>   21
STAFF BUILDERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 29, 2000
("FISCAL 2000"), FEBRUARY 28, 1999 ("FISCAL 1999") AND FEBRUARY 28, 1998
("FISCAL 1998")

(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND, FOR PER SHARE
AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS - Staff Builders, Inc. and subsidiaries (the "Company") is a
provider of supplemental staffing to health care facilities. The Company offers
a skills list of qualified health care associates in over 55 job categories
ranging from the highest level of specialty nurse including critical care,
neonatal and labor and delivery, to medical administrative staff, including
third party billers, administrative assistants, claims processors, collection
personnel and medical records clerks. The nurses provided to clients include
registered nurses, licensed practical nurses and certified nursing assistants.
Allied health staffing includes mental health technicians, a variety of
therapists (including speech, occupational and physical), radiology technicians
and phlebotomists.

SPIN-OFF TRANSACTION AND FINANCIAL STATEMENTS - The Company separated its home
health care business from its existing staffing business during October 1999. To
accomplish this separation of its businesses, the Company's Board of Directors
established a new, wholly-owned subsidiary Tender Loving Care Health Care
Services, Inc ("TLCS"), which acquired 100% of the outstanding capital stock of
the Company's subsidiaries engaged in the home health care business. The
spin-off was effected through pro rata distribution to the Company's
stockholders of all the shares of common stock of TLCS owned by the Company (the
"Distribution"). The Distribution was made by issuing one share of TLCS common
stock for every two shares of the Company's Class A and Class B common stock
outstanding on October 12, 1999 (the "Record Date"). Based upon the 23,619,388
shares of the Company's common stock which was outstanding on the Record Date,
11,809,694 shares of TLCS common stock were distributed to holders of the
Company's Class A and Class B common stock on or about October 20, 1999. The
staffing business remained with the Company.

On October 13, 1999, the Company received notice from the Securities and
Exchange Commission that its Registration Statement on Form 10 was cleared from
further comments. Further, on October 20, 1999, the Company received consent
from its current lending institution to complete the spin-off transaction.
Because TLCS owned a majority of the operations, employees and assets of the
historical business of the Company, the Distribution was treated as a "reverse
spin-off" for financial reporting purposes under generally accepted accounting
principles. Accordingly, the consolidated financial statements contained in this
annual report have been restated from those previously reported by the Company
to reflect a change in the reporting entity. The financial position and results
of operations include only the supplemental staffing business owned by the
Company and its majority owned subsidiary, Chelsea Computer Consultants, Inc.
("Chelsea") through September 17, 1999 (the date Chelsea was sold), all on a
historical cost basis.

On September 17, 1999, prior to the spin-off of TLCS, the Company sold its
entire interest in Chelsea for total consideration of $17.5 million. The cash
received of $17.5 million was used to pay off approximately $8.4 million of
borrowings under the Company's acquisition line of credit, approximately $4
million of borrowings under the Company's revolving line of credit and $500
thousand paid to a former principal of Chelsea. The remaining $4.6 million of
cash was used to pay down TLCS's revolving line of credit. The Company's
interest in Chelsea was sold at a loss of $1.1 million.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company for its fiscal year ending the last day in February. All material
intercompany accounts and transactions have been eliminated.

<PAGE>   22


A substantial portion of the Company's service revenues are derived under a
unique form of franchising under which independent companies or contractors
represent the Company within a designated territory. These licensees assign
Company personnel including registered nurses and therapists to service the
Company's clients using the Company's trade names and service marks. The Company
pays and distributes the payroll for the direct service personnel who are all
employees of the Company, administers all payroll withholdings and payments,
bills the customers and receives and processes the accounts receivable. The
licensees are responsible for providing an office and paying related expenses
for administration including rent, utilities and costs for administrative
personnel. The revenues and related direct costs are included in the Company's
consolidated service revenues and operating costs.

The Company pays a monthly distribution or commission to its domestic licensees
based on a defined formula of gross profit generated. Generally, the Company
pays the licensees 60% of the gross profit attributable to such licensee. There
is no payment to the licensees based solely on revenues.

For Fiscal 2000, 1999 and 1998, total distributions or commissions paid to
licensees of approximately $15,800, $12,300 and $8,800, were included in the
general and administrative expenses, respectively.


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, revenues and expenses as
well as the disclosure of contingent assets and liabilities in the financial
statements. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include certificates of deposit and commercial paper
purchased with original maturities of less than three months.


FIXED ASSETS

Fixed assets, consisting of equipment (primarily computer hardware and
software), furniture and fixtures, and leasehold improvements, are stated at
cost and depreciated from the date placed into service over the estimated useful
lives of the assets using the straight-line method. The estimated useful lives
of the related assets are generally five to seven years.

GOODWILL AND OTHER INTANGIBLE ASSETS

The excess of the purchase price and related acquisition costs over the fair
market value of the net assets of the businesses acquired is amortized on a
straight-line basis over periods ranging from five to twenty years. Intangible
assets include customer lists, which are being amortized over five years on a
straight-line basis.

The Company continually reviews long-lived assets for impairment and, if
impaired, remeasures the assets at fair value, whenever events or changes in
business circumstances indicate that the carrying value of such assets may not
be recoverable. Indicators which reflect the existence of impairment to the
carrying value of goodwill include cash flow deficits, a decrease in historic
and anticipated revenue and operating results and a decrease in the fair value
of some or all assets. Where negative indicators were


<PAGE>   23


present, the carrying value of goodwill and other long-lived assets were
reviewed to determine if the assets will be recoverable, based on undiscounted
estimated cash flows. During Fiscal 2000, the Company wrote off $433 of goodwill
relating to a prior acquisition and had written off $0 and $3,010 in fiscal 1999
and 1998, respectively.

REVENUE RECOGNITION

The Company recognizes revenue on the accrual basis as the related services are
provided to customers and when the customer is obligated to pay for such
completed services. Revenues are recorded net of contractual or other allowances
to which customers are entitled. Employees assigned to particular customers may
be changed at the customer's request or at the Company's initiation. In
addition, for financial reporting purposes, a provision for uncollectible and
doubtful accounts is provided for amounts billed to customers which may
ultimately be uncollectible due to billing errors, documentation disputes or the
customer's inability to pay.

Revenues generated from the sales of licensees and initial licensee fees are
recognized upon signing of the licensee agreement, if collectibility of such
amounts is reasonably assured, since the Company has performed substantially all
of its obligations under its licensee agreements by such date. In circumstances
where a reasonable basis does not exist for estimating collectibility of the
proceeds of the sales of licensees and initial license fees, such amounts are
deferred and recognized as collections are made, utilizing the cost recovery
method (see Note 2), or until such time that collectibility is reasonably
assured.

INCOME TAXES

Deferred income taxes result from timing differences between financial and
income tax reporting which primarily include the deductibility of certain
expenses in different periods for financial reporting and income tax purposes. A
valuation allowance is provided against net deferred tax assets unless, in
management's judgment, it is more likely than not that such deferred tax asset
will be realized.

EARNINGS (LOSS) PER SHARE

The basic net earnings (loss) per share is computed using weighted average
number of common shares outstanding for the applicable period. The diluted
earnings (loss) per share is computed using the weighted average number of
common shares plus common equivalent shares outstanding, except if the effect on
the per share amounts of including equivalents would be anti-dilutive.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents, notes receivable from
licensees, long-term debt and other liabilities related to acquisitions
approximate fair value.

NEW ACCOUNTING PRONOUNCEMENTS

During 1998, the FASB issued Statements of Financial Accounting Standards (SFAS
No. 133), "Accounting for Derivative Instruments and Hedging Activities". The
Company does not engage in derivative or hedging activities and does not expect
the adoption of this new accounting pronouncement to have a material effect, if
any, on its financial condition or results of operations.


<PAGE>   24


2. LICENSEE OPERATIONS

Notes receivable from licensees generally bear interest at the prevailing prime
lending rate plus three percent and are generally payable over a term of ten
years. The balance of these notes receivable at February 29, 2000 and February
28, 1999 amounted to $54 and $62, net of deferred income reflected as a
valuation reserve for financial reporting purposes of $379 and $450,
respectively. The net balances of these notes are included in Other Assets.
Sales of licenses and fees, net reflect $0, $189 and $155 of initial license
fees for Fiscal 2000, 1999 and 1998, respectively. The Company has performed
substantially all of its obligations as required under the terms of its licensee
agreements. Interest income on licensee notes receivable is netted against other
expense.

On September 6, 1996, in connection with the acquisition of All Care Nursing
Services Inc. ("All Care") (see note 4), a corporation acquired the rights to
operate this business as a franchise and paid a fee of $75 to the Company. A
majority of the stock of this corporation is owned by two family members of one
of the Company's executive officers. The Company owed $100 to one of these
family members. The monies were repaid in April 2000.


3. DISCONTINUED OPERATIONS

Discontinued operations represent Chelsea, an information technology staffing
company, which was originally purchased by the Company on October 30, 1997 and
was sold on September 17, 1999. Substantially all of the revenues and expenses
related to the discontinued operations have been historically segregated on a
specifically identified basis.

The assets and liabilities of Chelsea are classified on the balance sheet as of
February 28, 1999 as "Net assets of discontinued operations" and consist of the
following:

<TABLE>
<CAPTION>
                                                                       February
                                                                       28, 1999
                                                                       --------
<S>                                                                    <C>
ASSETS
    Current assets:
    Cash and cash equivalents                                          $    487
    Accounts receivable                                                   5,508
    Other current assets                                                    628
                                                                       --------
       Total current assets                                               6,623

Fixed assets, net                                                            61
Goodwill and intangible assets, net                                      12,970
Other assets                                                                209
                                                                       --------
       Total assets from discontinued operations                         19,863
                                                                       ========

LIABILITIES
    Current liabilities
    Accounts payable and accrued expenses                                 2,398
    Current portion of long term debt                                     1,042
    Due under secured credit facility                                     8,680
                                                                       --------
        Total current liabilities                                        12,120

 Notes payable to shareholder                                                56
                                                                       --------
        Total liabilities from discontinued operations                   12,176
                                                                       ========


NET ASSETS FROM DISCONTINUED OPERATIONS                                $  7,687
                                                                       ========
</TABLE>


<PAGE>   25


The net revenues from Chelsea are included in the statements of operations as
"Income (loss) from discontinued operations" and are summarized as follows:

<TABLE>
<CAPTION>
                                        February 29/28
                              ------------------------------------
                               2000           1999           1998
                              ------         ------         ------
                               (a)                            (b)
<S>                          <C>             <C>            <C>
Net revenues                 $18,399         $31,331        $6,970
</TABLE>



(a)  The net revenues of the discontinued operations reflects the period March
     1, 1999 through September 17, 1999, the date of sale.
(b)  The net revenues of the discontinued operations reflects the period October
     30, 1997, the purchase date, through February 28,  1998.


4. ACQUISITIONS

On September 6, 1996, the Company acquired the assets of All Care, a provider of
supplemental staffing services to medical establishments in the metropolitan New
York area. The transaction was accounted for as a purchase for aggregate
consideration of approximately $2.5 million, including cash paid of $ 1.3
million and a note payable of $1.2 million.

On September 1, 1997, the Company acquired the assets of Nursing Management
Services (USA), Inc. ("NMS"), an affiliate of a U.K.-based company. NMS provides
nursing professionals for long term assignment, away from the professional's
domicile, often referred to as " travel nurses." This transaction was accounted
for as a purchase for aggregate consideration of $2.7 million, including cash
paid of $1.6 million and an estimated liability for an increase to the purchase
price of $1.1 million, based upon the attainment of certain gross margin levels.
During Fiscal 1999, the Company increased the estimated liability by $462 to
$1.6 million, of which $580 was paid during the year. The balance of $1.0
million at February 28, 1999 was included in accrued expenses (see note 7).
During Fiscal 2000, the Company paid $316 towards this liability, and reduced
the remaining liability with the exception of $113 which is currently being
accrued for at February 29, 2000 (see note 7). A reduction to goodwill in the
amount of $433 was recorded in conjunction with the reduction of the liability.
The Company made no significant acquisitions in Fiscal 2000 and 1999.


5. FIXED ASSETS

Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                               FEBRUARY 29,  FEBRUARY 28,
                                               ------------  ------------
                                                   2000          1999
                                                  ------        ------
<S>                                               <C>           <C>
Computer equipment and software                   $5,786        $1,470
Office equipment, furniture and fixtures             371           856
Leasehold improvements                                44            40
                                                      --            --
Total, at cost                                     6,201         2,366
Less accumulated depreciation
   and amortization                                1,309           827
                                                  ------           ---
Fixed assets, net                                 $4,892        $1,539
                                                  ======        ======
</TABLE>


<PAGE>   26


Computer equipment and software includes $2.7 million for computer equipment and
year 2000 compliant software. $933 (with a net carrying value of $840) of such
equipment is pursuant to a 30-month lease agreement which requires payments
through June 2002 (see note 9). The combined cost of these systems will be
amortized over the useful life of the software from the dates place into
service, with the exception of the assets placed under capital lease which will
be amortized over the life of the lease term.


6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

<TABLE>
<CAPTION>
                                          February 29,                          February 28,
                              ----------------------------------    ----------------------------------
                                             2000                                  1999
                              ----------------------------------    ----------------------------------
                                Gross    Accumulated                 Gross      Accumulated
                                Cost     Amortization       Net       Cost      Amortization      Net
                                ----     ------------       ---       ----      ------------      ---
<S>                           <C>        <C>              <C>       <C>         <C>             <C>
Intangible assets:            $ 10,271      $2,025        $8,246    $10,838        $1,843       $8,995
                              ========      ======        ======    =======        ======       ======
</TABLE>


7. ACCRUED EXPENSES

Accrued expenses include $2.6 million and $1.6 million at February 29, 2000 and
February 28, 1999, respectively, of accrued distributions payable to licensees.

8. ACCRUED PAYROLL AND PAYROLL RELATED EXPENSES

Accrued payroll and payroll related expenses consist of the following:

<TABLE>
<CAPTION>
                                                    FEBRUARY 29,    FEBRUARY 28,
                                                       2000             1999
                                                    ------------    ------------
<S>                                                 <C>             <C>
         Accrued payroll                               $1,571          $1,073
         Accrued payroll taxes                          1,725             903
         Other                                             45             198
                                                           --              --
         Total                                         $3,341          $2,174
                                                       ======          ======
</TABLE>


<PAGE>   27


9. BANK FINANCING ARRANGEMENTS

The Company historically relied on borrowings from TLCS to meet its financing
needs. The Company and TLCS were co-obligors to a secured credit facility with a
bank, which consisted of a revolving line of credit, an acquisition line of
credit and a standby letter of credit facility with an aggregate limit of $40
million. For fiscal 1999, the total borrowings under the secured credit facility
were recorded in the TLCS financial statements while the funds which TLCS
provided to the Company were recorded in due under secured credit facility in
the accompanying consolidated balance sheets. Amounts borrowed under the secured
credit facility were collateralized by the stock of TLCS, the Company and its
subsidiaries, and by liens on accounts receivable and substantially all other
assets of TLCS, the Company and its subsidiaries.

On September 24, 1999, the Company entered into a loan agreement with the bank,
pursuant to which the Company obtained a credit amount of $17.0 million bearing
an interest rate of the prime rate plus two-percent. The amount of the credit
facility was reduced to $15.0 million contemporaneous with the spin-off of TLCS
(see note 1). The revolving maturity date of this facility, February 29, 2000,
was extended on said date, to April 28, 2000 though an amendment of the
agreement. In addition, the amount was increased to $16.5 million, which
included a $500 thousand special advance rate. The amounts borrowed under the
loan agreement were collateralized by liens on accounts receivable and
substantially all other assets of the Company. In conjunction with the issuance
of the amendment, the bank agreed to temporarily forbear from exercising their
rights and remedies with respect to certain events of default allowing the bank
to accelerate the amounts due. The balance outstanding on the agreement at
February 29, 2000 was $15,149.

Subsequently, on March 29, 2000 the Company entered into the new facility for a
$20 million revolving loan, whereby a portion of the proceeds were used to repay
the loan agreement provided to the Company on February 29, 2000. The term of the
facility is for three years, with interest bearing a rate of prime plus
two-percent. The new facility is collateralized by a first priority lien on all
of the Company's assets. The loan agreement has certain covenants which include
tangible net worth and debt coverage ratios. The Company was in compliance with
respect to the covenants of this secured credit.


10. LONG-TERM DEBT

Long-term debt consists of the following:


<TABLE>
<CAPTION>
                                           FEBRUARY 29,   FEBRUARY 28,
                                           ------------   ------------
                                               2000           1999
                                               ----           ----
<S>                                        <C>            <C>
Notes payable related to acquisitions          $ --            $43
Obligations under capital leases                824             --
                                           ------------   ------------
Total                                           824             43
Less current portion                            232             43
                                           ------------   ------------
Long-term debt                                 $592             $0
                                           ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                     OBLIGATIONS
                                                    UNDER CAPITAL
        YEARS ENDING FEBRUARY 28,                      LEASES
        -------------------------                   -------------
<S>                                                 <C>
        2001                                           $  327
        2002                                              436
        2003                                              218
                                                          ---
        Sub-total                                         981
          Less discount                                  (157)
                                                         ----
        Total                                            $824
                                                         ====
</TABLE>




<PAGE>   28


11. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED
                                                      ----------------------------------------
                                                       FEBRUARY       FEBRUARY       FEBRUARY
                                                       29, 2000       28, 1999       28, 1998
                                                      ----------     ----------     ----------
<S>                                                   <C>            <C>            <C>
    Current:
         Federal                                      $       --     $      366     $      539
         State                                               100            120            175
    Deferred                                                  --           (556)        (1,281)
                                                      ----------     ----------     ----------
    Total                                             $      100     $      (70)    $     (567)
                                                      ==========     ==========     ==========
</TABLE>


The deferred tax assets at February 29, 2000 and February 28, 1999 are comprised
of the following:

<TABLE>
<CAPTION>
                                                                       FEBRUARY 29,        FEBRUARY 28,
                                                                          2000                1999
                                                                       ------------        ------------
<S>                                                                    <C>                 <C>
         Current:
              Allowance for doubtful                                    $   1,026            $   762
                   accounts receivable
              Accruals not currently                                          842                214
                                                                        ---------            -------
                   Deductible
                   Current                                                  1,868                976
                                                                        ---------            -------
             Valuation allowance                                           (1,868)              (976)
                                                                        ---------            -------

         Non-Current:
              Revenue recognition                                              25                  3
              NOL carryforward                                                224                 --
              Other assets                                                  1,049              1,024
                                                                        ---------            -------
                   Non-current                                              1,298              1,027
                                                                        ---------            -------
         Valuation allowance                                               (1,298)            (1,027)
                                                                        ---------            -------

         Total                                                          $      --            $    --
                                                                        =========            =======
</TABLE>


Historically, the Company filed a consolidated Federal income tax return
including TLCS. TLCS funded the payments of all income taxes and charged the
Company through the intercompany account. Because of the substantial
uncertainties associated with the Company's ability to realize a deferred tax
benefit due to its financial condition, the Company has provided a valuation
allowance at February 29, 2000 and February 28, 1999 for the full amount of its
deferred tax assets. The Company does not have any NOL carryforwards.



<PAGE>   29



The following is a reconciliation of the effective income tax rate to the
Federal statutory rate:


<TABLE>
<CAPTION>
                                                                         YEARS ENDED
                                                            --------------------------------------
                                                            FEBRUARY       FEBRUARY       FEBRUARY
                                                            29, 2000       28, 1999       28, 1998
                                                            --------       --------       --------
<S>                                                         <C>            <C>            <C>
         Federal statutory rate                                (34.0)%        (34.0)%        (34.0)%
         State and local income taxes, net
            of federal income tax benefit                       (5.5)           5.8            6.6
         Goodwill amortization                                    --             --            0.7
         Non-deductible spin-off costs                           9.7             --             --
         Valuation allowance for deferred
            income tax assets                                   33.0           12.2             --
         Other                                                                                (3.8)
                                                            --------       --------       --------
           Effective rate                                        3.9%         (16.0)%        (31.2)%
                                                            ========       ========       ========
</TABLE>



12. COMMITMENTS AND CONTINGENCIES

a. Lease Commitments:

Approximate minimum annual rental commitments for the remaining terms of the
Company's noncancellable operating leases relating to office space and equipment
rentals are as follows:

<TABLE>
<CAPTION>
             YEARS ENDING
            FEBRUARY 29/28                                 TOTAL
            --------------                                ------
<S>                                                       <C>
                 2001                                     $  439
                 2002                                        426
                 2003                                        395
                 2004                                        398
                 2005                                        395
              Thereafter                                     990
                                                          ------
      Total                                               $3,043
                                                          ======
</TABLE>

Certain leases require additional payments based upon property tax and
maintenance expense escalations.

Aggregate rental expense for Fiscal 2000, 1999 and 1998 approximated $437, $245
and $237, respectively.

b. Employment Agreements:

On June 1, 1987, the Company entered into a five-year employment agreement with
Stephen Savitsky to serve as Chief Executive Officer and Chairman of the Board
of Directors of the Company under which Mr. Savitsky received an initial base
salary (beginning in June 1987) of $200 per year, which base salary increases
annually at the rate of ten percent plus any increase in the cost of living. Mr.
Savitsky's employment agreement is automatically extended at the end of each
year for an additional year and is terminable by the Company upon five years'
notice. On October 20, 1999, the Company amended Mr. Savitsky's employment
agreement pursuant to which Mr. Savitsky


<PAGE>   30


serves as Chairman of the Board and Chief Executive Officer of the Company and
receives a base salary of $295. Mr. Savitsky's employment agreement provides
that, upon a "change of control" of the Company and his termination of
employment other than for his conviction of a felony, he will be entitled to
receive a lump sum severance payment equal to 2.99 times his average annual
compensation for the five calendar years prior to termination. Mr. Savitsky is
required to devote approximately one-half of his business time to the affairs of
the Company and his employment agreement provides that during the term of his
employment and for a period of six months thereafter he will not compete with
the Company.

On June 1, 1987, the Company entered into a five-year employment agreement with
David Savitsky to serve as Secretary and Treasurer of the Company under which
Mr. Savitsky received an initial annual base salary of $110 per year, which base
salary increases annually at the rate of ten percent plus any increase in the
cost of living. Mr. Savitsky's employment agreement is automatically extended at
the end of each year for an additional year and is terminable by the Company
upon five years' notice. On October 20, 1999, the Company amended Mr. Savitsky's
employment agreement under which Mr. Savitsky now serves as President, Secretary
and Chief Operating Officer of the Company and receives an annual base salary of
$367. Mr. Savitsky's employment contract provides that upon a "change of
control" of the Company or his termination of employment other than for his
conviction of a felony, he will be entitled to receive a lump sum severance
payment equal to 2.99 times his average annual compensation for the five
calendar years prior to termination. Mr. Savitsky is required to devote
approximately 80% of his business time to the affairs of the Company and his
employment contract provides that during the term of his employment and for a
period of six months thereafter, he will not compete with the Company.

On December 1, 1996, the Company entered into a three-year employment agreement
with Edward Teixeira to serve as Senior Vice President, Franchising of a
principal subsidiary of the Company under which Mr. Teixeira received an initial
annual base salary of $175 per year, which base salary increases by $10 per
annum. On April 15, 1999, Mr. Teixeira's existing agreement was terminated and
was replaced by a new agreement. Under this new employment agreement, Mr.
Teixeira serves as the Executive Vice President and Chief Operating Officer of a
principal subsidiary of the Company and receives an annual base salary of $200
which increases by $10 per annum. He is also eligible for an annual bonus equal
to 5% of the incremental pre-tax profit greater than 3% of the Company's net
income before taxes. He is also eligible to receive an automobile allowance of
$7 per annum. Under his employment agreement, Mr. Teixeira is obligated to
devote his full business time to the affairs of the Company. Further, if within
12 months after a "change of control" Mr. Teixeira were terminated for any
reason (other than the commission of a felony or the perpetration of fraud
against the Company), he would then be entitled to receive an amount equal to
twelve months' of his base salary. Mr. Teixeira's employment agreement provides
that during the term of his employment and for a period of six months
thereafter, he will not compete with the Company.

If a "change of control" were to occur prior to the next anniversary date of the
respective employment agreements of Stephen Savitsky, David Savitsky and Edward
Teixeira and their employment relationships with the Company were to terminate
for reasons triggering the severance payments noted above, then the Company
would be obligated to make lump sum payments to them in the approximate amounts
of $883 and $1,098 to Stephen and David Savitsky and weekly installment payments
of $4 for one year to Edward Teixeira, respectively. The lump sum severance
payments payable after the end of the calendar year or the anniversary dates of
the respective employment agreements, as the case may be, would change as a
result of changes in such individuals' compensation. The term "change of
control" as used in the employment agreements with the Company's executive
officers refers to an event in which a person, corporation, partnership,
association or entity (i) acquires a majority of the Company's outstanding
voting securities, (ii) acquires securities of the Company bearing a majority of
voting power with respect to election of directors of the Company, or (iii)
acquires all or substantially all of the Company's assets.


<PAGE>   31


c. Contingent Obligations:

Roger Jackson Pleasant v. Staff Builders Services, Inc. and Staff Builders, Inc.

The Company is contingently liable for a confession of judgement being paid by
TLCS in favor of Roger Jackson Pleasant in the principal amount of approximately
$2.6 million outstanding as of February 29, 2000. The annual installment on the
obligation which is due on September 1, 2000 is $225. The Company is indemnified
by TLCS pursuant to agreement for any liability arising out of this settlement.

BancOne Leasing Corporation

Pursuant to the terms of a Stipulation of Settlement dated January 14, 2000, the
Company is contingently liable on equipment leases that total $1.2 million over
a two-year period. Because the equipment is used in TLCS offices primarily, TLCS
has entered into an Assumption Agreement whereby it agreed to assume
responsibility jointly and severely with the original parties to the leases,
which include the Company.


<PAGE>   32


Chase Equipment Leasing, Inc.

The Company is a signatory on a Forbearance and Acknowledgement Agreement along
with TLCS and all of its subsidiaries, pursuant to which TLCS will pay a total
of $163 pursuant to monthly installments of $75 for equipment used by TLCS. TLCS
and its subsidiaries are also guarantors under the Forbearance and
Acknowledgement Agreement. If all payments due in calendar year 2000 are made by
TLCS, Affidavits of Judgment for the existing indebtedness will be destroyed at
the end of 2000.

d.       Litigation:

Albert Gallatin

On September 20, 1995, the United States Attorney for the Eastern District of
Pennsylvania alleged that between 1987 and 1989, a corporation, substantially
all assets and liabilities of which were acquired by a subsidiary of TLCS in
1993, submitted false claims to Medicare. The alleged false claims were made
before TLCS acquired that corporation in 1993. There have been significant
discussions with the office of the United States Attorney which TLCS believes
are likely to lead to a settlement of the outstanding claims for approximately
$600, the conclusion of which is pending final government approval of the
payment and other settlement items. The Company is likely to be a signatory to
any such settlement agreement; however, pursuant to agreement, the Company will
be indemnified by TLCS for any obligations arising out of this matter.

Ali Waris

On July 17, 1998, the Federal government ordered that a complaint filed by Ali
Waris, the former owner of a home health care agency purchased by the Company in
1993, be unsealed and served upon Staff Builders, Inc. and Targa Group, Inc., a
former licensee (franchisee) of the Company. The government has elected not to
intervene in the action, in which Mr. Waris claimed damages for alleged
violations for the False Claims Act by the Company in connection with payments
claimed by the Company on its cost report for consulting services. The case was
dismissed pursuant to the Company's motion and Mr. Waris appealed. The appeal
has been stayed by the Court pending finalization of a proposed settlement,
whereby the cost report issues will be settled directly with the United States
Government in exchange for the withdrawal of Mr. Waris' lawsuit. The Company is
likely to be a signatory to any such settlement agreement; however, pursuant to
agreement, the Company will be indemnified by TLCS for any obligations arising
out of this matter.

The Company is a defendant in several civil actions which are routine and
incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent. Although the Company
cannot estimate the ultimate cost of its open legal matters with precision, in
the opinion of management, the outcome of pending litigation will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.

13. STOCKHOLDERS' EQUITY

COMMON STOCK - RECAPITALIZATION AND VOTING RIGHTS

During Fiscal 1996, the shareholders approved a plan of recapitalization by
which the existing Common Stock, $.01 par value, was reclassified and converted
into either Class A Common Stock, $.01 par value per share, or Class B Common
Stock, $.01 par value per share. Prior to the recapitalization, shares of Common
Stock that were held by the beneficial owner for at least 48 consecutive months
were considered


<PAGE>   33


long-term shares, and were entitled to ten votes for each share of stock.
Pursuant to the recapitalization, long-term shares were converted into Class B
Common Stock and short-term shares (beneficially owned for less than 48 months)
were converted into Class A Common Stock. As a result of the recapitalization,
1,554,936 shares of Class B Common Stock were issued.

A holder of Class B Common Stock is entitled to ten votes for each share and
each share is convertible into one share of Class A Common Stock (and will
automatically convert into one share of Class A Common Stock upon transfer
subject to certain limited exceptions). Except as otherwise required by the
Delaware General Corporation Law, all shares of common stock vote as a single
class on all matters submitted to a vote by the stockholders.

The recapitalization included all outstanding options and warrants to purchase
shares of common stock which were converted automatically into options and
warrants to purchase an equal number of shares of Class A Common Stock.

STOCK OPTIONS

The Company has adopted the disclosure provisions of the SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation expense
has been recognized for the stock option plans. Had the Company recorded
compensation expense for the stock options based on the fair value at the grant
date for awards in Fiscal years ended 2000, 1999 and 1998 consistent with the
provisions of SFAS 123, the Company's net loss and net loss per share would have
reflected the following pro forma amounts:

<TABLE>
<CAPTION>
                                                  FEBRUARY 29,        FEBRUARY 28,        FEBRUARY 28,
                                                     2000                1999                 1998
                                                  ------------        ------------        ------------
<S>                                               <C>                 <C>                 <C>
     Net loss-as reported                           $(3,240)            $(1,400)            $(1,462)
     Net loss-pro forma                              (3,583)             (1,413)             (1,905)
     Basic loss per share as reported                  (.14)               (.06)               (.06)
     Basic loss per share pro forma                    (.15)               (.06)               (.08)
     Diluted loss per share as reported                (.14)               (.06)               (.06)
     Diluted loss per share pro forma                  (.15)               (.06)               (.08)
</TABLE>

Because the SFAS 123 method of accounting has not been applied to options
granted prior to March 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.

The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted-average
assumptions used for grants in Fiscal years 2000, 1999 and 1998, respectively,
expected volatility of 146%, 142% and 56%; risk-free interest rate averaging
6.0%, 5.5% and 5.8%; and expected lives of 10 years for all.

During the year ended February 28, 1994 ("Fiscal 1994"), the Company adopted a
stock option plan (the "1993 Stock Option Plan") under which an aggregate of one
million shares of common stock options has been granted. The 1993 Stock Option
Plan may be incentive stock options ("ISO's") or non-qualified options
("NQSO's"). The 1993 Stock Option Plan replaces the 1986 Non-Qualified Plan
("1986 NQSO Plan") and the 1983 Incentive Stock Option Plan ("1983 ISO Plan")
which terminated in 1993 except as options then outstanding. Employees,
officers, directors and consultants are eligible to participate in the 1993
Stock Option Plan. Options are granted at not less than the fair market value of
the Common Stock at the date of grant.


<PAGE>   34


A total of 2,227,750 stock options were granted under the 1993 Stock Option
Plan, at prices ranging from $.50 to $3.87, of which 826,500 remain outstanding
at February 29, 2000. Effective December 1, 1998, 914,750 of these options
issued to certain employees under the 1993 Stock Option Plan were rescinded and
the same number of new options at an option price of $.50 were reissued to these
employees.

During Fiscal 1999, the Company adopted a stock option plan (the "1998 Stock
Option Plan") under which an aggregate of two million shares of common stock are
reserved for issuance upon exercise of options thereunder. Options granted under
the 1998 Stock Option Plan may be ISO's or NQSO's. Employees, officers,
directors and consultants are eligible to participate in the 1998 Stock Option
Plan. Stephen Savitsky and David Savitsky, executive officers and directors of
the Company, are not eligible to receive options under the 1998 Stock Option
Plan. Options are granted at not less than fair market value of the Common Stock
at the date of grant.

A total of 1,175,583 stock options were granted under the 1998 Stock Option
Plan, at prices ranging from $.25 to $.50, of which 676,333 remain outstanding
at February 29, 2000. Effective December 1, 1998, 117,550 options issued to
certain employees under the 1983 ISO Plan and 31,250 options issued to certain
employees under the 1986 NQSO Plan were rescinded and 148,800 Options at an
option price of $.50 were issued to these employees under the 1998 Stock Option
Plan.

A summary of activity under the 1998 Stock Option Plan, the 1993 Stock Option
Plan, the 1986 NQSO Plan and the 1983 ISO Plan is as follows:

<TABLE>
<CAPTION>
                                                  OPTIONS FOR
                                                     SHARES           PRICE PER SHARE
                                                  -----------         ---------------
<S>                                               <C>                 <C>
Options outstanding at
     February 28, 1997                              2,473,030         $1.63 to $6.13
Granted                                               414,000         $2.28 to $2.50
Exercised                                              (5,000)        $2.19
Terminated                                           (392,750)        $2.19 to $4.00
                                                  -----------

Options outstanding at
     February 28, 1998                              2,489,280         $1.63 to $6.13
Granted                                             1,880,333         $.50 to $2.06
Exercised                                             (20,000)        $1.75
Terminated                                         (1,474,840)        $1.75 to $6.13
                                                  -----------
Options outstanding at
     February 28, 1999                              2,874,773         $.50 to $3.00
Granted                                               215,000         $.25 to $.47
Exercised                                                  --
Terminated                                           (707,500)        $.50 to $3.00
                                                  -----------
Options outstanding at February 29, 2000            2,382,273         $.25 to $2.06
                                                  ===========
</TABLE>

Included in the outstanding options are 390,640 ISO's and 1,212,773 NQSO's which
were exercisable at February 29, 2000. The remaining options to purchase 778,860
shares become exercisable at various dates through November 2008.


<PAGE>   35


The following tables summarize information about stock options outstanding at
February 29, 2000:

<TABLE>
<CAPTION>
                                            OPTIONS OUTSTANDING
       ------------------------------------------------------------------------------------
                                                     WEIGHTED AVERAGE
                                                         REMAINING             WEIGHTED
       RANGE OF EXERCISE              NUMBER         CONTRACTUAL LIFE      AVERAGE EXERCISE
            PRICES                 OUTSTANDING          (IN YEARS)               PRICE
       -----------------           -----------       ----------------      ----------------
<S>                                <C>               <C>                   <C>
       $.25 to $.49                    215,000              9.5                   $.36
       $.50 to $1.50                 1,287,833              8.8                    .57
       $1.51 to $2.06                  879,440               .7                   1.82
                                   -----------       ----------------      ----------------
                                     2,382,273              5.9                  $1.01
                                   ===========       ================      ================
</TABLE>

<TABLE>
<CAPTION>
                                          OPTIONS EXERCISABLE
       ------------------------------------------------------------------------------------
                                                     WEIGHTED AVERAGE
                                                         REMAINING             WEIGHTED
       RANGE OF EXERCISE              NUMBER         CONTRACTUAL LIFE      AVERAGE EXERCISE
            PRICES                 EXERCISABLE          (IN YEARS)               PRICE
       -----------------           -----------       ----------------      ----------------
<S>                                <C>               <C>                   <C>
       $.25 to $.49                     80,000             9.5                   $.35
       $.50 to $1.50                   643,973             8.8                    .53
       $1.51 to $2.06                  879,440              .7                   1.82
                                   -----------       ----------------      ----------------
                                     1,603,413             4.4                  $1.23
                                   ===========       ================      ================
</TABLE>


During the year ended February 28, 1995, the Company adopted a stock option plan
(the "1994 Performance-Based Stock Option Plan") which provides for the issuance
of up to 3,400,000 shares of its common stock. Executive Officers for the
Company and its wholly-owned subsidiaries are eligible for grants.
Performance-based stock options are granted for periods of up to ten year and
the exercise price is equal to the average of the closing price of the common
stock for the twenty consecutive trading days prior to the date on which the
option is granted. Vesting of performance based options is during the first four
years after the date of grant, and is dependent upon increases in the market
price of the common stock.

Since inception a total of 7,712,563 stock options were granted under the 1994
Performance-Based Stock Option Plan, at option prices ranging from $.53 to
$3.14, of which 3,251,849 remain outstanding at February 29, 2000. Effective
December 1, 1998, 3,150,714 options issued to certain employees under the plan
were rescinded and new options at option prices ranging from $.53 to $.59 were
issued to these employees. All options outstanding as of February 29, 2000 will
become exercisable on or before December 1, 2004.

A summary of activity under the 1994 Performance-Based Stock Option Plan is as
follows:

<TABLE>
<CAPTION>
                                                  OPTIONS FOR
                                                     SHARES           PRICE PER SHARE
                                                  -----------         ---------------
<S>                                               <C>                 <C>
Options outstanding at
     February 28, 1997                              2,230,000         $3.14
Granted                                             1,100,714         $1.81 to $2.25
Exercised                                                  --         --
Terminated                                            (50,000)        $3.14
                                                  -----------

Options outstanding at
     February 28, 1998                              3,280,714         $1.81 to $3.14
Granted                                             4,381,849         $.53 to $2.16
Exercised                                                  --         --
Terminated                                         (4,265,714)        $1.81 to $3.14
                                                  -----------

Options outstanding at
     February 28, 1999                              3,396,849         $.53 to $3.14
Granted                                                    --
Exercised                                                  --
Terminated                                           (145,000)        $.53 to $3.14
                                                  -----------
Options outstanding at
     February 29, 2000                              3,251,849         $.53 to $.59
                                                  ===========
</TABLE>


<PAGE>   36


The following tables summarize information about stock options issued under the
1994 Performance-Based Stock Option Plan outstanding at February 29, 2000:

<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING
       ------------------------------------------------------------------------------------
                                                     WEIGHTED AVERAGE
                                                         REMAINING             WEIGHTED
       RANGE OF EXERCISE              NUMBER         CONTRACTUAL LIFE      AVERAGE EXERCISE
            PRICES                 OUTSTANDING          (IN YEARS)               PRICE
       -----------------           -----------       ----------------      ----------------
<S>                                <C>               <C>                   <C>

       $.53 to $.59                  3,251,489             8.8                   $.58
</TABLE>


<TABLE>
<CAPTION>
                                          OPTIONS EXERCISABLE
       ------------------------------------------------------------------------------------
                                                     WEIGHTED AVERAGE
                                                         REMAINING             WEIGHTED
       RANGE OF EXERCISE              NUMBER         CONTRACTUAL LIFE      AVERAGE EXERCISE
            PRICES                 EXERCISABLE          (IN YEARS)               PRICE
       -----------------           -----------       ----------------      ----------------
<S>                                <C>               <C>                   <C>

       $.53 to $.59                     0                  8.8                   $.59
</TABLE>




During Fiscal 1994, the Company adopted an employee stock purchase plan (the
"1993 Employee Stock Purchase Plan") which provided for the issuance of up to
one million shares of its common stock. The purchase price of the shares is the
lesser of 90 percent of the fair market value at the enrollment date, as defined
in the plan, or the exercise date. All one million shares have been issued and
the 1993 Employee Stock Purchase Plan has been terminated.

During Fiscal 1999, the Company adopted an employee stock purchase plan (the
"1998 Stock Purchase Plan") which provides for the issuance of up to one million
shares of its common stock. This plan replaces the 1993 Employee Stock Purchase
Plan. The purchase price of the shares is the lesser of 90 percent of the fair
market value at the enrollment date, as defined, or the exercise date. Since
inception of this plan, a total of 96,634 shares were issued. The 1998 Employee
Stock Purchase Plan has been indefinitely suspended and no further shares will
be issued during the suspension.

PREFERRED STOCK, CLASS A

During Fiscal 1999, the holders of all issued and outstanding shares of Class A
Preferred (the "Preferred Stock") exchanged their Preferred Stock for 4,269,820
shares of Class A Common Stock. There are currently no outstanding shares of
Preferred Stock.



<PAGE>   37



COMMON SHARES RESERVED

The following represents shares of Class A Common Stock reserved and available
for issuance, at February 29, 2000, for options granted, and outstanding
warrants and employee stock purchase:

<TABLE>
<CAPTION>
                                                                                           AVAILABLE
                                                                     RESERVED             FOR ISSUANCE
                                                                    ----------            ------------
<S>                                                                 <C>                   <C>
  1994 Performance-Based Stock
       Option Plan                                                   3,251,849                 148,151
  1998, 1993, 1986 and 1983 Stock
       Option Plans                                                  2,382,273               1,323,667
  1998 Employee Stock Purchase Plan                                         --                 903,366
  Other                                                                    470                      --
                                                                    ----------            ------------
  Total                                                              5,634,592               2,375,184
                                                                    ==========            ============
</TABLE>

PURCHASE AND RETIREMENT OF COMMON STOCK

From March 6, 1998 through October 16, 1998, the Company purchased and retired a
total of 5,088,060 shares of its Common Stock at a cost of $4.8 million. No
repurchases have been made since October 16, 1998 and no repurchases were made
in Fiscal 1998. During Fiscal 1997, the Company purchased and retired a total of
155,000 shares of its Common Stock at a cost of $410.

14. EARNINGS (LOSS) PER COMMON SHARE

The following table sets forth the computation of the basic and diluted earnings
(loss) per share:

<TABLE>
<CAPTION>
                                                                        YEARS ENDED
                                                          -----------------------------------------
                                                          FEBRUARY        FEBRUARY         FEBRUARY
                                                          29, 2000        28, 1999         28, 1998
                                                          --------        --------         --------
<S>                                                   <C>                 <C>              <C>
Numerator:
     Net loss                                             $ (3,240)       $ (1,400)        $ (1,462)
                                                          ========        ========         ========

Denominator:
     Share reconciliation:
     Shares used for basic earnings
          loss per share                                    23,623          23,162           23,939
     Effect of dilutive items:
          Stock Options                                         --              --               --
          Other                                                 --              --               --
                                                                --              --               --
Shares used for dilutive earnings
     (loss) per share                                       23,623          23,162           23,939
                                                          ========        ========         ========

Earnings (loss) per share:
     Basic                                                $   (.14)       $   (.06)        $   (.06)
                                                          ========        ========         ========
     Diluted                                              $   (.14)       $   (.06)        $   (.06)
                                                          ========        ========         ========
</TABLE>

<PAGE>   38
15. UNAUDITED QUARTERLY FINANCIAL DATA

Summarized unaudited quarterly financial data for Fiscal 2000 and 1999 are as
follows (in thousand, except per share data):

<TABLE>
<CAPTION>
                                                                  FIRST         SECOND           THIRD            FOURTH
                                                                 QUARTER        QUARTER         QUARTER           QUARTER
                                                              -----------      ----------      ----------        ----------
<S>                                                           <C>              <C>             <C>               <C>
Fiscal 2000
Service revenues                                              $    29,240      $   29,298      $   27,878        $   28,578
                                                              -----------      ----------      ----------        ----------
Income (loss) from continuing operations                              895             944          (4,417)(a)          (105)
Income (loss) from discontinued operations (1)                       (184)            302            (675)(b)            --
                                                              -----------      ----------      ----------        ----------
Net income (loss)                                                     711           1,246          (5,092)             (105)
                                                              -----------      ----------      ----------        ----------

Net income (loss) per common share-basic:
Income (loss) from continuing operations                      $       .04      $      .04      $     (.19)             (.00)
Income (loss) from discontinued operations                           (.01)            .01            (.03)               --
                                                              -----------      ----------      ----------        ----------
Net income (loss)                                             $       .03      $      .05      $     (.22)             (.00)
                                                              -----------      ----------      ----------        ----------

Net income (loss) per common share-diluted:
Income (loss) from continuing operations                      $      .047      $      .04      $     (.19)             (.00)
Income (loss) from discontinued operations                           (.01)            .01            (.03)               --
                                                              -----------      ----------      ----------        ----------
Net income (loss)                                             $       .03      $      .05      $     (.22)             (.00)
                                                              -----------      ----------      ----------        ----------
</TABLE>


<TABLE>
<CAPTION>
                                                                  FIRST         SECOND           THIRD            FOURTH
                                                                 QUARTER        QUARTER         QUARTER           QUARTER
                                                              -----------      ----------      ----------        ----------
<S>                                                           <C>              <C>             <C>               <C>
Fiscal 1999
Service revenues                                              $    20,808      $   23,768      $   24,278        $   25,651
                                                              -----------      ----------      ----------        ----------
Income (loss) from continuing operations                              251             278             278            (1,176)
Loss from discontinued operations                                    (133)           (190)           (110)             (598)
                                                              -----------      ----------      ----------        ----------
Net  income (loss)                                                    118              88             168            (1,774)
                                                              -----------      ----------      ----------        ----------

Net income (loss) per common share-basic:
Income (loss) from continuing operations                      $       .01      $      .01      $      .01        $     (.05)
Loss from discontinued operations                                    (.00)           (.01)           (.00)             (.03)
                                                              -----------      ----------      ----------        ----------
Net income (loss)                                             $       .01      $      .00      $      .01        $     (.08)
                                                              -----------      ----------      ----------        ----------

Net income (loss) per common share-diluted:
Income (loss) from continuing operations                      $       .01      $      .01      $      .01        $     (.05)
Income (loss) from discontinued operations                           (.00)           (.01)           (.00)             (.03)
                                                              -----------      ----------      ----------        ----------
Net loss                                                      $       .01      $      .00      $      .01        $     (.08)
                                                              -----------      ----------      ----------        ----------
</TABLE>


(1) The results of operations of the discontinued operations reflect the period
from March 1, 1999 through September 17, 1999.

(a) During the third quarter of Fiscal 2000, the Company recorded an sales
adjustment allowance of $1.0 million which was recorded as a reduction of
revenues, a bad debt allowance of $1.0 million with was recorded as general and
administrative expense and $1.1 million of non-recurring spin-off and financing
costs which was recorded as a separate line item on the consolidated statement
of operations.

(b) During the third quarter of Fiscal 2000, the Company had sold its Chelsea
operation at a loss of $1,137.

<PAGE>   39

                                                                    SCHEDULE II

STAFF BUILDERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED
                                                                    ----------------------------------------
                                                                    FEBRUARY        FEBRUARY       FEBRUARY
                                                                    29, 2000        28, 1999       28, 1998
                                                                    --------        --------       --------
<S>                                                                 <C>             <C>            <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Balance, beginning of period                                         $ 1,877         $   265          $ 236

Charged to costs and expenses                                          3,234           2,733            180

Deductions                                                            (2,583)         (1,121)          (151)
                                                                     -------         -------          -----

Balance, end of period                                               $ 2,528         $ 1,877          $ 265
                                                                     =======         =======          =====
</TABLE>

<PAGE>   40

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

         There have been no such changes or disagreements.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth as to the nominees for election (shown by an
asterisk), each other director and each executive officer: (1) such person's
name; (2) the year in which such person was first elected (or designated) a
director of the Company; (3) biographical information for the last five years;
(4) certain other directorships, if any, held by such person; and (5) such
person's age.

<TABLE>
<CAPTION>
                                         First
                                      Year Elected
Name                      Age         as Director
<S>                        <C>           <C>              <C>
Stephen Savitsky           54            1983             A founder of the Company, Mr. Savitsky has served as
                                                          Chairman of the Board, Chief Executive Officer and a
                                                          Director of the Company since 1983 (and of its predecessor
                                                          from 1978 to 1983), and as President of the Company from
                                                          November 1991 through November 1998. Since October 1999,
                                                          Mr. Savitsky has also served as the Chief Executive Officer
                                                          and Director of  Tender Loving Care Health Care Services, Inc.
                                                          Mr. Savitsky is the brother of David Savitsky.

David Savitsky             52            1983             A founder of the Company, Mr. Savitsky has served as
                                                          President since December 1998 and as a Director of the
                                                          Company since 1983. In addition, Mr. Savitsky served as
                                                          Executive Vice President of the Company from December 1987
                                                          through November 1998 and as Chief Operating Officer of
                                                          the Company from April 1991 through November 1998. Since
                                                          October 1999, Mr. Savitsky has also served as Vice
                                                          Chairman, Government Relations and a Director of Tender
                                                          Loving Care Health Care Services, Inc. Mr. Savitsky is the
                                                          brother of Stephen Savitsky.

Jonathan Halpert, Ph.D     55            1983             Dr. Halpert was first elected a Director by the Board of
                                                          Directors in August 1987. He previously served as a Director
                                                          of the Company from May 1983 until he resigned from the Board
                                                          in February 1985. Dr. Halpert is a consultant in the area of
                                                          deinstitutionalization of the mentally retarded and Chief
                                                          Executive Officer of the Camelot Community Residence Program.
                                                          Since October 1999, Dr. Halpert has also served as a Director
                                                          of Tender Loving Care Health Care Services, Inc.
</TABLE>

<PAGE>   41

<TABLE>
<S>                        <C>           <C>              <C>
Bernard Firestone, Ph.D    51            1987             Dr. Firestone was elected a director by the Board of Directors
                                                          in August 1987. He is the dean of the College of Liberal Arts
                                                          and Sciences and professor of political science at Hofstra
                                                          University, where he has been teaching for 23 years. Since
                                                          October 1999, Dr. Firestone has also served as a Director of
                                                          Tender Loving Care Health Care Services, Inc.
</TABLE>

<PAGE>   42

<TABLE>
<S>                        <C>           <C>              <C>
Donald Meyers              71            1994             Mr. Meyers was elected a Director by the Board of Directors
                                                          in August 1994. He has been an Associate Clinical Professor,
                                                          Health Policy and Management, and the Director of the Resident
                                                          and Fellow Program in administration in New York University's
                                                          Robert W. Wagner Graduate School of Public Service since
                                                          November 1991. Mr. Meyers is also the President and sole
                                                          director and stockholder of RMR Health & Hospital Management
                                                          Consultants, Inc., a health care consulting firm, where he has
                                                          been an executive officer, director and stockholder since 1976.

Dale R. Clift              49            N/A              Mr. Clift has been the Senior Vice President, Financial
                                                          Strategy of the Company since October 1999.  Mr. Clift has
                                                          served as President, Chief Operating Officer and Director of
                                                          Tender Loving Care Health Care Services since October 1999.
                                                          From February 1998 to October 1999, Mr. Clift was the Executive
                                                          Vice President and Chief Financial Officer of the Company.
                                                          In addition, from December 1998 to October 1999, Mr. Clift was
                                                          the Chief Operating Officer of the Company. From January 1996
                                                          through February 1998, Mr. Clift provided consulting services
                                                          to a number of companies, including several in the health care
                                                          industry. From April 1994 through January 1996, Mr. Clift was
                                                          Executive Vice President of Rock Bottom Restaurants, Inc., a
                                                          restaurant operator.

Edward Teixeira               57     N/A                  Mr. Teixeira has been the Executive Vice President and Chief
                                                          Operating Officer of a principal subsidiary of the Company since
                                                          April 1999. From December 1990 to April 1999, Mr. Teixeira served
                                                          as the Senior Vice President, Franchising of a principal subsidiary
                                                          of the Company.

Alan Levy                     38     N/A                  Mr. Levy has been the Vice President of Finance, Chief Financial
                                                          Officer and Treasurer of the Company since April 2000.  From November
                                                          1999 through January 2000, Mr. Levy was Vice President and Chief
                                                          Accounting Officer of Espernet.com, a residential internet service
                                                          provider.  From February 1997 to November 1999, Mr. Levy was the
                                                          Treasurer, Controller and Chief Accounting Officer of Globix
                                                          Corporation, a business internet service provider and computer equipment
                                                          reseller.  From March 1994 to February 1997, Mr. Levy was the
                                                          Assistant to the Vice President - Finance of Del
</TABLE>


<PAGE>   43

<TABLE>
<S>                        <C>           <C>              <C>
                                                          Laboratories, Inc., a manufacturer and distributor of cosmetics and
                                                          over-the-counter pharmaceuticals.

Joseph Murphy              42            N/A              Mr. Murphy was the Vice President of Finance and Chief
                                                          Financial Officer of the Company from May 1999 through
                                                          April 2000 and Controller - Financial Reporting of the
                                                          Company from April 1998 through April 1999.  From June
                                                          1987 through October 1997, Mr. Murphy held various
                                                          financial positions at Colorado Prime Corporation,
                                                          culminating as Vice President - Finance and Administration.
                                                          Mr. Murphy resigned his position with the Company effective
                                                          April 2000.
</TABLE>


<PAGE>   44

      COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own beneficially more than ten
percent of the Class A Common Stock to file with the Securities and Exchange
Commission initial reports of beneficial ownership and reports of changes in
beneficial ownership of the Common Stock. Officers, directors and persons
owning more than ten percent of the Class A Common Stock or Class B Common
Stock are required to furnish the Company with copies of all such reports. To
the Company's knowledge, based on a review of copies of such reports furnished
to the Company and written representations from its officers and directors that
no other reports were required, during the Fiscal year ended February 29, 2000,
all Section 16(a) filing requirements applicable to its executive officers,
directors and persons owning beneficially more than ten percent of the Common
Stock were complied with on a timely basis, except for the initial holdings
statement for Mr. Murphy, the Company's former Vice President and Chief
Financial Officer was not filed. Mr. Murphy resigned his employment with the
Company in April 2000.

ITEM 11. EXECUTIVE COMPENSATION


SUMMARY COMPENSATION TABLE

The following table sets forth information concerning the annual and long-term
compensation for the last three Fiscal years of the Chief Executive Officer and
other Executive Officers of the Company whose total annual salary and bonuses
exceeded $100,000 ("Named Executive Officers").


                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                              LONG-TERM
                                                                             COMPENSATION
                                                                                AWARDS
                                                    ANNUAL COMPENSATION      ------------
                                                  -----------------------     SECURITIES
                                                                 BONUS        UNDERLYING
NAME AND PRINCIPAL POSITION               YEAR     SALARY     COMPENSATION    OPTIONS (#)
<S>                                       <C>     <C>         <C>            <C>
Stephen Savitsky....................      2000    $494,277(1)      --                 --
  Chairman, and                           1999    $594,991         --          1,383,691
  Chief Executive Officer                 1998    $520,571         --            580,691
David Savitsky......................      2000    $383,002(2)      --                 --
  President, Secretary,                   1999    $426,131         --          1,383,691
  Chief Operating Officer                 1998    $377,016         --            580,691
Edward Teixeira.....................      2000    $206,512      $23,000          160,000
  Executive Vice President and            1999    $178,684      $30,625          102,800
  Chief Operating Officer of a            1998    $176,615      $19,375               --
  Principal Subsidiary
Joseph Murphy(3)....................      2000    $139,558         --                 --
  Vice President - Finance and            1999    $ 94,097         --             15,000
  Chief Financial Officer                 1998        --           --                 --
</TABLE>

----------

(1)      Mr. Savitsky received an additional $100,836 in compensation in Fiscal
         2000 from Tender Loving Care Health Care Services, Inc. for which he
         also serves as Chairman and Chief Executive Officer.

(2)      Mr. Savitsky received an additional $33,382 in compensation in Fiscal
         2000 from Tender Loving Care Health Care Services, Inc. for which he
         also serves as Vice Chairman, Government Relations.

(3)      Mr. Murphy resigned his employment effective April 2000.

<PAGE>   45

OPTION GRANTS TABLE

The following table sets forth information with respect to the Named Executive
Officers concerning the grant of stock options during the Fiscal year ended
February 29, 2000. The Company did not have during such Fiscal year, and
currently does not have, any plans providing for the grant of stock
appreciation rights ("SARs").

<TABLE>
<CAPTION>
                                NUMBER OF     % OF TOTAL
                                SECURITIES    OPTIONS
                                UNDERLYING    GRANTED TO
                                OPTIONS       EMPLOYEES IN    EXERCISE OR   EXPIRATION       GRANT DATE(1)
           NAME                 GRANTED       FISCAL YEAR     BASE PRICE       DATE          PRESENT VALUE

<S>                             <C>              <C>          <C>              <C>           <C>
Stephen Savitsky ............        --            --              --            --               --
David Savitsky ..............        --            --              --            --               --
Edward Teixeira(2)...........   100,000          46.5%        $   .34          2009          $33,000
Edward Teixeira (3)..........    60,000          27.9%        $   .41          2009          $24,000
Joseph Murphy ...............        --            --              --            --               --
</TABLE>

----------

(1) The values shown were calculated utilizing the Black-Scholes option pricing
model and are presented solely for the purpose of comparative disclosure in
accordance with certain regulations of the Securities and Exchange Commission.
This model is a mathematical formula used to value traded stock price
volatility. The actual value that an executive officer may realize, if any, is
dependent on the amount by which the stock price at the time of exercise
exceeds the exercise price. There is no assurance that the value realized by an
executive officer will be at or near the value estimated by the Black-Scholes
model. In calculating the grant date present values, the Company used the
following assumptions: (a) expected volatility of approximately 146%; (b)
risk-free rate of return of approximately 6.0%; (c) no dividends payable during
the relevant period; and (d) exercise at the end of a 10 year period from the
date of grant.

(2) Issued under the 1998 Stock Option Plan. 33,334 are currently exercisable.

(3) Issued under the 1998 Stock Option Plan. 20,000 are currently exercisable.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUE
TABLE

The following table provides information concerning the number and value of
stock options exercised during the Fiscal year ended February 29, 2000, and
held at the end of such Fiscal year, by the Named Executive Officers. No SARs
were exercised during such Fiscal year, and no SARs are held by any Named
Executive Officer, because the Company does not have any plans providing for
SARs.

<PAGE>   46


<TABLE>
<CAPTION>

                                                                NUMBER OF
                                                          SECURITIES UNDERLYING       VALUE OF UNEXERCISED
                                   SHARES                  UNEXERCISED OPTIONS        IN-THE-MONEY OPTIONS
                                  ACQUIRED                AT FEBRUARY 29, 2000        AT FEBRUARY 29,2000
                                     ON       VALUE     -------------------------   -------------------------
              NAME                EXERCISE   REALIZED   EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE
              ----                --------   --------   -------------------------   -------------------------
<S>                               <C>        <C>        <C>                         <C>
Stephen Savitsky................     --         --         532,500/1,582,191                 0/0
David Savitsky..................     --         --         518,500/1,582,191                 0/0
Edward Teixeira.................     --         --          60,001/187,779                   0/0
Joseph Murphy...................     --         --               0/15,000                    0/0
</TABLE>

Each director who is not an officer or employee of the Company receives a fee
of $10,000 per annum for service on the Company's Board of Directors. Directors
who are officers or employees of the Company receive no fees for service on the
Board.

EMPLOYMENT AGREEMENTS

On June 1, 1987, the Company entered into a five-year employment agreement with
Stephen Savitsky to serve as Chief Executive Officer and Chairman of the Board
of Directors of the Company under which Mr. Savitsky received an initial base
salary (beginning in June 1987) of $200,000 per year, which base salary
increases annually at the rate of ten percent plus any increase in the cost of
living. Mr. Savitsky's employment agreement is automatically extended at the
end of each year for an additional year and is terminable by the Company upon
five years' notice. On October 20, 1999, the Company amended Mr. Savitsky's
employment agreement pursuant to which Mr. Savitsky serves as Chairman of the
Board and Chief Executive Officer of the Company and receives a base salary of
$295,373. Mr. Savitsky's employment agreement provides that, upon a "change of
control" of the Company and his termination of employment other than for his
conviction of a felony, he will be entitled to receive a lump sum severance
payment equal to 2.99 times his average annual compensation for the five
calendar years prior to termination. Mr. Savitsky is required to devote
approximately one-half of his business time to the affairs of the Company and
his employment agreement provides that during the term of his employment and
for a period of six months thereafter he will not compete with the Company.

On June 1, 1987, the Company entered into a five-year employment agreement with
David Savitsky to serve as Secretary and Treasurer of the Company under which
Mr. Savitsky received an initial annual base salary of $110,000 per year, which
base salary increases annually at the rate of ten percent plus any increase in
the cost of living. Mr. Savitsky's employment agreement is automatically
extended at the end of each year for an additional year and is terminable by
the Company upon five years' notice. On October 20, 1999, the Company amended
Mr. Savitsky's employment agreement under which Mr. Savitsky now serves as
President, Secretary and Chief Operating Officer of the Company and receives an
annual base salary of $367,080. Mr. Savitsky's employment contract provides
that upon a "change of control" of the Company or his termination of employment
other than for his conviction of a felony, he will be entitled to receive a
lump sum severance payment equal to 2.99 times his average annual compensation
for the five calendar years prior to termination. Mr. Savitsky is required to
devote approximately 80% of his business time to the affairs of the Company and
his employment contract provides that during the term of his employment and for
a period of six months thereafter, he will not compete with the Company.

On December 1, 1996, the Company entered into a three-year employment agreement
with Edward Teixeira to serve as Senior Vice President, Franchising of a
principal subsidiary of the Company under which Mr. Teixeira received an
initial annual base salary of $175,000 per year, which base salary increases by
$10,000 per annum. On April 15, 1999, Mr. Teixeira's existing agreement was
terminated and was replaced by a new agreement. Under this new employment
agreement, Mr. Teixeira serves as the Executive Vice President and Chief
Operating Officer of a principal subsidiary of the Company and receives an
annual base salary of $200,000 which increases by $10,000 per annum. He is also
eligible for an annual bonus equal to 5% of the incremental pre-tax profit
greater than 3% of the Company's net income before taxes. He is also eligible
to receive an automobile allowance of $6,700 per annum. Under his employment
agreement, Mr. Teixeira is obligated to devote his full business time to the
affairs of the

<PAGE>   47

Company. Further, if within 12 months after a "change of control" Mr. Teixeira
were terminated for any reason (other than the commission of a felony or the
perpetration of fraud against the Company), he would then be entitled to
receive an amount equal to twelve months' of his base salary. Mr. Teixeira's
employment agreement provides that during the term of his employment and for a
period of six months thereafter, he will not compete with the Company.

If a "change of control" were to occur prior to the next anniversary date of
the respective employment agreements of Stephen Savitsky, David Savitsky and
Edward Teixeira and their employment relationships with the Company were to
terminate for reasons triggering the severance payments noted above, then the
Company would be obligated to make lump sum payments to them in the approximate
amounts of $883,165 and $1,097,569 to Stephen and David Savitsky and weekly
installment payments $3,846 for one year to Edward Teixeira, respectively. The
lump sum severance payments payable after the end of the calendar year or the
anniversary dates of the respective employment agreements, as the case may be,
would change as a result of changes in such individuals' compensation. The term
"change of control" as used in the employment agreements with the Company's
executive officers refers to an event in which a person, corporation,
partnership, association or entity (i) acquires a majority of the Company's
outstanding voting securities, (ii) acquires securities of the Company bearing
a majority of voting power with respect to election of directors of the
Company, or (iii) acquires all or substantially all of the Company's assets.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of June 12, 2000 with respect to
the beneficial ownership of the Company's Class A Common Stock, by (i) each
person known to the Company who beneficially owns more than 5% of any class of
voting securities of the Company, (ii) each director of the Company, (iii) the
Named Executive Officers, and (iv) all directors and executive officers of the
Company as a group. None of the executive officers or directors of the Company
beneficially own any of the Company's Class B Common Stock.

CLASS A COMMON STOCK

<TABLE>
<CAPTION>
                                            AMOUNT AND NATURE OF
                                           BENEFICIAL OWNERSHIP(1)
                                   -------------------------------------
                                      NUMBER OF
                                      SHARES OF           PERCENTAGE OF
         NAME OF                       CLASS A             OUTSTANDING
    BENEFICIAL OWNER               COMMON STOCK(2)         VOTES OWNED
    ----------------               ----------------      ---------------
<S>                                <C>                   <C>
Stephen Savitsky(3)......          3,553,639(4,5)             14.8%
David Savitsky(3)........          3,370,437(6,7,8)           14.0%
Bernard J.
  Firestone(9) ..........              1,100                     *
Jonathan J.
  Halpert(9) ............                  0                     *
Donald Meyers(9) ........                  0                     *
Edward Teixeira(9) ......            126,667(10)                 *
S Squared Technology
  Corp.(11)..............          2,353,500                  10.1%
Dimensional Fund
  Advisors, Inc.(12).....          1,372,460                   5.9%
All executive officers
  and directors as a
  group (8 persons).....           6,391,841(13)              28.3%
</TABLE>

* Less than one percent

<PAGE>   48


(1) "Beneficial ownership" is determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934, as amended. In general, a person is
treated as the "beneficial owner" of stock under Rule 13d-3 if such person has
(or shares) (i) either investment power or voting power over such stock (which
may be by means of a contract, arrangement, understanding, relationship or
otherwise), or (ii) the right to acquire such stock within 60 days, including
by means of the exercise of an option or the conversion of a convertible
security. Each beneficial owner's percentage of ownership and percentage of
votes is determined by assuming that options that are held by such person (but
not those held by any other person) and which are exercisable within 60 days of
the date of this table have been exercised. Except as indicated in the
footnotes that follow, shares listed in the table are held with sole voting and
investment power.

(2) Each holder of record of shares of Class A Common Stock is entitled to one
vote per share held by such holder.

(3) The address of each of these persons is c/o Staff Builders, Inc., 1983
Marcus Avenue, Lake Success, New York 11042. Each of these persons has sole
power with respect to the voting and investment of the shares which he owns,
except as follows: on November 1, 1991, Ephraim Koschitzki, a former executive
officer and director of the Company, granted to Stephen Savitsky and David
Savitsky a ten year revocable proxy to vote all shares of Common Stock now or
hereafter owned of record by him. The Company believes that Mr. Koschitzki
beneficially owns 225,440 shares of Class A Common Stock underlying options
granted to him. As a result, (i) Stephen Savitsky has sole voting and
investment power with respect to 2,555,739 shares of Class A Common Stock and
has shared voting power with respect to the 225,440 shares of Class A Common
Stock beneficially owned by Mr. Koschitzki and (ii) David Savitsky has sole
voting and investment power with respect to 2,193,087 shares of Class A Common
Stock and has shared voting power with respect to the 225,440 shares of Class A
Common Stock beneficially owned by Mr. Koschitzki.

(4) Includes options to purchase 198,500 shares of Class A Common Stock under
the 1993 Stock Option Plan and options to purchase 334,000 shares of Class A
Common Stock under the 1986 Non-Qualified Stock Option Plan.

(5) Includes 240,000 shares of Class A Common Stock held by Stephen Savitsky's
children. Mr. Savitsky disclaims beneficial ownership of these shares.

(6) Includes options to purchase 198,500 shares of Class A Common Stock under
the 1993 Stock Option Plan and options to purchase 320,000 shares of Class A
Common Stock under the 1986 Non-Qualified Stock Option Plan.

(7) Includes 7,450 shares of Class A Common Stock held by David Savitskys'
wife. Mr. Savitsky disclaims beneficial ownership of these shares.

(8) Includes 273,800 shares of Class A Common Stock held by Mr. Savitskys' wife
as trustee for the benefit of their three children and 135,000 shares of Class
A Common Stock held directly by one of Mr. Savitsky's children. Mr. Savitsky
disclaims beneficial ownership of these shares.

(9) The address of each of these persons is c/o Staff Builders, Inc., 1983
Marcus Avenue, Lake Success, New York 11042. Each of these persons has sole
power with respect to the voting and investment of the shares which he owns.

<PAGE>   49

(10) Includes options to purchase 6,667 shares of Class A Common Stock under
the 1993 Stock Option Plan, options to purchase 53,334 shares under the 1998
Stock Option Plan and options to purchase an additional 20,000 shares
exercisable under the 1998 Stock Option Plan.

(11) S Squared Technology Corp. ("S Squared"), a registered investment adviser,
is located at 515 Madison Avenue, New York, New York 10022. Includes 2,041,500
shares of Class A Common Stock for which S Squared has sole voting and sole
investment power and 212,000 shares of Class A Common Stock for which S Squared
has shared voting and shared investment power. The shares are owned by limited
partnerships for which S Squared is the sole general partner, by advisory
clients of S Squared, and by Seymour Goldblatt, the principal of S Squared, and
members of his family.

(12) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is located at 1299 Ocean Avenue, Santa Monica, California 90401.
Dimensional is deemed to have beneficial ownership of 1,372,460 shares of Class
A Common Stock, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in series
of the DFA Investment Trust Company, a Delaware business trust, or the DFA
Group Trust and DFA Participation Group Trust, investment vehicles for
qualified employee benefit plans, Dimensional Fund Advisors Inc. serves as
investment manager for all of such entities, but Dimensional disclaims
beneficial ownership of all such shares.

(13) Includes options to purchase 403,667 shares of Class A Common Stock under
the 1993 Stock Option Plan, options to purchase 654,000 shares of Class A
Common Stock under the 1986 Non Qualified Stock Option Plan and options to
purchase 308,888 shares of Class A Common Stock under the 1998 Stock Option
Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Stephen Savitsky and David Savitsky, who together own approximately 20% of the
Company's common stock, also own approximately 20% of TLCS common stock. Also,
five of the Company's directors are also directors of TLCS and two of the
Company's directors are executive officers of TLCS. In addition, three
executive officers of the Company are employed by TLCS, and two executive
officers of TLCS are serving as consultants to the Company.

Distribution Agreement

The Company and TLCS have entered into a distribution agreement (the
"Distribution Agreement") which provides for, among other things, mechanics of
the spin-off of the home healthcare business of TLCS, cooperation regarding
past matters and the allocation of responsibility for past obligations and
certain obligations that may arise in the future.

The Distribution Agreement provides that each of the Company and TLCS will
indemnify the other party and its affiliates from and against any and all
damage, loss, liability and expense arising out of or due to the failure of the
indemnitor or any of its subsidiaries to pay, perform or otherwise discharge
any of the liabilities or obligations for which it is responsible under the
terms of the Distribution Agreement, which include, subject to certain
exceptions, all liabilities and obligations arising out of the conduct or
operation of their respective business before, on or after the date of the
spin-off. 50% of all costs and expenses of the Distribution incurred on or
prior to the Distribution Date were to be paid by the Company and 50% were to
be paid by TLCS. During the Fiscal year ended February 29, 2000, the Company
incurred approximately $706,946 of distribution expenses.

<PAGE>   50
Tax Allocation Agreement

The Company and TLCS have entered into a tax allocation agreement (the "Tax
Allocation Agreement") to allocate certain tax liabilities between the Company
and TLCS and their respective subsidiaries and to allocate responsibilities
with respect to tax returns. Under the Tax Allocation Agreement, the Company
and TLCS will each be responsible for the taxes allocated between the
respective parties based on the legal entity on which the tax is imposed.

The Tax Allocation Agreement provides that if the Company is subject to any tax
attributable to the Distribution, including by reason of the Distribution's
failure to qualify under Section 355 of the Internal Revenue Service Code as a
tax-free distribution, then the Company shall be responsible for any such tax.
In the Tax Allocation Agreement, TLCS represented that it has no plan or
intention to take certain specified actions which might adversely affect the
tax-free status of the Distribution which include: (a) no plan or intention to
liquidate, merge with another corporation or sell or otherwise dispose of its
assets subsequent to the Distribution except in the ordinary course of
business; (b) no plan involving the issuance or transfer of equity interests in
TLCS following the Distribution other than issuances to employees and
consultants of TLCS upon the exercise of stock options under its option plan;
and (c) no plan or intention for the transfer or cessation of a substantial
portion of the business of TLCS or other substantial change in the business of
TLCS following the Distribution.

Transitional Services Agreement

The Company and TLCS have entered into an agreement pursuant to which TLCS
furnishes various administrative services to the Company. The initial one-year
term of the agreement expires on October 20, 2000. The agreement will
automatically renew at the end of the initial term or any renewal term for
successive three-month terms until terminated by either party upon written
notice to the other party at least 90 days prior to the expiration of the
applicable term. Fees payable by the Company to TLCS for such services are
expected to be at the rate of 110% of the costs actually incurred. During the
period October 20, 1999 to February 29, 2000, the Company was charged
approximately $400,000 for services rendered pursuant to this agreement.

Employee Benefits Agreement

The Company and TLCS have entered into an employee benefits agreement (the
"Employee Benefits Agreement") which sets forth the employee benefit plan
arrangements that apply to those employees who became employees of TLCS as of
the Distribution Date. The Employee Benefits Agreement requires that TLCS
establish a 401(k) savings plan, welfare plans and stock purchase and option
plans which are substantially the same in all respects to the corresponding
plans maintained by the Company prior to the Distribution Date. TLCS has
assumed, with certain exceptions, all liability and responsibility for
providing continuation of health care coverage under the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") to TLCS employees and any former
employee of the home health care business prior to the Distribution. The
Employee Benefits Agreement also provides for certain cross-indemnities with
respect to the TLCS 401(k) plan and the Company 401(k) plan.

Trademark License Agreement

The Company and TLCS have entered into a license agreement pursuant to which
the Company will license to TLCS the right to use the service marks Staff
Builders and the Stick Figure Logo in connection with home health care
services. The license is royalty-free and will continue for so long as TLCS
uses such marks in connection with home health care services. Both parties will
have a right of termination upon 30 days' prior written notice to the other
party if such party materially breaches the agreement.

<PAGE>   51

Effective September 8, 1996, DSS Staffing Corp. ("DSS") acquired a medical
staffing services franchise from the Company for Nassau, Suffolk, Queens,
Kings, New York, Bronx and Richmond counties in New York. Stuart Savitsky, son
of Stephen Savitsky and Samuel Schreier, the son-in-law of Stephen Savitsky,
each owns one third of the outstanding capital stock of DSS. As part of the
franchise transaction, DSS paid a $75,000 franchise fee, agreed to make monthly
payments of $10,500 for a period of five years and entered into a franchise
agreement with the Company. The terms and conditions of the franchise agreement
between the Company and DSS are substantially similar to those for other
franchisees of the Company, except that the DSS franchisee agreement provides
the franchise with two additional five-year renewal options.

Effective February 20, 1998, ViTex, Inc. ("VTI") acquired a medical staffing
services franchise from the Company for Worcester County and surrounding areas
in Massachusetts. Edward Teixeira's wife owns 50% of the capital stock of VTI.
VTI agreed to pay a franchise fee of $10,000 in one installment of $5,000,
which was paid in February 1998, and the balance in five consecutive monthly
payments of $1,000 commencing June 1998. The terms and conditions of the
franchise agreement between the Company and VTI are substantially similar to
those for other franchisees of the Company including the term of ten years with
a five-year renewal option.

Effective June 1998, Direct Staffing Inc. ("DS") acquired a medical staffing
service franchise from the Company for Westchester and Rockland County and
surrounding areas in New York. Steven Weiner, the son-in-law of Stephen
Savitsky, owns 50% of the outstanding capital stock of DS. As part of the
franchise transaction, DS paid a $19,500 franchise fee and entered into a
franchise agreement with the Company. The terms and conditions of the franchise
agreement between the Company and DS are substantially similar to those for
other franchises of the Company.

In order to facilitate the acquisition of a franchise by a willing prospective
franchisee, the Company will frequently accept a promissory note as
consideration for the purchase from the Company of an existing branch location
and will occasionally advance expenses to a franchisee. The Company's
transactions with DSS, VTI and DS are consistent with this business purpose and
with accommodations which have been granted to other, unaffiliated franchisees.

Under the Company's franchise program, the Company processes and pays the
payroll to the field employees who service clients and invoices the clients for
such services. Each month the Company pays the franchisee 60% of the gross
margin dollars (in general, the difference between the amount so invoiced and
the payroll and related expenses for such field employees) from the
franchisee's business for the prior month's activity. Franchisees are
responsible for their general and administrative expenses, including office
payroll. If the franchisee elects, the Company will process payment of the
franchisee's office payroll and some or all of the franchisee's other
administrative expenses, and withhold the amount so expended from the 60% gross
margin otherwise due the franchisee.

Although the Company has no formal policy regarding transactions with
affiliates, it does not intend to enter into a transaction with any affiliate
on terms less favorable to the Company than those it would receive in an arm's
length transaction with an unaffiliated party.

<PAGE>   52

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)      FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

The financial statements, including the supporting schedules, filed as part of
the report, are listed in the Table of Contents to the Consolidated Financial
Statements.

(B)      REPORTS ON 8-K

No reports on Form 8-K were filed by the Registrant for the quarter ended
February 29, 2000.

(C)      EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.                        DESCRIPTION
-----------                        -----------
<S>           <C>
3.1           Restated Certificate of Incorporation of the Company, filed July
              11, 1998(A)

3.2           Certificate of Amendment to the Restated Certificate of
              Incorporation of the Company, filed August 22, 1991.(B)

3.3           Certificate of Amendment to the Restated Certificate of
              Incorporation of the Company, filed September 3, 1992.(A)

3.4           Certificate of Retirement of Stock of the Company, filed February
              28, 1994.

3.5           Certificate of Retirement of Stock of the Company, filed June 3,
              1994.(A)

3.6           Certificate of Designation, Rights and Preferences of the Class A
              Preferred Stock of the Company, filed June 6, 1994.(A)

3.7           Certificate of Amendment of Restated Certificate of Incorporation
              of the Company, filed August 23, 1994.(A)

3.8           Certificate of Amendment of Restated Certificate of Incorporation
              of the Company, filed October 26, 1995.(C)

3.9           Certificate of Amendment of Restated Certificate of Incorporation
              of the Company, filed December 19, 1995.(D)

3.10          Certificate of Amendment of Restated Certificate of Incorporation
              of the Company, filed December 19, 1995(D)

3.11          Amended and Restated By-Laws of the Company.(A)

4.1           Specimen Class A Common Stock Certificate.(E)
</TABLE>

----------

See Notes to Exhibit

<PAGE>   53

<TABLE>
<CAPTION>
EXHIBIT NO.                        DESCRIPTION
-----------                        -----------
<S>           <C>
4.2           Specimen Class B Common Stock Certificate.(F)

4.3           Non-Qualified Option Agreement, dated March 27, 1998 between
              the Company and Ephraim Koschitzki.(G)

10.1          1983 Incentive Stock Option Plan (incorporated by reference to
              Exhibit 18.1 to the Company's Registration Statement on Form S018,
              (File No. 1-83939NY), filed with the Commission on September 15,
              1983.

10.2          Amendment to the 1983 Incentive Stock Option Plan (adopted on May
              15, 1986).(A)

10.3          Amendment to the 1983 Incentive Stock Option Plan, dated January
              1, 1987.(A)

10.4          Amendment to the 1983 Incentive Stock Option Plan, dated as of
              December 1, 1987.(A)

10.5          Amendment to the 1983 Incentive Stock Option Plan, dated as of
              August 3, 1988.(A)

10.6          Amendment to the 1983 Incentive Stock Option Plan, dated as of
              August 8, 1990.(A)

10.7          Amendment to the 1983 Incentive Stock Option Plan, dated as of
              October 27, 1995.(H)

10.8          1986 Non-Qualified Stock Option Plan of the Company.(I)

10.9          First Amendment to the 1986 Non-Qualified Stock Option Plan,
              effective as of May 11, 1990.(A)

10.10         Amendment to the 1986 Non-Qualified Stock Option Plan, dated as of
              October 27, 1995.(J)

10.11         Resolutions of the Company's Board of Directors amending the 1983
              Incentive Stock Option Plan and the 1986 Non-Qualified Stock
              Option Plan, dated as of June 3, 1991.(A)

10.12         1993 Stock Option Plan of the Company.(A)

10.13         1998 Stock Option Plan of the Company (incorporated by reference
              to Exhibit C to the Company's Proxy Statement dated August 27,
              1998, filed with the Commission on August 27, 1998).

10.14         Amended and Restated 1993 Employee Stock Purchase Plan of the
              Company(K)
</TABLE>

----------

See Notes to Exhibits

<PAGE>   54

<TABLE>
<CAPTION>
EXHIBIT NO.                              DESCRIPTION
-----------                              -----------
<S>                <C>
10.15              1998 Employee Stock Purchase Plan of the Company
                   (incorporated by reference to Exhibit D to the Company's
                   Proxy Statement dated August 27, 1998, filed with the
                   Commission on August 27, 1998).

10.18              1994 Performance-Based Stock Option Plan of the Company
                   (incorporated by reference to Exhibit B to the Company's
                   Proxy Statement, dated July 18, 1994, filed with the
                   Commission on July 27, 1994).

10.19              Stock Option Agreement, dated as of March 28, 1990, under the
                   Company's 1986 Non-Qualified Stock Option Plan between the
                   Company and Stephen Savitsky.(A)

10.20              Stock Option Agreement, dated as of June 17, 1991, under the
                   Company's 1986 Non-Qualified Stock Option Plan between the
                   Company and Stephen Savitsky.(A)

10.21              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1993 Stock Option Plan between the Company and
                   Stephen Savitsky.(L)

10.22              Stock Option Agreement, dated December 1, 998, under the
                   Company's 1994 Performance-Based Stock Option Plan between
                   the Company and Stephen Savitsky.(A)

10.23              Stock Option Agreement, dated as of March 28, 1990, under the
                   Company's 1986 Non-Qualified Stock Option Plan between the
                   Company and David Savitsky.(A)

10.24              Stock Option Agreement, dated as of June 17, 1991, under the
                   Company's 1986 Non-Qualified Stock Option Plan between the
                   Company and David Savitsky.(A)

10.25              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1993 Stock Option Plan between the Company and
                   David Savitsky.(L)

10.26              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1994 Performance-Based Stock Option Plan between
                   the Company and David Savitsky.(L)

10.27              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1993 Stock Option Plan, between the Company and
                   Edward Teixeira.(L)
</TABLE>

----------

See Notes to Exhibit

<PAGE>   55

<TABLE>
<CAPTION>
EXHIBIT NO.                              DESCRIPTION
-----------                              -----------
<S>                <C>
10.28              Stock Option Agreement, dated December 1, 1998 under the
                   Company's 1994 Performance-Based Stock Option Plan, between
                   the Company and Edward Teixeira.(L)

10.29              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1994 Performance-Based Stock Option Plan, between
                   the Company and Edward Teixeira.(L)

10.30              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1998 Stock Option Plan, between the Company and
                   Edward Teixeira.(L)

10.31              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1994 Performance-Based Stock Option Plan, between
                   the Company and Dale Clift.(L)

10.32              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1994 Performance-Based Stock Option Plan, between
                   the Company and Dale Clift.(L)

10.33              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1998 Stock Option Plan, between the Company and
                   Dale R. Clift.

10.36              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1994 Performance-Based Stock Option Plan, between
                   the company and Willard T. Derr.

10.37              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1994 Performance-Based Stock Option Plan, between
                   the Company and Willard T. Derr.

10.38              Stock Option Agreement, dated December 1, 1998, under the
                   Company's 1998 Stock Option Plan, between the Company and
                   Willard T. Derr.

10.39              Employment Agreement, dated as of June 1, 1987, between the
                   Company and Stephen Savitsky.(A)
</TABLE>

----------

See Notes to Exhibit

<PAGE>   56
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>               <C>
10.40             Amendment, dated as of October 31, 1991, to the Employment
                  Agreement between the Company and Stephen Savitsky.(A)

10.41             Amendment, dated as of December 7, 1992, to the Employment
                  Agreement between the Company and Stephen Savitsky.(A)

10.42             Employment Agreement, dated as of June 1, 1987, between the
                  Company and David Savitsky.(A)

10.43             Amendment, dated as of October 31, 1991, to the Employment
                  Agreement between the Company and David Savitsky.(A)

10.44             Amendment, dated as of January 3, 1992, to the Employment
                  Agreement between the Company and David Savitsky.(A)

10.45             Amendment, dated as of December 7, 1992, to the Employment
                  Agreement between the Company and David Savitsky.(A)

10.47             Employment Agreement, dated as of February 9, 1998, between
                  the Company and Dale R. Clift.(G)

10.48             First Amendment to Employment Agreement, dated as of December
                  1, 1998, to the Employment Agreement between the Company and
                  Dale R. Clift.(L)
</TABLE>

----------

See Notes to Exhibits


<PAGE>   57
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>               <C>
10.54             Amended and Restated Loan and Security Agreement, dated as of
                  January 8, 1997, between the Company, its subsidiaries and
                  Mellon Bank, N.A.(N)

10.55             First Amendment to Amended and Restated Loan and Security
                  Agreement dated as of April 27, 1998, between the Company,
                  its subsidiaries and Mellon Bank, N.A.(G)

10.56             Master Lease Agreement dated as of December 4, 1996, between
                  the Company and Chase Equipment Leasing, Inc.(N)

10.57             Premium Finance Agreement, Disclosure Statement and Security
                  Agreement dated as of December 26, 1996, between the Company
                  and A.I. Credit Corp.(N)

10.58             Agreement of Lease, dated as of October 1, 1993, between
                  Triad III Associates and the Company.(A)

10.59             First Lease Amendment, dated October 25, 1998, between
                  Matterhorn USA, Inc. and the Company.

10.60             Supplemental Agreement dated as of January 21, 1994, between
                  General Electric Capital Corporation, Triad III Associates
                  and the Company.(A)

10.61             Agreement of Lease, dated as of June 19, 1995, between Triad
                  III Associates and the Company.(D)

10.62             Agreement of Lease, dated as of February 12, 1996, between
                  Triad III Associates and the Company.(D)

10.63             License Agreement, dated as of April 23, 1996, between
                  Matterhorn One, Ltd. and the Company.(N)

10.64             License Agreement, dated as of January 3, 1997, between
                  Matterhorn USA, Inc. and the Company.(N)

10.65             License Agreement, dated as of January 16, 1997, between
                  Matterhorn USA, Inc. and the Company.(N)

10.66             License Agreement, dated as of December 16, 1998, between
                  Matterhorn USA, Inc. and the Company.
</TABLE>


----------

See Notes to Exhibits


<PAGE>   58


<TABLE>
<CAPTION>

EXHIBIT
NUMBER                          DESCRIPTION
------                          -----------

<S>               <C>
10.69             Stock Purchase Agreement, dated as of August 30, 1995,
                  between Staff Builders Services, Inc., Medvisit, Inc. and
                  Roger Jack Pleasant.(D)

10.70             Asset Purchase and Sale Agreement, dated as of September 1,
                  1995, between the Company and Accredicare, Inc.(D)

10.71             Asset Purchase and Sale Agreement, dated as of September 6,
                  1996, by and among ATC Healthcare Services, Inc. and the
                  Company and William Halperin and All Care Nursing Service,
                  Inc.(Q)

10.72             Stock Redemption Agreement, dated as of March 18, 1997,
                  between the Company and American Home Care Management Corp.(N)

10.73             Stock Purchase Agreement by and among the Company and Raymond
                  T. Sheerin, Michael Altman, Stephen Fleischner and Chelsea
                  Computer Consultants, Inc., dated September 24, 1996.(M)

10.74             Amendment No. 1 to Stock Purchase Agreement by and among the
                  Company and Raymond T. Sheerin, Michael Altman, Stephen
                  Fleischner and Chelsea Computer Consultants, Inc., dated
                  September 24, 1996.(M)

10.75             Shareholders Agreement between Raymond T. Sheerin and Michael
                  Altman and Stephen Fleischner and the Company and Chelsea
                  Computer Consultants, Inc., dated September 24, 1996.(M)

10.76             Amendment No. 1 to Shareholders Agreement among Chelsea
                  Computer Consultants, Inc., Raymond T. Sheerin, Michael
                  Altman and the Company, dated October 30, 1997.(M)

10.77             Indemnification Agreement, dated as of September 1, 1987,
                  between the Company and Stephen Savitsky.(A)

10.78             Indemnification Agreement, dated as of September 1, 1987,
                  between the Company and David Savitsky.(A)
</TABLE>



----------

See Notes to Exhibits

<PAGE>   59

<TABLE>
<CAPTION>

EXHIBIT
NUMBER                          DESCRIPTION
------                          -----------

<S>               <C>
10.79             Indemnification Agreement, dated as of September 1, 1987,
                  between the Company and Bernard J. Firestone.(A)

10.80             Indemnification Agreement, dated as of September 1, 1987,
                  between the Company and Jonathan Halpert.(A)

10.81             Indemnification Agreement, dated as of May 2, 1995, between
                  the Company and Donald Meyers.(N)

10.82             Indemnification Agreement, dated as of May 2, 1995, between
                  the Company and Edward Teixeira.(A)

10.84             Form of Medical Staffing Services Franchise Agreement.(D)

10.85             Forbearance and Acknowledgement Agreement, dated as of
                  February 22, 2000, between TLCS, the Company and Chase
                  Equipment Leasing, Inc.

10.86             Stipulation and Settlement, dated January 14, 2000, between
                  certain TLCS, ATC and Banc One Leasing Corporation.

10.89             Confession of Judgment, dated January 27, 2000, granted by a
                  subsidiary of the Company, to Roger Jack Pleasant.First Lease
                  Amendment, dated October 28, 1998, between Matterhorn USA,
                  Inc. and the Company.(B)

10.90             Agreement and Release, dated February 28, 1997, between Larry
                  Campbell and the Company.(C) Confession of Judgment, dated
                  January 27, 2000, granted by the Company to Roger Jack
                  Pleasant.

10.91             Forbearance and Acknowledgement Agreement, dated as of
                  February 22, 2000, between TLCS's subsidiaries, the Company
                  and Chase Equipment Leasing, Inc. Agreement and Release,
                  dated February 28, 1997, between Larry Campbell and the
                  Company.(C)

10.92             Distribution agreement, dated as of October 20, 1999, between
                  the Company and TLCS.(S)

10.93             Tax Allocation agreement dated as of October 20, 1999,
                  between the Company and TLCS.(S)

10.94             Transitional Services agreement, dated as of October 20,
                  1999, between the Company and TLCS.(S)

10.95             Trademark License agreement, dated as of October 20, 1999,
                  between the Company and TLCS.(S)

10.96             Sublease, dated as of October 20, 1999, between the Company
                  and TLCS.(S)
</TABLE>


----------

See Notes to Exhibits

<PAGE>   60

<TABLE>
<CAPTION>

EXHIBIT
NUMBER                          DESCRIPTION
------                          -----------
<S>               <C>
10.97             Employee Benefits agreement, dated as of October 20, 1999,
                  between the Company and TLCS.(S)

10.98             Amendment, dated as of October 20, 1999, to the Employment
                  agreement between the Company and Stephen Savitsky.(T)

10.99             Amendment, dated as of October 20, 1999, to the Employment
                  agreement between the Company and David Savitsky.(T)

10.100            Amendment, dated as of October 20, 1999, to the Employment
                  agreement between the Company and Dale R. Clift.(T)

10.101            Termination and Release, dated as of October 20, 1999, of the
                  Employment agreement between the Company and Willard T. Derr.(T)

10.102            Termination and Release, dated as of October 20, 1999, of the
                  Employment agreement between the Company and Renee J. Silver.(T)

10.103            Consulting agreement dated as of October 20, 1999, between
                  the Company and Willard T. Derr.(T)

10.104            Consulting agreement dated as of October 20, 1999, between
                  the Company and Renee J. Silver.(T)

10.105            Second Amendment to ATC Revolving Credit Loan and Security
                  Agreement, dated October 20, 1999 between the Company and
                  Mellon Bank, N.A.(T)

10.106            Master Lease dated November 18, 1999 between the Company
                  and Technology Integration Financial Services.*

10.107            Loan and Security Agreement between the Company and
                  Copelco/American Healthfund Inc. dated March 29, 2000.*

21.               Subsidiaries of the Company.*

24.               Powers of Attorney.*

27.               Financial Data Schedule.*
</TABLE>

----------

See Notes to Exhibits

<PAGE>   61
                               NOTES TO EXHIBITS

(A)      Incorporated by reference to the Company's exhibit booklet to its Form
         10-K for the Fiscal year ended February 28, 1995 (File No. 0-11380),
         filed with the Commission on May 5, 1995.

(B)      Incorporated by reference to the Company's Registration Statement on
         Form S-1 (File No. 33-43728), dated January 29, 1992.

(C)      Incorporated by reference to the Company's Form 8-K filed with the
         Commission on October 31, 1995.

(D)      Incorporated by reference to the Company's exhibit booklet to it Form
         10-K for the Fiscal year ended February 28, 1996 (file No. 0-11380),
         filed with the Commission on May 13, 1996.

(E)      Incorporated by reference to the Company's Form 8-A filed with the
         Commission on October 24, 1995.

(F)      Incorporated by reference to the Company's Form 8-A filed with the
         Commission on October 24, 1995.

(G)      Incorporated by reference to the Company's exhibit booklet to its Form
         10-K for the Fiscal year ended February 28, 1998 (File No. 0-11380),
         filed with the Commission on May 28, 1998.

(H)      Incorporated by reference to the Company's Registration Statement on
         Form S-8 (File No. 33-63941), filed with the Commission On November 2,
         1995.

(I)      Incorporated by reference to the Company's Registration Statement on
         Form S-4, as amended (File No. 33-9261), dated April 9, 1987.

(J)      Incorporated by reference to the Company's Registration Statement on
         Form S-8 (File No. 33-63939), filed with the Commission on November 2,
         1995.

(K)      Incorporated by reference to the Company's Registration Statement on
         Form S-1 (File No. 3371974), filed with the Commission on November 19,
         1993.

(L)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended November 30, 1997 (File No. 0-11380), filed with the
         Commission on January 19, 1999.

(M)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended November 30, 1997 (File No. 0-11380), field with the
         Commission on January 14, 1998.

(N)      Incorporated by reference to the Company's exhibit booklet to its Form
         10-K for the Fiscal year ended February 28, 1997 (File No. 0-11380),
         filed with the Commission on May 27, 1997.
<PAGE>   62

                                NOTES TO EXHIBIT

(O)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended August 31, 1998 (File No. 0-11380), filed with the
         Commission on October 15, 1998.

(P)      Incorporated by reference to the Company's Form 10 for the quarterly
         period ended May 31, 1998 (File No. 0-11380), filed with the
         Commission on July 15, 1998.

(Q)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended November 30, 1996 (File No. 0-11380), filed with the
         Commission on January 14, 1997.

(R)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended November 30, 1999 (File No. 0-11380), filed with the
         Commission on January 19, 2000.

(S)      Incorporated by reference to Tender Loving Care Health Care Services
         Inc.'s Form 10-Q for the quarterly period ended August 31, 1999 (File
         No. 0-25777) filed with the Commission on October 20, 1999.

(T)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended August 31, 1999 (File No. 0-11380) filed with the
         Commission on October 20, 1999.

*        Incorporated herein.

<PAGE>   63


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                          STAFF BUILDERS, INC.
                                          By:  /s/  STEPHEN SAVITSKY
                                               -----------------------------
                                               Stephen Savitsky
                                               Chairman of the Board
                                               and Chief Executive Officer

Dated:  July 17, 2000

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

<TABLE>
<CAPTION>

    SIGNATURE                              TITLE                                DATE
    ---------                              -----                                ----
<S>                                   <C>                                 <C>
/s/ STEPHEN SAVITSKY                  Chairman of the Board               July 17, 2000
--------------------------            and Chief Executive Officer
Stephen Savitsky                      (Principal Executive
                                      Officer) and Director

/s/  DAVID SAVITSKY                   President, Secretary                July 17, 2000
--------------------------            and Director
David Savitsky

/s/  ALAN LEVY                        Vice President, Finance,            July 17, 2000
--------------------------            Chief Financial Officer and
Alan Levy                             Treasurer (Principal Financial
                                      and Accounting Officer)

         *                            Director                            July 17, 2000
--------------------------
Bernard J. Firestone, Ph.D

         *                            Director                            July 17, 2000
--------------------------
Jonathan Halpert, Ph.D.

         *                            Director                            July 17, 2000
--------------------------
Donald Meyers

*By:     /s/  STEPHEN SAVITSKY
         ---------------------
         (Stephen Savitsky,
         Attorney-in-Fact)
</TABLE>


<PAGE>   64
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>               <C>
3.1               Restated Certificate of Incorporation of the Company, filed
                  July 11, 1998(A)

3.2               Certificate of Amendment to the Restated Certificate of
                  Incorporation of the Company, filed August 22, 1991.(B)

3.3               Certificate of Amendment to the Restated Certificate of
                  Incorporation of the Company, filed September 3, 1992.(A)

3.4               Certificate of Retirement of Stock of the Company, filed
                  February 28, 1994.

3.5               Certificate of Retirement of Stock of the Company, filed June
                  3, 1994.(A)

3.6               Certificate of Designation, Rights and Preferences of the
                  Class A Preferred Stock of the Company, filed June 6, 1994.(A)

3.7               Certificate of Amendment of Restated Certificate of
                  Incorporation of the Company, filed August 23, 1994.(A)

3.8               Certificate of Amendment of Restated Certificate of
                  Incorporation of the Company, filed October 26, 1995.(C)

3.9               Certificate of Amendment of Restated Certificate of
                  Incorporation of the Company, filed December 19, 1995.(D)

3.10              Certificate of Amendment of Restated Certificate of
                  Incorporation of the Company, filed December 19, 1995(D)

3.11              Amended and Restated By-Laws of the Company.(A)

4.1               Specimen Class A Common Stock Certificate.(E)
</TABLE>

----------

See Notes to Exhibit

<PAGE>   65
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>               <C>
4.2               Specimen Class B Common Stock Certificate.(F)

4.3               Non-Qualified Option Agreement, dated March 27, 1998 between
                  the Company and Ephraim Koschitzki.(G)

10.1              1983 Incentive Stock Option Plan (incorporated by reference
                  to Exhibit 18.1 to the Company's Registration Statement on
                  Form S018, (File No. 1-83939NY), filed with the Commission on
                  September 15, 1983.

10.2              Amendment to the 1983 Incentive Stock Option Plan (adopted on
                  May 15, 1986).(A)

10.3              Amendment to the 1983 Incentive Stock Option Plan, dated
                  January 1, 1987.(A)

10.4              Amendment to the 1983 Incentive Stock Option Plan, dated as
                  of December 1, 1987.(A)

10.5              Amendment to the 1983 Incentive Stock Option Plan, dated as
                  of August 3, 1988.(A)

10.6              Amendment to the 1983 Incentive Stock Option Plan, dated as
                  of August 8, 1990. (A)

10.7              Amendment to the 1983 Incentive Stock Option Plan, dated as
                  of October 27, 1995.(H)

10.8              1986 Non-Qualified Stock Option Plan of the Company.(I)

10.9              First Amendment to the 1986 Non-Qualified Stock Option Plan,
                  effective as of May 11, 1990.(A)

10.10             Amendment to the 1986 Non-Qualified Stock Option Plan, dated
                  as of October 27, 1995.(J)

10.11             Resolutions of the Company's Board of Directors amending the
                  1983 Incentive Stock Option Plan and the 1986 Non-Qualified
                  Stock Option Plan, dated as of June 3, 1991.(A)

10.12             1993 Stock Option Plan of the Company.(A)

10.13             1998 Stock Option Plan of the Company (incorporated by
                  reference to Exhibit C to the Company's Proxy Statement dated
                  August 27, 1998, filed with the Commission on August 27,
                  1998).

10.14             Amended and Restated 1993 Employee Stock Purchase Plan of the
                  Company(K)
</TABLE>

----------

See Notes to Exhibits

<PAGE>   66
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>               <C>
10.15             1998 Employee Stock Purchase Plan of the Company
                  (incorporated by reference to Exhibit D to the Company's
                  Proxy Statement dated August 27, 1998, filed with the
                  Commission on August 27, 1998).

10.18             1994 Performance-Based Stock Option Plan of the Company
                  (incorporated by reference to Exhibit B to the Company's
                  Proxy Statement, dated July 18, 1994, filed with the
                  Commission on July 27, 1994).

10.19             Stock Option Agreement, dated as of March 28, 1990, under the
                  Company's 1986 Non-Qualified Stock Option Plan between the
                  Company and Stephen Savitsky.(A)

10.20             Stock Option Agreement, dated as of June 17, 1991, under the
                  Company's 1986 Non-Qualified Stock Option Plan between the
                  Company and Stephen Savitsky.(A)

10.21             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1993 Stock Option Plan between the Company and
                  Stephen Savitsky.(L)

10.22             Stock Option Agreement, dated December 1, 998, under the
                  Company's 1994 Performance-Based Stock Option Plan between
                  the Company and Stephen Savitsky.(A)

10.23             Stock Option Agreement, dated as of March 28, 1990, under the
                  Company's 1986 Non-Qualified Stock Option Plan between the
                  Company and David Savitsky.(A)

10.24             Stock Option Agreement, dated as of June 17, 1991, under the
                  Company's 1986 Non-Qualified Stock Option Plan between the
                  Company and David Savitsky.(A)

10.25             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1993 Stock Option Plan between the Company and
                  David Savitsky.(L)

10.26             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1994 Performance-Based Stock Option Plan between
                  the Company and David Savitsky.(L)

10.27             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1993 Stock Option Plan, between the Company and
                  Edward Teixeira.(L)
</TABLE>

----------

See Notes to Exhibit

<PAGE>   67
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>               <C>
10.28             Stock Option Agreement, dated December 1, 1998 under the
                  Company's 1994 Performance-Based Stock Option Plan, between
                  the Company and Edward Teixeira.(L)

10.29             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1994 Performance-Based Stock Option Plan, between
                  the Company and Edward Teixeira.(L)

10.30             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1998 Stock Option Plan, between the Company and
                  Edward Teixeira.(L)

10.31             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1994 Performance-Based Stock Option Plan, between
                  the Company and Dale Clift.(L)

10.32             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1994 Performance-Based Stock Option Plan, between
                  the Company and Dale Clift.(L)

10.33             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1998 Stock Option Plan, between the Company and
                  Dale R. Clift.

10.36             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1994 Performance-Based Stock Option Plan, between
                  the company and Willard T. Derr.

10.37             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1994 Performance-Based Stock Option Plan, between
                  the Company and Willard T. Derr.

10.38             Stock Option Agreement, dated December 1, 1998, under the
                  Company's 1998 Stock Option Plan, between the Company and
                  Willard T. Derr.

10.39             Employment Agreement, dated as of June 1, 1987, between the
                  Company and Stephen Savitsky.(A)
</TABLE>


----------

See Notes to Exhibit

<PAGE>   68
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>               <C>
10.40             Amendment, dated as of October 31, 1991, to the Employment
                  Agreement between the Company and Stephen Savitsky.(A)

10.41             Amendment, dated as of December 7, 1992, to the Employment
                  Agreement between the Company and Stephen Savitsky.(A)

10.42             Employment Agreement, dated as of June 1, 1987, between the
                  Company and David Savitsky.(A)

10.43             Amendment, dated as of October 31, 1991, to the Employment
                  Agreement between the Company and David Savitsky.(A)

10.44             Amendment, dated as of January 3, 1992, to the Employment
                  Agreement between the Company and David Savitsky.(A)

10.45             Amendment, dated as of December 7, 1992, to the Employment
                  Agreement between the Company and David Savitsky.(A)

10.47             Employment Agreement, dated as of February 9, 1998, between
                  the Company and Dale R. Clift.(G)

10.48             First Amendment to Employment Agreement, dated as of December
                  1, 1998, to the Employment Agreement between the Company and
                  Dale R. Clift.(L)
</TABLE>

----------

See Notes to Exhibits


<PAGE>   69
<TABLE>
<CAPTION>

EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>               <C>
10.54             Amended and Restated Loan and Security Agreement, dated as of
                  January 8, 1997, between the Company, its subsidiaries and
                  Mellon Bank, N.A.(N)

10.55             First Amendment to Amended and Restated Loan and Security
                  Agreement dated as of April 27, 1998, between the Company,
                  its subsidiaries and Mellon Bank, N.A.(G)

10.56             Master Lease Agreement dated as of December 4, 1996, between
                  the Company and Chase Equipment Leasing, Inc.(N)

10.57             Premium Finance Agreement, Disclosure Statement and Security
                  Agreement dated as of December 26, 1996, between the Company
                  and A.I. Credit Corp.(N)

10.58             Agreement of Lease, dated as of October 1, 1993, between
                  Triad III Associates and the Company.(A)

10.59             First Lease Amendment, dated October 25, 1998, between
                  Matterhorn USA, Inc. and the Company.

10.60             Supplemental Agreement dated as of January 21, 1994, between
                  General Electric Capital Corporation, Triad III Associates
                  and the Company.(A)

10.61             Agreement of Lease, dated as of June 19, 1995, between Triad
                  III Associates and the Company.(D)

10.62             Agreement of Lease, dated as of February 12, 1996, between
                  Triad III Associates and the Company.(D)

10.63             License Agreement, dated as of April 23, 1996, between
                  Matterhorn One, Ltd. and the Company.(N)

10.64             License Agreement, dated as of January 3, 1997, between
                  Matterhorn USA, Inc. and the Company.(N)

10.65             License Agreement, dated as of January 16, 1997, between
                  Matterhorn USA, Inc. and the Company.(N)

10.66             License Agreement, dated as of December 16, 1998, between
                  Matterhorn USA, Inc. and the Company.
</TABLE>


----------

See Notes to Exhibits


<PAGE>   70


<TABLE>
<CAPTION>

EXHIBIT
NUMBER                          DESCRIPTION
------                          -----------

<S>               <C>
10.69             Stock Purchase Agreement, dated as of August 30, 1995,
                  between Staff Builders Services, Inc., Medvisit, Inc. and
                  Roger Jack Pleasant.(D)

10.70             Asset Purchase and Sale Agreement, dated as of September 1,
                  1995, between the Company and Accredicare, Inc.(D)

10.71             Asset Purchase and Sale Agreement, dated as of September 6,
                  1996, by and among ATC Healthcare Services, Inc. and the
                  Company and William Halperin and All Care Nursing Service,
                  Inc.(Q)

10.72             Stock Redemption Agreement, dated as of March 18, 1997,
                  between the Company and American Home Care Management Corp.(N)

10.73             Stock Purchase Agreement by and among the Company and Raymond
                  T. Sheerin, Michael Altman, Stephen Fleischner and Chelsea
                  Computer Consultants, Inc., dated September 24, 1996.(M)

10.74             Amendment No. 1 to Stock Purchase Agreement by and among the
                  Company and Raymond T. Sheerin, Michael Altman, Stephen
                  Fleischner and Chelsea Computer Consultants, Inc., dated
                  September 24, 1996.(M)

10.75             Shareholders Agreement between Raymond T. Sheerin and Michael
                  Altman and Stephen Fleischner and the Company and Chelsea
                  Computer Consultants, Inc., dated September 24, 1996.(M)

10.76             Amendment No. 1 to Shareholders Agreement among Chelsea
                  Computer Consultants, Inc., Raymond T. Sheerin, Michael
                  Altman and the Company, dated October 30, 1997.(M)

10.77             Indemnification Agreement, dated as of September 1, 1987,
                  between the Company and Stephen Savitsky.(A)

10.78             Indemnification Agreement, dated as of September 1, 1987,
                  between the Company and David Savitsky.(A)
</TABLE>



----------

See Notes to Exhibits

<PAGE>   71

<TABLE>
<CAPTION>

EXHIBIT
NUMBER                          DESCRIPTION
------                          -----------

<S>               <C>
10.79             Indemnification Agreement, dated as of September 1, 1987,
                  between the Company and Bernard J. Firestone.(A)

10.80             Indemnification Agreement, dated as of September 1, 1987,
                  between the Company and Jonathan Halpert.(A)

10.81             Indemnification Agreement, dated as of May 2, 1995, between
                  the Company and Donald Meyers.(N)

10.82             Indemnification Agreement, dated as of May 2, 1995, between
                  the Company and Edward Teixeira.(A)

10.84             Form of Medical Staffing Services Franchise Agreement(D)

10.85             Forbearance and Acknowledgement Agreement, dated as of
                  February 22, 2000, between TLCS, the Company and Chase
                  Equipment Leasing, Inc.

10.86             Stipulation and Settlement, dated January 14, 2000, between
                  certain TLCS, ATC and Banc One Leasing Corporation.

10.89             Confession of Judgment, dated January 27, 2000, granted by a
                  subsidiary of the Company, to Roger Jack Pleasant.First Lease
                  Amendment, dated October 28, 1998, between Matterhorn USA,
                  Inc. and the Company.(B)

10.90             Agreement and Release, dated February 28, 1997, between Larry
                  Campbell and the Company.(C) Confession of Judgment, dated
                  January 27, 2000, granted by the Company to Roger Jack
                  Pleasant.

10.91             Forbearance and Acknowledgement Agreement, dated as of
                  February 22, 2000, between TLCS's subsidiaries, the Company
                  and Chase Equipment Leasing, Inc. Agreement and Release,
                  dated February 28, 1997, between Larry Campbell and the
                  Company.(C)

10.92             Distribution agreement, dated as of October 20, 1999, between
                  the Company and TLCS.(S)

10.93             Tax Allocation agreement dated as of October 20, 1999,
                  between the Company and TLCS.(S)

10.94             Transitional Services agreement, dated as of October 20,
                  1999, between the Company and TLCS.(S)

10.95             Trademark License agreement, dated as of October 20, 1999,
                  between the Company and TLCS.(S)

10.96             Sublease, dated as of October 20, 1999, between the Company
                  and TLCS.(S)

</TABLE>

----------

See Notes to Exhibits

<PAGE>   72

<TABLE>
<CAPTION>

EXHIBIT
NUMBER                          DESCRIPTION
------                          -----------
<S>               <C>
10.97             Employee Benefits agreement, dated as of October 20, 1999,
                  between the Company and TLCS.(S)

10.98             Amendment, dated as of October 20, 1999, to the Employment
                  agreement between the Company and Stephen Savitsky.(T)

10.99             Amendment, dated as of October 20, 1999, to the Employment
                  agreement between the Company and David Savitsky.(T)

10.100            Amendment, dated as of October 20, 1999, to the Employment
                  agreement between the Company and Dale R. Clift.(T)

10.101            Termination and Release, dated as of October 20, 1999, of the
                  Employment agreement between the Company and Willard T. Derr.(T)

10.102            Termination and Release, dated as of October 20, 1999, of the
                  Employment agreement between the Company and Renee J. Silver.(T)

10.103            Consulting agreement dated as of October 20, 1999, between
                  the Company and Willard T. Derr.(T)

10.104            Consulting agreement dated as of October 20, 1999, between
                  the Company and Renee J. Silver.(T)

10.105            Second Amendment to ATC Revolving Credit Loan and Security
                  Agreement, dated October 20, 1999 between the Company and
                  Mellon Bank, N.A.(T)

10.106            Master Lease dated November 18, 1999 between the Company
                  and Technology Integration Financial Services.*

10.107            Loan and Security Agreement between the Company and
                  Copelco/American Healthfund Inc. dated March 29, 2000.*

21.               Subsidiaries of the Company.*

24.               Powers of Attorney.*

27.               Financial Data Schedule.*
</TABLE>

----------

See Notes to Exhibits
<PAGE>   73
                                NOTES TO EXHIBITS

(A)      Incorporated by reference to the Company's exhibit booklet to its Form
         10-K for the Fiscal year ended February 28, 1995 (File No. 0-11380),
         filed with the Commission on May 5, 1995.

(B)      Incorporated by reference to the Company's Registration Statement on
         Form S-1 (File No. 33-43728), dated January 29, 1992.

(C)      Incorporated by reference to the Company's Form 8-K filed with the
         Commission on October 31, 1995.

(D)      Incorporated by reference to the Company's exhibit booklet to it Form
         10-K for the Fiscal year ended February 28, 1996 (file No. 0-11380),
         filed with the Commission on May 13, 1996.

(E)      Incorporated by reference to the Company's Form 8-A filed with the
         Commission on October 24, 1995.

(F)      Incorporated by reference to the Company's Form 8-A filed with the
         Commission on October 24, 1995.

(G)      Incorporated by reference to the Company's exhibit booklet to its Form
         10-K for the Fiscal year ended February 28, 1998 (File No. 0-11380),
         filed with the Commission on May 28, 1998.

(H)      Incorporated by reference to the Company's Registration Statement on
         Form S-8 (File No. 33-63941), filed with the Commission On November 2,
         1995.

(I)      Incorporated by reference to the Company's Registration Statement on
         Form S-4, as amended (File No. 33-9261), dated April 9, 1987.

(J)      Incorporated by reference to the Company's Registration Statement on
         Form S-8 (File No. 33-63939), filed with the Commission on November 2,
         1995.

(K)      Incorporated by reference to the Company's Registration Statement on
         Form S-1 (File No. 3371974), filed with the Commission on November 19,
         1993.

(L)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended November 30, 1997 (File No. 0-11380), filed with the
         Commission on January 19, 1999.

(M)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended November 30, 1997 (File No. 0-11380), field with the
         Commission on January 14, 1998.

(N)      Incorporated by reference to the Company's exhibit booklet to its Form
         10-K for the Fiscal year ended February 28, 1997 (File No. 0-11380),
         filed with the Commission on May 27, 1997.


<PAGE>   74


                                NOTES TO EXHIBIT

(O)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended August 31, 1998 (File No. 0-11380), filed with the
         Commission on October 15, 1998.

(P)      Incorporated by reference to the Company's Form 10 for the quarterly
         period ended May 31, 1998 (File No. 0-11380), filed with the Commission
         on July 15, 1998.

(Q)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended November 30, 1996 (File No. 0-11380), filed with the
         Commission on January 14, 1997.

(R)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended November 30, 1999 (File No. 0-11380), filed with the
         Commission on January 19, 2000.

(S)      Incorporated by reference to Tender Loving Care Health Care Services
         Inc.'s Form 10-Q for the quarterly period ended August 31, 1999 (File
         No. 0-25777) filed with the Commission on October 20, 1999.

(T)      Incorporated by reference to the Company's Form 10-Q for the quarterly
         period ended August 31, 1999 (File No. 0-11380) filed with the
         Commission on October 20, 1999.

*        Incorporated herein.