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U.S SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to___________
Commission File Number 33-47567-NY
HEADSTRONG GROUP, INC.
(Name of Small Business Issuer in its Charter)
Delaware 22-3663311
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5 Lexington Avenue, East Brunswick, N.J. 08816
(Address of Principal Executive Offices) (Zip Code)
(908) 254-3433
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to
be filed by Section 12,13 or 15(D) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes __________ No _________
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 9,968,129
Transitional Small Business Disclosure Format- (Check one):
Yes No X
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PART I
FINANCIAL INFORMATION
ITEM 1. FIANACIAL STATEMENTS
The following unaudited financial statements for the Company are attached
hereto:
(a) Balance Sheet as of March 31, 1996;
(b) Statements of Operations for the three months ended March 31, 1996
1nd 1995;
(c) Statements of Cash Flows for the three months ended March 31, 1996
and 1995
(d) Notes to Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations:
Revenue for the three months ended March 31, 1996 of $2,501,004 increased
from $2,357,544 for the same period of 1995 principally as a result of sale in
1996 of new helmets which command a higher selling price.
Cost of sales decreased from $1,714,960 in 1995 to $1,631,374 in 1996
principally as a result of a change in product mix. The new helmets referred to
above are produced at a cost only slightly higher than the Company's opening
price point helmets. As a result, cost of sales of these new products is
substantially less as a percentage of sales, decreasing from 72.8% in 1995 to
65.2% in 1996.
Gross profit, as a result of the change in product mix described above,
increased from 27% in 1995 to 34% in 1996.
Selling, general and administrative expenses increased from $509,843 for
the three months ended March 31, 1995 to $638,722 for the same period of 1995.
The increase results from increased sales-related costs due to more customer
visits, higher legal costs due to settlement negotiation and agreements with
creditors and increased borrowing costs in 1996 as compared with 1995.
Net income for the three months ended March 31, increased from $132,741 in
1995 to $230,907 for the same period of 1996 as a result of the increase in
gross profit, offset by the increase in selling, general and administrative
expenses described above.
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Liquidity and Capital Resources:
The Company's Statements of Cash Flows for the three months ended March
31, 1996 shows the impact of the first of two capital raises and the use of
those proceeds in meeting the accumulated obligations of the Company. The
receipt of the proceeds aided the Company significantly in being able to
purchase needed components for sales orders and meet some of it's past-due
obligations. With the second capital raise, which was completed in May, 1996,
estimated sales growth and profitable operations, the Company believes it will
be able to conduct its operations in the ordinary course of business.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As a result of a severe liquidity shortage during 1995, the Company was
unable to make timely payments to some of its vendors. Thirty one of these
vendors commenced legal action against the Company for delinquent payments. All
of these actions have been settled pursuant to individual agreements by the
Company to make periodic payments to these vendors. The Company has fully
satisfied its obligations under thirteen of these payment agreements. The
Company's obligations under the remaining eighteen settlement agreements total
approximately $682,000 between May 1996 and January 1997. The Company has funded
its obligations under these settlement agreements through a combination of
capital raises and cash flow in the ordinary course of business.
During 1995, Richard Berman, a former officer and director of the Company,
commenced a legal action against the Company alleging breach of employment
contract and wrongful termination. Certain officers and directors of the Company
were also named as defendants on claims of breach of fiduciary duty to Mr.
Berman in his capacities as officer, director and Stockholder of the Company. In
March, 1996, the Company and Mr. Berman executed a settlement agreement pursuant
to which the Company is obligated to pay an aggregate of approximately $449,000
to Mr. Berman. The Company is current on its obligations to Mr. Berman pursuant
to the settlement agreement.
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS AND OTHER REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Company caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HEADSTRONG GROUP, INC.
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(Company)
By /S/ John J. Willis
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Printed John J. Willis, Treasurer and CFO
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Date May 21, 1996
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By /S/ Dale M. Friedman
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Printed Dale M. Friedman, Director, President and CEO
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Date May 21, 1996
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HEADSTRONG GROUP, INC.
Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, 1996
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<S> <C>
CURRENT ASSETS:
Cash $ 876
Accounts Receivable 2,371,116
Inventory 757,688
Accounts Receivable-Stockholders 218,588
Prepaid Expenses 463,805
Other Current Assets 69,315
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Total Current Assets 3,881,388
PROPERTY AND EQUIPMENT:
Tooling and Equipment 1,041,003
Transportation Equipment 17,874
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Total 1,058,877
Less-Accumulated Depreciation (325,644)
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Property and Equipment-Net 733,233
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$ 4,614,621
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LIABILITIES AND STOCKHOLDERS DEFICIT
CURRENT LIABILITIES:
Bank Overdraft $ 25,678
Accounts Payable 1,662,134
Accrued Expenses 1,471,555
Litigation Reserve 340,115
Subordinated Notes Payable 1,119,267
Payroll Taxes Payable 542,383
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Total Current Liabilities 5,161,132
CONVERTIBLE NOTES PAYABLE 425,000
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STOCKHOLDERS DEFICIT
Common Stock, Class A, par value $.0001, 20,000,000
shares authorized, 9,900,929 shares issued and outstanding 990
Common Stock, Class B, par value $.0001, 5,000,000
shares authorized, none issued and outstanding 0
Preferred Stock, par value $.001, 1,000,000 shares
authorized, 101,775 shares issued and outstanding 102
Additional Paid-in Capital 7,165,649
Accumulated Deficit (8,138,252)
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(971,511)
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$ 4,614,621
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</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
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HEADSTRONG GROUP, INC.
Statements of Operations
For The Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
NET SALES $2,501,004 $2,357,544
COST OF SALES 1,631,374 1,714,960
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Gross Profit 869,629 642,584
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 638,722 509,843
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Operating Profit 230,907 132,741
Income Tax Expense 0 0
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NET INCOME $ 230,907 $ 132,741
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NET INCOME PER SHARE $ 0.02 $ 0.03
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WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 9,809,952 5,030,900
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</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
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HEADSTRONG GROUP, INC.
Statements of Cash Flows
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 230,907 $ 132,741
Adjustments to reconcile net income to net cash
(used) provided in/by operating activities-
Depreciation 45,000 20,000
Changes in operating assets and liabilities-
(Increase) in accounts receivable (1,698,451) (745,004)
(Increase) in accounts receivable-stockholders (34,979) (16,000)
Decrease in inventories 204,269 187,192
(Increase) in prepaid expenses 150,486 (288,912)
Decrease (Increase) in other assets 42,733 (10,000)
Increase (Decrease) in bank overdraft 25,678 (59,133)
(Decrease) in accounts payable (451,309) (332,780)
(Decrease) in accrued expenses (127,928) (11,934)
(Decrease) in loans from factor (284,685) (249,089)
(Decrease) in litigation reserve (127,885) 0
(Decrease) in payroll taxes payable (20,486) (9,296)
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Net cash (used in) operating
activities (2,046,650) (1,382,215)
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CASH FLOW USED IN INVESTING ACTIVITIES-
Purchase of property and equipment (48,562) (103,071)
CASH FLOWS FROM FINANCING ACTIVITIES-
Proceeds from the sale of common stock 2,000,571 0
Proceeds form the issuance of convertible debt 50,000 0
Proceeds from borrowing 0 1,485,286
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Net cash provided by financing activities 2,050,571 1,485,286
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(Decrease) in cash (44,641) 0
CASH, Beginning of period 45,517 450
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Cash, End of period $ 876 $ 450
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</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
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HEADSTRONG GROUP, INC
Notes to Financial Statements
1. Basis of presentation
The unaudited financial statements are subject to year-end adjustments
and audit, but the Company believes all adjustments, consisting only of normal
and recurring adjustments, necessary to present fairly the financial position,
results of operations and changes in cash flows for the interim periods
presented have been made. The results of operations for the interim periods are
not necessarily indicative of the operating results for the full year.
Footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted in
accprdance with the published rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Form
10-KSB for the most recent fiscal year.
2. Income Taxes
No income tax expense is recorded for the three months ended March 31,
1995 and 1996 as a result of the utilization of net operating loss carry
forwards.
