U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ____________
Commission file number 333-11169
Workforce Systems Corp.
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(Name of small business issuer in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
65-0353816
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(I.R.S. Employer Identification No.)
7777 Glades Road, Suite 211, Boca Raton, FL 33434
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number 561-488-4802
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Securities registered under Section 12(b) of the Exchange Act:
none
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(Title of each class)
Name of each exchange on which registered
not applicable
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of Class)
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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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year. $ 4,653,286 for
the 12 months ended June 30, 1997.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. The aggregate market value of the voting stock held by
non-affiliates computed at the average price for which the Company's common
stock was sold on October 6, 1997 is approximately $8,015,737.
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date. As of September 30, 1997,
2,583,346 shares of Common Stock are issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) of
the Securities Act of 1933 ("Securities Act" or "Act"). Not Applicable.
Transitional Small Business Disclosure Form (check one):
Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Workforce Systems Corp. (the "Company") is a Florida corporation formed on
August 17, 1992 to seek acquisition possibilities throughout the United States
and to make acquistions or enter into other business endeavors to the extent its
limited assets would allow. Pursuant to this strategy, on June 14, 1994 Mr. F.
W. Miller, the Company's then principal shareholder, President and Chairman,
sold an aggregate of 4,550 shares of the Company's Common Stock owned by him,
representing approximately 55% of the Company's then issued and outstanding
stock, in a private transaction exempt from registration under the Securities
Act of 1933, as amended (the "Act") to Yucatan Holding Company, a Florida
corporation ("Yucatan"), for $60,000. Concurrent with the purchase of the stock
by Yucatan, the Company's then current officers and directors resigned and the
Company elected new officers and directors.
Effective June 30, 1994 the Company acquired 51.9% of the issued and
outstanding stock of Outside Industrial Services, Inc., a Tennessee corporation
formed in 1982 ("OIS") for 70,000 shares of the Company's Series B $5.00
Cumulative Convertible Preferred Stock ("Series B Preferred") from an
unaffiliated third-party in a private transaction exempt from registration under
the Act. On May 30, 1996 the holder of the Series B Preferred converted such
shares into 17,500 shares of the Company's Common Stock.
Also effective June 30, 1994 the Company acquired all of the issued and
outstanding stock of Prime Florida, Inc., a Florida corporation ("Prime") from
Yucatan, which was an affiliate of the Company, for 187,500 shares of the
Company's Common Stock in a private transaction exempt from registration under
the Act. Prime's sole assets included its rights under a management services
agreement with OIS which entitled Prime to all the cash flow from OIS, together
with a 7.4% interest in OIS.
Giving effect to both the 51.9% interest in OIS the Company acquired from
the unaffiliated third party, together with the 7.4% interest in OIS the Company
acquired through its ownership of Prime, the Company then owned 59.3% of the
issued and outstanding stock of OIS. On November 30, 1994 the Company exchanged
30 shares of its Series A Preferred Stock for 155 shares of the common stock of
OIS thereby completing its plan to acquire at least 80% of OIS which began in
June 1994. Following such share exchange, the Company is the beneficial owner of
approximately 81% of OIS.
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On November 4, 1994 the Company entered into an agreement (the "Naturale
Agreement") with Naturale Home Products, Inc. ("Naturale"), an unaffiliated
third party, whereby the Company was named the exclusive manufacturer through a
then to-be-established wholly-owned subsidiary of the Company for all products
developed and marketed by Naturale, including the ThawMaster(TM) thawing trays,
Naturale's initial product. In addition to the revenue to be generated through
the manufacturing and sale by the Company of the products to Naturale, the
Company was entitled to a royalty of $.30 to $.50 per unit in perpetuity on all
products sold by Naturale. Following the execution of the Naturale Agreement, in
1994 the Company formed NHP Manufacturing Corp., a Florida corporation ("NHP").
After initially utilizing contract manufacturers to produce ThawMaster(TM)
thawing trays, the Company determined to sub-contract out the milling and
anodization of the trays to other fabricators who were unaffiliated third
parties and to internally perform the finishing stages of the thawing trays,
including silk screening, assembly, packaging and shipping. In the spring of
1995 the Company expanded its operations and began to fully internalize the
production of the thawing trays, with the exception of the anodization, through
a series of events which led to the acquisition of IFR as described below. This
was the first step in achieving the Company's goal with respect to
diversification of its operations and revenue base.
On May 22, 1995 the Company acquired 100% of the issued and outstanding
capital stock of Industrial Fabrication & Repair, Inc. ("IFR") from Lester E.
Gann in exchange for 31,481 shares of the Company's Common Stock in a private
transaction exempt from registration under the Act. IFR, a Tennessee corporation
formed in 1979 and based in Knoxville, Tennessee, provided machining, welding,
speciality design and fabrication for custom applications to clientele from
various industries including paper, steel mills, rock quarry operations, coal
mining applications and bottling facilities.
In July 1996 IFR expanded its scope of business though the formation of
Maintenance Requisition Order Corp., a Florida corporation ("MRO"), which is
owned 80% by IFR and 20% by Ralph Johnson, a then unaffiliated party who became
its president following the formation of that entity. MRO, based in Cleveland,
Tennessee, is an industrial supply house representing several lines of power
transmissions products, such as gear boxes, bearings and couplings, which are
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commonly used in industrial manufacturing and operating facilities. MRO further
diversified IFR's business base insomuch as historically IFR had been a
fabricator and maintenance provider without the additional competitive advantage
of being an authorized factory distributor for many of the components used in
its business.
In October 1995, the Company formed a consumer products division and
incorporated Products That Produce, Inc., a Florida corporation ("PTP") which is
owned 80% by the Company and 20% by William P. Heath, III, a then unaffiliated
third party who initially served as its president. Since November 1996 Mr. Heath
has had no operational role within PTP.
PTP's mission is to identify and market new consumer products that are
both innovative and moderately priced. The first product undertaken by PTP is
MR. FOOD'S ALLOFRESH. The product is being marketed under an endorsement by Art
Ginsburg, the nationally syndicated T.V. chef known as Mr. Food. Made naturally
from minerals, non-toxic and environmentally safe, MR. FOOD'S ALLOFRESH works to
prevent food decay and eliminates bacteria, moisture, mold, mildew and odors in
refrigerators, kitchen and around the house. The product had its debut in June
1996 through a nationwide direct response television commercial, with this
initial introduction followed by introduction into the retail market place
through mass merchandisers, grocery and drug store chains.
In February 1996 the Company acquired 100% of the issued and outstanding
capital stock of American Industrial Management, Inc., a Tennessee corporation
formed in 1995 ("AIM") from Messrs. Robert Lovelace and David Debuty and Jones
Leasing, Inc. in a private transaction exempt from registration under the Act in
exchange for 4,375 shares of the Company's Common Stock. AIM, founded in 1995
and based in Knoxville, Tennessee, provides industrial personnel for light
manufacturing and assembly line operations to businesses located in the East
Tennessee area.
In May 1997 the Company further expanded its Manufacturing Division
through the acquisition of 100% of the issued and outstanding stock of Federal
Supply, Inc. and Federal Fabrication, Inc. (collectively, "Federal") from
Messrs. Robert Hausman and John Murray in a private transaction exempt from
registration under the Act in exchange for 110,000 shares of the Company's
Common Stock. Federal Supply, Inc. and Federal Fabrication, Inc. are both
Florida corporations formed in 1994 and 1996, respectively. Federal is a
fabricator and distributor of custom-designed fire sprinkler systems and
components. In connection therewith, Robert Hausman was elected to the Company's
Board of Directors and appointed President of the Company. See Item 9.
Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act.
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In September 1997 the Company acquired 100% of the issued and outstanding
capital stock of LPS Acquisition Corp. ("LPS") in exchange for an aggregate of
270,000 shares of the Company's Common Stock from LPS' shareholders in a private
transaction exempt from registration under the Act pursuant to Section 4(2)
thereof. LPS, doing business as Lantana Peat and Soil, is a distributor of high
quality custom soil mixes to wholesale nurseries throughout South Florida.
Annualized revenues are currently estimated at approximately $3 million.
The majority shareholder of LPS, owning approximately 85.2% of LPS, was
Darren Apel, a non-affiliate of the Company. Minority shareholders in LPS, each
owning approximately 7.4% of the issued and outstanding stock, were Barbara
Hausman, wife of Robert Hausman who is Chairman and President of the Company,
and Ronna Newman Rutstein, wife of C. Lawrence Rutstein, who is a director of
the Company. Both Messrs. Hausman and Rutstein disclaim any ownership interest
in LPS by virtue of their spouses' holdings.
The calculation of the consideration paid by the Company in the
acquisition of LPS was based upon a percentage of the revenue base of LPS of
approximately $3 million on an annualized basis. Pursuant to the terms of the
agreement for the acquisition of LPS, the sellers are required to deliver to the
Company a fairness opinion as to the amount of consideration tendered by the
Company in the share for share exchange. In the event such fairness opinion does
not support the exchange ratio, such exchange ratio shall be adjusted by mutual
agreement between the parties.
The following chart sets forth the current corporate structure.
PARENT
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WORKFORCE SYSTEMS CORP.
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| | |
STAFFING CONSUMER |
DIVISION PRODUCTS MANUFACTURING
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| | | | | | |
AIM OIS PTP NHP LPS IFR FEDERAL
|
MRO
Manufacturing Division
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The Manufacturing Division of the Company is comprised of IFR and its
subsidiary MRO and Federal. For the fiscal year ended June 30, 1997, the
Manufacturing Division accounted for approximately 76.6% of the Company's
revenues on a consolidated basis. As a result of the May 1997 acquisition of
Federal, the Company only reports revenues from Federal for one month in fiscal
1997.
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As a result of a combination of broad industry experience, top quality
component products, specialized design and custom fabrication capabilities, the
Manufacturing Division is able to market its products and services to a wide
range of industries. Moreover, while the breadth of its product offering covers
a wide range of specific applications, individual products are often utilized
separately or jointly by customers within a single industrial plant. As the
Manufacturing Division continues to expand the scope of its operations, through
both internal means and by acquisition, the Company believes that it enhances
its position as a one-stop source for a variety of its customer's needs.
IFR provides machining, welding, speciality design and fabrication for
custom applications to clientele from various industries including wood, lumber
and paper, steel mills, stone and asphalt companies, utilities, excavation
contractors, reclamation operations, electronic and automobile manufacturers,
coal mining applications and bottling facilities. IFR is also an authorized
distributor for a variety of component products, including engineering and
roller chain, conveyor pulleys and idlers, gear and motor drives, bearings and
industrial v-belts from manufacturers such as Webster Chain,
Allied-Locke-Moline, Precision Inc., Superior Idlers, Eurodrvie and Dunlop.
IFR's business and services are marketed through its five sales representatives.
A significant portion of IFR's business is generated from its long standing
relationships with clients within the 150 mile radius of Knoxville, Tennessee
including Coca-Cola Co., Pepsico, Kimberly-Clark Corp., American Limestone,
Florida Steel Corp., Vulcan Materials Co., Dixie Cement, Blue Diamond Coal,
TRW-Koyo and Westinghouse. No single client accounts for more than 10% of IFR's
annual revenues.
MRO is an industrial supply house representing several lines of power
transmissions products, such as gear boxes, bearings and couplings, including
lines from Falk, Goodman Material Handling Components and Leeson Electric,
together with a variety of other chain, bearing and idler distributors handling
components which are commonly used in industrial manufacturing and operating
facilities. MRO's products are marketed by its sales staff to both value added
manufacturers as well as direct end users. As of the date hereof, MRO has four
clients which account for 50%, 25%, 10% and 10%, respectively, of its current
revenues. The loss of one or more of these clients could have a material adverse
effect on the business and operations of MRO until replacement clients are
secured, of which there can be no assurances.
Federal is a fabricator and distributor of custom-designed fire sprinkler
systems and components for use in both commercial and residential application.
Its present customer base is located in the South Florida market. Federal's
principal products include pipe, valves, screwed and grooved fittings, sprinkler
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head and hanger materials from manufacturers such as Bull Moose Tube, Northwest
Pipe, American Tube Victaulic, Ward Manufacturing, Reliable Sprinkler Corp. and
Globe Manufacturing. Federal's fabrication services include stocklisting,
welding, grooving, threading and hanger fabrication. Federal's products and
services are marketed to contractors and installers by its sales staff. As of
the date hereof, Federal has one client which accounts for approximately 14% of
its current revenues. The loss of this client could have a material adverse
effect on the business and operations of Federal until replacement client(s) are
secured, of which there can be no assurance.
Competition
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While IFR competes with numerous fabricators in the East Tennessee area,
management of IFR believes it has limited direct competition as a result of the
comprehensive nature of its services. Within the 150 mile radius of its client
base, IFR is one of a select few fabricators which offers a full bevy of
services from concept and design to engineering and prototype to custom systems.
Management believes the formation of MRO is also contributing to IFR's
competitive advantage by providing IFR's customers with a single source supply
for their production needs. There can be no assurances, however, that IFR in
fact will maintain a competitive advantage or that if such competitive advantage
exists, IFR will be able to retain same in the future. MRO competes with a wide
variety of industrial supply houses, the majority of which are larger, have
historical operations and greater resources. There are no assurances MRO will be
able to effectively compete in its market. Federal competes with a variety of
suppliers and manufacturers of fire sprinkler systems, many of which have a
longer operating history and greater resources than Federal. There can be no
assurances that Federal will be able to effectively compete in its market.
Government Regulation and Environmental Compliance
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The operations of the Manufacturing Division are not subject to any state
or government regulations at the present time, other than normal and customary
rules and regulations, including environmental regulations, to which most
companies are subject. There can be no assurances, however, that future
regulations at the state or federal level, if adopted, will not have a material
adverse effect on the operations of the Manufacturing Division.
Staffing Division
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The Staffing Division is comprised of OIS and AIM. For the year ended June
30, 1997, the Staffing Division accounted for approximately 22.2% of the
Company's revenues on a consolidated basis.
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The Staffing Division does not offer traditional temporary services such
as providing several employees on an intermittent, as needed basis. The Staffing
Division's niche market is to provide specialized labor services on a contract
basis to businesses in the light industrial and light manufacturing areas,
augmenting the client's base of permanent employees. OIS focuses on providing
personnel with speciality skills, such as transportation and equipment
maintenance, while AIM focuses on providing personnel with a wide variety of
manufacturing skills to perform semi-skilled and unskilled tasks including
assembly line and janitorial.
The Staffing Division recruits employees on an as needed basis to fulfill
its existing contracts. Such contracts typically provide for a 30 day
termination by either party. As of the date hereof, AIM has three clients which
account for 62%, 11 % and 10% of its current revenue, respectively, and OIS
has two clients which account for 100% of its revenues. The loss of one or more
of such clients could have a material adverse impact upon the Staffing
Division's operations until replacement clients are secured, of which there can
be no assurance.
Competition
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The Staffing Division competes with many large international and national
companies, as well as many smaller regional and local companies, many of whom
have far greater assets and revenue base than the Staffing Division. There are
no assurances the Staffing Division will ever attain a competitive advantage in
its marketplace.
Government Regulation
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In many states, the temporary services industry is regulated; however, the
Staffing Division is not subject to any specific regulation in the State of
Tennessee where all of its current operations are based. In the event the
Staffing Division should expand its operations outside the State of Tennessee,
of which there are no present plans, it may become subject to regulation by
other states. There can be no assurance that future regulations in the State of
Tennessee, if adopted, or existing or future regulations in states in which the
Staffing Division should expand its operations will not have a material effect
on the Staffing Division's operations.
Consumer Products Division
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The Consumer Products Division is comprised of NHP, PTP and LPS. For the
fiscal year ended June 30, 1997, the Consumer Products Division accounted for
approximately 1.2 % of the Company's revenue on a consolidated basis. As the
acquisition of LPS was consummated in September 1997, the Company reported no
revenues from that subsidiary during fiscal 1997.
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NHP's current operations are presently limited to the manufacture of the
ThawMaster(TM) family of thawing trays. It is not presently anticipated that
NHP's operations will expand beyond their current base. The Company experienced
a significant decline in revenue from NHP during fiscal 1997. See "Management's
Discussion and Analysis or Plan of Operations." Further, the Company does not
expect revenues derived from the manufacture of thawing trays will ever return
to historic levels due to the decreasing consumer interest.
PTP's was formed to identify and market new consumer products that are
both innovative and moderately priced. The first product to be undertaken by PTP
was MR. FOOD'S ALLOFRESH which is being marketed under a license agreement with
Ginsburg Enterprises Incorporated ("Ginsburg") which provides for an endorsement
by Art Ginsburg, the nationally syndicated T.V. chef known as Mr. Food. Pursuant
to the terms of the agreement, Ginsburg granted PTP a license to the "Mr. Food"
marks in connection with the marketing and sale of the product. As
consideration, Ginsburg is entitled to certain royalty payments, specifically
(a) 15% of the sales price for any sales made via direct response television or
through electronic retailers or (b) 5% of the sales price for any other sales.
Made naturally from minerals, non-toxic and environmentally safe, MR. FOOD'S
ALLOFRESH works to prevent food decay and eliminates bacteria, moisture, mold,
mildew and odors in refrigerators, kitchen and around the house.
MR. FOOD'S ALLOFRESH, which is not subject to any special government
approval or regulation, was introduced in late June 1996 through a five week
direct response television campaign. The introduction of MR. FOOD'S ALLOFRESH
into the retail market place through sales to mass merchandise, grocery and
drug store chains commenced in August 1996. PTP has been unable to sufficiently
penetrate the retail market. Accordingly, product sales for MR. FOOD'S ALLOFRESH
have been disappointing. Management is currently exploring opportunities for use
of the base mineral in commercial and industrial applications, as well as
alternate methods of distribution of MR. FOOD'S ALLOFRESH.
In September 1997 the Company acquired 100% of the outstanding stock of
LPS. See Item 1. Description of Business. LPS, doing business as Lantana Peat &
Soil, is a distributor of fine quality custom soils mixes to commercial
nurseries in the State of Florida. LPS, a Florida corporation formed in 1997,
acquired the assets of Lantana Peat & Soil in 1997. Lantana Peat & Soil, which
has been in business for approximately 17 years, blends and mixes raw materials
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to produce custom blended soilless mixes for the commercial nursery industry.
Its custom mixes are blended to its customers' specifications, depending upon
the application, and generally contain combinations of organic raw materials
including Canadian sphagnum peat moss and/or Florida peat moss, fresh or
composted pine bark, sawdust, cypress mulch, sand, airlite and/or perlite and
composted organic materials, amongst others. Lantana Peat & Soil uses the
highest quality organic raw materials, including Canadian sphagnum peat moss
from the northern Quebec Province of Canada, which is generally accepted by
horticulturists as the most desirable of sphagnum peat moss. Orders are
delivered in bulk by Lantana Peat & Soil to its customer base throughout the
State of Florida, with quantities generally ranging from a minimum of 30 cubic
yards to 100 cubic yards.
Lantana Peat & Soil has an established customer base of in excess of 300
commercial nurseries and landscapers in the State of Florida. Lantana Peat &
Soil's customer base generally is comprised of the higher quality nurseries
which sell fine quality, specialized plant materials to both retail and
commercial customers. Other than one customer which accounts for approximately
20% of its current revenues, Lantana Peat & Soil is not dependent on any one
customer. In the event Lantana Peat & Soil should lose this one major customer's
business, management of the Company believes such revenues could be replaced by
other nurseries.
Lantana Peat & Soil purchases the organic raw materials used in its custom
blended mixes, other than the Canadian sphagnum peat moss, from a variety of
readily available sources which offer materials at competitive prices. Lantana
Peat & Soil has a five year relationship with the supplier of the Canadian
sphagnum peat moss, which such supplier has sufficient quantities of raw
materials readily available to satisfy Lantana Peat & Soil's demand over the
next 10 years. As a result of this relationship, management of the Company does
not believe, although there can be no assurances, that Lantana Peat & Soil will
be subject to the cost fluctuations its competitors may experience in purchasing
Canadian sphagnum peat moss.
Competition
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While Lantana Peat & Soil competes with approximately six similar
companies in the State of Florida, management of the Company believes it has
limited direct competition as a result of the high quality of its custom blended
mixes. There can be no assurances, however, that Lantana Peat & Soil in fact
will maintain a competitive advantage or that if such competitive advantage
exists, Lantana Peat & Soil will be able to retain same in the future.
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Government Regulation and Environmental Compliance
--------------------------------------------------
Neither the operations of Lantana Peat & Soil, nor the other entities
presently included in the Company's Consumer Products Division, are subject to
any state or government regulations at the present time, other than normal and
customary rules and regulations, including environmental regulations, to which
most companies are subject. There can be no assurances, however, that future
regulations at the state or federal level, if adopted, will not have a material
adverse effect on the operations of either Lantana Peat & Soil or the other
entities presently included in the Company's Consumer Products Division.
Employees
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As of September 30, 1997, the Company has approximately 95 employees, all
of whom are full time.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains principal executive offices in Boca Raton, Florida
of approximately 1,000 square feet of commercial office space pursuant to a
lease expiring on August 30, 2000 with an unaffiliated third party for an annual
rent of $18,000. The Company's Staffing Division leases two separate facilities,
both located in East Tennessee. The first space which is comprised of
approximately 1,800 square feet of commercial office space is leased by AIM from
an unaffiliated third party under a five year lease expiring in September 2000
for approximately $1,000 per month. OIS leases an additional 500 square feet of
office space on a month to month basis for $350 per month from an unaffiliated
third party. MRO leases approximately 4,500 square feet of industrial/warehouse
space in Cleveland, Tennessee from an unaffiliated third party pursuant to a
lease expiring on June 1, 1999 at a monthly rental of $900. Federal leases an
aggregate of approximately 38,500 square feet of office/warehouse space in
Pompano Beach, Florida from unaffiliated third parties under leases expiring on
September 30, 2001 for an aggregate annual rental of approximately $176,000.
Federal sublease an aggregate of 18,000 square feet to two unaffiliated third
parties under a subleases expiring in January 31, 2000 and September 23, 1999,
respectively, which provides aggregate rental payments to Federal of
approximately $62,540. LPS leases an aggregate of 2,000 square feet of office
space situated on 11 acres in Palm Beach County, Florida. The terms of this
triple net, month-to-month lease, which terminates on December 31, 1997,
provides that LPS pay the lessor $1,000 per month, plus the mortgage payment in
the principal amount of approximately $7,500 monthly. Upon the termination of
the lease period, such lease automatically renews on a month to month basis
unless terminated by either party with 15 days prior written notice.
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Prior to its acquisition by the Company, IFR's principal offices were
located in a 13,500 square foot office/industrial building in Knoxville,
Tennessee which was leased by IFR from Mr. Gann, a director of the Company,
IFR's President and then sole shareholder, on an annual basis at a monthly
rental of $3,400. Following the Company's acquisition of IFR, IFR continues
to lease this space from Mr. Gann. In June 1995 the Company, through a wholly-
owned subsidiary Workforce Properties Corp., acquired fee simple title to an
approximate 35,000 square foot office/industrial building in Knoxville,
Tennessee from an unrelated third party.
This building was encumbered by an existing first mortgage in the original
principal amount of approximately $585,000, with interest at 7 3/4% over the 110
month term which commenced in June 1993. The first mortgage provided for an
initial monthly payment of $4,800 with a monthly increase of 0.377% during the
term of the mortgage and no pre-payment penalty. Upon maturing, assuming all
monthly mortgage payments were then current, the mortgage would be satisfied in
full. The Company assumed the existing first mortgage on the building, with a
remaining principal balance of approximately $ 390,000 pursuant to the original
terms and conditions of the first mortgage.
In connection with the purchase of the building, the Company also assumed
approximately $101,000 in past due city and county real estate taxes due on the
property. Prior to such assumption, the Company negotiated an arrangement with
the City of Knoxville for the payment of the past due taxes, which approximated
$61,000 in the aggregate for the years 1991, 1992, 1993 and 1994, over a period
of 24 months by making monthly installments of $2,538.00. The Company also
assumed a similar arrangement the prior owner of the property had negotiated
with Knox County for the payment of past due taxes, which approximated $40,000
for the years 1990, 1991, 1992, 1993 and 1994, over a period of 12 months by
making monthly installments of $3,797.72.
The building, which is in good condition, is sufficient for the Company's
present needs and management of the Company believes it is adequately covered by
insurance. All of the leased locations are presently sufficient for the required
purposes and should the Company wish to relocate any office in the future,
management does not believe it would experience any difficultly in locating and
securing alternative office space at a reasonable rate.
The Company has executed a five year exclusive lease, which is renewable
at the option of the Company for an additional five year term, with an
unaffiliated third party which permits the Company to excavate whatever
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quantities of the minerals which are the component of Mr. Food's AlloFresh as it
deems necessary for an annual base fee of $30,000 for the first 1,000 tons.
Management of the Company has determined to renew the lease for the additional
five year terms pursuant to its terms. Such amount is payable in advance at the
beginning of each year of the term of the lease and no portion is refundable in
the event at least 1,000 tons are not excavated during the subject year.
Thereafter, the Company pays a fee of $30 per ton.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On August 26, 1994 the Company's Common Stock began trading on the OTC
Bulletin Board under the symbol WFSC. Prior to such date, there had been no
market for the Company's Common Stock; thereafter, there has been limited
trading. On April 4, 1997, in connection with the one for four stock split of
the Company's Common Stock, the Common Stock began trading under the symbol
"WFSY." The following table sets forth the average of the high and low bid
prices of the Company's Common Stock for each quarter since the stock began
trading on August 26, 1994, and for the interim period from June 30, 1996 (the
end of the last quarter) through September 30, 1997, adjusted to give effect to
the stock split. The following quotations are over-the-market quotations and,
accordingly, reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
12
<PAGE>
Bid Price
---------------
High Low
---- ---
August 26, 1994 through September 30, 1994 $12.00 $11.00
October 1, 1994 through December 31, 1994 $18.52 $12.00
January 1, 1995 through March 31, 1995 $22.68 $22.00
April 1, 1995 through June 30, 1995 $33.88 $32.12
July 1, 1995 through September 30, 1995 $33.96 $32.56
October 1, 1995 through December 31, 1995 $30.44 $24.16
January 1, 1996 through March 31, 1996 $23.56 $22.56
April 1, 1996 through June 30, 1996 $26.48 $25.48
July 1, 1996 through September 30, 1996 $21.12 $19.84
October 1, 1996 through December 31, 1996 $16.56 $15.40
January 1, 1997 through March 31, 1997 $11.20 $10.44
April 1, 1997 through June 30, 1997 $ 4.81 $ 4.54
July 1, 1997 through September 30, 1997 $ 4.85 $ 4.62
On October 6, 1997, the closing bid price for the Common Stock was $4.56.
As of September 30, 1997, the approximate number of record holders of the
Company's Common Stock was 170. Management of the Company, however, believes
there to be in excess of 1,000 beneficial holders of the Company's Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
inception. The Company presently intends to retain future earnings, if any, to
finance the expansion of its business and does not anticipate that any cash
dividends will be paid in the foreseeable future. Future dividend policy will
depend on the Company's earnings, capital requirements, expansion plans,
financial condition and other relevant factors.
The Company presently has issued and outstanding 30 shares of Series A
Preferred, 30,000 shares of Series C Preferred Stock and 115,000 shares of
Series E Cumulative Non-Participating Preferred Stock. The Series A Preferred
does not pay any dividends; the Series C Preferred Stock does not pay any
dividends except at the discretion of the Board of Directors. The Board of
Directors does not intend to declare any dividends on the Series C Preferred
Stock. The Series E Cumulative Non-Participating Preferred Stock pays annual
dividends of $77,000. See Item 12. Certain Relationships and Related
Transactions.
13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion regarding the Company and its business and
operations should be read in conjunction with the Financial Statements included
herein under Item 7. Financial Statements, including, but not limited to, Note 1
thereto as same relates to new accounting standards which may or may not have an
impact on the Company in the future. The following discussion also contains
"forward-looking statements" within the meaning of Private Securities Litigation
Reform Act 1995. Such statements consist of any statement other than a
recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward looking statements. The Company does not have a policy of updating
or revising forward-looking statements and thus it should not be assumed that
silence by management of the Company over time means that actual events are
bearing out as estimated in such forward looking statements.
RESULTS OF OPERATIONS
Consolidated revenues for the fiscal year ended June 30, 1997 ("Fiscal
1997") increased $832,606 or approximately 22% from the fiscal year ended June
30, 1996 ("Fiscal 1996"), which reflects a significant revenue increase in both
the Manufacturing and Staffing Divisions net of a continued decline of revenues
in the Consumer Products Division. Additionally, it should be noted that Fiscal
1997 revenues reflect results from Federal for one month in Fiscal 1997 of
$322,811, as a result of its acquisition in late Fiscal 1997, and reflect no
results for LPS which was acquired in September 1997.
Gross profit margins as a percentage of revenues in Fiscal 1997 decreased
approximately 19% from Fiscal 1996 as a result of (i) an increase in costs of
goods sold which includes an approximate $90,000 inventory adjustment for
obsolescence, (ii) a full year of operations from AIM, which traditionally
carries lower margins by virtue of the type of personnel it provides; and (iii)
the expansion of the Manufacturing Division's operations as hereinafter
discussed.
Selling, general and administrative expenses ("SG&A") on a consolidated
basis increased approximately 475% during Fiscal 1997 from Fiscal 1996 as a
result of (i) approximately $380,000 of additional salaries as a result of the
expansion of the Company's business and operations, (ii) approximately $113,000
14
<PAGE>
of SG&A costs for Federal for the one month it was included in the Consolidated
Statement of Operations, and (iii) a general increase in costs associated with
the Manufacturing Division's facility operating for the full year ended June 30,
1997.
For Fiscal 1997 the Company also reported an increase in certain other
Operating Expenses including (i) increased professional, marketing and public
relations fees which relate to the expansion of its business and operations
during Fiscal 1997 and (ii) provision for doubtful accounts which is primarily
related to the Consumer Products Division as hereinafter discussed.
For Fiscal 1997, Other Expenses primarily represented startup
pre-operating expenses relating to Mr. Food's AlloFresh and expenses related to
the expansion of the Manufacturing Division's operations, including the startup
of MRO. For Fiscal 1996, such Other Expenses represented (i) mineral exploration
costs and pre-operating expenses related to Mr. Food's AlloFresh and (ii)
certain web development expenses. As the Company continues to expand its
operations, management of the Company anticipates it will continue to incur
expenses similar to those reflected in Other Expenses during Fiscal 1997,
although the amounts may vary, for fiscal 1998 and beyond.
The Company reported an income tax benefit of $133,399 at Fiscal 1997 as
compared to an income tax provision of $260,320 at Fiscal 1996. Because the
Company files tax returns on a separate company basis for its subsidiaries
instead of a consolidated return, such separate filings can result in income
tax expense while having an overall consolidated loss.
The Company reported a net loss of $2,894,751 for Fiscal 1997 as compared
to a net loss of $1,367,927 for Fiscal 1996. The increased loss is mainly
attributable to the increased SG&A during Fiscal 1997 as discussed above.
As discussed above, the Company's revenues for Fiscal 1997 do not reflect
any revenues from LPS and reflect only one month of revenues from Federal.
Federal's current annualized revenues are approximately $4 million and LPS'
current annualized revenues are approximately $3 million. Accordingly,
management of the Company estimates its current annualized revenues for the
fiscal year ending June 30, 1998, giving effect to both Federal and LPS, to be
in excess of approximately $11,000,000.
Following is a separate discussion regarding the results of operations for
the Manufacturing Division, Staffing Division and Consumer Products Division.
For a discussion of the operations, including the products and services offered
by each of the divisions, please see Item 1. Description of Business.
15
<PAGE>
MANUFACTURING DIVISION
For Fiscal 1997 the Manufacturing Division reported an increase of
approximately 45% in revenues from Fiscal 1996. The increase in the revenues
contributed by the Manufacturing Division is a result of the expansion of that
division which began in Fiscal 1997 through a broadening of the core operations
to include both a diversification of the fabrication work to include more CNC
and other higher margin fabrication work as well as the sale as an authorized
distributor of power transmission components to pre-existing customers and to
various new industrial clients with the opening of the new Cleveland, Tennessee
location of MRO. The Manufacturing Division reported a loss from operations of
approximately $114,814 in Fiscal 1997 as compared to operating income of
approximately $1,276,776 in Fiscal 1996. The loss from operations at the
Manufacturing Division is mainly attributable to increased SG&A as a result of
the expansion of that division's core business.
STAFFING DIVISION
For Fiscal 1997 the Staffing Division reported an increase in revenues of
approximately 78% from Fiscal 1996. This increase in revenues reflects revenues
from AIM, which was acquired by the Company in February 1996, for an entire
fiscal year as well as an increase in revenues from OIS. The Staffing Division
reported a loss from operations of approximately $168,034 in Fiscal 1997 as
compared to operating income of approximately $101,587 in Fiscal 1996. The loss
from operations at the Staffing Division is mainly attributable to increased
SG&A related to a full year of operations of AIM.
CONSUMER PRODUCTS DIVISION
Revenues for the Consumer Products Division continued to decline in Fiscal
1997 from Fiscal 1996, Revenue for Fiscal 1997 was approximately 93% less than
in Fiscal 1996. The introduction of Mr. Food's AlloFresh into the retail market
place through sales to mass merchandiser, grocery and drug store chains
commenced in August 1996. Despite initial enthusiasm for the product, PTP has
been unable to sufficiently penetrate the retail market. Accordingly, product
sales for Mr. Food's AlloFresh have been disappointing. Management is currently
exploring opportunities for use of the base mineral in commercial and industrial
applications, as well as alternate methods of distribution of Mr. Food's
AlloFresh. In addition, as a result of the lack of sales of thawing trays, the
Company took a one time expense of approximately $90,000 related primarily to an
inventory valuation adjustment. In addition, accounts receivable of
approximately $181,000 related to the thawing trays was charged to bad debts.
Management of the Company does not anticipate the sales of thawing trays will
ever return to historic levels.
16
<PAGE>
As a result of the disappointing results in the Consumer Products
Division, the Company terminated its relationship with the division's former
president in an effort to further reduce expenses while management of the
Company evaluates options for its existing products. In addition, in September
1997 the Company acquired LPS which is a distributor of high quality custom soil
mixes to wholesale nurseries throughout South Florida. Annualized revenues are
currently estimated at $3 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June 30, 1997 was $1,817,699 versus
$2,531,626 at June 30, 1996. This decrease in working capital is attributable
primarily to an increase in trade accounts payable and accrued expenses in
connection with an expansion of the Company's business and operations during
Fiscal 1997, as well cash used by operations. While the Company does not.
presently anticipate any significant capital expenditures, in order to pursue
the Company's plan of operations for fiscal 1998 it may be necessary for the
Company to raise additional working capital. A substantial portion of the
Company's property, plant and equipment is unencumbered and, accordingly, would
provide additional sources of internal working capital should the Company elect
to enter into an asset based lending arrangement. Management of the Company
believes the Company will have sufficient cash resources to satisfy its capital
needs for the next 12 months.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements are contained in pages F-1 through F-31
as follows.
17
<PAGE>
Workforce Systems Corp.
Contents
________________________________________________________________________________
Page
----
Independent Auditors' Reports F-2 - F-3
Financial Statements
Consolidated Balance Sheets F-4 - F-5
Consolidated Statements of Operations F-6
Consolidated Statements of Stockholders' Equity F-7 - F-8
Consolidated Statements of Cash Flows F-9 - F-10
Notes to Consolidated Financial Statements F-11 - F-31
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders
of Workforce Systems Corp.
We have audited the accompanying consolidated balance sheet of Workforce Systems
Corp. and subsidiaries as of June 30, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Workforce Systems
Corp. and subsidiaries at June 30, 1997, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Miami, Florida
October 7, 1997
F-2
<PAGE>
Independent Auditor's Report
To the Board of Directors and Stockholders
of Workforce Systems Corp.
I have audited the accompanying consolidated balance sheet of Workforce Systems
Corp. (a Florida Corporation) and subsidiaries as of June 30, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Workforce Systems
Corp. and subsidiaries as of the year ended June 30, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
Lyle H. Cooper, CPA
October 12, 1996, except for Note 14
the date of which is March 21, 1997
F-3
<PAGE>
Workforce Systems Corp.
Consolidated Balance Sheets
________________________________________________________________________________
June 30, 1997 1996
- - --------------------------------------------------------------------------------
Assets
Current Assets
Cash (Note 3) $ 335,321 $ 938,487
Accounts receivable, less $55,442 and $0
allowance for doubtful accounts (Note 8) 1,017,949 633,188
Other receivables 47,678 --
Inventory 1,888,235 1,412,896
Prepaid expenses (Note 2) 565,571 711,510
Prepaid consulting fees (Note 13) 141,667 --
- - -------------------------------------------------------------------------------
Total Current Assets 3,996,421 3,696,081
- - -------------------------------------------------------------------------------
Property, Plant and Equipment (Note 8)
Land 156,503 156,503
Building and improvements 1,458,126 1,380,422
Machinery and equipment 1,411,698 1,125,921
Autos and trucks 212,466 146,428
Accumulated depreciation (324,062) (132,856)
- - -------------------------------------------------------------------------------
2,914,731 2,676,418
- - -------------------------------------------------------------------------------
Other Assets
Excess cost over fair value of net assets
acquired, net (Notes 4 and 6) 2,198,441 1,330,348
Prepaid consulting fees (Note 13) 531,249 --
Other 28,330 --
- - -------------------------------------------------------------------------------
$ 9,669,172 $ 7,702,847
===============================================================================
F-4
<PAGE>
<TABLE>
<CAPTION>
Workforce Systems Corp.
Consolidated Balance Sheets
____________________________________________________________________________________________
June 30, 1997 1996
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable $ 915,630 $ 390,895
Accrued expenses 428,026 189,375
Factoring line of credit (Note 8) 398,858 --
Income taxes payable (Note 11) 59,030 132,359
Deferred income tax liability (Note 11) -- 65,000
Current maturities of long term debt (Note 8) 234,447 254,159
Note Payable - related party (Note 9) 142,731 132,667
- - -------------------------------------------------------------------------------------------
Total Current Liabilities 2,178,722 1,164,455
Deferred Income Taxes (Note 11) 130,000 125,541
Long Term Debt, less current portion (Note 8) 575,116 463,339
Note payable-stockholder (Notes 9 and 15, subsequent events) 1,150,019 --
- - -------------------------------------------------------------------------------------------
Total Liabilities 4,033,857 1,753,335
- - -------------------------------------------------------------------------------------------
Stockholders' Equity (Notes 12 and 13)
Series A Preferred stock, $.001 par value, 30 shares
authorized, 30 shares issued and outstanding -- --
Series C Preferred stock, $.001 par value, 30,000
shares authorized, issued and outstanding 30 30
Series D Preferred stock, $.001 par value, 1,000,000
shares authorized, 0 and 1,000,000 shares
issued and outstanding -- 1,000
Common stock, $.001 par value, 25,000,000 shares
authorized, 1,952,934 and 622,710 shares issued and
outstanding 1,953 623
Paid-in capital 12,567,700 8,570,809
Stock to be earned (Note 13) (1,416,667) --
Accumulated deficit (5,517,701) (2,622,950)
- - -------------------------------------------------------------------------------------------
Total stockholders' equity 5,635,315 5,949,512
- - -------------------------------------------------------------------------------------------
$ 9,669,172 $ 7,702,847
===========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
Workforce Systems Corp.
Consolidated Statements of Operations
________________________________________________________________________________
Year ended June 30, 1997 1996
- - --------------------------------------------------------------------------------
Revenues, net of returns and allowances $ 4,653,286 $ 3,820,680
Cost of revenues 3,518,500 2,145,593
- - -------------------------------------------------------------------------------
Gross profit 1,134,786 1,675,087
- - -------------------------------------------------------------------------------
Operating Expenses
Selling, general and administrative expenses 1,327,546 230,815
Depreciation and amortization 282,398 181,083
Provision for doubtful accounts 246,013 --
Professional fees 308,996 54,481
Marketing and public relations 464,596 --
- - -------------------------------------------------------------------------------
Total operating expenses 2,629,549 466,379
- - -------------------------------------------------------------------------------
(Loss) Income from Operations (1,494,763) 1,208,708
- - -------------------------------------------------------------------------------
Other Expenses
Interest expense 65,488 48,117
Acquisition expense (Note 14) 110,000 76,890
Mineral exploration (Note 14) -- 700,000
Startup expenses (Note 14) 1,357,899 1,091,308
Web development expense (Note 14) -- 400,000
- - -------------------------------------------------------------------------------
Total other expenses 1,533,387 2,316,315
- - -------------------------------------------------------------------------------
Loss before income tax (benefit) provision (3,028,150) (1,107,607)
Income tax (benefit) provision (Note 11) (133,399) 260,320
- - -------------------------------------------------------------------------------
Net Loss (2,894,751) (1,367,927)
- - -------------------------------------------------------------------------------
Less: Dividends paid -- (54,807)
- - -------------------------------------------------------------------------------
Net loss available to common stockholders $(2,894,751) $(1,422,734)
- - -------------------------------------------------------------------------------
Net loss per common share $ (3.58) $ (3.36)
===============================================================================
Weighted average shares outstanding 808,421 422,991
===============================================================================
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Workforce Systems, Corp.
Consolidated Statements of Stockholders' Equity
______________________________________________________________________________________________________________
Years ended June 30,1997 and 1996
- - ---------------------------------------------------------------------------------------------------------------
Series A Series B Series C Series D Common
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1995 30 $ - 70,000 $ 70 30,000 $ 30 - $ - 375,931 $ 376
Issuance of preferred - - - - - - 1,000,000 1,000 - -
Common stock issued in
connection with prepaid
expenses - - - - - - - - 32,867 33
Common stock issued in
connection with acquisition
of AIM (Note 4) - - - - - - - - 4,375 4
Common stock issued in
connection with
compensation to certain
consultants - - - - - - - - 23,706 24
Common stock issued in
connection with PTP start
up and acquisition of
mineral rights (Note 14) - - - - - - - - 70,250 70
Conversion of note payable
(Note 9) - - - - - - - - 42,581 42
Conversion of convertible
preferred stock (Note 12) - - (70,000) (70) - - - - 17,500 18
Sale of common stock - - - - - - - - 55,500 56
Dividend paid - - - - - - - - - -
Net Loss - - - - - - - - - -
- - ---------------------------------------------------------------------------------------------------------------
Balance June 30, 1996 30 $ - - $ - 30,000 $ 30 1,000,000 $ 1,000 622,710 $ 623
Years ended June 30,1997 and 1996 (Continued)
- - ---------------------------------------------------------------------------------------
Stock Total
Paid-in to be Accumulated Stockholders'
Capital Earned Deficit Equity
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance June 30, 1995 $ 4,076,283 - $ (1,200,216) $ 2,876,543
Issuance of preferred - - - 1,000
Common stock issued in
connection with prepaid
expenses 674,967 - - 675,000
Common stock issued in
connection with acquisition
of AIM (Note 4) 68,059 - - 68,063
Common stock issued in
connection with
compensation to certain
consultants 474,096 - - 474,120
Common stock issued in
connection with PTP start
up and acquisition of
mineral rights (Note 14) 1,404,930 - - 1,405,000
Conversion of note payable
(Note 9) 936,728 - - 936,770
Conversion of convertible
preferred stock (Note 12) 52 - - -
Sale of common stock 935,694 - - 935,750
Dividend paid - - (54,807) (54,807)
Net Loss - - (1,367,927) (1,367,927)
- - ---------------------------------------------------------------------------------------
Balance June 30, 1996 $ 8,570,809 - $ (2,622,950) $ 5,949,512
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Workforce Systems, Corp.
Consolidated Statements of Stockholders' Equity
_______________________________________________________________________________________________________________
Years ended June 30,1997 and 1996
- - ----------------------------------------------------------------------------------------------------------------
Series A Series B Series C Series D Common
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1996 30 $ - - $ - 30,000 $ 30 1,000,000 $ 1,000 622,710 $ 623
-
Sale of common stock
(Note 13) - - - - - - - - 8,334 8
Common stock issued in
connection with acquisition
of FSI (Note 4) - - - - - - - - 145,000 145
Common stock issued in
connection with
compensation to certain
consultants and employees
(Note 13) - - - - - - - - 71,772 72
Options granted in
connection with consulting
services (Note 13) - - - - - - - - - -
Options exercised (Note 13) - - - - - - - - 505,118 505
Conversion of convertible
preferred stock (Note 12) - - - - - - (1,000,000) (1,000) 600,000 600
Net Loss - - - - - - - - - -
- - ----------------------------------------------------------------------------------------------------------------
Balance June 30, 1997 30 $ - - $ - 30,000 $ 30 - $ - 1,952,934 $1,953
================================================================================================================
Years ended June 30,1997 and 1996 (Continued)
- - --------------------------------------------------------------------------------------
Stock Total
Paid-in to be Accumulated Stockholders'
Capital Earned Deficit Equity
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance June 30, 1996 $ 8,570,809 - $ (2,622,950) $ 5,949,512
Sale of common stock
(Note 13) 99,992 - - 100,000
Common stock issued in
connection with acquisition
of FSI (Note 4) 422,668 - - 422,813
Common stock issued in
connection with
compensation to certain
consultants and employees
(Note 13) 780,581 - - 780,653
Options granted in
connection with consulting
services 2,180,455 $(1,416,667) - 763,788
(Note 13)
Options exercised (Note 13) 512,795 - - 513,300
Conversion of convertible
preferred stock (Note 12) 400 - - -
Net Loss - - (2,894,751) (2,894,751)
- - --------------------------------------------------------------------------------------
Balance June 30, 1997 $12,567,700 $(1,416,667) $ (5,517,701) $ 5,635,315
======================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
Workforce Systems Corp.
Consolidated Statements of Cash Flows
(Note 5)
_____________________________________________________________________________________
Year ended June 30, 1997 1996
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net loss $(2,894,751) $(1,367,927)
Adjustments to reconcile net loss to net cash provided
by operating activities
Amortization 91,192 70,281
Depreciation 191,206 111,131
Provision for doubtful accounts 246,013 --
Inventory valuation write-off 359,610 --
Acquisition, startup, and web development costs -- 1,947,183
Issuance of common stock and options granted
for services 871,521 --
Gain on sale of fixed assets -- (701)
Changes in assets and liabilities, net of businesses
acquired
(Increase) decrease in:
Account receivable (112,076) (435,750)
Other receivables (47,678) --
Related party accounts receivable -- 871,347
Inventory (302,111) (643,613)
Prepaid expenses 213,139 --
Other current assets -- (34,030)
Other assets (28,330) --
Increase (decrease) in:
Trade accounts payable 275,823 (46,447)
Accrued expenses 197,599 67,865
Income taxes payable (73,329) 67,360
Deferred income tax liability (60,541) 193,541
- - -------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (1,072,713) 800,240
- - -------------------------------------------------------------------------------------
Investing Activities
Proceeds from sale of fixed assets -- 12,159
Purchase of property and equipment (249,634) (771,589)
- - -------------------------------------------------------------------------------------
Net cash used in investing activities (249,634) (759,430)
- - -------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Workforce Systems Corp.
Consolidated Statements of Cash Flows
(Note 5)
_____________________________________________________________________________________
Year ended June 30, 1997 1996
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Financing Activities
Net proceeds from factoring line of credit 121,883 --
Proceeds from note payable - related party 10,064 177,667
Payments on note payable-stockholder (118,131) --
Payments on long-term debt (261,583) (280,081)
Proceeds from long-term debt 353,648 26,496
Proceeds from sale of common stock and
exercise of stock options 613,300 936,750
Dividends paid -- (54,807)
- - -------------------------------------------------------------------------------------
Net cash provided by financing activities 719,181 806,025
- - -------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (603,166) 846,835
Cash and cash equivalents, beginning of period 938,487 91,652
- - -------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 335,321 $ 938,487
- - -------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-10
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
1. Significant Business
Accounting --------
Policies
Workforce Systems Corp. and subsidiaries (the "Company")
operate in the following geographical locations:
Tennessee
---------
The Company through its subsidiaries, Industrial
Fabrication & Repair, Inc. ("IFR"), Maintenance
Requisition Order Corp. ("MRO"), Outside Industrial
Services, Inc. ("OPS"), and American Industrial
Management, Inc. ("AIM") provides specialized
fabrication, machining and design of maintenance and
production equipment; serves as an authorized
distributor for a full line of power transmission
products; and supplies specialized labor services on a
contract basis.
Florida Operations
------------------
The Company through its subsidiary Federal Supply,
Inc. ("FSI") distributes and fabricates fire
protection products; and through its subsidiary
Products That Produce, Inc. ("PTP") specializes in
identifying, developing and marketing innovative new
consumer products.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements
include the accounts of the Company and all
majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in
consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
F-11
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
disclosures of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Inventories
-----------
Inventories consisting mainly of finished product are
stated at the lower of cost or market. Provision for
potentially obsolete or slow-moving inventory is made
based on management's analysis of inventory levels and
future sales forecasts.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Major
renewals and improvements are capitalized, while
maintenance and repairs are expensed when incurred. The
cost and accumulated depreciation for property, plant
and equipment sold, retired, or otherwise disposed of
are relieved from the accounts, and resulting gains or
losses are recognized. Depreciation is computed over the
estimated useful lives of depreciable assets using the
straight-line method as follows:
Building and improvements 20 years
Machinery and equipment 15 years
Furniture, fixtures and office
equipment 7 years
Automobiles 5 years
Depreciation expense was $ 191,206 and $ 111,131 for the
years ended June 30, 1997, and 1996, respectively.
Excess Cost Over Fair Value of Net Assets Acquired
--------------------------------------------------
The excess cost over fair value of net assets acquired
is amortized on a straight-line basis over 20 years. The
Company evaluates the carrying value of this asset
whenever events or circumstances indicate that the
carrying amount of the asset may not be recoverable.
F-12
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Income Tax
----------
The Company provides deferred income tax assets and
liabilities under SFAS 109 for temporary differences
between book and taxable income.
Reclassifications
-----------------
Certain 1996 amounts have been reclassified to conform
to the 1997 presentation.
Revenue Recognition
-------------------
Revenue from product sales in the consumer products
division and in the manufacturing division is recognized
at the time of shipment. Revenue in the staffing
division is recognized when the related payroll costs
are incurred.
Net Loss Per Common Share
-------------------------
Net loss per common share is based on the weighted
average number of shares of common stock outstanding.
Statements of Cash Flows
------------------------
For purposes of the statements of cash flows, the
Company considers all highly liquid investments with
initial maturities of three months or less to be cash
equivalents.
F-13
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Financial Instruments
---------------------
The carrying amounts of financial instruments including
accounts receivable, trade accounts payable and
short-term obligations approximated fair value due to
the relatively short maturity.
New Accounting Standards
------------------------
Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, establishes
standards for reporting and display of comprehensive
income, its components and accumulated balances.
Comprehensive income is defined to include all changes
in equity except those resulting from investments by
owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting
standards as components of comprehensive income be
reported in a financial statement that is displayed with
the same prominence as other financial statements.
Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and
Related Information, supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS
131 establishes standards for the way that public
companies report information about operating segments in
annual financial statements and requires reporting of
selected information about operating segments in interim
financial statements issued to the public. It also
establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS
131 defines operating segments as components of a
company about which separate financial information is
available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate
resources and in assessing performance.
These new standards are effective for financial
statements for periods beginning after December 15, 1997
and require comparative financial information for
earlier years to be restated. Due to the recent issuance
of these standards, management has been unable to fully
evaluate the impact, if any, they may have on future
financial statement disclosures.
F-14
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
In February 1997 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
(SFAS) No. 128 Earnings Per Share. This statement is
effective for financial statements issued for periods
ending after December 15, 1997. SFAS No. 128 simplifies
the standards for computing earnings per share ("EPS")
previously found in Accounting Principles Board Opinion
No. 15 Earnings per Share. It replaces the presentation
of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with
complex capital structures and requires a reconciliation
of the numerator and denominator of the diluted EPS
computation. The Company will adopt SFAS No. 128 for its
fiscal year ended June 30, 1998 and its implementation
is not expected to have a material effect on the
financial statements.
2. Prepaid Expenses Included in prepaid expenses at June 30, 1997, and 1996,
is $500,000 in prepaid advertising for media and radio
spots which can be used by the Company at any time until
December 2000. The Company intends to utilize the
advertising during fiscal 1998.
No expense for prepaid advertising has been recorded for
the years ended June 30, 1997, and 1996.
3. Concentration of The Company maintains its cash in bank deposit accounts
Credit Risk which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
4. Acquisitions a) Effective February 1996, the Company acquired all
the Common Stock of American Industrial Management,
Inc. ("AIM"). The purchase price consisted of 4,375
shares of the Company's Common Stock valued at
$68,063.
F-15
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
The transaction was recorded as follows:
Fair value of assets acquired $ 65,506
Acquisition costs 76,890
Common stock issued in connection
with acquisition ( 68,063)
-----------------------------------------------------
Liabilities assumed $ ( 74,333)
=====================================================
Pro forma results of operations would not have been
materially different from historical results.
(b) On May 29, 1997 (June 1, 1997 for financial
statement purposes) the Company acquired all of the
common stock of Federal Supply, Inc. and Federal
Fabrication, Inc. ("FSI"). The purchase price
consisted of 110,000 shares of the Company's voting
common stock and 35,000 shares of common stock to
consultants as payment for acquisition costs valued
at approximately $423,000 (80% of current market
value) as well as approximately $56,000 in cash for
additional acquisition costs.
The transaction was recorded as follows:
Fair value of assets acquired $ 1,311,921
Excess cost over net assets acquired 971,036
Common stock issued in connection
with acquisition and acquisition costs ( 479,000)
-------------------------------------------------------
Liabilities assumed $ (1,803,957)
=======================================================
The following unaudited pro forma summary presents the
consolidated results of operations of the Company as if
the acquisition had occurred on July 1, 1996 and 1995:
F-16
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Year ended June 30, 1997 1996
------------------------------------------------------
Revenue $ 7,903,699 $ 7,217,027
Net loss ( 3,370,633) (1,615,933)
Net loss per share $ ( 3.70) $ ( 3.64)
======================================================
The unaudited pro forma assumes the amortization of
excess cost over fair value of net assets acquired over
20 years ($48,552).
The above transactions were accounted for by the
purchase method, and accordingly, the results of
operations of the acquired businesses have been included
in the accompanying consolidated financial statements
from the dates the Company assumed operational control
of each acquired entity.
5. Supplemental Cash was paid as follows:
Disclosures of
Cash Flows
Year ended June 30, 1997 1996
-----------------------------------------------------
Interest $ 68,797 $ 62,632
Income taxes $ - $ 18,500
Supplemental Disclosures of Non-Cash Investing
--------------------------------------------------------
Financing Activities
--------------------
During the year ended June 30, 1997, the Company issued
110,000 shares of common stock and 35,000 shares to
consultants as payment for acquisition costs valued at
approximately $423,000 in connection with the purchase
of FSI; issued 71,772 shares of common stock valued at
approximately $781,000 and 525,000 stock options valued
at approximately $2,180,000 in connection with
employment and consulting agreements and startup
expenses in transactions not affecting cash flows. For
further information see Notes 4 and 13.
F-17
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
During the year ended June 30, 1996, the Company issued
33,117 shares of common stock valued at $ 675,000 in
connection with prepaid advertising and prepaid legal
expenses; issued 4,375 shares of common stock valued at
$ 68,063 in connection with the acquisition of AIM;
issued 20,000 shares of common stock valued at $ 400,000
in connection with equipment acquisitions, the
development and maintenance of web sites on the
Internet; issued 70,250 shares of common stock valued at
$1,405,000 in connection with mine exploration and
startup costs related to PTP; issued 3,706 shares of
Common Stock valued at $ 74,120 in connection with
certain operating expenses in transactions not affecting
cash flows. In addition, during the year ended June 30,
1996, a note payable of $ 936,770 was converted to
55,500 shares of common stock in a transaction not
affecting cash.
6. Excess Cost Over
Fair Value of Net
Assets Acquired
June 30, 1997 1996
-------------------------------------------------------
Excess cost over fair
value of net assets $ 2,364,914 $ 1,405,629
acquired
Less: Accumulated amortization ( 166,473) ( 75,281)
-------------------------------------------------------
$ 2,198,441 $ 1,330,348
=======================================================
Amortization expense was $91,192 and $70,281 for the
years ended June 30, 1997 and 1996, respectively.
7. Operating Leases The Company leases office and warehouse space and office
equipment under operating leases that expire at various
times through fiscal 2002. In addition, the Company
leases land used in mineral excavation under an
operating lease that expires in June 2001 with a five
year renewal option. Rental expense was $114,000 and
$45,000 for the years ended June 30, 1997, and 1996,
respectively.
F-18
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Approximate minimum future lease payments under these
operating leases at June 30, 1997, are as follows:
Years ended June 30:
-----------------------------------------------------
1998 $ 296,390
1999 265,955
2000 260,039
2001 258,421
2002 75,877
-----------------------------------------------------
$ 1,156,682
=====================================================
8. Long Term Debt Long-term debt consisted of the following:
and Factoring
Line of Credit
June 30, 1997 1996
-------------------------------------------------------
Note payable to individuals,
interest at 7.4%, unsecured. $ 31,000 $ 37,000
Notes payable to credit
corporations, interest ranging
from 7.75% to 10.94%, principal
and interest payments of $4,086
due monthly through May 2001,
secured by automobiles. 67,521 60,157
Note payable to a bank, interest
at 7.75%, principal and interest
payments of $3,425 due monthly
through December 1998, secured by
equipment. 57,120 92,259
F-19
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Capital leases payable,
interest at 10%, principal and
interest payments of $7,855
due monthly through January
2002, secured by production
equipment. 283,064 167,241
Capital leases payable, interest
ranging from 11.5% to 13.43%,
principal and interest payments
of $1,762 due monthly through
July 2000, secured by forklift
and computer equipment. 47,644 -
First mortgage payable to
individuals, interest at 7.75%,
principal and interest of $5,500
due monthly through June 2001,
secured by land and building. 323,214 360,841
-------------------------------------------------------
809,563 717,498
-------------------------------------------------------
Less current portion 234,447 254,159
-------------------------------------------------------
$ 575,116 $ 463,339
=======================================================
Fixed assets securing capital leases were approximately
$381,000 at June 30, 1997.
Maturities of long-term debt were as follows:
Year ending June 30,
-------------------------------------------------------
1998 $ 234,447
1999 195,457
2000 157,650
2001 110,803
2002 104,013
Thereafter 7,193
-------------------------------------------------------
$ 809,563
=======================================================
F-20
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Factoring Line of Credit
------------------------
A subsidiary of the Company entered into factoring
agreements prior to its acquisition by the Company
providing for up to $500,000 in lines of credit, based
upon eligible accounts receivable. Fees charged for
factoring were 3.7% of all eligible receivables up to
$500,000 a year. The advances are collateralized by the
related receivables. At June 30, 1997, approximately
$101,000 was still available for borrowing under the
agreement.
9. Related Party At June 30, 1997, the note payable-stockholder is
Transactions unsecured, and resulted from the acquisition of FSI in
May 1997. The note bears interest at a rate of 8.5% per
annum. Interest expense for the one month period ended
June 30, 1997 was $6,908. The note was converted into
preferred stock in October 1997. (See Note 15).
From time to time the Company has borrowed funds from
Yucatan Holding Company, the Company's principal
stockholder ("Yucatan"), for working capital purposes.
As of June 30, 1997, the Company owed Yucatan $142,731.
On June 30, 1995, the Company issued Yucatan a
promissory note in the principal amount of $936,770,
bearing quarterly interest at the prime rate as
published in the Wall Street Journal, the initial rate
of interest being 8.75%. On November 27, 1995, Yucatan
converted the face value of the Note into shares of the
Company's common stock based upon a conversion ratio
equal to the closing bid price of the Company's common
stock as reported on the NASD OTC Bulletin Board on the
date of conversion which was $22.00 per share.
Accordingly, the Company issued Yucatan 42,581 shares of
its common stock during the year ended June 30, 1996.
During the year ended June 30, 1997, the Company
leased a facility from a stockholder, at a rate of
$3,400 per month, expiring in June 30, 1998. Rent
expense aggregated $ 40,800.
F-21
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
During the year ended June 30, 1996, the Company issued
35,000 shares of common stock to related parties,
pursuant to costs associated with the successful
prospecting, acquisition of mineral rights and the
geophysical analysis of the mineral used in Mr. Food's
AlloFresh. As discussed in Note 14, costs of $ 700,000
have been charged to expense for the year ended June 30,
1996.
10. Business Segments
<TABLE>
<CAPTION>
Manufact- Consumer
uring Staffing Products Corporate Total
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
1997 $ 3,564,133 $ 1,033,433 $ 55,720 $ - $ 4,653,286
1996 $ 2,451,323 $ 582,217 $ 787,140 $ - $ 3,820,680
Operating income (loss)
1997 $( 114,814) $( 168,034) $( 245,228) $( 966,687) $(1,494,763)
1996 $ 1,276,776 $ 101,587 $ - $( 169,655) $ 1,208,708
Identifiable assets
1997 $ 8,587,030 $ 87,874 $ 956,998 $ 37,270 $ 9,669,172
1996 $ 6,483,333 $ 104,161 $ 1,115,353 $ - $ 7,702,847
Depreciation and amortization
1997 $ 277,322 $ 2,255 $ 1,274 1,547 $ 282,398
1996 $ 180,944 $ - $ 139 $ - $ 181,083
Capital expenditures
1997 $ 235,867 $ 2,627 $ 2,915 $ 8,225 $ 249,634
1996 $ 771,589 $ - $ - $ - $ 771,589
</TABLE>
11. Income Tax The Company files tax returns on a separate company
basis which can result in income tax expense while
having an overall consolidated loss.
F-22
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
At June 30, 1997, the Company had a Federal net
operating loss carry forward of approximately $6,400,000
that expires through 2011. For financial reporting
purposes, a valuation allowance of $2,400,000 has been
recognized to offset the net deferred tax assets related
to these carry forwards. Realization of the benefits
related to pre-acquisition losses may be limited in any
one year due to change of ownership rules under the
Internal Revenue Code.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Company's deferred tax
liabilities and assets are as follows:
June 30, 1997 1996
-------------------------------------------------------
Deferred Tax
Liabilities:
Tax greater than book
depreciation/tax basis $ 130,000 $ 191,000
=======================================================
Deferred Tax Assets:
Net operating loss
carryforwards $ 2,400,000 $ 1,014,000
Less: Valuation allowance ( 2,400,000) (1,014,000)
-------------------------------------------------------
- -
=======================================================
The reconciliation between the provision for income
taxes and the amount which results from applying the
federal statutory tax rate of 34% to loss before income
taxes is as follows:
F-23
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
<TABLE>
<CAPTION>
June 30, 1997 1996
------------------------------------------------------------------------
<S> <C> <C>
Income tax credit at statutory Federal rate $( 1,030,000) $( 380,000)
------------------------------------------------------------------------
Limit on recognition of deferred tax
asset due to valuation allowance 1,030,000 380,000
Adjustment for prior year's estimate ( 72,399) -
Change in deferred tax liability ( 61,000) ( 44,091)
Change in deferred tax asset - 237,632
Current year payable - 66,779
------------------------------------------------------------------------
Net (benefit) provision $( 133,399) $ 260,320
========================================================================
</TABLE>
12. Preferred Stock The Company is authorized to issue 2,000,000 shares of
preferred stock, par value $.001 per share, issueable in
such series and bearing such voting, dividend,
conversion, liquidation and obtained rights and
preferences as the Board of Directors may determine.
The designations, rights and preferences of the Series A
Preferred Stock provide that the shares (i) have full
voting rights, share for share, with the then
outstanding common stock of the Company as well as any
other series of preferred stock then outstanding, (ii)
are not convertible into any other class of equity of
the Company, (iii) are redeemable at any time at the
Company's option at par value of $.001 per share, (iv)
pay dividends at the sole discretion of the Company's
Board of Directors, (v) are not transferable without the
consent of the Company's Board of Directors and (vi) in
the event of a liquidation or winding up of the Company,
carry a liquidation preference equal to par value,
without interest, and are junior in interest to the
Series B $5.00 Cumulative Convertible Preferred Stock of
the Company then outstanding.
F-24
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
The designations, rights and preferences of the Series B
Preferred Stock provides that the shares (i) shall
receive annual dividends equal to $.43 per share, (ii)
are entitled to full voting rights, share for share,
with any then outstanding common stock as well as with
any other class or series of stock of the Company having
general voting power with the common stock concerning
any matter being voted upon by the Company's
stockholders, (iii) are entitled to convert their shares
of preferred stock into shares of the Company's
restricted common stock at any time on a one for one
basis and (iv) are redeemable at the option of the
Company at $4.30 per share. On May 30, 1996, the holder
of the Series B Preferred Stock converted such shares
into 70,000 shares of common stock pursuant to the
designations, rights and preferences thereof.
The designations, rights and preferences of the Series C
Preferred Stock provide that the shares (i) have no
voting rights, (ii) are not convertible into any other
class of equity of the Company, (iii) are redeemable at
any time at the Company's option at an amount equal to
the prior year's annual dividend as previously set by
action of the Company's Board of Directors, (iv) pay
dividends at the sole discretion of the Company's Board
of Directors, (v) are not transferable without the
consent of the Company's Board of Directors and (vi) in
the event of a liquidation or winding up of the Company,
carry a liquidation preference equal to par value,
without interest, and are junior in interest to the
Series B $5.00 Cumulative Convertible Preferred Stock of
the Company then outstanding. A dividend of $36,000 for
the calendar year 1996 was declared by the Board of
Directors. For calendar year 1997 no dividends were
declared by the Company's Board of Directors.
The designations, rights and preferences of the Series D
Preferred Stock provide that the shares (i) have full
voting rights, share for share, with the then
outstanding common stock of the Company as well as any
other series of preferred stock then outstanding, (ii)
are redeemable at any time at the option of the Company
at a rate of .6 shares of common stock for each share of
F-25
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
preferred stock, (iii) are redeemable at any time at the
Company's option at a price per share to be mutually
agreed upon by the Company and the holder at the time of
redemption, (iv) do not pay any dividends, and (v) in
the event of a liquidation or winding up of the Company,
carry a liquidation preference equal to par value,
without interest. During June 1997, the 1,000,000 shares
of Series D preferred stock was converted into 600,000
shares of common stock.
13. Common Stock The Company resolved for all issued and outstanding
shares of common stock held by stockholders of record on
April 3, 1997 shall be automatically combined at a rate
of four to one. Any fractional shares as a result of
this split were rounded up to the next whole share. The
Company is currently authorized to issue 25,000,000
shares of common stock, par value $.001 per share.
The components of stockholders' equity, all shares and
per share amounts have been retroactively adjusted to
reflect the reverse stock split.
During November 1996, The Company sold to accredited
investors, a total of 8,334 shares of the Company's
restricted common stock at a purchase price of $12 per
share in a private transaction exempt from registration
under applicable Federal securities laws. The Company
collected a total of $100,000 in connection with this
transaction. No offering costs were incurred as part of
the transaction.
During the year ended June 30, 1997, the Company issued
71,772 shares of unrestricted common stock in connection
with the compensation of certain consultants and
employees. The total expense recorded in connection with
these transactions amounted to approximately $781,000,
based upon the market value at the date of issuance.
F-26
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
During April 1997, the Company entered into a five year
agreement for consulting services. In connection
therewith, the Company granted 500,000 stock options
exerciseable at $1.00 per share. One third of the
options are treated as a retainer for the services to be
rendered over the term of the agreement and the
remaining two thirds are considered to be, transactional
options, which serve as compensation due upon the
consummation of acquisitions during the term of the
agreement (as defined). The retainer options are earned
equally over the term of the agreement. The
transactional options shall be earned based on the
acquisitions consummated during the term of the
agreement. If the agreement is terminated prior to the
termination date, any unearned options shall be returned
to the Company
The stock options were valued at approximately
$2,125,000, the market value at the date of grant. In
connection with this transaction, the Company recorded
the retainer options as prepaid consulting fees totaling
approximately $708,000 of which approximately $35,000
was expensed during the year ended June 30, 1997. The
remaining $1,417,000 ascribed to the transaction options
were recorded as stock to be earned.
During April 1997 the 500,000 options were exercised and
the Company issued 500,000 shares of common stock. In
connection with this transaction the Company collected
proceeds of $500,000.
In addition, during April 1997, the Company entered into
a one year agreement for consulting services. In
connection with this agreement, the Company granted
25,000 stock options exerciseable at $2.50 per share.
The stock options were valued at approximately $55,000,
the market value at the date of grant . In connection
with this transaction, the Company recorded consulting
fees totaling approximately $55,000. During April 1997,
5,118 options were exercised. At June 30, 1997,
unexercised options totaled 19,882.
F-27
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Subsequent to June 30, 1997, the Company issued 630,412
shares of common stock to consultants and in connection
with an acquisition of a Company (Note 14).
During July 1997, the Company entered into a six year
consulting agreement to provide certain marketing
services. As compensation for the services the Company
granted a one year option to purchase 262,000 shares of
common stock at $1.00 per share.
14. Other Expenses 1996
----
On August 30, 1996, the Company filed with the
Securities and Exchange Commission (the SEC) Form SB-2,
a registration Statement under the Securities Act of
1933. The SEC issued comments on the filing by letter
dated November 4, 1996. On January 14, 1997, the Company
responded to the SEC and amended the SB-2 filing. The
SEC issued additional comments by letter dated February
14, 1997. As a result of these comments, the Company
made the following expense charges to its financial
statements for the years ended June 30, 1996.
Acquisition Expenses
--------------------
Acquisition expenses totaling $76,890 have been charged
to expense for the year ended June 30, 1996 and
represent the value of 4,375 shares of common stock and
cash paid to unrelated parties pursuant to the
acquisition of AIM. The acquisition has been accounted
for based on the purchase method of accounting.
Mineral Exploration
-------------------
Mineral exploration expenses totaling $700,000 have been
charged to expense for the year ended June 30, 1996. The
mineral exploration expenses were incurred in connection
with the successful prospecting, acquisition of mineral
rights and the geophysical analysis of the mineral used
in Mr. Food's AlloFresh and was paid to a related party,
as defined under SFAS 57, with the issuance of 35,000
shares of common stock.
F-28
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Startup Expenses
----------------
Startup expenses totaling $1,091,308 have been charged
to expense for the year ended June 30, 1996. Startup
expenses represent pre-operating expenses incurred in
the development of Mr. Food's AlloFresh under the
Company's consumer products division, PTP. As a result
of the formation of PTP, 35,250 shares of stock were
issued to unrelated parties. The remaining $386,308 in
startup expenses represents operating expenses incurred
during the startup phase.
Web Development
---------------
Web development expenses totaling $400,000 have been
charged to expense for the year ended June 30, 1996. The
expenses were incurred in connection with certain
contracts to acquire equipment and to develop and
maintain Internet web sites ultimately as an Internet
provider to market its consumer products and through its
manufacturing division, its inventory of refurbished
gear boxes and other power transmission components
internationally. The web development was paid for with
the issuance of 20,000 shares of stock to an unrelated
party.
1997
----
Acquisition Expenses
--------------------
Acquisition expenses totaling $110,000 have been charged
to expense for the year ended June 30, 1997 and
represent the value of 9,167 shares of common stock paid
to certain consultants as compensation for services
pertaining to identifying and closing potential
acquisition targets. As no such acquisitions were
closed, the amount was expensed in full.
F-29
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
Startup Expenses
----------------
Startup expenses totaling $1,357,899 have been charged
to expense for the year ended June 30, 1997. $994,689 of
the expenses relate to pre-operating expenses incurred
in the development of Mr. Food's AlloFresh under the
Company's consumer products division, PTP. The remaining
$363,210 was incurred during the startup of one of the
Company's subsidiaries and development of a product
line.
15. Subsequent Events a) On September 22, 1997, the Company acquired 100%
of the issued and outstanding capital stock of LPS
Acquisition Corp. ("LPS") in exchange for an
aggregate of 270,000 shares of the Company's
restricted common stock from LPS stockholders in a
private transaction exempt from registration under
the Securities Act of 1933. LPS, doing business as
Lantana Peat And Soil, is a distributor of high
quality custom soil mixes to wholesale nurseries
throughout South Florida. Annualized revenues are
currently estimated at $3 million.
The majority stockholder of LPS, owning
approximately 85.2% of LPS, was a non-affiliate of
the Company. Minority stockholders in LPS, each
owning approximately 7.4% of the issued and
outstanding stock, were the wife of the Chairman
and President of the Company, and the wife of a
director of the Company. The sellers are required
to deliver to the Company a fairness opinion as to
the amount of consideration tendered by the
Company in the share for share exchange. In the
event such fairness opinion does not support the
exchange ratio, such exchange ratio shall be
adjusted by mutual agreement between the parties.
F-30
<PAGE>
Workforce Systems Corp.
Notes to the Consolidated Financial Statements
________________________________________________________________________________
b) In conjunction with the acquisition of FSI, the
Company began negotiations with FSI's principal
stockholder regarding the conversion of the note
payable-stockholder. Such negotiations were
consummated as follows:
Effective October 7, 1997, the note
payable-stockholder was converted to 115,000
shares of Series E cumulative non participating
preferred stock. The designations, rights and
preferences of the Series E Preferred Stock
provides that holders shall receive annual
dividends equal to $77,000, are entitled to full
voting rights, share for share with any then
outstanding common stock as well as with any other
class or series of the Company having general
voting power with the common stock concerning any
matter being voted upon by the Company's
stockholders, and are redeemable solely at the
Company's option at a redemption price to be
negotiated by the parties at the time of the
redemption.
If the conversion had occurred at June 30, 1997,
the Company's consolidated balance sheet would
have been as follows:
Total assets $9,669,172
Total liabilities $2,883,838
Stockholders' equity $6,785,334
Net tangible assets $4,586,893
16. Fourth Quarter Year end adjustments made in the fourth quarter of 1997
Adjustments had the effect of decreasing net income for the quarter
(Unaudited) by approximately $1,400,000. The adjustments related
principally to the carrying amounts of certain assets,
principally bad debt write-offs and inventory
valuations, and expense accruals associated with prior
quarters of the year ended June 30, 1997.
F-31
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August 4, 1997 Lyle H. Cooper C.P.A. was dismissed as the Company's
principal accountant. Lyle H. Cooper C.P.A. had served as the Company's
principal accountant since July 6, 1994. During the period Lyle H. Cooper C.P.A.
was engaged as the Company's principal accountant there were no disagreements
with Lyle H. Cooper C.P.A. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. No accountant's
report on the financial statements of the Company issued by Lyle H. Cooper
C.P.A. contained an adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope or accounting principles. The Company
requested that Lyle H. Cooper C.P.A. furnish it with a letter addressed to the
Securities and Exchange Commission stating whether or not he agreed with the
statements made by the Company in response to Item 4 of the Report on Form 8-K
filed by the Company with the Securities and Exchange Commission on August 6,
1997 and, if not, stating the respects in which he did not agree. The Company
filed a copy of such letter from Lyle H. Cooper, C.P.A. confirming his agreement
to the Company's statements as an exhibit to the Form 8-K Report filed with the
Securities and Exchange Commission on August 6, 1997. See Exhibit 16.3 hereto.
On August 4, 1997 the Company engaged BDO Seidman, LLP as its independent
accountant for the fiscal year ended June 30, 1997. The decision to change
accountants was approved by the Company's Board of Directors. The Company
consulted with BDO Seidman, LLP within the last two years concerning the
application of purchase accounting in the acquistions of OIS, NHP and IFR. The
oral advice of BDO Seidman, LLP was considered by the Company in reaching its
decision as to the application of purchase accounting in such acquisitions.
18
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the names, ages and positions held with
respect to each Director and Executive Officer of the Company.
Name Age Position
---- --- --------
Robert Hausman 41 Director, President
Jayme Dorrough 30 Director and Secretary
Mark Weisz 38 Director
Lester Gann 52 Director
C. Lawrence Rutstein 51 Director
All officers of the Company will hold office until the next annual meeting
of the Company. There are no arrangements or understanding between any such
officer of the Company and any other person or persons pursuant to which such
officer was or is to be selected as an officer of the Company.
The following sets forth biographical information as to the business
experience of each current Director and Executive Officer of the Company.
ROBERT HAUSMAN. Mr. Hausman joined the Company's Board of Directors and
was elected President on June 1, 1997 following the acquisition of Federal. See
Item 1. Business - Overview. Mr. Hausman, who was elected Chairman of the Board
in September 1997, also serves on the Board of Directors of each of the
Company's subsidiaries and is a member of the Audit Committee. Mr. Hausman
devotes substantially all of his time and attention to the business of the
Company. From October 1994 to October 1997, Mr. Hausman was President and Chief
Executive Officer of Federal and since May 1995, Mr. Hausman has also been 25%
shareholder of South Eastern Sound & Communications, Inc., a Boca Raton based
sales, service and installation company of sound and communications systems. In
addition, since May 1996 Mr. Hausman has owned a one-third interest in All-Star
Sports Camp, Boca Raton, Florida. From February 1982 until July 1994, Mr.
19
<PAGE>
Hausman was a 50% owner of Bedford Weaving Mills, a Bedford, Virginia based
speciality textile mill. Mr. Hausman, a 50% owner and Executive Vice President
of Bedford Weaving Mills, which was acquired by Mr. Hausman and his partner in
February 1982 from Belding Hemingway Inc. (NYSE:BHY). Subsequent to such
acquisition, Bedford Weaving Mills increased its revenues and earnings from a
approximately $5 million, with operating losses, to approximately $20 million
with pre-tax profits. Mr. Hausman is also a member of the Board of Directors of
QPQ Corporation (Nasdaq: QPQQ). Mr. Hausman received a B.S. in Management and
Marketing in 1977 from Philadelphia College of Textiles and an MBA in Marketing
and Management in 1978 from Babson College.
JAYME DORROUGH. Mrs. Dorrough has served as a director and Secretary of
the Company since June 14, 1994. Mrs. Dorrough is also an officer and director
of Yucatan Holding Company, a principal shareholder of the Company. Mrs.
Dorrough, who is not an employee of the Company and has other business interests
outside of the Company, devotes as much time to the affairs of the Company as
she deems necessary which equates to approximately 10% of her time. From August
1987 until October 1989, Mrs. Dorrough was employed by Baker, Worthington,
Crossley, Stansberry & Woolf, Knoxville, Tennessee as an administrative
assistant.
MARK WEISZ. Mr. Weisz joined the Company's Board of Directors in September
1997 and serves on its Audit Committee. Since May 1997 Mr. Weisz has served as
Regional Director of Tax for Northern Telecom, Ltd. (NYSE: NT). Prior to
assuming that position, from January 1993 until April 1997 Mr. Weisz served as
Tax Manager for Coopers & Lybrand, LLP in Miami, Florida. Earlier he served as
Senior Tax Associate (January 1990 to December 1992) and Tax Associate (June
1987 to December 1989) for Coopers & Lybrand, LLP in Princeton, New Jersey. From
1986 to 1987 he served in a tax internship with Arthur Young & Company in Metro
Park, NY. Mr. Weisz holds a B.S. in Accounting from Rutgers University.
C. LAWRENCE RUTSTEIN. Mr. Rutstein joined the Company's Board of Directors
in September 1997 and serves on its Audit Committee. Since May 1997 Mr. Rutstein
as served as Chairman, CEO and President of QPQ Corporation (Nasdaq: QPQQ) which
has been in the food services and medical weight loss business. Since 1995 he
has also served as President of CapQuest Partners, Inc., a company which has
made several investments in emerging software companies. A Harvard Law School
graduate, Mr. Rutstein has practiced corporate, banking and securities law in
Philadelphia, Pennsylvania. Mr. Rutstein previously served as Chief Counsel to
the Pennsylvania Department of Banking from 1971 to 1972, and served as Resident
Counsel to a major Philadelphia bank. From 1989 to 1991 he served as Chairman of
20
<PAGE>
the Board of Cedar Group, Inc., a Nasdaq listed importer and distributor of
fasteners. From 1992 until 1994 he was a General Partner of the Memphis Chicks
AA baseball club and during 1995 he was Chairman of the Rittenhouse Group, Inc.,
a private consulting company. Mr. Rutstein currently serves on the Board of
Directors of Boca Raton Capital Corporation (Nasdaq: BRCC) and Packquistion
Corp. and Future Graph, Inc., privately-held companies.
LESTER GANN. Mr. Gann joined the Company's Board of Directors in September
1997. Mr. Gann is President and a director of Industrial Fabrication & Repair,
Inc. ("IFR"), a subsidiary of the Company. Mr. Gann founded IFR in 1979 and has
served as its President and a director continuously since the date of formation.
Mr. Gann has 33 years experience in tool and machinery design and power
transmission equipment and has received extensive training from various
manufacturers and distributors of the foregoing equipment. Mr. Gann is
responsible for all day to day operations of the industrial fabrication division
of the Company.
Key Employees
- - -------------
While not executive officers of the Company, the following officers and
employees of the Company's subsidiaries make significant contributions to the
business of the Company.
GREG HOEHN. Mr. Hoehn, 36, has been President of Federal since October 1,
1997 and was Operations Manager from January 1996 until October 1, 1997. He is
responsible for day to day operations, including oversight of administrative,
sales, warehouse, stocklisting and fabrication activities. From August 1994
until joining Federal, Mr. Hoehn was employed by Summers Fire Springs as
Production Manager and from June 1993 until August 1994 he was Senior Technical
Writer for Professional Management and Advisory Corp. In this position Mr. Hoehn
managed a staff of technical writers producing proposals for contractors bidding
on state and federal contracts where his responsibilities included supervising
the cost estimating for each contract and providing budget estimates and
escalation costs. Mr. Hoehn was Product Manager/Quality Control from February
1992 until June 1993 at SciCor where he was directly responsible for assigned
products from bidding to final testing and quality inspections. Mr. Hoehn
attended both the Community College of the Air Force and the University of
Maryland.
ROBERT LOVELACE. Mr. Lovelace, 50, is President and a director of AIM,
serving in such position since its formation in April 1995. Mr. Lovelace is
responsible for day to day operations of AIM. From June 1992 until founding AIM
in 1995, Mr. Lovelace was employed as a regional sales manager for Borg Wagner
for Wells Fargo Guard Service, Burns Guard Service and Borg Wagner Facility
21
<PAGE>
Staffing. From January 1990 until May 1992 Mr. Lovelace was regional Vice
President for Sears Security Systems residential alarm systems. During his
career, Mr. Lovelace has completed in excess of 20 schools within the Dale
Carnegie & Associates organization covering training and supervisory management
in attitude, communication, human relations, memory training, leadership, public
speaking and business management.
JOHN STEWART. Mr. Stewart, 53, is General Manager of Lantana Peat & Soil,
a position he has held since June 1992. Mr. Stewart is responsible for all day
to day operations at Lantana Peat & Soil.
There is no family relationship between any of the officers, key employees
and directors. The Company currently maintains an Audit Committee which is
comprised of Messrs. Hausman, Weisz and Rutstein. The Company does not presently
maintain compensation or nominating committees of the Board of Directors.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes all compensation accrued by the Company in
each of the last three fiscal years for the Company's Chief Executive Officer
and each other executive officers serving as such, whose annual compensation
exceeded $100,000. Directors of the Company do not receive compensation for
serving in such capacity.
Long - Term
Annual Compensation Compensation Awards
------------------- -------------------
Options
Name and Other Annual Number of All Other
Principal Position Year Salary Bonus Compensation Shares Compensation
- - ------------------ ---- ------ ----- ------------ ------ ------------
Robert Hausman, 1997 0 0 0 0 0
President, Chief 1996 0 0 0 0 0
Executive Officer 1995 0 0 0 0 0
and Director(1)
Ella Chesnutt(2) 1997 0 0 0 0 0
1996 0 0 0 0 0
1995 0 0 0 0 (3)
Jayme Dorrough 1997 0 0 0 0 0
Secretary 1996 0 0 0 0 0
and Director 1995 0 0 0 0 (3)
___________________________
22
<PAGE>
(1) Mr. Hausman was elected the Company's President on June 1, 1997 and
entered into a Management Agreement with the Company commencing July 1, 1997.
See "Executive Compensation - Employment and Management Agreements.".
(2) Mrs. Chesnutt served as the Company's President from June 14, 1994
until her resignation on June 1, 1997.
(3) On March 21, 1995 Mrs. Chesnutt and Mrs. Dorrough were each awarded
12,125 shares of Common Stock for services rendered by them in connection with
the Naturale Agreement. The fair market value on the date of issuance was $26.28
per share resulting in aggregate value to each of Mrs. Chesnutt and Mrs.
Dorrough of $318,645.
Employment and Management Agreements
- - ------------------------------------
On July 1, 1997 the Company entered into a Management Agreement with
Robert Hausman, President and a director of the Company. Pursuant to the term of
this three year agreement, Mr. Hausman is entitled to receive (i) annual base
compensation of $100,000, which increases in years two and three of the
agreement by the greater of the percentage increase of the Consumer Price Index
or 6% and (ii) options to purchase 100,000 shares of the Company's Common Stock
at an exercise price of $5.00 per share. During the term of the Management
Agreement should there be a change of control of the Company, as that term is
defined in the Management Agreement (see Exhibit 10.4 hereto), the Company at
its sole option may terminate the Management Agreement upon 30 days prior
written notice and thereafter will be obligated to pay Mr. Hausman the balance
of the compensation payable under the Management Agreement had same not been
terminated prior to its expiration, together with an additional sum equal to two
years annual base compensation. The Management Agreement contains customary
provisions providing for confidentiality.
In May 1995 IFR entered into a three year employment agreement with Lester
Gann providing for an annual base salary of $96,000 with the ability to receive
performance based bonuses at the discretion of the Board of Directors. As of the
date hereof, no such performance bonuses have been awarded. Mr. Gann is also
entitled to participate in all benefit programs of IFR as may be made available
to other salaried employees. Mr. Gann's employment agreement contains customary
provisions providing for confidentiality as well as a 12 month non-compete
following the termination of the agreement. Mr. Gann's employment agreement does
not provide for any severance payments.
In March 1996 AIM entered into a three year employment agreement with
Robert Lovelace. Such agreement provides for an annual base compensation of
$66,000 and certain additional compensation in the form of an aggregate of the
23
<PAGE>
issuance of 6,818 shares of the Company's Common Stock which have been
registered under the Act. Such stock is issued in 24 monthly installments
providing Mr. Lovelace is still employed by AIM. The employment agreement also
contains customary provisions providing for confidentiality as well as a 12
month non-compete following the termination of the agreements. Mr. Lovelace's
employment agreement does not provide for any severance payments. As additional
incentive to build the business of AIM, pursuant to the terms of the AIM
acquisition the Company granted Mr. Lovelace certain incentives. Specifically,
in the event the financial statements of AIM, as prepared in accordance with
generally accepted accounting principles applied on a consistent basis reflect a
certain pre-determined average gross profit per month for the immediately
preceding three month period (based upon fiscal quarters for the fiscal year
ending June 30) as hereinafter set forth, and Mr. Lovelace is then an employee
of AIM, Mr. Lovelace is entitled to earn additional shares of the Company's
Common Stock. Specifically, at such time as AIM's financial statements reflect
an average gross profit (as defined in the agreement) of at least $50,000 per
month for the preceding fiscal quarter, Mr. Lovelace shall be entitled to
receive a one time issuance of 12,500 shares of the Company's Common Stock; and
at such time as AIM's financial statements reflect an average gross profit (as
defined in the share exchange agreement) of at least $70,000 per month for the
preceding fiscal quarter, Mr. Lovelace shall be entitled to receive a one time
issuance of an additional 25,000 shares of the Company's Common Stock; and at
such time as AIM's financial statements reflect an average gross profit (as
defined in the share exchange agreement) of at least $90,000 per month for the
preceding fiscal quarter, Mr. Lovelace shall be entitled to receive a one time
issuance of an additional 30,625 shares of the Company's Common Stock. To date,
AIM has not reached any of the aforedescribed thresholds.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of October 9, 1997 hereof there are 2,583,346 shares of Common Stock
issued and outstanding and 30 shares of Series A Preferred Stock and 115,000
shares of Series E Cumulative Non-Participating Preferred Stock issued and
outstanding, all of which are voting securities of the Company. The 30,000
shares of Series C Preferred Stock which are issued and outstanding do not have
voting rights. The following table sets forth, as of the close of business on
October 9, 1997, (a) the name, address and number of shares of each person known
by the Company to be the beneficial owner of more than 5% of any class of each
the Company's voting securities and (b) the number of shares of each class of
voting securities owned by each director and all officers and directors as a
group, together with their respective percentage holdings of such shares:
24
<PAGE>
Series A Preferred Stock
- - ------------------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class
------------------- ------------------ -----
Outside Industrial 30 100%
Services, Inc. (1)
2415 Sycamore Drive
Knoxville, TN 37921
All Officers and
Directors as a
Group (five persons) none n/a
Series E Cumulative Non-Participating Preferred Stock
- - -----------------------------------------------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class
------------------- ------------------ -----
Robert Hausman 115,000 100%
7777 Glades Road
Suite 211
Boca Raton, FL 33434
All Officers and
Directors as a
Group (five persons) 115,000 100%
Common Stock
- - ------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class (4)
------------------- ------------------ ---------
Yucatan Holding 504,891 19.5%
Company (2)
8870 Cedar Springs Lane
Suite 5
Knoxville, TN 37923
Robert Hausman(3) 200,000 7.5%
7777 Glades Road
Suite 211
Boca Raton, FL 33434
Jayme Dorrough (2) (2)
8870 Cedar Springs Lane
Suite 5
Knoxville, TN 37923
25
<PAGE>
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class (4)
------------------- ------------------ ---------
Mark Weisz 100 (4)
7777 Glades Road
Suite 211
Boca Raton, FL 33434
C. Lawrence Rutstein(5) 0 0
7777 Glades Road
Suite 211
Boca Raton, FL 33434
Lester Gann 121,481 4.7%
2415 Sycamore Drive
Knoxville, TN 37921
Darren Apel 230,000 8.9%
6480 Via Rosa
Boca Raton, FL 33433
All Officers and
Directors as a
Group (five persons)
(2)(3)(5) 826,472 30.8%
_____________
(1) Outside Industrial Services, Inc. is a subsidiary of the Company.
(2) Mrs. Dorrough is the sole officer, director and shareholder of
Yucatan Holding Company. Of such shares, Mrs. Dorrough has sole voting and
depository power of an aggregate of 304,891 shares and Mrs. Ella Chesnutt, the
former president of Yucatan Holding Company, has sole voting and depository
power over an aggregate of 200,000 shares.
(3) Includes options to acquire 100,000 shares of the Company's Common
Stock, but excludes 19,980 shares of Common Stock owned beneficially by Barbara
Hausman, his spouse, of which he disclaims beneficial ownership. See Item 1.
Description of Business - General. and Item 10. Executive Compensation -
Employment and Management Agreements.
(4) Less than 1%.
(5) Excludes 19,980 shares of Common Stock owned beneficially by Ronna
Newman Rutstein, his spouse, of which he disclaims beneficial ownership. See
Item 1. Description of Business - General.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 21, 1995 Mrs. Dorrough and Mrs. Chesnutt, a former officer and
director of the Company, were each awarded 12,125 shares of Common Stock for
services rendered by them in connection with the Naturale Agreement. The fair
market value on the date of issuance was $ 26.28 per share resulting in
aggregate value to each of Mrs. Chesnutt and Mrs. Dorrough of $318,645.
26
<PAGE>
From time to time, the Company has borrowed funds from Yucatan Holding
Company, the Company's principal shareholder ("Yucatan"), for working capital
purposes. Pursuant to the terms of certain promissory note in the principal
amount of $936,770 dated June 30, 1995 issued by the Company to Yucatan (the
"June Note"), Yucatan, in its sole discretion, could convert all or a portion of
the principal and accrued unpaid interest pursuant to the June Note into shares
of the Company's Common Stock based upon a conversion ratio to be determined by
the parties at the time of conversion. Subsequent to June 30, 1995, Yucatan
advanced the Company additional funds for working capital and on September 30,
1995 the principal amount due Yucatan by the Company was $1,210,446.
On November 27, 1995, Yucatan converted the face value of the June Note
into shares of the Company's Common Stock based upon conversion ratio equal to
the closing bid price of the Company's common stock as reported on the OTC
Bulletin Board on the date of conversion which was $22.00 per share.
Accordingly, the Company issued Yucatan 42,581 shares of its restricted Common
Stock. The Company remained indebted, on an unsecured basis to Yucatan for
advances made subsequent to June 30, 1995 in the amount of $273,676. Subsequent
to November 27, 1995 such amount has been repaid to Yucatan by the Company.
During Fiscal 1997 from time to time the Company borrowed additional funds
from Yucatan for working capital purposes. At June 30, 1997 the amount due
Yucatan by the Company was $142,731.
In conjunction with the acquisition of Federal in May 1997 (see Item 1.
Description of Business), Federal delivered a promissory note to Robert Hausman
and Barbara Hausman in the principal amount of $1,079,024.31. On October 7, 1997
Robert Hausman and Barbara Hausman converted the principal and any accrued but
unpaid interest thereon into 115,000 shares of the Company's Series E Cumulative
Non-Participating Preferred Stock (the "Series E"). The designations, rights and
preferences of the Series E provide (a) for annual dividends equal to $77,000,
(b) full voting rights, share for share, with any then outstanding Common Stock
as well as with any other class or series of stock of the Company having general
voting power with the Common Stock concerning any matter being voted upon by the
Company's stockholders, (c) is not convertible into any other class of capital
stock of the Company and (d) is redeemable at the option of the Company at a
redemption price to be negotiated by the parties at the time of redemption.
27
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:
(a) Exhibits
--------
Exhibit No. Description
- - ----------- -----------
2.1 Stock Purchase Agreement dated June 14, 1994 by and
between F. W. Miller, Wildflower Financial Corp. and
Yucatan Holding Company is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on June 20, 1994
2.2 Agreement dated as of June 30, 1994 by and between
Wildflower Financial Corp., Yucatan Holding Company and
Prime Florida, Inc. is hereby incorporated by reference
to the Report on Form 8-K as filed with the Securities
and Exchange commission on July 13, 1994
2.3 Agreement dated as of June 30, 1994 by and between
Wildflower Financial Corp. and a certain shareholder of
Outside Industrial Services, Inc. is hereby incorporated
by reference to the Report on Form 8-K as filed with the
Securities and Exchange commission on July 13, 1994
2.4 Agreement dated November 30, 1994 by and between
Workforce Systems Corp. and Outside Industrial Services,
Inc. is hereby incorporated by reference to the Report
on Form 10-QSB for the quarter ended December 31, 1994
as filed with the Securities and Exchange commission on
February 15, 1995
2.5 Agreement dated May 22, 1995 by and between Workforce
Systems Corp. and Lester E. Gann, the Sole Shareholder
of Industrial Fabrication & Repair, Inc. is hereby
incorporated by reference to the Report on Form 8-K as
filed with the Securities and Exchange commission on May
23, 1995
2.6 Agreement dated as of May 29, 1997 by and between
Workforce Systems Corp. and Robert Hausman and John
28
<PAGE>
Murray as Sole Shareholders of Federal Supply, Inc. and
Robert Hausman as Sole Shareholder of Federal
Fabrication, Inc. is incorporated by reference to the
Report on Form 8-K as filed with the Securities and
Exchange Commission on June 4, 1997
3.1 Articles of Incorporation a re hereby incorporated by
reference to the Registration Statement on Form SB-2 as
declared effective by the Securities and Exchange
Commission on January 12, 1993
3.2 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series B $5.00 Cumulative Convertible Preferred
Stock are hereby incorporated by reference to the Report
on Form 8-K as filed with the Securities and Exchange
Commission on July 13, 1994
3.3 Articles of Amendment to the Articles of Incorporation
changing the corporation name are hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
3.4 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series A and Series C Preferred Stock are hereby
incorporated by reference to the Report on Form 10-QSB
for the quarter ended December 31, 1994 as filed with
the Securities and Exchange commission on February 15,
1995
3.5 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series D Preferred Stock is hereby incorporated
by reference to the Report on Form 10-KSB for the fiscal
year ended June 30, 1996 as filed with the Securities
and Exchange Commission on October 15, 1996
3.6 Articles of Amendment to the Articles of Incorporation
increased the amount of authorized common stock and
setting forth the redemption provisions of the Series D
Preferred Stock is hereby incorporated by reference to
the Registration Statement on Form SB-2, File No. 333-
11169, as filed with the Securities and Exchange
Commission on August 30, 1996, as amended
29
<PAGE>
3.7 Articles of Amendment to the Articles of Incorporation
decreasing the number of authorized common stock and
effecting a one for four stock split of the common stock
is hereby incorporated by reference to the Registration
Statement on Form SB-2, File No. 333-11169, as filed
with the Securities and Exchange Commission on August
30, 1996, as amended
3.8 By-Laws of the Company are hereby incorporated by
reference to the Registration Statement on Form SB-2 as
declared effective by the Securities and Exchange
Commission on January 12, 1993.
3.9 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series E Cumulative Non-Participating Preferred
Stock.
10.1 Licensing Agreement dated May 31, 1996 by and between
Ginsburg Enterprises Incorporated and Products That
Produce, Inc. is hereby incorporated by reference to the
Report on Form 10-KSB for the fiscal year ended June 30,
1996 as filed with the Securities and Exchange
Commission on October 15, 1996
10.2 Employment Agreement between Industrial Fabrication &
Repair, Inc. and Lester E. Gann is hereby incorporated
by reference to the Registration Statement on Form SB-
2, File No. 333-11169, as filed with the Securities and
Exchange Commission on August 30, 1996, as amended
10.3 Employment Agreement between American Industrial
Management, Inc. and Robert Lovelace is hereby
incorporated by reference to the Registration Statement
on Form SB-2, File No. 333-11169, as filed with the
Securities and Exchange Commission on August 30, 1996,
as amended
10.4 Management agreement between Workforce Systems Corp. and
Robert Hausman
30
<PAGE>
10.5 Amended and Restated Consulting Acquisition Management
Agreement between Workforce Systems Corp. and Manny J.
Shulman and Shulman & Associates, Inc. is hereby
incorporated by reference to the registration statement
on Form S-8 as filed with the Securities and Exchange
Commission on September 24, 1997
10.6 Stock Purchase and Sale Agreement dated September 22 ,
1997 between Workforce Systems Corp., a Florida
corporation, and Darren Apel, Barbara Hausman and Ronna
Newman Rutstein, as shareholders of LPS Acquisition
Corp. is incorporated by reference to the Report on Form
8-K as filed with the Securities and Exchange Commission
on September 22, 1997
10.7 Conversion Agreement dated October 7, 1997 between
Workforce Systems Corp., Federal Supply, Inc. and Robert
Hausman and Barbara Hausman
16.1 Letter from Richard H. Harris & Associates, P.A.
regarding change in certifying accountants is hereby
incorporated by reference to the Report on Form 8-K as
filed with the Securities and Exchange Commission on
July 11, 1994
16.2 Letter from Lyle H. Cooper, C.P.A. regarding change in
certifying accountants is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
16.3 Letter from Lyle H. Cooper, C.P.A. regarding change in
certifying accountants is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on August 6, 1997
16.4 Letter from BDO Seidman, LLP regarding change in
certifying accountants is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on August 6, 1997
31
<PAGE>
21 Subsidiaries of the Registrant.
27 Financial Data Schedule
99 Information regarding the name change of the Company is
hereby incorporated by reference to the Report on Form
8-K as filed with the Securities and Exchange Commission
on July 11, 1994
(b) Reports on Form 8-K
-------------------
On June 4, 1997 the Company filed with the Securities and Exchange
Commission a Report on Form 8-K regarding the acquistions of Federal Supply,
Inc. and Federal Fabrication, Inc.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Workforce Systems Corp. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WORKFORCE SYSTEMS CORP.
By: /s/ Robert Hausman
-------------------
Robert Hausman, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
/s/ Robert Hausman President, October 13, 1997
- - ------------------------ Chairman
Robert Hausman
/s/ Jayme Dorrough Secretary and October 13, 1997
- - ------------------------ Director
Jayme Dorrough
/s/ Mark Weisz Director October 13, 1997
- - ------------------------
Mark Weisz
/s/ Lester Gann Director October 13, 1997
- - ------------------------
Lester Gann
/s/ C. Lawrence Rutstein Director October 13, 1997
- - ------------------------
C. Lawrence Rutstein
33
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------
2.1 Stock Purchase Agreement dated June 14, 1994 by and
between F. W. Miller, Wildflower Financial Corp. and
Yucatan Holding Company is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on June 20, 1994
2.2 Agreement dated as of June 30, 1994 by and between
Wildflower Financial Corp., Yucatan Holding Company and
Prime Florida, Inc. is hereby incorporated by reference
to the Report on Form 8-K as filed with the Securities
and Exchange commission on July 13, 1994
2.3 Agreement dated as of June 30, 1994 by and between
Wildflower Financial Corp. and a certain shareholder of
Outside Industrial Services, Inc. is hereby incorporated
by reference to the Report on Form 8-K as filed with the
Securities and Exchange commission on July 13, 1994
2.4 Agreement dated November 30, 1994 by and between
Workforce Systems Corp. and Outside Industrial Services,
Inc. is hereby incorporated by reference to the Report
on Form 10-QSB for the quarter ended December 31, 1994
as filed with the Securities and Exchange commission on
February 15, 1995
2.5 Agreement dated May 22, 1995 by and between Workforce
Systems Corp. and Lester E. Gann, the Sole Shareholder
of Industrial Fabrication & Repair, Inc. is hereby
incorporated by reference to the Report on Form 8-K as
filed with the Securities and Exchange commission on May
23, 1995
2.6 Agreement dated as of May 29, 1997 by and between
Workforce Systems Corp. and Robert Hausman and John
Murray as Sole Shareholders of Federal Supply, Inc. and
Robert Hausman as Sole Shareholder of Federal
Fabrication, Inc. is incorporated by reference to the
Report on Form 8-K as filed with the Securities and
Exchange Commission on June 4, 1997
1
<PAGE>
3.1 Articles of Incorporation are hereby incorporated by
reference to the Registration Statement on Form SB-2 as
declared effective by the Securities and Exchange
Commission on January 12, 1993
3.2 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series B $5.00 Cumulative Convertible Preferred
Stock are hereby incorporated by reference to the Report
on Form 8-K as filed with the Securities and Exchange
Commission on July 13, 1994
3.3 Articles of Amendment to the Articles of Incorporation
changing the corporation name are hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
3.4 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series A and Series C Preferred Stock are hereby
incorporated by reference to the Report on Form 10-QSB
for the quarter ended December 31, 1994 as filed with
the Securities and Exchange commission on February 15,
1995
3.5 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series D Preferred Stock is hereby incorporated
by reference to the Report on Form 10-KSB for the fiscal
year ended June 30, 1996 as filed with the Securities
and Exchange Commission on October 15, 1996
3.6 Articles of Amendment to the Articles of Incorporation
increased the amount of authorized common stock and
setting forth the redemption provisions of the Series D
Preferred Stock is hereby incorporated by reference to
the Registration Statement on Form SB-2, File No. 333-
11169, as filed with the Securities and Exchange
Commission on August 30, 1996, as amended
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<PAGE>
3.7 Articles of Amendment to the Articles of Incorporation
decreasing the number of authorized common stock and
effecting a one for four stock split of the common stock
is hereby incorporated by reference to the Registration
Statement on Form SB-2, File No. 333-11169, as filed
with the Securities and Exchange Commission on August
30, 1996, as amended
3.8 By-Laws of the Company are hereby incorporated by
reference to the Registration Statement on Form SB-2 as
declared effective by the Securities and Exchange
Commission on January 12, 1993.
3.9 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series E Cumulative Non-Participating Preferred
Stock.
10.1 Licensing Agreement dated May 31, 1996 by and between
Ginsburg Enterprises Incorporated and Products That
Produce, Inc. is hereby incorporated by reference to the
Report on Form 10-KSB for the fiscal year ended June 30,
1996 as filed with the Securities and Exchange
Commission on October 15, 1996
10.2 Employment Agreement between Industrial Fabrication &
Repair, Inc. and Lester E. Gann is hereby incorporated
by reference to the Registration Statement on Form SB-
2, File No. 333-11169, as filed with the Securities and
Exchange Commission on August 30, 1996, as amended
10.3 Employment Agreement between American Industrial
Management, Inc. and Robert Lovelace is hereby
incorporated by reference to the Registration Statement
on Form SB-2, File No. 333-11169, as filed with the
Securities and Exchange Commission on August 30, 1996,
as amended
10.4 Management agreement between Workforce Systems Corp. and
Robert Hausman
3
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10.5 Amended and Restated Consulting Acquisition Management
Agreement between Workforce Systems Corp. and Manny J.
Shulman and Shulman & Associates, Inc. is hereby
incorporated by reference to the registration statement
on Form S-8 as filed with the Securities and Exchange
Commission on September 24, 1997
10.6 Stock Purchase and Sale Agreement dated September 22 ,
1997 between Workforce Systems Corp., a Florida
corporation, and Darren Apel, Barbara Hausman and Ronna
Newman Rutstein, as shareholders of LPS Acquisition
Corp. is incorporated by reference to the Report on Form
8-K as filed with the Securities and Exchange Commission
on September 22, 1997
10.7 Conversion Agreement dated October 7, 1997 between
Workforce Systems Corp., Federal Supply, Inc. and Robert
Hausman and Barbara Hausman
16.1 Letter from Richard H. Harris & Associates, P.A.
regarding change in certifying accountants is hereby
incorporated by reference to the Report on Form 8-K as
filed with the Securities and Exchange Commission on
July 11, 1994
16.2 Letter from Lyle H. Cooper, C.P.A. regarding change in
certifying accountants is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
16.3 Letter from Lyle H. Cooper, C.P.A. regarding change in
certifying accountants is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on August 6, 1997
16.4 Letter from BDO Seidman, LLP regarding change in
certifying accountants is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on August 6, 1997
21 Subsidiaries of the Registrant
4
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27 Financial Data Schedule
99 Information regarding the name change of the Company is
hereby incorporated by reference to the Report on Form
8-K as filed with the Securities and Exchange Commission
on July 11, 1994
5
================================================================================
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
================================================================================
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
WORKFORCE SYSTEMS CORP.
The undersigned, being a natural person competent to contract, does hereby
make, subscribe and file the Articles of Amendment to the Articles of
Incorporation of Workforce Systems Corp., a Florida corporation, pursuant to
Sections 607.0602 and 607.10025 of the Florida Business Corporation Act:
1. The name of the corporation is Workforce Systems Corp. (the
"Company").
2. The text of the resolution of the Board of Directors on October 8,
1997 setting forth amendments to the designations, rights and privileges of the
Company's Series E Cumulative Non-Participating Preferred Stock is as follows:
WHEREAS, pursuant to Article IV of the Articles of Incorporation the
Company is authorized to issue 2,000,000 shares of preferred stock,
par value $.001 per share (the "Preferred Stock"), issuable in such
series and bearing such voting, dividend, conversion, liquidation
and other rights and preferences as the Board of Directors may
determine.
WHEREAS, the Board of Directors deems it to be in the best interest
of the Company to designate a series of such Preferred Stock,
consisting of 115,000 shares.
NOW, THEREFORE, be it resolved that the Board of Directors of the
Company be and hereby determines that 115,000 shares of Preferred
Stock are designated as Series E Cumulative Non-Participating
Preferred Stock, with the following designations, rights and
preferences:
1. DESIGNATION AND INITIAL NUMBER. The series of Preferred Stock
hereby classified shall be designated "Series E Cumulative
NonParticipating Preferred Stock" (the "Series E Cumulative
NonParticipating Preferred Stock".) The initial number of authorized
shares of the Series E Cumulative Non-Participating Preferred Stock
shall be 115,000 shares. Upon issuance of the shares of Series E
Cumulative Non-Participating Preferred Stock $10.00 per share shall
be the stated capital of the Company.
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2. VOTING RIGHTS. Holders of the shares of Series E Cumulative
Non-Participating Preferred Stock shall be entitled to full voting
rights, share for share, with the then outstanding Common Stock as
well as with any other class or series of stock of the Company which
have general voting power with the Common Stock concerning any
matter being voted upon. Except as so provided, shares of Series E
Cumulative Non-Participating Preferred Stock shall at no time be
entitled, as a series, class or otherwise, to any other or special
or restrictive voting rights of any kind whatsoever, except as then
and when and to the extent required by applicable law.
3. CONVERSION PRIVILEGE. The shares of Series E Cumulative
NonParticipating Preferred Stock are not convertible into any other
class of capital stock of the Company.
4. REDEMPTION. The shares of Series E Cumulative NonParticipating
Preferred Stock are redeemable at the sole option of the Company at
any time and from time to time at a redemption price to be
negotiated by the parties at the time of redemption.
5. DIVIDENDS. The shares of Series E Cumulative NonParticipating
Preferred Stock shall pay annual dividends out of funds legally
available for the payment of dividends by the Company in the amount
of $77,000, payable quarterly in arrears commencing December 31,
1997.
6. LIQUIDATION. In the event of any voluntary or involuntary
dissolution or winding up of the Company, the holders of shares of
Series E Cumulative Non-Participating Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Company available for distribution to its shareholders an amount per
share equal to $.001 without interest, and no more, before any
payment shall be made to the holders of any stock of the Company
ranking junior to the Series E Cumulative Non-Participating
Preferred Stock. A merger of consolidation of the Company with or
into any other corporation, share exchange or sale of conveyance of
all or any part of the assets of the Company which shall not in fact
result in the liquidation of the Company and the distribution of
assets to its shareholders shall not be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Company
within the meaning of this Paragraph 6.
2
<PAGE>
7. TRANSFERABILITY. The shares of Series E Cumulative
NonParticipating Preferred Stock may be transferred at any time and
from time to time at the sole option of the holder.
BE IT FURTHER RESOLVED, that the President of the Company be and
hereby is authorized and directed to execute and file Articles of
Amendment reflecting the foregoing action and to take such other
acts or actions as he deems necessary and appropriate to effect the
foregoing.
4. The foregoing amendment was duly adopted by unanimous written
consent of the Board of Directors on October 7, 1997 and shareholders' action
was not required.
IN WITNESS WHEREOF, this Articles of Amendment to the Articles of
Incorporation has been executed on the 8th day of October, 1997.
Workforce Systems Corp.
By: /s/ Robert Hausman
-----------------------------
Robert Hausman,
President
3
================================================================================
MANAGEMENT AGREEMENT WITH ROBERT HAUSMAN
================================================================================
MANAGEMENT AGREEMENT
--------------------
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and entered into as
of the 1st day of July, 1997 (the "Effective Date") between Workforce Systems
Corp., a Florida corporation whose principal place of business is 1410 SW 8
Street, Pompano Beach, Florida 33309 (the "Company"), and Robert Hausman, an
individual whose address is 6048 NW 32 Court, Boca Raton,
Florida 33496 (the "Manager").
RECITALS
A. The Company is a holding company for nine wholly-owned or majority
owned subsidiaries including (1) Federal Supply, Inc. ("FSI") and Federal
Fabrication, Inc. ("FFI"] [together collectively "the Federal Subsidiaries"),
which are in the business of fabricating and manufacturing custom fire sprinkler
systems for contractors and installers (the "Federal Subsidiaries Business");
(2) Industrial Fabrication & Repair, Inc., and its subsidiary Maintenance
Requisition Order Corp., which collectively provide specialized fabrication and
design of power transmission systems, distribution of power transmission
components and onsite maintenance and outsourced speciality contract services to
industrial clients in the southeast; (3) American Industrial Management, Inc.
and Outside Industrial Services, Inc., which collectively provide light
industrial and light manufacturing employee staffing ; and (4) Products That
Produce, Inc. and NHP Manufacturing Corp. which collectively manufacture and
distribute consumer products, all of which are hereinafter collectively
"Subsidiaries."
B. The Manager is desirous of being engaged by the Company, and the
Company has agreed to engage the Manager upon certain terms and conditions, one
of which is the execution of this Agreement by Manager.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Company and the Manager do hereby agree as follows:
1. ENGAGEMENT. The Company hereby engages the Manager and the
Manager accepts the engagement on the terms and conditions set forth herein in
the capacity of:
a. Manager will serve as President of the Federal Subsidiaries,
on a full-time basis, at the pleasure of the Company's Board of Directors. The
parties hereto acknowledge their understanding that the Company will ultimately
replace Manager as President of the Federal Subsidiaries as soon as an
appropriate candidate is hired or promoted for such position; and
1
<PAGE>
b. President of the Company, subject to the pleasure of the
Company's Board of Directors.
2. DUTIES, AUTHORITY AND POWER DURING ENGAGEMENT PERIOD.
a. The Manager shall perform all duties as may be required by the
Company's Board of Directors in his capacity as President of the Company, which
such duties may be rendered by Manager while residing in the State of Florida,
including without limitation the following:
(1) The Manager shall have such fiduciary responsible to the
Company as a President of a like company has;
(2) The Manager shall use his best efforts to ensure that
all presidents of each of the Subsidiaries work together to enhance revenues,
earnings and overall shareholder value of the Company;
(3) The Manager shall be responsible for communication of
the Company's strategies and results of operations to the financial and
investing community as well as any and all other matters related to the public
nature of the Company's ownership; and
(4) The Manager shall be subject to, and shall be
responsible to, the direction and control of the Board of Directors of the
Company.
Notwithstanding the foregoing, the Company acknowledges that the
Manager presently owns a 25% interest in South Eastern Sound & Communications,
Inc. and a one-third interest in All-Star Sports Camp. The Manager represents to
the Company that such business interests shall not conflict with the provision
of his duties hereunder and the Company represents that the Manager's
participation in such business interests should not interfere with the Manager's
responsibilities to the Company as set forth hereunder.
b. The Manager shall perform all duties as may be required by the
Company's Board of Directors in his capacity as President of the Federal
Subsidiaries, including without limitation, supervising the day-to-day
operations of each of the Federal Subsidiaries and rendering and performing all
other duties commonly discharged by persons holding the position of a President
in a like business.
2
<PAGE>
c. The Manager shall abide by all Company policies as may be in
effect from time to time.
d. During the "Term," as described in Section 5a, and subject to
Section 2a hereof, the Manager shall diligently devote Manager's time, effort
and skills to the duties and obligations described in this Agreement.
e. During the Term, the Manager shall notify the Company within
24 hours of any solicitation of Manager for engagement or employment, including
any oral or written contract, offer of inquiry in which a position of
employment, consulting arrangement or affiliation is discussed. During the term
of this Agreement, the Manager will neither enter into nor engage in
negotiations for any oral or written employment, consulting or affiliation
agreement or arrangement with any third part(ies) in any capacity without the
express prior written consent of the Company.
3. COMPENSATION AND BENEFITS.
a. As his sole compensation payable by the Company under this
Agreement, the Manager shall be entitled to receive the following:
(1) an annual management fee of one hundred thousand
($100,000.00) dollars for the first year, payable in twelve equal monthly
installments, with an annual incremental increases of the greater of (i) the
percentage increase in the Consumer Price Index, all items, as published by the
United States Department of Labor, since the date of this Agreement (in the case
of the first annual increase) or since the most recent anniversary of the date
of this Agreement (in the case of all subsequent annual increases), or (ii) six
percent (6%) of the previous year's base management fee.
(2) an annual cash bonus equal to 10% of the Federal
Subsidiaries Net Pre-Tax Income (as that term is hereinafter defined), payable
within 10 business days of the filing with the Securities and Exchange
Commission of the Company's annual report on Form 10-KSB. For the purposes of
this Agreement, "Net Pre-Tax Income" shall mean the gross revenues of the
Federal Subsidiaries, less the costs of the revenues earned, less selling,
general and administrative expenses, as reflected on the financial statements of
the Federal Subsidiaries for the fiscal years ending June 30, which such
financial statements shall be prepared in accordance with generally accepted
accounting principles applied on a consistent basis;
3
<PAGE>
(3) options to purchase 100,000 shares of common stock of
the Company at an exercise price of $5.00 per share, which such options shall
immediately vest and be exercisable at any time and from time to time during the
Term of this Agreement; provided, however, that any options which shall not have
been exercised by the Manager prior to the expiration of the Term of this
Agreement pursuant to the provisions of Section 5 hereof shall immediately
expire; and
(4) such other compensation, including, without limitation,
bonus compensation, as may be determined by a majority of the Company's Board of
Directors, in their sole discretion.
b. The Manager shall be reimbursed for all reasonable expenses
incurred in the rendering of the services hereunder.
4. CHANGE OF CONTROL.
a. In the event a "change of control," as hereinafter defined, of
the Company shall occur at any time during the Term hereof, the Company shall
have the option in its sole discretion to terminate the Manager's engagement
hereunder upon thirty (30) days prior written notice, and in such event, upon
the expiration of such thirty (30) day period the Company shall pay to the
Manager all compensation due him pursuant to Section 3 hereof during the balance
of the Term as if this Agreement had not been terminated prior to the expiration
of the period set forth in Section 5a hereof, together with an additional sum
equal to two (2) year's annual management fee as set forth in Section 3(a)(1)
hereof.
b. For the purposes of this Section 4, "change of control" mean
the occurrence of any one or series of events which result in the aggregate of
more than 50.1% of the then issued and outstanding common stock of the Company
being acquired (through the purchase, assignment, pledge, hypothecation or any
other transfer thereof) by any one individual or entity, or several individuals
or entities acting in concert, who are not, or are their officers, directors,
shareholders, employees or affiliates, then shareholders of the Company.
5. TERM AND TERMINATION.
a. TERM. Unless the term of engagement is terminated pursuant to
Section 5b of this Agreement, the "Term" of engagement hereunder will commence
on the Effective Date and continue for a period of three (3) years and the
Manager hereby accepts such engagement for such Term.
4
<PAGE>
b. TERMINATION WITHOUT CAUSE. Other than in the event of a
"change of control" as described in Section 4 hereof, the Company may terminate
the Manager's engagement with the Company without cause upon giving 18 month's
prior written notice. Thereafter, during such 18 month period the Company shall
continue to compensate the Manager in accordance with this Agreement, however,
Manager shall not be required to perform any duties hereunder.
c. MUTUAL AGREEMENT. The Company and the Manager may terminate
the Manager's engagement with the Company by mutual agreement of the parties
hereto at any time.
d. RIGHT OF THE COMPANY TO TERMINATE FOR "CAUSE". The Manager's
engagement with the Company may be terminated immediately by the Company upon
the occurrence of any of the following events:
(1) Manager fails, neglects or refuses to perform in any material
respect any of the Manager's obligations hereunder at the time and in the manner
set forth herein;
(2) Manager conducts himself in a degrading manner or engages in
any immoral practices or activities which may insult or offend the community and
therefore be material detrimental to the reputation, well-being or properties of
the Company, its officers, directors, shareholders or affiliated companies;
(3) Any assignment of this Agreement by the Manager;
(4) Manager materially breaches this Agreement;
(5) Manager materially jeopardizes the Company's ability to
operate its business;
(6) Manager manifests negligence or incompetence in the discharge
of the Manager's duties hereunder;
(7) Manager materially violates local, state or federal laws, rule
or policies of any governmental agency which may regulate the Company's
business;
(8) Manager is disabled so as to be unable to perform duties
required under this Agreement for a period of 30 consecutive days or 30 days in
any 90 day period; or
5
<PAGE>
(9) Upon the death of the Manager; or
(10) Manager is arrested or convicted of a crime, pleads or enters
a plea of nolo contendere (no contest), even if adjudication is withheld (this
applies to any violation of the laws of any municipality, county, state, or
nation, including traffic offenses but not parking, speeding, inspection or
traffic signal violations), without regard to whether the person was placed on
probation, had adjudication withheld, paroled, or pardoned, including without
limitation, in connection with fraud, dishonesty, disloyalty, willful
misconduct, material dereliction or rendering services on behalf of the Company.
6. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
a. The Manager acknowledges that the Company's trade secrets,
private or secret processes, methods and ideas, as they exist from time to time,
customer lists and information concerning the Company's products, services,
business records and plans, inventions, product design information, price
structure, discounts, costs, computer programs and listings, source code and/or
subject code, copyright, trademark, proprietary information, formulae,
protocols, forms, procedures, training methods, development, technical
information, marketing activities and procedures, method for operating the
Company's Business, credit and financial data concerning the Company and the
Company's Clients and Client Lists, which Client Lists shall not only mean one
or more of the names and addresses of the Clients of the Company but it shall
also encompass any and all information whatsoever regarding them, including
their needs, and marketing and advertising practices and plans and information
which is embodied in written or otherwise recorded form, but it shall also
include information which is mental, not physical (collectively, the
"Confidential Information") as valuable, special and unique assets of the
Company, access to and knowledge of which are essential to the performance of
the Manager hereunder. In light of the highly competitive nature of the industry
in which the Company's business is conducted, the Manager agrees that all
Confidential Information, heretofore or in the future obtained by the Manager as
a result of the Manager's association with the Company shall be considered
confidential.
b. Excluded from the Confidential Information, and therefore not
subject to the provisions of this Agreement, shall be any information which:
(1) At the time of disclosure, is in the public domain as
evidenced by printed publications;
(2) After the disclosure, enters the public domain by way of
printed publication through no fault of the Manager or those in privity with it;
6
<PAGE>
(3) Manager can show by written documentation was in its
possession at the time of disclosure and which was not acquired directly or
indirectly from the Company; or
(4) Manager can show by written documentation was acquired, after
disclosure, from a third party who did not receive it from the Company, and who
had the right to disclose the information without any obligation to hold such
information confidential.
c. The Manager acknowledges that, as between the Company and the
Manager, the Confidential Information and any and all rights and privileges
provided under the trademark, copyright, trade secret and other laws of the
United States, the individual states thereof, and jurisdictions foreign thereto,
and the goodwill associated therewith, are and at all times will be the property
of the Company.
d. Manager agrees that Manager shall:
(1) Hold in confidence and not disclose or make available to any
third party any such Confidential Information unless so authorized in writing by
the Company;
(2) Exercise all reasonable efforts to prevent third parties from
gaining access to the Confidential Information;
(3) Not use, directly or indirectly, the Confidential Information
in any respect of its business, except as necessary to evaluate the information;
(4) Restrict the disclosure or availability of the Confidential
Information to those of Manager's employees who have read and understand this
Agreement and who have a need to know the information in order to achieve the
purposes of this Agreement;
(5) Not copy or modify any Confidential Information without prior
written consent of the Company.
(6) Take such other protective measures as may be reasonably
necessary to preserve the confidentiality of the Confidential Information; and
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<PAGE>
(7) Relinquish and require all of its employees to relinquish all
rights it and its employees may have in any matter, such as drawings, documents,
models, samples, photographs, patterns, templates, molds, tools or prototypes,
which may contain, embody or make use of the Confidential Information; promptly
deliver to the Company any such matter as the Company may direct at any time;
and not retain any copies or other reproductions thereof.
e. Manager further agrees:
(1) That it shall promptly disclose in writing to the Company all
ideas, inventions, improvements and discoveries which may be conceived, made or
acquired by Manager or its employees as the direct or indirect result of the
disclosure by the Company of the Confidential Information to Manager;
(2) That all such ideas, inventions, improvements and discoveries
conceived, made or acquired by Manager, alone or with the assistance of others,
relating to the Confidential Information, shall be the property of the Company
and shall be treated as Confidential Information in accordance with the
provisions hereof and that the Manager shall not acquire any intellectual
property rights under this Agreement except the limited right to use set forth
in this Agreement.
(3) That Manager and its employees shall assist in the preparation
and execution of all applications, assignments and other documents which the
Company may deem necessary to obtain patents, copyrights and the like in the
United States and in jurisdictions foreign thereto, and to otherwise protect the
Company.
f. Upon written request of the Company, Manager shall return to
the Company all written materials containing the Confidential Information.
Manager shall also deliver to the Company written statements signed by the
Manager certifying all materials have been returned within five (5) days of
receipt of the request.
7. COMPANY'S CLIENTS. The "Company's Clients" shall be deemed to be any
persons, partnerships, corporations, professional associations or other
organizations for whom the Company has performed Business Activities.
8. BUSINESS ACTIVITIES. "Business Activities" shall be deemed to
include any activities which are included in the Company's Business now or
during the effective period of this Agreement.
9. COVENANTS AS ESSENTIAL ELEMENTS OF THIS AGREEMENT. It is understood
by and between the parties hereto that the foregoing covenants by Manager
8
<PAGE>
contained in Section 6 of this Agreement shall be construed to be agreements
independent of any other element of the Manager's engagement with the Company.
The existence of any other claim or cause of action, whether predicated on any
other provision in this Agreement, or otherwise, as a result of the relationship
between the parties shall not constitute a defense to the enforcement of the
covenants in this Agreement against the Manager.
10. REMEDIES.
a. The Manager acknowledges and agrees that the Company's remedy at law
for a breach or threatened breach of any of the provisions of Sections 6 herein
would be inadequate and the breach shall be per se deemed as causing irreparable
harm to the Company. In recognition of this fact, in the event of a breach by
the Manager of any of the provisions of Section 6, the Manager agrees that, in
addition to any remedy at law available to the Company, including, but not
limited to monetary damages, the Company, without posting any bond, shall be
entitled to obtain, and the Manager agrees not to oppose the Company's request
for, equitable relief in the form of specific performance, temporary restraining
order, temporary or permanent injunction or any other equitable remedy which may
then be available to the Company.
b. The Manager acknowledges that the granting of a temporary
injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Confidential Information would not be an adequate remedy
upon breach or threatened breach of Section 6 and consequently agrees, upon
proof of any such breach, to the granting of injunctive relief prohibiting any
form of competition with the Company. Nothing herein contained shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach.
c. In the event that the Manager shall be in violation of the
aforementioned restrictive covenants, then the time limitation during which
breach or breaches should occur, and in the event the Company should be required
to seek relief from such breach in any court or other tribunal, then the
covenant shall be extended for a period of time equal to the pendency of such
proceedings, including appeal.
11. ATTORNEYS' FEES. The Manager agrees that in the event that the
Company is required to engage an attorney to enforce the terms of the covenants
in Section 6 of this Agreement, the Manager shall pay all costs and expenses of
that attorney or firm, whether or not a complaint or suit is filed with any
court of competent jurisdiction. With respect to all other terms contained
9
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herein, other than Section 6, each party will pay to the prevailing party all
court costs incurred by the prevailing party, and reasonable attorney's fees
incurred for the enforcement, defense or interpretation of this Agreement.
12. EFFECT ON PRIOR AGREEMENTS. This Agreement supersedes any and all
prior or written agreement in their entirety between the Company and the
Manager, which shall be void and of no further force and effect after the date
of this Agreement.
13. FREEDOM TO CONTRACT. The Manager represents and warrants that the
Manager has the right to negotiate and enter into this Agreement, the grant of
the rights herein granted and that this Agreement does not breach, interfere
with or conflict with any other contractual agreement, covenant not to compete,
option, right of first refusal, or other existing business relationship. The
Manager acknowledges that this representation is a material inducement to the
Company entering into this Agreement and in the event that the Manager breaches
this warranty, the Manager agrees to indemnify and to hold harmless the Company
from any and all claims, actions, losses, damages, including without limitation,
reasonable attorneys' fees and costs.
14. PUBLIC STATEMENTS. The Manager agrees not to directly or indirectly
publish, circulate, utter or disseminate, or cause to be published, circulated,
uttered or disseminated, in a manner or by any means whatsoever, to any person
or persons whomsoever, any statements, comments, or material whatsoever, which
could or would, in any manner whatsoever, either reflect unfavorably on the
reputation of the Company or harm, damage or impair the business or operations
of the Company unless required by law or by a valid order of a court of
competent jurisdiction.
15. BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding upon the
parties hereto, their heirs, legal representatives, successors and assigns. This
Agreement shall not be assignable by the Manager but shall be assignable by the
Company in connection with the sale, transfer or other disposition of its
business.
16. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
It supersedes all prior negotiations, letters and understandings relating to the
subject matter hereof.
10
<PAGE>
b. CHOICE OF LAW, VENUE AND WAIVER OF JURY TRIAL. This Agreement,
including any disputes hereunder and the interpretation, validity and/or
enforcement of any provision hereof, shall be governed by the laws of the State
of Florida. Any action brought involving any of the provisions of this Agreement
and/or enforcement of any of the covenants of this Agreement shall be brought
only in a Circuit Court in and for Broward County, Florida and the parties agree
that Broward County, Florida shall be the sole and exclusive jurisdiction and to
waive any claim relating to forum non convienes. The parties further agree and
hereby waive and release any right to a trial by jury in any action arising out
of the interpretation, enforcement or breach of this Agreement. The Manager
further agrees that the Manager must bring an action arising out of this
relationship within six (6) months from the date of accrual of cause of action
or forever be barred from bringing such action.
c. EFFECT OF WAIVER. The failure of any party at any time or
times to require performance of any provision of this Agreement will in no
manner affect the right to enforce the same. The waiver by any party of any
breach of any provision of this Agreement will not be construed to be a waiver
by any such party of any succeeding breach of that provision or a waiver by such
party of any breach of any other provision.
d. SEVERABILITY. The invalidity of any provision or provisions of
this Agreement will not affect any other provision of this Agreement, which will
remain in full force and effect, nor will the invalidity of a portion of any
provision of this Agreement affect the balance of such provision.
e. BINDING NATURE. This Agreement will be binding upon and will
inure to the benefit of the parties to this Agreement and their respective
successors and assigns.
f. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
17. CONSTRUCTION. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
EACH PARTY HAS ENTERED INTO THIS AGREEMENT WITHOUT UNDUE INFLUENCE, FRAUD,
COERCION, DURESS, MISREPRESENTATIONS OR ANY RESTRAINT HAVING BEEN PRACTICED UPON
THEM BY ANY OTHER PARTY. THE PARTIES TO THIS AGREEMENT HAVE READ THIS AGREEMENT,
UNDERSTAND ITS TERMS AND CONDITIONS, HAVE HAD THE OPPORTUNITY TO CONSULT WITH
INDEPENDENT COUNSEL OF THEIR OWN CHOICE AND AGREE TO BE BOUND BY ITS TERMS AND
CONDITIONS.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written in Pompano Beach, Florida.
WITNESS: THE COMPANY:
WORKFORCE SYSTEMS CORP.
By: /s/ Ella Chesnutt
- - -------------------------- -----------------------------------
Ella Chesnutt, Chairperson
THE MANAGER
/s/ Robert Hausman
- - -------------------------- --------------------------------------
Robert Hausman
12
================================================================================
CONVERSION AGREEMENT
================================================================================
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT is made and entered into this 7th day of
October, 1997 by and between Workforce Systems Corp., a Florida corporation
("Workforce"), Federal Supply, Inc., a Florida corporation ("Federal") and
Robert L. Hausman and Barbara Hausman (collectively, "Hausman").
WHEREAS, Federal is a wholly-owned subsidiary of Workforce.
WHEREAS, Federal has delivered to Hausman that certain Promissory Note
dated May 29, 1997 in the principal amount of $1,079,024.31, a copy of which is
attached hereto as Exhibit A and incorporated herein by such reference (the
"Federal Note").
WHEREAS, Workforce is desirous of converting the Federal Note into shares
of its Series E Cumulative Non-Participating Preferred Stock and Hausman has
agreed to such conversion.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. RECITALS. The foregoing recitals are true and correct.
2. CONVERSION. The entire principal and any and all accrued but unpaid
interest on the Federal Note is hereby converted into 115,000 shares of
Workforce's Series E Cumulative Non-Participating Preferred Stock, the
designations, rights and preferences of which are attached hereto as Exhibit B
and incorporated herein by such reference.
3. MISCELLANEOUS.
(a) Each of the parties hereto will bear its own legal fees and
other expenses in connection with the transactions contemplated by this
Agreement.
(b) If any term or provision of this Agreement or any exhibits
thereto or the application thereof to any person, property or circumstances
shall to any extent be invalid or unenforceable, the remainder of this Agreement
or the exhibits thereto or the application or such term or provision to person,
property or circumstances other than those as to which it is invalid and
unenforceable shall not be affected thereby, and each term and provision of this
Agreement or the exhibits thereto shall be valid and enforced to the fullest
extent permitted by law.
1
<PAGE>
(c) Any notices, requests or consents hereunder shall be deemed
given, and any instruments delivered, two days after they have been mailed by
first class mail, postage prepaid, or upon receipt if delivered personally or by
facsimile transmission, as follows:
If to Workforce
and Federal: 7777 Glades Road
Suite 211
Boca Raton, Florida 33433
Attention: President
With a copy to: Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
Attention: Charles B. Pearlman, Esq.
If to Hausman: 3785 NW 65 Lane
Boca Raton, Florida 33496
except that any of the foregoing may from time to time by written notice to the
other designate another address which shall thereupon become its effective
address for the purposes of this paragraph.
(d) This Agreement, including the exhibits and documents referred
to herein which are a part hereof, contain the entire understanding of the
parties hereto with respect to the subject matter and may be amended only by a
written instrument executed by the parties hereto or their successors or
assigns. Any paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(e) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(f) This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors but shall not inure to
the benefit of anyone other than the parties signing this Agreement and their
respective successors.
2
<PAGE>
(g) This Agreement shall be governed by the laws of the State of
Florida.
(h) The parties have either (i) been represented by independent
legal counsel in connection with the negotiations and execution of this
Agreement, or (ii) each has had the opportunity to obtain independent legal
counsel, has been advised that it is in their best interests to do so and by
execution of this Agreement has waive the right.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Workforce Systems Corp.
By: /s/ C. Lawrence Rutstein
------------------------------
C. Lawrence Rutstein,
Director
Federal Supply, Inc.
By: /s/ John Murray
------------------------------
John Murray,
Its:
-----------------------
/s/ Robert Hausman
---------------------------------
Robert Hausman
/s/ Barbara Hausman
---------------------------------
Barbara Hausman
3
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Outside Industrial Services, Inc.
American Industrial Management, Inc.
Industrial Fabrication & Repair, Inc.
Maintenance Requisition Order Corp.
NHP Manufacturing Corp.
Products That Produce, Inc.
Federal Supply, Inc.
Federal Fabrication, Inc.
LPS Acquisition Corp.
Prime Florida, Inc.
Workforce Properties Corp.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORKFORCE SYSTEMS CORP. FOR THE FISCAL YEAR ENDED JUNE
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 335,321
<SECURITIES> 0
<RECEIVABLES> 1,121,069
<ALLOWANCES> 0
<INVENTORY> 1,888,235
<CURRENT-ASSETS> 3,996,421
<PP&E> 3,238,793
<DEPRECIATION> 324,062
<TOTAL-ASSETS> 9,669,172
<CURRENT-LIABILITIES> 2,178,722
<BONDS> 0
0
30
<COMMON> 1,953
<OTHER-SE> 5,635,315
<TOTAL-LIABILITY-AND-EQUITY> 9,669,172
<SALES> 4,653,286
<TOTAL-REVENUES> 4,653,286
<CGS> 3,518,500
<TOTAL-COSTS> 3,518,500
<OTHER-EXPENSES> 2,629,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,488
<INCOME-PRETAX> (3,028,150)
<INCOME-TAX> (133,399)
<INCOME-CONTINUING> (2,894,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,894,751)
<EPS-PRIMARY> (3.58)
<EPS-DILUTED> (3.58)
</TABLE>
