As filed with the Securities and Exchange Commission on March 27, 1997
Registration Statement No. 333-11169
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WORKFORCE SYSTEMS CORP.
(Name of Small Business Issuer in its Charter)
Florida 6719 65-0353816
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classifi- Identification No.)
or organization) cation Code Number)
105 West Fifth Avenue
Knoxville, TN 37917
(423) 524-4885
(Address and telephone
number of principal
executive offices)
Ella Chesnutt
Workforce Systems Corp.
105 West Fifth Avenue
Knoxville, TN 37917
(423) 524-4885
(Name, address and telephone number of agent for service)
With copies to:
Joel D. Mayersohn, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
New River Center
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33331
(305) 763-1200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [X]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
WORKFORCE SYSTEMS CORP.
Cross Reference Sheet for Prospectus Under Form SB-2
Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
1. Forepart of Registration Cover Page; Cross Reference
Statement and Outside Sheet; Outside Front Cover
Front Cover of Prospectus Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information and Prospectus Summary; High Risk
Risk Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page; High Risk Factors
Price
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of
Prospectus; Selling Security
Holders
9. Legal Proceedings Business
10. Directors, Executive Offi-
cers, Promoters and Control
Persons Management
11. Security Ownership of Cer-
tain Beneficial Owners and
Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts
and Counsel Legal Matters
14. Disclosure of Commission
Position on Indemnifica-
tion for Securities Act
Liabilities Undertakings
15. Organization within Last
Five Years Not Applicable
ii
<PAGE>
Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
16. Description of Business Business
17. Management's Discussion Management's Discussion and
and Analysis and Plan of Analysis of Financial Condition
Operation and Results of Operations
18. Description of Property Business - Properties
19. Certain Relationships and Management-Certain Relationships
Related Transactions and Related Transactions
20. Market for Common Equity Price Range for Common Stock;
and Related Stockholder Description of Securities;
Matters Shares Eligible for Future Sale
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagree-
ments with Accountants on
Accounting and Financial
Disclosure Not Applicable
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
iii
<PAGE>
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Maximum Maximum
Title of Amount Offering Aggregate Amount
Shares to be to be Price Per of Offering Registration
Registered Registered Share (1) Price (1) Fee
================================================================================
Common Stock,
$.001 par value
per share 325,334 $5.12(2) $1,665,710(2) $574.38
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(b).
(2) The maximum price is estimated based on the closing price on August 27,
1996.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
iv
<PAGE>
TABLE OF CONTENTS
Prospectus Summary 3 325,334 Shares
Summary Financial Information 5
High Risk Factors 6
Price Range of
Common Stock 11
Dividend Policy 11 WORKFORCE SYSTEMS CORP.
Capitalization 13
Use of Proceeds 14
Selected Financial Data 14
Management's Discussion
and Analysis 15
Business
Overview 22
Divisional Overview 27 March , 1997
Properties 35
Legal Proceedings 36
Management 37
Executive Compensation 40
Indemnification 41
Certain Transactions 41
Security Ownership 43
Selling Security Holders 45
Description of Securities 46
Certain Market Information 49
Legal Matters 49
Experts 49
Additional Information 50
v
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION DATED MARCH , 1997
WORKFORCE SYSTEMS CORP.
325,334 SHARES OF COMMON STOCK
This Prospectus covers an aggregate of 325,334 shares of Common Stock, par
value $.001 per share ("Common Stock" or "Shares") of Workforce Systems Corp.
(the "Company" or "Workforce) which are being registered for possible resale by
certain shareholders of the Company (the "Selling Security Holders"). An
aggregate of 222,000 of these shares of Common Stock were acquired by the
holders in private placements during June 1996 at various prices ranging from
$4.125 to $4.80 per share. An aggregate of 33,334 shares of Common Stock were
acquired by the holders in a private placement during November 1996 at a price
of $3.00 per share. Finally, this Prospectus also covers 70,000 shares of Common
Stock issued to an individual upon conversation of 70,000 shares of the
Company's Series B $5.00 Cumulative Convertible Preferred Stock (the "Series B
Preferred"). See "Business - Acquisition of Prime Florida and OIS", "Selling
Security Holders" and "Description of Securities."
The Company's Common Stock is traded on a limited basis on the OTC
Bulletin Board under the symbol "WFSC," and on March 25, 1997, the closing bid
price for the Common Stock was $3.00. The Company has applied for inclusion of
its Common Stock on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), but there can be no assurances that such securities
will be accepted for inclusion in the NASDAQ System. Furthermore, there can be
no assurances that a substantial trading market for its Common Stock will
develop or be sustained in the future. See "Price Range of Common Stock."
The Company has been advised by the Selling Security Holders that they may
sell all or a portion of the Shares offered hereby from time to time in the
over-the-counter market, in negotiated transactions, directly or through brokers
or otherwise, and that such shares will be sold at market prices prevailing at
the time of such sales or at negotiated prices. The Company will not receive any
of the proceeds from the sale of the Shares offered hereby. See "Use of
Proceeds." In connection with such sales, the Selling Security Holders and any
brokers participating in such sales may be deemed to be underwriters within the
meaning of the Securities Act of 1933 (the "Act"). See "Use of Proceeds" and
"Selling Security Holders."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL PURCHASERS SHOULD NOT
INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD A LOSS OF THEIR ENTIRE
INVESTMENT HEREIN. SEE "HIGH RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is March ____, 1997
1
<PAGE>
All costs, expenses and fees in connection with the registration of the
shares of Common Stock offered hereby will be borne by the Company. Brokerage
commissions, if any, directly attributable to the sale of the Shares will be
borne by the Selling Security Holders.
The Company has informed the Selling Security Holders that the
anti-manipulative rules under the Securities Exchange Act of 1934, Rules 10b-6
and 10b-7, may apply to their sales in the market and has furnished each of the
Selling Security Holders with a copy of these rules. The Company has also
informed the Selling Security Holders of the need for delivery of copies of this
Prospectus in connection with any sale of securities registered hereunder.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company.
This Prospectus does not constitute an Offer of any Securities other than
those to which it relates or an Offer to sell, or a solicitation of an Offer to
buy, in any jurisdiction to any person to whom it is unlawful to make such an
Offer in such jurisdiction. The delivery of this Prospectus at any time does not
imply that the information herein is correct as of any time subsequent to its
date.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and may distribute quarterly reports
containing unaudited summary financial information for each of the first three
quarters of each fiscal year.
The Company has filed with the Securities and Exchange Commission
("Commission") a Registration Statement on Form SB-2 (herein together with all
amendments and exhibits referred to as the "Registration Statement") under the
Securities Act of 1933. Reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, New York, New York
10048, Room 1204, Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, Illinois 60604, and Suite 500 East, 5757 Wilshire Boulevard, Los
Angeles, California 90036. Copies of such material can be obtained upon written
request addressed to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Company has recently
begun filing reports and information statements electronically. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The address of such Web site is http://www.sec.gov.
2
<PAGE>
PROSPECTUS SUMMARY
The following is intended to summarize more detailed information and
financial statements and notes thereto which are set forth more fully elsewhere
in this Prospectus or incorporated herein by reference and, accordingly, should
be read in conjunction with such information.
The Company
The Company was incorporated under the laws of the State of Florida on
August 17, 1992 under the name Wildflower Financial Corp. In July 1994,
following a change in control, the Company changed its name to Workforce Systems
Corp. The Company is a diversified holding company with subsidiaries involved in
manufacturing and industrial fabrication, employee staffing and consumer
products.
The Company's manufacturing division includes Industrial Fabrication &
Repair, Inc.("IFR"), founded in 1979 and now a subsidiary of the Company, which
provides machining, welding, speciality design and fabrications for custom
applications to clientele from various industries including paper, steel mills,
rock quarry operations, coal mining applications and bottling facilities. IFR's
newly incorporated subsidiary Maintenance Requisition Order Corp. ("MRO") is an
industrial supply house representing several major lines of power transmission
products, such as gear boxes, bearings and couplings, which are commonly used in
industrial manufacturing and operating facilities.
The Company's staffing division includes American Industrial Management,
Inc. ("AIM"), founded in 1995 and now a subsidiary of the Company, and Outside
Industrial Services, Inc. ("OIS"), founded in 1982 and now a subsidiary of the
Company, both of which provide light industrial and light manufacturing staffing
on a contract basis to businesses.
The Company's consumer products division includes NHP Manufacturing Corp.
("NHP"), a subsidiary of the Company founded in 1994, which is the exclusive
manufacturer for the ThawMaster family of thawing trays and Products That
Produce, Inc. ("PTP"), a subsidiary of the Company founded in 1995, whose
mission is to identify and market new consumer products which are both
innovative and moderately priced. The first product undertaken by PTP is Mr.
Food's AlloFresh. The product is being marketed under endorsement by Art
Ginsburg, the nationally syndicated T.V. chef known as "Mr. Food". All natural,
made from minerals, non-toxic and environmentally safe, Mr. Food's AlloFresh
works to prevent food decay and eliminate bacteria, moisture, mold, mildew and
odors in refrigerators, the kitchen and around the house.
3
<PAGE>
The Company's executive offices are located at 105 West Fifth Avenue,
Knoxville, TN 37917, telephone 423-524-4885.
THE OFFERING AND OUTSTANDING SECURITIES
Common Stock Outstanding at
February 28, 1997 2,684,974 shares of Common Stock
Common Stock Offered by Selling
Security Holders 325,334 shares of Common Stock
Preferred Stock Outstanding 30 shares of Series A Preferred
February 28, 1997(2) Stock, 30,000 shares of Series C Preferred
Stock and 1,000,000 shares of Series D
Preferred Stock
Risk Factors Investment in these securities involves a high
degree of risk. See "High Risk Factors."
OTC Bulletin Board Symbol WFSC(1)
__________________________
(1) The Company has applied for inclusion of its Common Stock on the NASDAQ
Small Cap stock market. There can be no assurances that the Common Stock
will qualify for inclusion at any time in the future. Inclusion on NASDAQ
on NASDAQ does not imply that an established trading market will develop
or be sustained for the Common Stock. See "Description of Securities - OTC
Market."
(2) On March 24, 1997 all 1,000,000 shares of Series D Preferred Stock which
were held by the Company's principal shareholder were redeemed by the
Company for 2,400,000 shares of the Company's Common Stock pursuant to the
designations, rights and preferences of such series. See "Principal
Shareholders", "Certain Transactions" and "Description of Securities."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
Summary of Selected Financial Information
The following table sets forth selected financial information concerning
the Company and is qualified by reference to the audited consolidated financial
statements and notes thereto and unaudited quarterly financial statements
prepared by the Registrant incorporated herein by reference in this Prospectus.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
For the Six Months For the Year Ended
Ended December 31, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenues $2,348,782 $2,170,81 $3,820,680 $2,825,030
Net Income(loss) 359,234 300,150 (1,367,927) (1,094,782)
Earnings (loss) per
common share outstanding .15 .18 (.84) (1.03)
Weighted average
shares outstanding 2,410,836 1,525,516 1,686,131 1,144,106
CONSOLIDATED BALANCE SHEET DATA:
At June 30, At December 31,
----------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Working capital ......... $ 2,470,161 $1,295,723 $2,096,446 $1,424,196
Total Assets............. 7,702,847 5,598,248 12,038,034 7,650,014
Long Term debt, less
current portion........ 539,207 720,457 439,250 684,778
Stockholders' equity .... 5,949,512 2,876,543 9,039,295 6,113,322
</TABLE>
5
<PAGE>
HIGH RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk
and is highly speculative in nature. Prospective investors should carefully
consider the following risks and speculative factors, among other, inherent in
and affecting both the business of the Company and the value of the Common
Stock, including, among other matters, the following risk factors. In addition,
the discussion in this Prospectus regarding the Company and its business and
operations 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 discussion below highlights some of the
more important risks regarding the Company. The risks highlighted below should
not be assumed to be the only things that could affect future performance. 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.
ADDITIONAL FINANCING REQUIRED AND POSSIBLE LACK OF AVAILABILITY OF FUNDS
The Company has experienced significant growth since June 1994. The
Company will require substantial capital in the future in order to continue this
growth pattern. While the Company's working capital at December 31, 1996 was
$2,740,016, and the Company raised approximately $1,000,000 through a private
placement of its securities in June 1996 and an additional $100,000 through a
second private placement of it securities in November 1996, the Company's
abilities to sustain its internal growth are limited by continued availability
of additional working capital. It is presently anticipated by management of the
Company that the Company will seek to raise additional capital through a public
offering of its securities during Fiscal 1997. In addition, the Company's
inventory, accounts receivables and a substantial portion of its property, plant
and equipment are unencumbered and, accordingly, would provide additional
sources of internal working capital should the Company elect to enter into asset
based lending arrangements. There are no assurances that such fundings will be
available upon terms acceptable or feasible to the Company or its stockholders.
In such event, the continued growth of the Company would be restrained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
6
<PAGE>
LIMITED OPERATING HISTORY OF PTP AND MRO
Although formed as expansions of existing historically profitable
operations of the Company, two of the Company's subsidiaries, PTP and MRO, have
only recently commenced business and have a limited history of operations. PTP,
a consumer products company, has just begun the introduction of its first
product, Mr. Food's AlloFresh. To assist PTP in developing brand awareness for
its product, PTP has entered into a licensing agreement with Ginsburg
Enterprises Incorporated ("Ginsburg") covering certain marks related to the
television personality known as "Mr. Food." MRO, which is a subsidiary of IFR,
is an industrial supply house which only recently begun operations. IFR has
hired additional experienced salesmen (from a competitor of MRO) to assist in
the rapid development of MRO's business. An investor should be aware of the
potential problems, delays and difficulties often experienced by any relatively
new business enterprise. Problems may arise which may be beyond the control of
the management. These may include, but not be limited to, unanticipated problems
relating to supplies, marketing and promotional expenses, enforcing negative
publicity, competition, lack of operating experience and need for additional
financing. There can be no assurance that the Company's products or services can
continually to be successfully marketed. See "Business."
UNPROVEN MARKET ACCEPTANCE OF MR. FOOD'S ALLOFRESH
The Company has devoted substantial resources and capital to the
development and introduction of PTP's first product, Mr. Food's AlloFresh. While
preliminary indications are that the product will receive wide market acceptance
with retailers and the buying public, which should translate into substantial
revenues and earnings for the Company, there are no assurances whatsoever that
the Company is correct. See "Business."
COMPETITION
Competition in all three divisions of the Company's business is intense.
Competitors include international and national companies, many of which have
longer operating histories, and greater financial, marketing, manufacturing and
other resources than the Company. The Company expects it will be subject to
competition from numerous other entities if its operations continue to grow and
the products in which it markets and developments continue to expand. There are
no assurances whatsoever that any of the Company's divisions will ever obtain,
or if obtained, sustain a competitive advantage. See "Business."
RISK OF DEPENDENCE ON KEY PERSONNEL
The Company's day-to-day operations are managed by Lester Gann, as to the
Manufacturing Division, Robert Lovelace, as to the Staffing Division, and J.
7
<PAGE>
Moss, as to the Consumer Products Division. The Company has entered into three
year employment agreements with Messrs. Gann and Lovelace and is currently
negotiating a one-year agreement with Mr. Moss. The loss of any of the services
of any of these individuals would adversely affect the conduct of the Company's
business. The Company's future success will depend in significant part on its
ability to attract and retain additional skilled personnel in various phases of
its operations. See "Management."
NO DIVIDENDS ANTICIPATED TO BE PAID
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. The future payment of dividends is directly dependent
upon future earnings of the Company, the capital requirements of the Company,
its financial requirements and other factors to be determined by the Company's
Board of Directors. For the foreseeable future, it is anticipated that earnings,
if any, which may be generated from the Company's operations will be used to
finance the growth of the Company, and that cash dividends will not be paid to
common stockholders.
See "Dividend Policy."
POSSIBLE RESALES OF SECURITIES BY CURRENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON
MARKET
As of February 28, 1997, there were 1,436,098 shares of the Company's
Common Stock outstanding which were "restricted securities" as that term is
defined by Rule 144 under the Securities Act of 1933 as amended, (the
"Securities Act"), inclusive of 325,334 shares being registered pursuant to this
Registration Statement of which this Prospectus is a part. On March 24, 1997 the
Company redeemed the 1,000,000 shares of Series D Preferred Stock held by the
Company's principal shareholder for 2,400,000 shares of Common Stock. Such
shares will be eligible for public sale only if registered under the Securities
Act or if sold in accordance with Rule 144. Under Rule 144, a person who has
held restricted securities for a period of one year may sell a limited number of
shares to the public in ordinary brokerage transactions. Sales under Rule 144
may have a depressive effect on the market price of the Company's Common Stock
due to the potential increased number of publicly held securities. The timing
and amount of sales of Common Stock covered by the Registration Statement of
which this Prospectus is a part, as well as such subsequently filed registration
statement, could also have a depressive effect on the market price of the
Company's Common Stock. In addition, management of the Company currently
anticipates the Company will seek to raise additional capital through a public
or private offering of its securities during Fiscal 1997. In such event, the
number of shares of Common Stock issued and outstanding would increase. Any
subsequent sales of those shares in the public market could have a depressive
effect on the market price of the Company's Common Stock. See "Shares Eligible
for Future Sales."
8
<PAGE>
USE OF PREFERRED STOCK TO RESIST TAKEOVERS; POTENTIAL ADDITIONAL DILUTION
The Company's Articles of Incorporation authorizes 2,000,000 shares of
Preferred Stock, of which 30 shares of Series A Preferred Stock and 30,000
Series C Preferred Stock ^ are presently issued and outstanding. As provided in
the Company's Articles of Incorporation, Preferred Stock may be issued by
resolutions of the Company's Board of Directors from time to time without any
action of the stockholders. Such resolutions may authorize issuance of the
Preferred Stock in one or more series and may fix and determine dividend and
liquidation preferences, voting rights, conversion privileges, redemption terms
and other privileges and rights of the shares of each authorized series. ^ The
Company includes such Preferred Stock in its capitalization in order to enhance
its financial flexibility^. In addition, the issuance of large blocks of
Preferred Stock could possibly have a dilutive effect with respect to existing
holders of Common Stock of the Company. See "Description of Securities."
LIMITED MARKET FOR THE COMPANY'S COMMON STOCK; POSSIBLE VOLATILITY OF SECURITIES
PRICES
There is currently only a limited trading market for the Common Stock of
the Company. The Common Stock of the Company trades on the OTC Bulletin Board
under the symbol "WFSC," which is a limited market and subject to substantial
restrictions and limitations in comparison to the Nasdaq SmallCap Market. There
can be no assurance that a substantial trading market will develop (or be
sustained, if developed) for the Common Stock or that purchasers will be able to
resell their securities or otherwise liquidate their investment without
considerable delay, if at all. Recent history relating to the market prices of
newly public or recently listed companies indicates that, from time to time,
there may be significant volatility in the market price of the Company's
securities because of factors unrelated, as well as related, to the Company's
operating performance. There can be no assurances that the Company's Common
Stock will ever qualify for inclusion on the Nasdaq SmallCap Market or that more
than a limited market will ever develop for its Common Stock. See "Price Range
of Common Stock."
9
<PAGE>
BROKER-DEALER SALES OF COMMON STOCK AND LIMITATION ON MARKETABILITY
While the Company has applied for the inclusion of its Common Stock on the
Nasdaq SmallCap Market, there can be no assurances that the Company will
ultimately qualify for inclusion within that system. Because the Company applied
for listing on the Nasdaq SmallCap Market prior to the recently adopted changes
in listing criteria, the Company currently is required to meet the previous
listing standards for initial inclusion. In order for an issuer to be included
in the Nasdaq SmallCap Market, it is required to have total assets of at least
$4,000,000, capital and surplus of at least $2,000,000, a minimum price per
share of not less than $3.00, have publicly held shares with a market value of
at least $1,000,000 as well as certain other criteria. While the Company
believes it currently meets these criteria there can be no assurance that the
Common Stock of the Company will otherwise qualify for inclusion on the Nasdaq
SmallCap Market. In anticipation of a possible granting of the Company's
application for listing on the Nasdaq SmallCap Market, the Company's Board of
Directors has approved a four for one reverse split of the Company's Common
Stock effective April 3, 1997. Until the Company's shares qualify for inclusion
in the Nasdaq SmallCap Market, the Company's Common Stock will be traded in the
over-the-counter markets on the OTC Bulletin Board. As a result, the Company's
Common Stock is covered by a Securities and Exchange Commission rule that
imposes additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealers to sell
the Company's securities and may also affect the ability of stockholders to sell
their shares in the secondary market. See "Description of Securities."
10
<PAGE>
PRICE RANGE OF COMMON STOCK
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. 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 February 28, 1997. 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.
Bid Price
---------
High Low
---- ---
August 26, 1994 through September 30, 1994 $ 3.00 $ 2.75
October 1, 1994 through December 31, 1994 $ 4.63 $ 3.00
January 1, 1995 through March 31, 1995 $ 5.67 $ 5.50
April 1, 1995 through June 30, 1995 $ 8.47 $ 8.03
July 1, 1995 through September 30, 1995 $ 8.49 $ 8.14
October 1, 1995 through December 31, 1995 $ 7.61 $ 6.04
January 1, 1996 through March 31, 1996 $ 5.89 $ 5.64
April 1, 1996 through June 30, 1996 $ 6.62 $ 6.37
July 1, 1996 through September 30, 1996 $ 5.49 $ 5.23
October 1, 1996 through December 31, 1996 $ 4.14 $ 3.85
On March 25, 1997, the closing bid price for the Common Stock was $1.75.
As of February 28, 1997, the approximate number of record holders of the
Company's Common Stock was 74. Management of the Company, however, believes
there to be in excess of 500 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 ^ which does not pay any dividends. On May 30, 1996 the holder of
70,000 shares of the Company's Series B Preferred Stock converted such shares
11
<PAGE>
into 70,000 shares of the Company's Common Stock pursuant to the designations,
rights and preferences of such series of preferred stock. See "Selling Security
Holders." Prior to such conversion, such 70,000 shares of Series B Preferred
Stock paid annual cumulative dividends of $.43 per share. Any right to receive
dividends was terminated effective with the conversion of such Series B
Preferred. The Company presently has issued and outstanding 30,000 shares of
Series C Preferred Stock which pays annual dividends as set by the Company's
Board of Directors. For the calendar year ended December 31, 1995 the Company
paid annual dividends of $36,000 on the Series C Preferred Stock. For the
calendar year ending December 31, 1996, the amount of dividend, if any, on the
Series C Preferred Stock shall only be paid at the discretion of the Company's
Board of Directors. No dividends have been declared or paid on the Series C
Preferred Stock during the calendar year ending December 31, 1996.
12
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
December 31, 1996.
December 31, 1996
-----------------
(unaudited)
Actual
Short-term debt $ 275,000
Long-term debt, less current portion(1)...... 439,250
-------
Total debt................................... $ 714,250
Stockholders' equity:
Preferred Stock, $.001 par value,.........
2,000,000 shares authorized; 30 shares
of Series A issued and outstanding; 30,000
shares of Series C issued and outstanding;
1,000,000 shares of Series D
issued and outstanding.................... 1030
Common Stock, $.001 par value per share;
10,000,000 shares authorized;
2,026,248 shares issued and outstanding... 2,421
Additional paid-in capital................... 8,569,011
Retained earnings............................ 1,366,833
---------
Total stockholders' equity................... 9,939,295
---------
Total capitalization...................... $ 10,653,345
============
(1) See Notes to Consolidated Financial Statements included elsewhere herein
for a description of terms of the Company's notes and long-term
obligations.
13
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
for the accounts of the Selling Security Holders.
SELECTED FINANCIAL DATA
The financial data included in the following table has been selected by
the Company and has been derived from the financial statements for the periods
indicated. The following financial data should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included
elsewhere herein.
Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>
For the Six Months For the Year Ended
Ended December 31, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenues $ 2,348,782 $2,170,811 $3,820,680 $2,825,030
Net Income (loss) 359,234 300,150 (1,367,927) (1,094,782)
Earnings (loss) per
common share
outstanding .15 .18 (.84) (1.03)
Weighted average
shares outstanding 2,410,836 1,525,516 1,686,131 1,144,106
Consolidated Balance Sheet Data:
At June 30, At December 31,
---------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Working capital $ 2,740,161 $1,295,723 $2,096,446 $1,424,196
Total Assets 7,702,847 5,598,248 12,038,034 7,650,014
Long Term debt, less
current portion 539,207 720,457 439,250 684,778
Stockholders' equity 5,949,512 2,876,543 9,039,295 6,113,322
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion regarding the Company and its business and
operations 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.
FISCAL YEAR ENDED
Results of Operations
- ---------------------
The Company is a diversified holding company with three operating
divisions. Results for the year ended June 30, 1996 ("Fiscal 1996") reflect
changes in the dominate revenue base within the Company's consolidated
operations from the year ended June 30, 1995 ("Fiscal 1995"). This shift is the
result of the combination of several factors which effect each of the Company's
divisions and attendant results of operations therefrom. Included in such
factors during Fiscal 1996 are, among others, (i) revenues from the
Manufacturing Division for an entire 12 month period versus two months in Fiscal
1995 (as a result of the acquisition of IFR in May 1995), (ii) the start-up of
PTP in October 1995 and (iii) the acquisition of AIM in February 1996.
Consolidated revenues for Fiscal 1996 increased $995,650 or approximately
35% from Fiscal 1995. While the consolidated revenues reflect revenues from IFR
for an entire 12 month period in Fiscal 1996 versus two months in Fiscal 1995
(as a result of the acquisition of IFR in May 1995), such consolidated revenues
also reflect a significant decrease in revenues from the Staffing Division in
Fiscal 1996 versus Fiscal 1995 as hereinafter discussed. Gross profit margins in
Fiscal 1996 increased approximately 12% from Fiscal 1995 as a result of
increased margins in the Manufacturing Division in Fiscal 1996 from Fiscal 1995.
15
<PAGE>
Such increases were the result of the increase in labor rates and other fixed
charges for fabrication services instituted at IFR following its acquisition by
the Company in May 1995.
Selling, general and administrative expenses ("SG&A") on a consolidated
basis increased approximately 159% during Fiscal 1996 from Fiscal 1995 as a
result of a full year of operations by IFR and five months of operations of AIM
following the acquisitions of these companies in May 1995 and February 1996,
respectively. Other expenses increased $287,596 or approximately 15% in Fiscal
1996 from Fiscal 1995. Net loss from operations increased $273,145 or
approximately 25% in Fiscal 1996 from Fiscal 1995. For Fiscal 1997 the Company
anticipates a continued growth in revenue from the Manufacturing Division, as
well as a return to near historic revenues in the Staffing and Consumer Products
Divisions.
Following you will find a separate discussion regarding the results of
operations for each of 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 "Business -
Divisional Overview."
Manufacturing Division
For Fiscal 1996 the Manufacturing Division reported revenues of
approximately $2,451,323 or approximately 64% of the revenues of the Company on
a consolidated basis versus revenues of approximately $363,324 or approximately
13% for Fiscal 1995. The increase in the ^ revenues contributed by the
Manufacturing Division reflects both revenue from this division for the entire
fiscal year versus two months in Fiscal 1995 (as a result of the May 1995
acquisition of IFR) and an increase in the division's scope of core business to
include not only computer numeric control (CNC) capability but a general
increase in capacity as a result of the acquisition of the additional facility
See "Properties".
The Manufacturing Division reported gross profit of approximately
$1,184,733 for an approximate 48% margin ^ for Fiscal 1996 versus gross profit
of approximately $144,910 for an approximate 40% margin ^for Fiscal 1995.
Management of the Company attributes the higher margins to diversification of
IFR's core business following the acquisition by the Company in May 1995 to
provide more revenue base in higher margin, custom fabrication and CNC projects.
SG&A expenses were approximately $163,167 in Fiscal 1996 versus approximately
$134,522 in Fiscal 1995. SG&A in Fiscal 1995 included one time charges made
subsequent to the May 1995 acquisition of IFR by the Company. ^. Management of
the Company anticipates the Manufacturing Division will be able to maintain is
16
<PAGE>
current margins as the business increases. The Manufacturing Division is not
subject either to customer or product reliance or life cycles thereof.
Staffing Division
For Fiscal 1996 the Staffing Division reported revenues of approximately
$576,215 or ^ approximately 15% of the revenues of the Company on a consolidated
basis versus revenues of approximately $1,286,786 representing approximately 45%
of the revenues of the Company on a consolidated basis for Fiscal 1995. The
decrease in the percentage attributable to the total revenues for the Company on
a consolidated basis reflects both revenues from the Manufacturing Division for
twelve months during Fiscal 1996 versus two months during Fiscal 1995 as a
result of the acquisition of IFR in May 1995 as well as a decrease in revenues
within that division. On a stand alone basis, revenues for the Staffing Division
decreased approximately 55 % in Fiscal 1996 from Fiscal 1995.
In February 1996 the Company acquired AIM (see "Business - Overview
Acquisition of American Industrial Management, Inc."), a small start-up staffing
company specializing in staffing for light industrial and light manufacturing.
Prior to such acquisition, the Staffing Division was comprised solely of OIS. As
previously disclosed, since January 1995 OIS had been experiencing a decline in
revenues under a contract OIS' had held with A.E. Staley & Co. since 1982 as a
result of restructuring at such client. During Fiscal 1996 the Staley contract
was OIS' sole source or revenues. In Fiscal 1996 OIS experienced a decline of
approximately $840,000 or approximately 66% in the revenues it received from
such client from revenues reported in Fiscal 1995. Such decline adversely
effected the results of operations of the Staffing Division during Fiscal 1996.
The acquisition of AIM, whose operating officers management believed possessed a
strong sales background, was consummated in part to reduce the Staffing
Division's dependence upon a sole client. As of the date hereof, the revenues
from AIM have replaced the revenues lost by OIS' and, accordingly, currently the
Staffing Division's revenues approximate the revenues reported by OIS in Fiscal
1995. OIS is now operated as a division of AIM. As of the date hereof, AIM has
three clients which account for approximately 70% of its revenues on a
consolidated basis. While management of the Staffing Division is actively
seeking to broaden the revenue source for the division, the loss of one or more
of these clients on whom the Staffing Division currently has reliance could have
an adverse impact on the results of operations for the Staffing Division until
the ongoing diversification of revenue base is completed. Management of the
Staffing Division currently anticipates such diversification will be complete
during Fiscal 1998.
17
<PAGE>
The Staffing Division reported gross profit of approximately $192,291 for
an approximate margin of ^ 33% for Fiscal 1996 versus a gross profit of
approximately $308,743 for an approximate margin of 24% for Fiscal 1995. While
the gross profit is higher in Fiscal 1996, management of the Staffing Division
does not believe this increase in percentage gross profit is indicative of any
specific trend other than a general focus on securing higher margin accounts.
Selling, general & administrative expenses ("SG&A") increased to approximately
$96,702 from approximately $60,296, or approximately 60%, in Fiscal 1996 from
Fiscal 1995 as a result of the acquisition of AIM. Such costs are stabilized
during Fiscal 1997. ^
Consumer Products Division
The Consumer Products Division reported revenues of approximately $787,140
or ^approximately 21% of the revenues on a consolidated basis in Fiscal 1996
versus revenues of approximately $1,174,921 or approximately 42% of the revenues
of the Company on a consolidated basis in Fiscal 1995. The decrease in the
percentage attributable to total revenues for the Company on a consolidated
basis reflects revenues from the Manufacturing Division for twelve months during
Fiscal 1996 versus two months during Fiscal 1995 as a result of the acquisition
of IFR in May 1995 as well as the maturity of the ThawMaster family of products
in the consumer marketplace. ^While there are no assurances that sales of the
ThawMaster family of products will return to previous levels, management of
Naturale, the marketing company, recently has expanded the distribution of the
ThawMaster family of products into new market areas and offered more aggressive
pricing structure to retailers in an effort to expand sales. The changes in
retail pricing structure have no impact on the Company's margins under the
Naturale Agreement. Further, management of the Company believes that through the
formation of PTP and the introduction of Mr. Food's AlloFresh (see below), that
revenues of this division will return to historic levels prior to the end of
Fiscal 1997.
As described under "Business - Overview - Expansion Into Contract
Manufacturing," the Company through a wholly-owned subsidiary, NHP, is the
exclusive manufacturer of the ThawMaster family of products for Naturale, the
marketer of the products. Pursuant to the terms of the Naturale Agreement, the
Company initially owned a 15% interest in Naturale. At the time of the
transaction the Company recorded no value on its balance sheet as to this 15%
interest due to the minority position it represented within Naturale and the
immaterial value to the Company. On May 30, 1996 the Company divested itself of
such 15% interest in Naturale, a marketing company, but retained the exclusive
manufacturing rights under the Naturale Agreement. The Company determined such
15% interest was immaterial to the Company's financial statements and operations
18
<PAGE>
and further conflicted with the establishment of PTP to market the Company's
products. At the time of the transaction the Company recorded no value on its
balance sheet as to this 15% interest due to the minority position it
represented within Naturale and the immaterial value to the Company. As set
forth in Note 8 on page F-20 sales to Naturale by NHP represented approximately
42% of the Company's revenues on a consolidated basis for Fiscal 1995. Related
parties accounts receivable (designated as same solely on the basis of the then
minority interest) at June 30, 1995 represent amounts due from Naturale. Such
amounts were paid in full in cash during Fiscal 1996 pursuant to the terms of
the receivable.
During late June 1996, following the formation of PTP, the Company
introduced its newest consumer product, Mr. Food's AlloFresh. See Item 1.
Description of Business - Divisional Overview - Consumer Products Division.
During the first quarter of Fiscal 1997 the Company undertook a five week direct
response campaign over nationwide cable to introduce Mr. Food's AlloFresh. The
introduction of Mr. Food's AlloFresh into the retail market place through sales
to mass merchandisers, grocery and drug store chains commenced in August 1996.
Based upon the initial sales to date of this product, management of the Company
believes, although there can be no assurances, that a significant market demand
exists for Mr. Food's AlloFresh. Based upon information from Information
Resources Inc. of Chicago, Illinois, Arm & Hammer baking soda generates
approximately $60 million in revenues last year. Such revenues do not include
sales of other private label baking soda lines or the home and pet deodorizing
lines of baking soda based products. As Mr. Food's AlloFresh not only removes
moisture and odor the same as baking soda, because Mr. Food's AlloFresh also
extends the life of foods by absorbing the gases naturally emitted by foods as
they decay, management of the Company believes, although there can be no
assurances, that Mr. Food's AlloFresh can penetrate the market because of its
value-added properties. Although there can be no assurances, management of the
Consumer Products Division believes that Mr. Food's AlloFresh has a first year
sales potential of at least $10 million.
The ^Consumer Products Division reported gross profit of approximately
$292,063 for an approximate margin of 37% ^in Fiscal 1996 versus a gross profit
of approximately $458,059, or an approximate 39% margin the comparable period in
Fiscal 1995. SG&A ^ increased by approximately $38,852 in Fiscal 1996 ^versus
Fiscal 1995 as a result of one full year of operation following the execution of
the Naturale Agreement in November 1995 and the attendant ramp up of operations
as well as planned expansion in this division through the formation of PTP. ^
19
<PAGE>
Liquidity and Capital Resources
The Company's liquidity has continued to improve since June 30, 1995. At
June 30, 1996 the Company had working capital of approximately $2,740,016 an
increase of approximately 111% from June 30, 1995. Such increase was
attributable in part to a private placement of the Company's Common Stock in
April 1996 to two institutional investors and two accredited investors resulting
in proceeds to the Company of approximately $1 million, with the balance of
increased working capital attributable to a loan in the amount of $936,770 from
the Company's principal shareholder which was converted to equity in November
1995 as well as funds from operations. See "Certain Transactions". While the
Company does not presently anticipate any significant capital expenditures, in
order to pursue the Company's plan of operations for Fiscal 1997 it will be
necessary for the Company to raise additional working capital. It is presently
anticipated that management will seek to raise additional capital through a
public or private offering of its securities during Fiscal 1997. There are no
assurances, however, that management will definitively determine to proceed with
such offering or that the Company will be successful in concluding such an
offering. In such event, the continued growth of the Company would be limited to
the internal availability of working capital. The Company's inventory, accounts
receivable and a substantial portion of its property, plant and equipment are
unencumbered and, accordingly, would provide additional sources of internal
working capital should the Company elect to enter into an asset based lending
arrangement.
SIX MONTHS ENDED DECEMBER 31
Results of Operations
- ---------------------
Consolidated revenues for three months ended December 31, 1996 ("Second
Quarter Fiscal 1997") increased approximately $ 87,000 or approximately 8% from
the three months ended December 31, 1995 ("Second Quarter Fiscal 1996"). Gross
profit and SG&A remained relatively constant in Second Quarter Fiscal 1997 as
compared to Second Quarter Fiscal 1996. Income from operations increased
approximately $ 20,000 or approximately 8% in Second Quarter Fiscal 1997 from
the comparable period in Fiscal 1996.
Consolidated revenues for six months ended December 31, 1996 ("Fiscal 1997
To Date") increased approximatley $ 178,000 or approximately 8% from the six
months ended December 31, 1995 ("Fiscal 1996 To Date"). Gross profit and SG&A in
Fiscal 1997 To Date remained relatively constant as compared to Fiscal 1996 To
Date. Income from operations increased approximately $ 74,000 or approximatley
16% in Fiscal 1997 To Date from the comparable period in Fiscal 1996.
20
<PAGE>
Following you will find a separate discussion regarding the results of
operations for each of the Manufacturing Division, Staffing Division and
Consumer Products Division.
Manufacturing Division
Revenues from the Manufacturing Division were approximatley $846,000 for
Second Quarter Fiscal 1997 versus revenues of approximatley $742,000 for the
comparable period in Fiscal 1996. Income from operations increased approximatley
56% to approximatley $232,000 for Second Quarter Fiscal 1997 from approximately
$149,000 in the comparable period in Second Quarter Fiscal 1996. Such increase
is attributable to a continued diversification of the Manufacturing Division's
core operations to include more CNC and other high margin fabrication work.
Revenues from the Manufacturing Division were approximatley $1,620,000 for
Fiscal 1997 To Date versus revenues of approximatley $1,447,000 for the
comparable period in Fiscal 1996. Income from operations increased approximatley
53% to approximatley $476,000 in Fiscal 1997 To Date from approximatley $311,000
in the comparable period in Fiscal 1996 as a result of the aforedescribed higher
margin fabrication work.
The foregoing results are consistent with those disclosed in prior periods
and reflect an increase in revenues at the Manufacturing Division as a result of
the expansion of that division through additional product lines and the opening
of the new Dalton, Georgia location of MRO. For the balance of Fiscal 1997,
based upon information available to date, management of the Company believes the
Manufacturing Division will continue to increase revenues based upon its current
plans of operations.
Staffing Division
Revenues from the Staffing Division were approximatley $ 250,000 for
Second Quarter Fiscal 1997 versus revenues of approximatley $171,000 for the
comparable period in Fiscal 1996. Income from operations decreased approximatley
61% to approximatley $15,000 for Second Quarter Fiscal 1997 from approxiamtley
approximately $39,000 in the comparable period in Second Quarter Fiscal 1996.
Such decrease is attributable to increased SG&A costs associated with the
February 1996 acquisition of AIM. Management of the Company does not anticipate
any further increases in SG&A under the Staffing Division's current plan of
operation.
21
<PAGE>
Revenues from the Staffing Division were approximatley $423,000 for Fiscal
1997 To Date versus revenues of approximatley $347,000 for the comparable period
in Fiscal 1996. Income from operations decreased approximatley 55% to
approximatley $22,000 in Fiscal 1997 To Date from approximatley $48,000 in the
comparable period in Fiscal 1996 as a result of the aforedescribed increased
SG&A.
For the balance of Fiscal 1997 management of the Company believes the
Staffing Division will continue to increase revenues based upon their current
plans of operations.
Consumer Products Division
Revenues from the Consumer Products Division were approximatley $95,000
for Second Quarter Fiscal 1997 versus revenues of approximatley $154,000 for the
comparable period in Fiscal 1996. Income from operations increased slightly to
approximatley $29,000 for Second Quarter Fiscal 1997 from approxiamtley
approximately $21,000 in the comparable period in Second Quarter Fiscal 1996.
Revenues from the Consumer Products Division were approximatley $305,000
for Fiscal 1997 To Date versus revenues of approximatley $376,000 for the
comparable period in Fiscal 1996. Income from operations decreased approximatley
62% to approximatley $40,000 in Fiscal 1997 To Date from approximatley $104,000
in the comparable period in Fiscal 1996 as a result of the increased SG&A
relative to the start-up of PTP.
The foregoing results are consistent with those disclosed in prior periods
and reflect decrease in revenues which results from the maturity of one product
(the ThawMaster family of thawing trays) and the infancy in the life span of
that division's newest product, Mr. Food's AlloFresh, for which introduction at
the retail level was commenced in the beginning of Fiscal 1997. Further and as
discussed above, management of the Company believes, although there can be no
assurances, that as the retail roll-out of Mr. Food's AlloFresh continues to
progress, the Consumer Products Division will continue to increase its revenues
as well.
22
<PAGE>
Liquidity and Capital Resources
The decrease in working capital at December 31, 1996 versus June 30, 1996
is primarily the result of the additional costs incurred by the Consumer
Products Division with respect to its newest product, Mr. Food's AlloFresh, as
well as the acquisition of additional property, plant and equipment by the
Manufacturing Division. In order to pursue the Company's plan of operations for
the balance of Fiscal 1997, it will be necessary for the Company to raise
additional working capital. In this vein, and as previously disclosed, it is
presently anticipated that management will seek to raise additional capital
through a public or private offering of its securities during Fiscal 1997 and
has engaged McGinn, Smith & Co., Inc. an NASD member firm to serve as its
investment banker and assist the Company in such capital raise. There are no
assurances, however, that the Company will be successful in raising working
capital for its existing operations. In such event, the continued growth of the
Company would be limited to the internal availability of working capital. The
Company's inventory, accounts receivable and a substantial portion of its
property, plant and equipment are unencumbered and, accordingly, would provide
additional sources of internal working capital should the Company elect to enter
into an asset based lending arrangement.
23
<PAGE>
BUSINESS
OVERVIEW
Workforce Systems Corp. (formerly known as Wildflower Financial Corp.), a
Florida corporation (the "Company"), was formed on August 17, 1992 to seek
acquisition possibilities throughout the United States and to make acquisitions
or enter into other business endeavors to the extent its limited assets would
allow. In order to raise the capital necessary to accomplish such goals, the
Company offered 10,000 shares of Common Stock at a purchase price of $6.00 per
share to the public pursuant to a registration statement under the Act, through
its then executive officers on a "best efforts" basis. In June 1993 the Company
completed its initial public offering with the sale of 3,505 shares of Common
Stock, receiving net proceeds, after the costs of the offering, of approximately
$11,371.
Acquisition of Prime Florida and OIS
------------------------------------
Pursuant to its intended business purpose to make acquisitions or enter
into other business endeavors, on June 14, 1994 Mr. F. W. Miller, the Company's
principal shareholder, President and Chairman, sold an aggregate of 18,200
shares of the Company's restricted 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 Act to Yucatan Holding
Company, a Florida corporation ("Yucatan"), for $60,000 (the "Purchase Price").
Payment of the Purchase Price was tendered in the form of $5,000 cash at closing
together with a $55,000 principal amount installment promissory note due in full
on or before December 31, 1994. Concurrent with the purchase of the stock by
Yucatan, the Company's then current officers and directors resigned and the
Company's current officers and directors were elected.
Effective June 30, 1994 the Company acquired 51.9% of the issued and
outstanding stock of Outside Industrial Services, Inc., a Tennessee corporation
doing business as Outside Plant Services ("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. The designations, rights and preferences of the
Preferred Stock provided that the holder thereof (a) should receive annual
dividends equal to $.43 per share, (b) was 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
24
<PAGE>
Common Stock concerning any matter being voted upon by the Company's
shareholders, (c) was entitled to convert such shares into shares of the
Company's restricted Common Stock at any time on a one for one basis and (d) was
redeemable at the option of the Company at $4.30 per share. On May 30, 1996 the
holder of the Series B Preferred converted such shares into 70,000 shares of the
Company's Common Stock. See "Selling Security Holders."
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 750,000 shares of the
Company's restricted Common Stock in a private transaction exempt from
registration under the Act. Prime's sole assets included its rights under the
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. The designations, rights and preferences of the Series
A Preferred Stock provide that the shares (a) 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, (b) are not convertible into
any other class of equity of the Company, (c) are redeemable at any time at the
Company's option at par value of $.001 per share, (d) pay dividends at the sole
discretion of the Company's Board of Directors, (e) are not transferrable
without the consent of the Company's Board of Directors and (f) in the event of
a liquidation or winding up of the Company, carry a liquidation preference equal
to par value, without interest.
The foregoing acquisitions of OIS and Prime were consummated by the
Company in accordance with its previously stated business purposes to make
acquisitions or enter into other business endeavors. The determination of the
amount of consideration paid by the Company in the acquisitions of OIS and Prime
was made by management of the Company based upon its analysis of industry
comparables including, but not limited to, price/earnings ratios and multiples
of book value for similar companies discounted for the then reliance on primary
contracts. Specifically, management of the Company, based upon an average
derived from historical and then current pre-tax net income and cash flow
adjusted for non-recurring items of OIS, used a multiple of 20 (comparable to
25
<PAGE>
other industry criteria) and discounted such approximately 65% due to OIS' then
current economic dependance upon its primary contractual relationship.
Expansion Into Contract Manufacturing
-------------------------------------
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. The material terms of the agreement provided that
the Company at its option could either continue the contract manufacturing then
currently in effect between Naturale and an unaffiliated third party, establish
additional manufacturing facilities operated by the Company or sub-contract the
manufacturing to other third parties.
In addition to the revenue to be generated through the manufacturing and
sale by the Company of the products to Naturale, the Company is entitled to a
royalty of $.30 to $.50 per unit in perpetuity on all products sold by Naturale.
The Company was also granted a 15% equity interest in Naturale on a fully
diluted basis. At the time of the transaction the Company recorded no value on
its balance sheet as to this 15% interest due to the minority position it
represented within Naturale and the immaterial value to the Company. On May 30,
1996 the Company divested itself of such 15% interest in Naturale, a marketing
company, but retained the exclusive manufacturing rights under the Naturale
Agreement. The Company determined such 15% interest was immaterial to the
Company's financial statements and operations and further conflicted with the
establishment of PTP to market the Company's products. The Company granted
Naturale the option of acquiring the manufacturing operations at a price equal
to the investment in the subsidiary, as well as the option to acquire the rights
to the royalty at a price to be negotiated by the parties in the future.
Following the execution of the Naturale Agreement, in 1994 the Company formed
NHP Manufacturing Corp., a Florida corporation ("NHP"), a wholly-owned
subsidiary of the Company, pursuant to the terms of the Naturale Agreement.
Subsequent to the acquisition of IFR (as described below), NHP, even though it
is a subsidiary of the Company, by virtue of the nature of its operations has
been overseen by IFR even though NHP falls within the Company's consumer
products division.
Soon after the execution of the Naturale Agreement it became evident to
management of the Company that the then current contract manufacturer was unable
to accommodate the production schedule or quality control standards in relation
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<PAGE>
to the ThawMaster(TM) production. Thereafter 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. The Company continued to experience quality control problems with the
new fabricators, as well as delays in delivery of milled trays. Further, the
Company determined that by further internalizing the manufacture of the thawing
trays that it would be able to reduce the cost of the product as a result of the
high profit margin being enjoyed by the third-party fabricators. The initial
success of the thawing trays and the potential to internalize the high margin of
third party fabricators created an extraordinary opportunity for the Company to
dramatically increase its asset base, revenue base and successfully diversify it
operations and eliminate its reliance on a single revenue source. Accordingly,
in the Spring of 1995 the Company 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 achieved the
Company's goal with respect to the further internalization of the manufacture of
the thawing trays as well as to diversifying the Company's operations and
revenue base.
Acquisition and Expansion of Industrial Fabrication & Repair
------------------------------------------------------------
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 ("Gann") in exchange for 125,925 shares of the Company's restricted Common
Stock (the "IFR Agreement") in a private transactions exempt from registration
under applicable federal and state securities laws as well as being tax-free
pursuant to Section 368 of the Internal Revenue Code. The Company granted Mr.
Gann a 24 month right of first refusal as to the IFR stock purchased by the
Company in the event of a change of control of the Company (as that term is
defined in the Agreement) or if the Company should desire to transfer the IFR
stock to an unaffiliated third party or to sell all or substantially all of
IFR's assets. IFR, a Tennessee corporation based in Knoxville, Tennessee,
provides 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.
Concurrent with such acquisition, Mr. Gann executed a three year employment
agreement with IFR providing for an annual base salary of $96,000 with
performance bonuses at the discretion of the Board of Directors. See
"Management."
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<PAGE>
In June 1995 the Company purchased a 35,000 square foot manufacturing
facility in Knoxville, Tennessee from an unaffiliated third party to serve as
the new headquarters for IFR. See "Properties."
In July 1996 IFR expanded its scope of business though the formation of
Maintenance Requisition Order Corp., a Florida corporation ("MRO") which is a
wholly-owned subsidiary of IFR. MRO, based in Dalton, Georgia, is an industrial
supply house representing several lines of power transmissions products, such as
gear boxes, bearings and couplings, which are commonly used in industrial
manufacturing and operating facilities. MRO further diversifies 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. While there can be
no assurances, management of IFR believes first year revenues from MRO could be
$1 million based upon management's analysis of the potential market for MRO's
product lines.
Formation of Consumer Products Division
---------------------------------------
In October 1995 following the initial success of NHP, 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 to 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 nationally
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
of 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.
Acquisition of American Industrial Management, Inc.
---------------------------------------------------
In February 1996 the Company acquired 100% of the issued and outstanding
capital stock of American Industrial Management, Inc., a Tennessee corporation
("AIM") from Messrs. Robert Lovelace, David Debuty and Jones Leasing, Inc., its
28
<PAGE>
shareholders, in a private transaction exempt from registration under applicable
federal and state securities laws in exchange for 17,500 shares of the Company's
restricted common stock. The acquisition price paid for AIM of approximately
$87,500 value in restricted stock was calculated by management in an amount
equal to approximately one-half of the previously annualized revenues of AIM.
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. Messrs. Lovelace and Debuty remained
operating officers of AIM following the closing of the transaction pursuant to
three year employment agreements. In September 1996 AIM gave Mr. Debuty 60 days
notice of its intention to terminate his employment agreement.
As additional incentive to build the business of AIM, 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 restricted common stock.
Specifically, at such time as AIM's financial statements reflect an average
gross profit (as defined in the share exchange 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 50,000 shares of the Company's restricted 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 100,000 shares of the Company's
restricted 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 122,500 shares of the
Company's restricted common stock. See "Management."
DIVISIONAL OVERVIEW
As a result of the foregoing, the Company presently has three operating
divisions. The following chart sets forth the current corporate structure.
PARENT
------
WORKFORCE SYSTEMS CORP.
----------------------------------------
| | |
STAFFING CONSUMER |
DIVISION PRODUCTS MANUFACTURING
-------- -------- -------------
| | | | |
AIM OIS PTP NHP IFR
|
MRO
29
<PAGE>
Following is a detailed discussion of each of the Company's divisions.
MANUFACTURING DIVISION
The Manufacturing Division of the Company is comprised of Industrial
Fabrication & Repair, Inc. ("IFR") and its subsidiary Maintenance Requisition
Order Corp. ("MRO").
IFR, a Tennessee corporation formed in 1979 and based in Knoxville,
Tennessee, provides 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.
IFR maintains 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 and
Southeast Ecology Group, a division of Westinghouse. For the year ended June 30,
1996, IFR accounted for approximately 66% of the Company's revenues on a
consolidated basis. No single client accounts for more than 10% of IFR's annual
revenues.
IFR provides its clients with custom design plant processing thereby
minimizing downtime and maximizing production capacity. A sample of current or
pending projects undertaken by IFR include designing components to be used to
crush slag in a radioactive waste processing facility to facilitate packing of
the material for shipment and manufacturing systems in steel mills for transfer
of five ton blocks of rebar to facilitate loading and storage.
In July 1996 IFR expanded its scope of business though the formation of
MRO, a Florida corporation, which is a wholly-owned subsidiary of IFR. MRO,
based in Dalton, Georgia, 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,
Nachi, Leeson Electric, Rainbow Chain, Douglas Manufacturing and Superior Idlers
together with a variety of other chain, bearing and idler distributors handling
components which are commonly used in industrial manufacturing and operating
facilities. As discussed below under "Competition", management of the Company
believes the addition of MRO has the potential (although there can be no
assurances) to significantly increase IFR's competitive advantage in the
marketplace. While there can be no assurances, management of IFR believes first
year revenues from MRO could be $1 million based upon management's analysis of
the potential market for MRO's product lines.
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<PAGE>
The Company has also contracted with third parties to develop and maintain
an Internet web site for both IFR and MRO. This web site, which is under
development and anticipated to be fully operational during the third quarter of
Fiscal 1997, will contain information regarding the custom design capabilities
of IFR together with a comprehensive inventory of new and rebuilt power
transmission components. The material terms of the agreement requires the
developer to provide the Company with a custom, turn key site developed to the
Company's specifications, as well as full maintenance of the sites until such
time as the Company in its sole discretion begins to derive profits from the
operation of the site. Management of the Company believes, although there can be
no assurances, that based upon the success of Industry.Net, which according to
its literature brings together more than 200,000 buyers and 4,500 sellers of
industrial products, many of which are similar to those products and services to
be offered by IFR and MRO, this online site will be an expanded venue for the
manufacturing division and will link IFR and MRO with its existing customer base
as well as expanding its sales opportunities throughout the United States as
well as internationally.
Competition
-----------
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 recent formation MRO will increase 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
maintains 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.
Government Regulation and Environmental Compliance
--------------------------------------------------
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.
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Employees
---------
As of February 28, 1997, the Manufacturing Division had approximately 35
employees, all of which are full time. The Manufacturing Divisions considers its
employee relations to be good.
Staffing Division
- -----------------
The staffing division is comprised of two entities, Outside Industrial
Services, Inc. ("OIS"), a Tennessee corporation founded in 1982, and American
Industrial Management, Inc. ("AIM"), a Tennessee corporation founded in 1995.
For the year ended June 30, 1996, the staffing division accounted for
approximately 16% of the Company's revenues on a consolidated basis.
The staffing division does not offer traditional "temporary" services such
has 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. The staffing
division supplies personnel with a wide variety of manufacturing skills to
perform skilled and unskilled tasks including assembly line, janitorial,
transportation and maintenance.
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 as three clients which
account for 36%, 22% and 14% of its current, revenues, respectively, and OIS has
one client which accounts for 100% of its revenues. The loss of one or more of
such clients could have a material adverse impact upon AIM's operations until
replacement clients are secured, of which there can be no assurance.
Competition
-----------
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 maintain a competitive advantage
in its marketplace.
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<PAGE>
Government Regulation and Insurance
-----------------------------------
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.
Employees
---------
As of February 28, 1997, the staffing division had approximately 60
employees providing services under existing contracts. In addition to the
employees it provides its clients under the existing contracts, the staffing
division employs an additional four management and administrative employees. The
staffing division considers its employee relations to be good.
Consumer Products Division
- --------------------------
As discussed above, following the execution of the Naturale Agreement in
November 1994, the Company undertook the establishment of a contract
manufacturing division for a consumer product through a then wholly-owned
subsidiary, NHP, a Florida corporation formed in 1994. 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, and, accordingly, NHP is dependant upon its contract with
Naturale. For the year ended June 30, 1996 NHP (exclusive from PTP) accounted
for approximately 18% of the Company's revenues on a consolidated basis. The
loss or reduction of such revenues could have a material adverse affect upon the
Company until such time as the consumer products division is able to
successfully complete its expansion through PTP.
The thawing trays are manufactured from high grade aluminum alloy which is
purchased by NHP either directly from Reynolds Aluminum or on the spot market
from distributors. The price of aluminum, like all commodities, is subject to
price fluctuation from time to time which can either increase or decrease the
manufactured cost of the thawing trays as the aluminum is the most expensive
component of the thawing tray. Historically, the Company has been able to obtain
33
<PAGE>
a sufficient supply of aluminum at a relatively stable price. There can be no
assurances, however, that such will continue to be the case in the future.
NHP owns all inventory of completed thawing trays until such time as the
product is shipped to Naturale's customers, thereby creating a receivable at
Naturale. NHP has a perfected blanket security interest in all of Naturale's
assets, which includes Naturale's receivables.
In October 1995 the Company formed Products That Produce, Inc., a Florida
corporation ("PTP") which is owned 80% by the Company and 20% by William P.
Heath, III. Mr. Heath initially served at PTP's president. In November 1996 Mr.
Heath's operational involvement with PTP ceased but continues to be a
shareholder. PTP's mission is to identify and market new consumer products that
are both innovative and moderately priced. PTP business plan provides that it
will assist inventors of fresh, innovative consumer products in getting those
products to market through the provision of a wide array of comprehensive
services, including everything from package design, to manufacturing (either
directly or on an exclusive sub-contract basis) to receivables financing. While
there are numerous larger companies and conglomerates which operate in
essentially the same fashion, the Company believes, although there can be no
assurances, that PTP, by virtue of its size and flexibility, will be able to
attract inventors of unique and innovative products and close transactions with
these inventors at greater speed than these larger companies while providing
more attractive packages to the inventors.
The first product to be undertaken by PTP is Mr. Food's AlloFresh. The
product 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
two year 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 a 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 nationally 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.
Pursuant to the Company's prospecting, acquisition of mineral rights and
coordination of the necessary geophysical analysis of the minerals, the Company
has executed a five year exclusive lease, which is renewable at the option of
34
<PAGE>
Company for an additional five year term, with an unaffiliated third party which
permits the Company to excavate whatever quantities of the minerals 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
term 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. Based upon its inspection of the property,
including visits by independent geologists retained by the Company, management
of the Company believes there are sufficient quantities of the minerals readily
available to meet whatever consumer demand may develop for either Mr. Food's
AlloFresh or any variation of the product which the Company may market in the
future.
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 merchandises, grocery and
drug store chains commenced in August 1996. Based upon the initial sales to date
of this product, management of the Company believes, although there can be no
assurances, that a significant market demand exists for Mr. Food's AlloFresh.
Based upon information from Information Resources Inc. of Chicago, Illinois, Arm
& Hammer baking soda generates approximately $60 million in revenues last year.
Such revenues do not include sales of other private label baking soda lines or
the home and pet deodorizing lines of baking soda based products.
As Mr. Food's AlloFresh not only removes moisture and odor the same as
baking soda, because Mr. Food's AlloFresh also extends the life of foods by
absorbing the gases naturally emitted by foods as they decay, management of the
Company believes, although there can be no assurances, that Mr. Food's AlloFresh
can over time significantly penetrate the market because of its value-added
properties. Although there can be no assurances, management of PTP believes that
Mr. Food's AlloFresh has a first year sales potential of at least $10 million
based upon management's analysis of various factors including, but not limited
to, the uniqueness of the product, the approximate size of the market for baking
soda (a similar product), the additional benefits of the product to consumers
from the increase in shelf life of product, meats and other perishable food
products and internal estimates for per store case sales of household type
chemicals in the same retail price point.
Management of PTP believes that discussions between sales representative
and several national and regional food, drug and mass merchandise chains could
35
<PAGE>
lead to significant order for Mr. Food's AlloFresh. Management's belief is based
upon oral statements and negotiations between the independent sales
representatives and representatives of the chains. While initially projected for
the second quarter of Fiscal 1997, management currently projects PTP will begin
to receive such orders during the third fiscal quarter. There can be no
assurances, however, that management is correct.
Mr. Food's AlloFresh is being marketed to retailers through the engagement
by PTP of 23 independent food brokers across the United States. These
independent contractors are entitled to commissions of 7% of the sales price,
which such amounts are generally payable by PTP within 15 days following the
month in which PTP receives payment from the retailer. The independent food
brokers are responsible for any expenses they incur in connection with their
sales of Mr. Food's AlloFresh. The agreements between the independent sales
representatives and PTP may be terminated by 30 days prior written notice by
either party. In the event PTP should determine to terminate one or more of such
independent sales representative, management of the Company does not believe it
would experience any difficulties in engaging replacement food brokers.
The Company has also contracted with third parties to develop and maintain
an Internet web sites for the consumer products division. These web sites, which
are under development and anticipated to be fully operational during the third
quarter of Fiscal 1997, will offer a variety of products for the home in an
interactive shopping mall format. Browsers will be able to purchase directly on
line by either e-mail or by faxing or calling an 800 number. The site will also
permit online credit card orders using all major credit cards and the net site
will be equipped with a secure transaction server utilizing RSA technology to
enable commerce and secure transactions on the network. This multi protocol
security method is currently implemented to provide secure versions of NNTP
(news) and HTTP.SSL has been adopted by major Internet vendors, financial
institutions and certification authorities. The material terms of the agreement
requires the developer to provide the Company with a custom, turn key site
developed to the Company's specifications, as well as full maintenance of the
sites until such time as the Company in its sole discretion begins to derive
profits from the operation of the site. There can be no assurances that this
home page will initially or ultimately be successful; however, management of the
Company believes that eventually shopping online will be as common and
successful as catalog shopping and electronic retailing is today.
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<PAGE>
Competition
-----------
PTP competes with many large international and national companies, as well
as many smaller regional and local companies, offering a wide variety of
consumer products, many of whom have far greater assets and operating history
than PTP. There are no assurances that PTP or Mr. Food's AlloFresh will ever
maintain a competitive advantage in its market place.
Employees
---------
As of February 28, 1997, PTP has approximately four full time employees in
addition to the 23 independent contractors hereinbefore described. PTP considers
its employee relations to be good.
PROPERTIES
The Company maintains principal executive offices in approximately 850
square feet of commercial office space which are leased from an unaffiliated
third party for approximately $750 per month on a month-to-month basis. The
Company's employee 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. PTP leases approximately 700 square feet of commercial office space
in Fort Lauderdale, Florida from an unaffiliated third party under a five year
lease expiring in December 2000 for approximately $700 per month. MRO leases
approximately 8,000 square feet of industrial/warehouse space in Dalton, Georgia
from an unaffiliated third party on a month to month basis for approximately
$1,000 per month. All of these 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.
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, 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 on
a monthly basis at a rental of $1,400 per month.
37
<PAGE>
In June 1995 following the acquisition of IFR 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 (the "Manufacturing Facility") from an unrelated third party to
provide sufficient space for both the thawing tray manufacturing as well as an
expansion of IFR's business.
The Manufacturing Facility 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 Manufacturing Facility, 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 Manufacturing Facility, the Company
also assumed approximately $101,000 in past due city and county real estate
taxes due on the Manufacturing Facility. 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
Manufacturing Facility 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 Company has made all of the required tax payments in accordance with the
terms negotiated with each taxing authority, as well as paying all current taxes
on the real property as they become due and payable.
The Manufacturing Facility, 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.
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
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
38
<PAGE>
five year term 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.
LEGAL PROCEEDINGS
The Company is not involved in any pending litigation.
MANAGEMENT
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
---- --- --------
Ella Boutwell Chesnutt 44 Director, President
Jayme Dorrough 28 Director, Vice President and
Secretary
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.
ELLA BOUTWELL CHESNUTT. Mrs. Chesnutt has served as a director and
President of the Company since June 14, 1994. She also serves as a director and
President of Workforce Properties Corp. and a director of OIS, AIM, IFR, NHP,
MRO and PTP. Mrs. Chesnutt is also an officer and director of Yucatan Holding
Company, the Company's principal shareholder. Mrs. Chesnutt, 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 30% of her time. Mrs. Chesnutt joined Marine Sports,
Inc., a public company, in October 1991 as Director of Legal Affairs and
Secretary. Thereafter she served as Director of Legal Affairs (from May 1992
until March 1993) and Vice President of Corporate Administration (March 1993
until November 1993) of Aspen Marine Group, Inc., a public company and the
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parent company of Marine Sports, Inc. Mrs. Chesnutt was a paralegal experienced
in corporate and securities law with emphasis in public and private offerings.
From March 1987 until October 1991 Mrs. Chesnutt was employed by Atlas, Pearlman
& Trop., P.A., Fort Lauderdale, Florida and from March 1983 until March 1987 she
was employed by Broad & Cassel, Miami, Florida. Mrs. Chesnutt received a B.S. in
Business Administration from the University of South Florida.
JAYME DORROUGH. Mrs. Dorrough has served as a director and Secretary of
the Company since June 14, 1994 and Vice President since July 5, 1994. Mrs.
Dorrough also serves as a director and President of Prime and OIS, and director
of Workforce Properties Corp., AIM, IFR, MRO and PTP. 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.
Key Employees and Consultants
- -----------------------------
The Company is a diverse holding company with operations in the areas of
manufacturing and industrial fabrication, employee staffing and consumer
products. While not executive officers of the Company, the following officers of
and consultants to the Company's subsidiaries make significant contributions to
the business of the Company.
MANUFACTURING DIVISION
LESTER GANN. Mr. Gann, 52, is President and a director of IFR. He has also
served as a director of MRO since its formation in June 1996 and a director of
NHP since June 1995. 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 Manufacturing Division.
STAFFING DIVISION
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 sales and client development for AIM, as well as all day to day
40
<PAGE>
operations of the Staffing Division. 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 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.
CONSUMER PRODUCTS DIVISION
J. EDWARD MOSS. Mr. Moss, 48, has been President of PTP since November
1996. Mr. Moss has been associated with the retail and food industries for over
22 years, having held senior level management and sales positions with several
national and international food companies. Over the years, Mr. Moss has been
responsible for the development of product lines, implementation of sales and
marketing programs, and the organization and management of national and
international sales forces. From November 1995 until joining PTP, Mr. Moss
founded and served as President of World Business Enterprise Network, a business
organized to develop or aid in the production, marketing and sale of food and
non-food items nationally and internationally to retail chains, independent food
stores, convenience store groups, wholesale distributors, independent
distributors and institutional service accounts. From September 1995 to November
1996, he was Regional Director for Mid-American Dairyman, Inc. and was
responsible for overseeing sales, marketing and distribution of TCBY branded
refrigerated products to various national retail accounts. Prior thereto, from
January 1993 until September 1995 Mr. Moss served as Vice President of Hurdy
Gurdy International, a manufacturer of frozen sorbet products and from July 1992
until January 1993 he served as Vice President of Sales and Marketing for
Philly's Famous, Inc., a manufacturer of gourmet snack products.
There is no family relationship between any of the officers, key
employees, consultants and directors.
The Company does not presently maintain audit, compensation or nominating
committees of the Board of Directors.
41
<PAGE>
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. Prior to the acquisition of OIS by the Company in June
1994, the Company had no operations. See "Business."
Long - Term
Annual Compensation Compensation Awards
------------------- -------------------
Options
Name and Other Annual Number of All Other
Principal Position Year Salary Bonus Compensation Shares Compensation
- ------------------ ---- ------ ----- ------------ --------- ------------
Ella Chesnutt 1993 (1) (1) (1) (1) (1)
President, 1994 0 0 0 0 0
Director and 1995 0 0 (2) (2) 0
Chief Executive
Officer
Jayme Dorrough 1993 (1) (1) (1) (1) (1)
Vice President 1994 0 0 0 0 0
and Director 1995 0 0 (2) (2) 0
- ------------------------
(1) Mrs. Chesnutt and Mrs. Dorrough, who are not employees of the
Company, began serving as officers and directors of the Company on June 14,1994.
(2) On March 21, 1995 Mrs. Chesnutt and Mrs. Dorrough were each awarded
48,500 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 $ 6.57
per share resulting in aggregate value to each of Mrs. Chesnutt and Mrs.
Dorrough of $318,645.
Employment Agreements
- ---------------------
As set forth below, certain of the Company's subsidiaries are parties to
employment agreements with key employees of those subsidiaries.
In May 1995 at the time of the acquisition of IFR, 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.
42
<PAGE>
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 conjunction with the acquisition of AIM in March 1996, Messrs. Lovelace
and Debuty each signed three year employment agreements with AIM. Such
agreements provide for an annual base compensation of $66,000 each and provide
for certain additional compensation in the form of an aggregate of the issuance
of each of 27,272 shares of the Company's Common Stock which have been
registered under the Act. Such stock is issued in 24 equal monthly installments
providing each of Messrs. Lovelace and Debuty are still employed by AIM. Their
employment agreements also contain customary provisions providing for
confidentiality as well as a 12 month non-compete following the termination of
the agreements. AIM notified Mr. Debuty in September 1996 of its intention to
terminate his employment agreement in 60 days pursuant to the terms of such
employment agreement Mr. Debuty is not entitled to any compensation or stock
following such termination. Mr. Lovelace's employment agreement does not provide
for any severance payments.
PTP is presently negotiating a one year employment agreement with Mr.
Moss. The general terms of the agreement will provide for an annual base salary
of $90,000 with an annual bonus of up to $45,000, the payment of which is tied
to pre-set annual sales goals.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Florida Business Corporation Act (the "Corporation Act") provides for
indemnification of directors, employees, officers and agents of Florida
corporations. The Company's Articles of Incorporation (the "Articles") and
bylaws provide that the Company shall indemnify as directors and officers to the
fullest extent permitted by the Corporation Act. Insofar as indemnification for
liabilities arising under the Securities Act of 1993 (the "Act") maybe permitted
to directors, officers or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed and the
Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
Effective June 30, 1994 the Company acquired all of the issued and
outstanding capital stock of Prime from Yucatan. Mrs. Chesnutt and Mrs. Dorrough
are the officers and directors of Yucatan and Mrs. Dorrough was the sole
43
<PAGE>
shareholder of Prime. See "Business - Overview - Acquisition of Prime Florida
and OIS."
On June 30, 1994 a company owned by Mrs. Dorrough issued OIS a demand
promissory note in the principal amount of $65,000 bearing interest at 6% per
annum, evidencing certain advances which had been made against management fees
payable by OIS to such company. During the fiscal year ended June 30, 1995 such
note was paid in full.
On March 21, 1995 Mrs. Chesnutt and Mrs. Dorrough were each awarded 48,500
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 $ 6.57 per
share resulting in aggregate value to each of Mrs. Chesnutt and Mrs. Dorrough of
$318,645.
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 $5.50 per share. Accordingly,
the Company issued Yucatan 170,322 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.
On March 24, 1997 the Company redeemed 1,000,000 shares of Series D
Preferred Stock owned by Yucatan for 2,400,000 shares of Common Stock pursuant
to the designations, rights and preferences of such series of preferred stock.
44
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of February 28, 1997 hereof there were 2,684,974 shares of Common Stock
issued and outstanding, 30 shares of Series A Preferred Stock issued and
outstanding and 1,000,000 shares of Series D Preferred Stock, all of which are
voting securities of the Company. On March 24, 1997 the Company redeemed the
1,000,000 shares of Series D Preferred Stock for 2,400,000 shares of Common
Stock pursuant to the designations, rights and preferences of such series of
preferred stock. The 30,000 shares of Series C Preferred Stock which are issued
and outstanding do not have voting rights. See "Description of Securities."
The following table sets forth, as of the close of business on February
28, 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:
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)
105 West Fifth Avenue
Knoxville, TN 37917
All Officers and
Directors as a group
(two persons) none n/a
45
<PAGE>
Series D Preferred Stock(2)
- ---------------------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class
------------------- ------------------ -----
Yucatan Holding 1,000,000 100%
Company (3)
105 West Fifth Avenue
Knoxville, TN 37917
All Officers and
Directors as a
Group (two persons)(3) 1,000,000 100%
Common Stock
- ------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class (4)
------------------- ------------------ ---------
Yucatan Holding 938,522 37.6%
Company (3)
105 West Fifth Avenue
Knoxville, TN 37917
Ella Boutwell Chesnutt (3) (3)
105 West Fifth Avenue
Knoxville, TN 37917
Jayme Dorrough (3) (3)
105 West Fifth Avenue
Knoxville, TN 37917
Lester E. Gann(4) 125,925 8.3%
3007 West Industrial
Parkway
Knoxville, TN 37921
Cede & Co. 789,846 31.5%
Post Office Box 28
New York, NY 10004
Philadep & Co. 142,988 5.7%
1900 Market Street
Philadelphia, PA 19103
All Officers and
Directors as a
Group (two persons)(3) 938,522 37.6%
46
<PAGE>
_________________________
(1) Outside Industrial Services, Inc. is a subsidiary of the Company and
Mrs. Chesnutt and Mrs. Dorrough serve as the directors of OIS.
(2) On March 24, 1997 such shares were redeemed by the Company for
2,400,000 shares of Common Stock.
(3) Mrs. Chesnutt and Mrs. Dorrough are the officers and directors of
Yucatan Holding Company.
(4) Mr. Gann is President of IFR. See "Management."
47
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth the name of each Selling Security Holder,
the amount of shares of Common Stock held directly or indirectly by each holder
on February 28, 1997, the amount of shares of Common Stock to be offered by each
such holder, the amount of Common Stock to be owned by each such holder
following sale of such shares of Common Stock and the percentage of shares of
Common Stock to be owned by each such holder following completion of such
offering. The calculations give effect to the redemption by the Company on March
24, 1997 of the Series D Preferred Stock for 2,400,000 shares of Common Stock.
See "Description of Securities" and "Principal Shareholders."
<TABLE>
<CAPTION>
% of Class Shares % of Class
Name of Selling Number of Owned to be to be Owned
Security Holder Shares Owned Before Offering Offered(1) After
Offering(2)
<S> <C> <C> <C> <C>
Pequot Scout Fund(3) 80,000 1.6% 80,000 0
Crestwood Capital Partners, 42,800) (5) 42,800 0
Dr. Aiden O'Rourke 42,000 (5) 42,000 0
Ed Hajim 40,000 (5) 40,000 0
Crestwood Capital
International, Ltd.(6) 17,200 (5) 17,200 0
Susan Dorrough 70,000 1.2% 70,000 0
Mary Ann Richter 16,667 (5) 16.667 0
Patricia Saad 16,667 (5) 16,667 0
------ ------ -
Total 325,334 325,334
======= =======
</TABLE>
__________________________
(1) The Selling Security Holders have not advised the Company of the
timing of their intention to sell the shares of the Company's Common Stock
following the date of this Prospectus.
(2) Assumes such Selling Security Holders are able to sell all securities
offered hereby.
(3) Dawson Sandberg Capital Management Inc., an NASD member firm, is the
manager of this fund.
(4) Furman Selz LLC, an NASD member firm, is the general partner.
(5) Less than 1%.
(6) Furman Selz Management BVI Ltd., an affiliate of an NASD member firm,
is the general partner.)
The Company has agreed to pay for all costs and expenses incident to the
issuance, offer, sale and delivery of the Common Stock, including, but not
limited to, all expenses and fees of preparing, filing and printing the
Registration Statement and Prospectus and related exhibits, amendments and
supplements thereto and mailing of such items. The Company will not pay selling
commissions and expenses
48
<PAGE>
associated with any such sales by the Selling Security Holders. The Company has
agreed to indemnify the Selling Security Holders against civil liabilities
including liabilities under the Securities Act of 1933. The Selling Security
Holders have advised the Company that sales of shares of their Common Stock may
be made from time to time by or for the accounts of the Selling Security Holders
in one or more transactions in the over-the-counter market, in negotiated
transactions or otherwise, at prices related to the prevailing market prices or
at negotiated prices.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized by its Articles of Incorporation to issue
l00,000,000 shares of Common Stock, of which 2,684,974 were issued and
outstanding as of February 28, 1997. On March 24, 1997 the Company redeemed
1,000,000 shares of Series D Preferred Stock owned by the Company's principal
shareholder for 2,400,000 shares of Common Stock. The Board of Directors of the
Company has approved a four for one reverse stock split of the Company's Common
Stock which shall become effective on April 3, 1997. Concurrent therewith, the
number of authorized shares of Common Stock shall be prorata reduced from
100,000,000 to 25,000,000. The holders of the Company's Common Stock are
entitled to receive dividends at such time and in such amounts as may be
determined by the Company's Board of Directors, and upon liquidation are
entitled to share ratably in the assets of the Company, subject to the rights of
the holders of any shares of preferred stock which may be outstanding, remaining
after the payment of all debts and other liabilities.
All shares of the Company's Common Stock have equal voting rights, each
share being entitled to one vote per share for the election of directors and all
other purposes. Holders of such Common Stock are not entitled to any preemptive
rights to purchase or subscribe for any of the Company's securities. All of the
Company's Common Stock which is issued and outstanding is fully paid and
non-assessable. Stockholders, including the holders of any series of preferred
stock outstanding, do not have cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors are
able to elect 100% of the Company's Directors.
It is not contemplated that any dividends will be paid on the Common
Stock, and the future ability to pay dividends will be dependent upon the
success of the Company's operations and the decision by its Board of Directors
at that time.
49
<PAGE>
PREFERRED STOCK
The Company is authorized to issue 2,000,000 shares of preferred stock,
par value $.0001 per share, issuable in such series and bearing such voting,
dividend, conversion, liquidation and other rights and preferences as the Board
of Directors may determine. As of February 28, 1997 there were 30 shares of
Series A Preferred Stock, 30,000 shares of Series C Preferred Stock issued and
outstanding and 1,000,000 shares of Series D Preferred Stock issued and
outstanding, with 969,970 shares of preferred stock remaining without
designation. On March 24, 1997 the Company redeemed the Series D Preferred Stock
as hereinafter discussed. Subsequent to such redemption, the 1,000,000 shares of
Series D Preferred Stock have been returned to the status of authorized but
unissued preferred stock without designation.
The designations, rights and preferences of the Series A Preferred Stock
provide that the shares (a) 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, (b) are not convertible into any other class
of equity of the Company, (c) are redeemable at any time at the Company's option
at par value of $.001 per share, (d) pay dividends at the sole discretion of the
Company's Board of Directors, (e) are not transferable without the consent of
the Company's Board of Directors, and (f) in the event of a liquidation or
winding up of the Company, carry a liquidation preference equal to par value,
without interest.
In connection with the acquisition of OIS (See "Business - Acquisition of
Prime and OIS"), the Company issued 70,000 shares of Series B Preferred Stock in
exchange for 51.9% of OIS. The designations, rights and preferences of the
Series B Preferred provided that the holder thereof (a) should receive annual
dividends equal to $.43 per share, (b) was 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, (c) was entitled to convert their shares of Series B Preferred
into shares of restricted Common Stock at any time on a one for one basis, and
(d) was redeemable at the option of the Company at $4.30 per share. On May 30,
1996 the holder of the Series B Preferred converted such stock into 70,000
shares of Common Stock which are included in the registration statement of which
this Prospectus forms a part. Subsequent to such conversion, the 70,000 shares
of Series B Preferred have been returned to the status of authorized but
unissued preferred stock without designation.
50
<PAGE>
The designations, rights and preferences of the Series C Preferred Stock
provide that the shares (a) have no voting rights, (b) are not convertible into
any other class of equity of the Company, (c) 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, (d) pay dividends
at the sole discretion of the Company's Board of Directors, (e) are not
transferable without the consent of the Company's Board of Directors and (f) in
the event of a liquidation or winding up of the Company, carry a liquidation
preference equal to par value, without interest. An annual dividend rate of
$36,000 for the calendar year of 1995 was set by the Board of Directors and paid
in accordance therewith. For the calendar year of 1996 the Board of Directors
has determined that dividends, if any, on the Series C Preferred Stock will be
paid at its discretion. As of the date hereof, no dividends have been declared
or paid and it is not anticipated that any will be declared for paid during the
balance of calendar 1996.
The designations, rights and preferences of the Series D Preferred Stock
provide that the shares (a) 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, (b) are not convertible into any other class
of equity of the Company, (c) are redeemable at any time at the Company's option
at a rate of 2.4 shares of Common Stock for each share of Series D Preferred
Stock then issued and outstanding, (d) do not pay any dividends, and (e) in the
event of a liquidation or winding up of the Company, carry a liquidation
preference equal to par value, without interest. On March 24, 1997 the Company
redeemed the 1,000,000 shares of Series D Preferred Stock which were held by the
Company's principal shareholder for 2,400,000 shares of Common Stock pursuant to
the designations, rights and preferences of such series of preferred stock.
Subsequent to such redemption, the 1,000,000 shares of Series D Preferred Stock
have been returned to the status of authorized but unissued preferred stock
without designation.
OVER-THE-COUNTER MARKET
The Company's Common Stock is traded on the OTC Bulletin Board under the
symbol "WFSC." The Company has applied for inclusion of its Common Stock on the
Nasdaq SmallCap Market. On January 24, 1996 the Company received written
comments from the staff of the NASD generally requesting clarification on the
Company's treatment of certain items on the Company's audited financial
statements for the year ended June 30, 1996 which resulted in goodwill. The
Company's auditors have concurred with the Company's treatment of such items. In
51
<PAGE>
connection with comments received from the Staff of the Securities and Exchange
Commission in response to the filing of the registration statement of which this
prospectus forms a part, the Company has made certain expense charges to its
financial statements for the years ended June 30, 1996 and 1995. See Note 13 -
Other Expenses of the Financial Statements.^ The Company intends to complete its
application process for listing on the Nasdaq SmallCap Market and in connection
therewith the Board of Directors approved a four for one reverse stock split of
the Company's Common Stock to be effective on April 3, 1997. While there can be
no assurances the listing will be granted, management believes that the Company
will be able to adequately respond to the staff's comments in such a fashion so
as to complete the listing process. If for any reason the Common Stock is not
accepted for inclusion on the Nasdaq SmallCap Market, then in such case the
Company's Common Stock would be expected to continue to be traded in the
over-the-counter markets through the "pink sheets" or the NASD's OTC Bulletin
Board. In the event the Common Stock were not included in the Nasdaq SmallCap
Market, the Company's Common Stock would be covered by a Securities and Exchange
Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of purchasers in this offering to sell their shares in
the secondary market. The ability of the Company to secure a symbol on the
Nasdaq Small Cap Market does not imply that a meaningful trading market in its
Common Stock will ever develop.
Transfer Agent
The Transfer Agent for the shares of Common Stock is Florida Atlantic
Stock Transfer, Inc., 5701 North Pine Island Road, Suite 325, Tamarac, Florida
33321.
CERTAIN MARKET INFORMATION
As of February 28, 1997, 2,684,974 shares of the Company's Common Stock
are outstanding of which 1,436,098 shares are "restricted securities," as such
term is defined under the Securities Act of 1933, inclusive of the 325,334
shares of Common Stock to be registered for possible resale pursuant to the
Registration Statement of which this Prospectus is a part.
52
<PAGE>
In general, Rule 144 (as in effect prior to a recent rule change which is
effective in May 1997), promulgated under the Act, permits a stockholder of the
Company who has beneficially owned restricted shares of Common Stock for at
least two years (which as been reduced to one year pursuant to the changes in
Rule 144) to sell without registration, within any three-month period, such
number of shares not exceeding the greater of 1% of the then outstanding shares
of Common Stock or, if the Common Stock is quoted on Nasdaq, the average weekly
trading volume over a defined period of time, assuming compliance by the Company
with certain reporting requirements of Rule 144. Furthermore, if the restricted
shares of Common Stock are held for at least three years (which has been reduced
to two years pursuant to the changes in Rule 144) by a person not affiliated
with the Company (in general, a person who is not an executive officer, director
or principal stockholder of the Company during the three-month period prior to
resale), such restricted shares can be sold without any volume limitation. Any
sales of shares by stockholders pursuant to Rule 144 may have a depressive
effect on the price of the Company's Common Stock.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby will
be passed upon for the Company by Atlas, Pearlman & Trop, P.A., 200 East Las
Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301.
EXPERTS
The consolidated financial statements of Workforce Systems Corp. for the
years ended June 30, 1996 and 1995 appearing in this Prospectus and Registration
Statement have been audited by Lyle H. Cooper, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, Washington, D.C., a Registration Statement on Form SB-2 under the
Securities Act of 1933 with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information about the Company
and the securities offered hereby, reference is made to the Registration
Statement and to the exhibits filed as a part thereof. The statements contained
in this Prospectus as to the contents of any contract or other document
53
<PAGE>
identified as exhibits in this Prospectus are not necessarily complete, and in
each instance, reference is made to a copy of such contract or document filed as
an exhibit to the Registration Statement. The Registration Statement, including
exhibits, may be inspected without charge at the principal reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of all or any part thereof may be obtained upon payment of fees
prescribed by the Commission from the Public Reference Section of the Commission
at its principal office in Washington, D.C. set forth above. The Company has
recently begun filing reports and information statements electronically. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission. The address of such site is http://www.sec.gov.
54
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
Lyle H. Cooper
Certified Public Accountant
F-1
<PAGE>
- --------------------------------------------------------------------------------
Workforce Systems Corp.
Consolidated Financial Statements
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
CONTENTS
Page No.
--------
INDEPENDENT AUDITOR'S REPORT F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-4 - F-5
Consolidated Statements of Income and Retained Earnings F-6
Consolidated Statements of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Financial Statements F-9 - F-28
F-2
<PAGE>
LYLE H. COOPER
Certified Public Accountant
9051 Executive Park Drive
Suite 103
Knoxville, Tennessee 37923
Telephone: 423-691-8132 Telecopier: 423-691-8209
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Workforce Systems Corp.
I have audited the accompanying consolidated balance sheets of Workforce Systems
Corp. (a Florida Corporation) and subsidiaries as of June 30, 1996 and 1995, and
the related consolidated statements of income, retained earnings, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these consolidated financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audits provide 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 June 30, 1996, and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
October 12, 1996, except for Note 13,
as to which date is March 21, 1997
Lyle H. Cooper
Certified Public Accountant
F-3
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------
June 30, June 30,
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 938,487 $ 91,652
Receivables:
Trade accounts receivable, no allowance necessary 633,188 197,438
Related party trade accounts receivable -- 855,432
Related party advances and note receivable -- 15,915
Interest -- 1,625
Inventory 1,412,896 769,283
Prepaid expenses 711,510 45,856
Deferred income tax assets -- 193,000
----------- -----------
Total Current Assets 3,696,081 2,170,201
PROPERTY, PLANT AND EQUIPMENT
Land 156,503 150,000
Building and improvements 1,380,422 756,942
Machinery and equipment 1,125,921 1,007,073
Autos and trucks 146,428 136,169
Accumulated depreciation (132,856) (22,766)
----------- -----------
Total Property, Plant and Equipment 2,676,418 2,027,418
OTHER ASSETS
Intangibles, net of accumulated amortization
of $ 75,281 and $ 5,000, respectively 1,330,348 1,400,629
----------- -----------
$ 7,702,847 $ 5,598,248
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 390,895 $ 437,343
Accrued expenses 113,507 121,510
Accrued income taxes 132,359 64,999
Deferred income tax liability 65,000 --
Current portion of long term debt 254,159 250,626
----------- -----------
Total Current Liabilities 955,920 874,478
NON CURRENT DEFERRED INCOME TAXES 125,541 190,000
LONG TERM DEBT, less current portion 539,207 720,457
RELATED PARTY NOTE PAYABLE 132,667 936,770
STOCKHOLDERS' EQUITY
Series A Preferred stock, $ .001 par value, 30 shares
authorized, 30 shares issued and outstanding -- --
Series B Preferred stock, $ .001 par value, 70,000 shares
authorized, 0 and 70,000 shares issued and outstanding -- 70
Series C Preferred stock, $ .001 par value, 30,000 shares
authorized, 30,000 shares issued and outstanding 30 30
Series D Preferred stock, $ .001 par value, 1,000,000 shares
authorized, shares issued and outstanding 1,000 --
Common stock, $ .001 par value, 10,000,000 shares
authorized, 2,420,836 and 1,503,724 shares issued
and outstanding 2,421 1,504
Paid in capital 8,569,011 4,075,155
Retained earnings (deficit) (2,622,950) (1,200,216)
----------- -----------
Total Stockholders' Equity 5,949,512 2,876,543
----------- -----------
$ 7,702,847 $ 5,598,248
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the year For the year
ended ended
June 30, 1996 June 30, 1995
------------- -------------
Revenues earned, net of returns
and allowances $ 3,820,680 $ 2,825,030
Cost of revenues earned 2,145,593 1,913,317
----------- -----------
Gross profit 1,675,087 911,713
Selling, general and administrative expense 514,496 198,894
Other expenses
Acquisition expense 76,890 1,980,602
Mineral exploration 700,000 --
Startup expenses 1,091,308 --
Web development expense 400,000 --
----------- -----------
Total other expenses 2,268,198 1,980,602
----------- -----------
Net loss from operations (1,107,607) (1,267,783)
Income tax (provision) benefit (260,320) 173,001
----------- -----------
Net loss $(1,367,927) $(1,094,782)
=========== ===========
Earnings per common and common
equivalent share
Net loss $ (1,367,927) $(1,094,782)
Less: Dividends paid 54,807 79,383
----------- -----------
Net loss available to common
shareholders $(1,422,734) $(1,174,165)
=========== ===========
Net loss per common share and
common equivalent share $ (.84) $ (1.03)
Weighted average shares outstanding 1,686,131 1,144,106
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
as of and for the years ended June 30, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred stock Common stock
$.001 par value $.001 par value,
,000,000 shares 10,000,000 shares
authorized authorized
1,100,030 2,420,836 Additional Total
shares issued shares issued Paid-In Retained Stockholders'
and outstanding and outstanding Capital Earnings Equity
--------------- --------------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1994 $ 70 $ 1,011 $ 352,749 $ (26,051) $ 327,779
Issuance of 30 shares of Series A Preferred and
30,000 shares of Series C Preferred 30 - - - 30
Issuance of 492,285 shares of common stock - 493 3,722,406 3,722,899
Dividends paid - - (79,383) (79,383)
Net loss for the year ended
June 30, 1995 - - - (1,094,782) (1,094,782)
---------- ------------ ------------ -------------- ------------
Balance June 30, 1995 $ 100 $ 1,504 $ 4,075,155 $ (1,200,216) 2,876,543
Issuance of 1,000,000 shares of preferred
stock Series D 1,000 - - - 1,000
Issuance of 132,466 shares of common stock 132 674,868 675,000
Issuance of 80,000 shares of common stock 80 399,920 400,000
Issuance of 281,000 shares of common stock 281 1,404,719 1,405,000
Issuance of 17,500 shares of common stock 17 68,046 68,063
Issuance of 170,322 shares of common stock 170 936,600 936,770
Issuance of 222,000 shares of common stock 222 935,528 935,750
Issuance of 14,824 shares of common stock 15 74,105 74,120
Conversion of Series B Preferred (70) 70 -
Dividends paid - - - (54,807) (54,807)
Net loss for the year ended
June 30, 1996 - - - (1,367,927) (1,367,927)
---------- ------------ ------------ -------------- ------------
Balance June 30, 1996 $ 1,030 $ 2,421 $ 8,569,011 $ (2,622,950) $ 5,949,512
========== ============ ============ ============== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-7
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the year For the year
ended ended
June 30, 1996 June 30, 1995
OPERATING ACTIVITIES:
Net loss $ (1,367,927) $(1,094,782)
Adjustments to reconcile net loss to
net cash provided by operating activities
Amortization 70,281 4,654
Depreciation 111,131 12,000
Acquisition, startup, and web
development costs 1,947,183 1,980,602
Gain on sale of fixed asset (701) --
Increase (decrease) in income tax accounts 260,901 (114,251)
(Increase) decrease in:
Trade account receivable (435,750) (175,389)
Related party trade account receivable 871,347 (855,432)
Inventory (643,613) (615,025)
Other current assets (34,030) (45,120)
Increase (decrease) in:
Accounts payable (46,447) 415,291
Accrued expenses (8,003) (41,369)
----------- -----------
Net Cash Provided (Used) by Operating Activities 724,372 (528,821)
INVESTING ACTIVITIES:
Related party -- 49,085
Proceeds from sale of fixed assets 12,159 --
Purchase of property and equipment (771,589) (1,268,428)
----------- -----------
Net Cash Used by Investing Activities (759,430) (1,219,343)
FINANCING ACTIVITIES:
Proceeds from related party loans 177,667 936,770
Payments on long term debt (204,213) --
Proceeds from long term debt 26,496 971,083
Proceeds from sale of common stock 936,750 --
Dividends paid (54,807) (79,383)
----------- -----------
Net Cash Provided (Used) by Financing Activities 881,893 1,828,470
----------- -----------
(Decrease) Increase in Cash and Cash Equivalents 846,835 80,306
Cash and Cash Equivalents, Beginning of Period 91,652 11,346
----------- -----------
Cash and Cash Equivalents, End of Period $ 938,487 $ 91,652
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
F-8
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Workforce Systems Corp. (the "Company") was formed on August 17, 1992, and
through its subsidiaries operate in the following industries:
STAFFING - Through its subsidiaries, Outside Industrial Services, Inc.
("OPS") and American Industrial Management, Inc. ("AIM") both located in
East Tennessee, the Company supplies specialized labor services on a
contract basis to businesses in the Tennessee area.
CONSUMER PRODUCTS - Through its subsidiary Products that Produce, Inc.
("PTP") located in South Florida, the Company is responsible for marketing
Mr. Food's AlloFresh and specializes in identifying, developing and
marketing innovative new consumer products. Through its subsidiary NHP
Manufacturing Corp. ("NHPM"), located in Tennessee, the Company is
responsible for the manufacturing of Thawmaster thawing trays and other
consumer products.
MANUFACTURING - Through its subsidiaries Industrial Fabrication and Repair,
Inc. ("IFR") and Maintenance Requisition Order Corp. ("MRO") all located in
the Southeastern United States, the Company provides specialized
fabrication, machining and design of maintenance and production equipment.
In addition, the Company serves as an authorized distributor for a full
line of power transmission products.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and
all majority-owned subsidiaries. All material transactions between the
consolidated companies are eliminated.
INVENTORIES
Inventories are stated at the lower of cost or market. As part of the purchase
price allocation on the acquisition of IFR the inventory carrying value was
increased by $ 154,258 during the year ended June 30, 1995. Approximately $
50,000 was charged to cost of goods sold during the year ended June 30, 1996.
F-9
<PAGE>
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories were as follows at June 30, 1996:
Consumer
Staffing Products Manufacturing Total
Finished goods $ 0 $ 251,454 $ 938,942 $1,190,396
Work in process 0 32,500 65,000 97,500
Materials 0 30,000 95,000 125,000
---------- ---------- ---------- ----------
$ 0 $ 313,954 $1,098,942 $1,412,896
========== ========== ========== ==========
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 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.
PROPERTY 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 reflected in income. Depreciation is
computed over the estimated useful lives of depreciable assets using the
straight-line method.
For each classification of property, plant, and equipment depreciable life is as
follows.
Building and improvements 20 yrs
Machinery and equipment 15 yrs
Furniture, fixtures and office equipment 7 yrs
Automobiles 5 yrs
Depreciation expense for the years ended June 30, 1996, and 1995, was $ 111,131,
and $ 12,000, respectively.
F-10
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Included in the cost of the building at June 30, 1996 is approximately $ 500,000
in cash payments for materials and labor directly related to preparing the
building for its intended use.
INTANGIBLES
Intangibles at June 30, 1996 and 1995 consisted of the following:
June June
30, 1996 30, 1995
--------- ---------
Goodwill $ 1,405,629 $ 1,405,629
Less Accumulated Amortization 75,281 5,000
--------------- ---------------
$ 1,330,348 $ 1,400,629
=============== ===============
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired. The unamortized excess cost is being amortized by the
straight-line method over 20 years. Amortization expense was $ 70,281, and $
5,000, for the years ended June 30, 1996, and 1995, respectively.
INCOME TAXES
In connection with the acquisition of IFR as discussed in Note 4 to the
financial statements, the Company established total deferred income taxes of $
235,000 to provide for the difference in book value and tax basis resulting from
recording IFR assets at fair market value. In addition, the Company computed its
tax liability based on approximate state and federal statutory rates in
accordance with FASB 109. Other deferred tax assets and liabilities are recorded
to provide for timing differences as discussed in Note 10 in the financial
statements.
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.
F-11
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share were computed by dividing net
income, adjusted by the dividends paid to a common shareholder of OPS pursuant
to a management agreement and for dividends paid to the other preferred
shareholders, by the weighted average number of shares of common stock and
common stock equivalents outstanding at the end of June 30, 1996 and 1995.
NOTE 2 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts 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.
NOTE 3 - PREPAID ADVERTISING
Included in prepaid expenses is $ 500,000 in prepaid advertising costs for media
spots incurred in connection with the Company's consumer products division. The
advertising costs will be expensed when the related products are advertised in
fiscal 1997.
NOTE 4 - ACQUISITIONS AND EXPANSIONS
ACQUISITION OF OUTSIDE INDUSTRIAL SERVICES, INC.
Effective June 30, 1994, the Company acquired Outside Industrial Services, Inc.
(OPS) in a transaction accounted for as a reverse acquisition based on
historical costs. As disclosed in Note 13 to the financial statements, $335,651
of acquisition costs related to the OPS transaction have been charged to expense
for the year ended June 30, 1995.
F-12
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 4 - ACQUISITIONS AND EXPANSIONS (CONTINUED)
EXPANSION OF OPERATIONS - NHP MANUFACTURING CORP.
On November 4, 1994, the Company entered into an agreement with Naturale Home
Products, Inc. ("Naturale") whereby the Company was named the exclusive
manufacturer through a to-be-established wholly-owned subsidiary of the Company
for all products developed and marketed by Naturale, including the Thaw Master
(TM) thawing trays. The material terms of the agreement provided that the
Company at its option could either continue the contract manufacturing currently
in effect with an unaffiliated third party on a sub-contract basis, establish
additional manufacturing facilities operated by the Company or sub-contract the
manufacturing to other third parties. The agreement further provided that the
Company would establish a wholly-owned subsidiary and capitalize such subsidiary
with a minimum of $ 350,000 which such funds would be used to (i) undertake the
manufacturing operations, (ii) provide an inventory of products and (iii)
working capital. Pursuant to this agreement, the Company established NHP
Manufacturing Corp., a Florida corporation ("NHP") which is wholly-owned
subsidiary of the Company. At June 30, 1995, the Company had complied with the
terms of the contract. In connection with the above the Company issued 170,500
shares of common stock for consulting and professional fees which has been
charged to expense as discussed in Note 13 to the financial statements.
Pro forma results of operations are not applicable as no royalty or
manufacturing contract existed prior to the transaction.
ACQUISITION OF INDUSTRIAL FABRICATION & REPAIR, INC.
Effective May 1, 1995, the Company acquired 100 % of the issued and outstanding
capital stock (the "IFR Stock") of Industrial Fabrication & Repair, Inc. ("IFR")
from its sole shareholder who was a non-affiliated third party to the Company in
a private transaction exempt from registration under applicable federal and
state securities laws intended to be tax-free pursuant to Section 368 of the
Internal Revenue Code of 1986, as amended, in exchange for 125,925 shares of the
Company's common stock. The Company granted such exchanging IFR shareholder a 24
month right of first refusal as to the IFR Stock in the event of a change of
control of the Company (as defined in the Agreement) if the Company should
desire to transfer the IFR Stock or sell all or substantially all of IFR's
assets.
F-13
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 4 - ACQUISITIONS AND EXPANSIONS (CONTINUED)
IFR based in Knoxville, Tennessee, provides specialized contracting, machinery,
tools and design work, and sells power transmission supplies. The principle
followed in determining the amount of consideration paid by the Company was a
multiple of book value of IFR, such book value having been adjusted to reflect
the fair market value of readily identifiable tangible assets recorded in the
books and records of IFR at April 30, 1995. In addition the Company acquired a
building and property to house the expanded operations of IFR through the
assumption of debt and cash of approximately $ 880,000. In conjunction with the
above IFR and real property acquisition, the Company issued 117,025 shares of
common stock in conjunction with finders fees, consulting and professional fees
directly associated with the acquisition of the new facility and the acquisition
of IFR. In addition, the Company issued 37,975 shares of common stock which has
been charged to expense as discussed in Note 13 to the financial statements.
The IFR and Building transaction was recorded as follows:
Inventory $ 494,070
Equipment 478,678
Autos and trucks 136,169
Leasehold improvements 39,074
Land and building 882,618
Other assets 315,208
Goodwill 1,405,629
-----------
$3,751,446
==========
Liabilities - IFR $ 669,869
Liabilities - Building 882,618
Deferred taxes 235,000
Stock issued 1,963,959
-----------
$ 3,751,446
===========
The transaction was accounted for as a purchase. The purchase price assigned to
the net assets acquired were based on the fair value of such assets and
liabilities on the transaction date.
F-14
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 4 - ACQUISITIONS AND EXPANSIONS (CONTINUED)
The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if the business combination had occurred on June
30, 1994:
Year
Ended
June 30, 1995
-------------
Revenue $ 5,069,916
Net Loss $(2,398,385)
Net Loss per share $(2.09)
The above amounts are based upon IFR's historical results of operations for the
twelve month period ended June 30,1995. The pro forma results do not necessarily
represent results which would have occurred if the business combination had
taken place at the date and on the basis assumed above.
ACQUISITION OF AMERICAN INDUSTRIAL MANAGEMENT, INC.
In February 1996, the Company acquired 100% of the issued and outstanding
capital stock of American Industrial Management, Inc. ("AIM") for assumption of
liabilities. Pursuant to the transaction, 17,500 shares of the Company's common
stock were issued for acquisition costs which have been charged to acquisition
expense as discussed in Note 13 to the financial statements.
The AIM transaction was recorded as follows:
Cash acquired $ 20,124
Receivables assumed 42,279
Equipment 3,066
Acquisition costs 76,890
-----------
$ 142,359
===========
Liabilities $ 74,333
Stock 68,026
-----------
$ 142,359
===========
F-15
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 4 - ACQUISITIONS AND EXPANSIONS (CONTINUED)
The transaction was accounted for as a purchase. The purchase price assigned to
the net assets acquired were based on the fair value of such assets and
liabilities on the transaction date.
AIM's results of operations subsequent to February 1996 are included in these
financial statements. Pro forma results of operation are not presented as the
amounts are insignificant.
EXPANSION OF OPERATIONS - PRODUCTS THAT PRODUCE
In October 1995, the Company formed Products That Produce, Inc. ("PTP") to
expand into the consumer products industry. PTP business plan provides that it
will assist inventors of fresh, innovative consumer products in getting those
products to market through the provision of a wide array of comprehensive
services, including everything from package design, to manufacturing, to
receivables financing. As discussed in Note 13 to the financial statements,
$1,091,308 in startup costs and $700,000 of mineral exploration costs have been
expensed for the year ended June 30, 1996.
EXPANSION OF OPERATIONS - MAINTENANCE REQUISITION ORDER CORP.
In June 1996, the Company formed Maintenance Requisition Order Corp. to serve as
an authorized distributor for a full line of power transmission products and to
expand its operating territory.
NOTE 5 - STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
The Company considers deposits in banks, certificates of deposit and highly
liquid investments with an original maturity of three months or less as cash and
cash equivalents for the purpose of the Statement of Cash Flows.
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Cash paid (received) for
Year Year
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
Interest $ 62,632 $ -
Income taxes $ 18,500 $ 38,997
F-16
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 5 - STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES (CONTINUED)
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended June 30, 1996, the Company issued 158,500 shares of common
stock in connection with the startup and acquisition of PTP and AIM; issued
80,000 shares of common stock in connection with equipment acquisitions, the
development and maintenance of web sites on the Internet; issued 140,000 shares
of common stock in connection with mine exploration; issued 132,466 shares of
common stock in connection with advertising and legal fees; and issued 13,824
shares of common stock in connection with certain operating expenses in
transactions not affecting cash flows. Total value of the stock issued was $
2,622,183. In addition, during the year ended June 30, 1996, a note payable of $
936,770 was converted to 170,322 shares of common stock in a transaction not
affecting cash.
During the year ended June 30, 1995, the Company issued 492,285 shares of common
stock in connection with the start up and acquisition of NHP Manufacturing and
IFR and in connection with the acquisition of land and building. The total value
of the stock issued was $ 3,722,406.
The Company values securities exchanged in acquisitions and or for goods and
services at current closing bid price at the date the parties came to a mutual
understanding of the terms of the arrangement and agree to a binding contract.
Transactions involving certain securities with restrictions issued in exchange
for the above are valued at approximately 75% of the closing bid price using the
aforementioned date.
F-17
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 6 - LEASE OBLIGATIONS
CAPITAL LEASES
Future minimum lease payments under noncancelable capital leases having terms in
excess of one year are as follows:
Years ended June 30:
1997 $ 53,027
1998 53,027
1999 53,027
2000 50,310
2001 3,063
---------
Total future minimum lease payments 212,454
Less amount representing interest 45,213
---------
Present value of minimum lease payments 167,241
Less current portion 36,910
---------
Capital lease obligations, less current portion $ 130,331
=========
Included in fixed assets are the following assets under capital leases:
June 30, June 30,
1996 1995
---- ----
Machinery and equipment $211,901 $211,901
Less accumulated depreciation 16,853 1,000
-------- --------
$195,048 $210,901
======== ========
OPERATING LEASES
The Company leases office and warehouse space under an operating lease that
expires in fiscal 1998. Rental expense under this operating lease for the years
ended June 30, 1996 and 1995, was approximately $ 44,808 and $ 22,404,
respectively. In addition, the Company leases land used in mineral excavation
under a operating lease that expires in June 2001 with a five year renewal
option. The lease began on July 1, 1996, therefore, rental expense was $ 0 for
the year ended June 30, 1996.
F-18
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 6 - LEASE OBLIGATIONS (CONTINUED)
Approximate minimum future lease payments under these operating leases at June
30, 1996, are as follows: Years ended June 30:
1997 $ 74,808
1998 74,808
1999 30,000
2000 30,000
2001 30,000
------------
$ 239,616
============
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following:
June June
30, 1996 30, 1995
--------- ---------
Demand note payable to an individual,
interest at 7.4 %, unsecured $ 25,000 $ 25,000
Demand note payable to an individual,
interest at 6 %, unsecured. 12,000 20,000
Notes payable to credit corporations, interest
at 9.9 %, principal and interest of $ 860 due
monthly through May 1999, secured by automobiles. 23,000 10,304
Notes payable to a bank, interest ranging from
7.75 % to 10 %, principal and interest of $ 2,249 due
monthly through March 1999, secured by equipment. 129,416 180,661
Capital leases payable to two leasing companies,
interest at 10 %, principal and interest of $ 4,419
due monthly through June 2000, secured by
production equipment. 167,241 235,000
F-19
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Note 7 - Long-Term Debt (continued)
First Mortgage payable to individuals, interest
at 7.75 %, principal and interest of $ 5,400 due
monthly through July 2002, secured by land and
building. 360,841 398,907
Property taxes payable under agreement with the
City and County for acquisition of land and
building, payments of $ 6,336 through June 1996,
and $ 2,538 from July 1996 to June 1997. 75,868 101,211
-------- --------
793,366 971,083
Less current portion 254,159 250,626
--------- --------
$ 539,207 $ 720,457
========= =========
Maturities of long-term debt are as follows:
Year ending June 30,
1997 254,159
1998 147,631
1999 131,422
2000 106,717
2001 71,884
Thereafter 81,553
-----------
$ 793,366
===========
NOTE 8 - RELATED PARTY TRANSACTIONS
During the year ended June 30, 1996, the Company issued 140,000 shares of common
stock to related parties, as defined under FASB 57, 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 13 to the financial statements, costs of $ 700,000 have been charged to
expense for the year ended June 30, 1996.
F-20
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Note 8 - Related Party Transactions (continued)
As discussed in Note 4, NHP Manufacturing was established to provide exclusive
manufacturing services for a consumer product to Naturale. As a result of the
agreement with Naturale, the Company was granted a 15 % interest in Naturale. At
the time of the transaction the Company recorded no value on its balance sheet
as to this 15% interest due to the minority position it represented within
Naturale and the immaterial value to the Company. On May 30, 1996 the Company
divested itself of such 15% interest in Naturale, a marketing company, but
retained the exclusive manufacturing rights under the agreement with Naturale.
During the year ended June 30, 1995, NHP Manufacturing sold to Naturale
approximately $ 1,175,000 of products and OPS provided approximately $ 182,000
of labor services, the total related party sales representing approximately 48 %
of the Company's total sales. The sales were without recourse and the Company
received cash in payment therefore. In addition to the above, the Company,
pursuant to its contract with Naturale, provided working capital and accounts
receivable financing for Naturale. Such advances were secured by a blanket
security interest in all the assets of Naturale. At June 30, 1995, Naturale was
indebted to the Company for the accounts receivable for approximately $855,000.
Naturale paid the $855,000 in cash during the year ended June 30, 1996 in
accordance with its terms.
In conjunction with the manufacturing agreement with Naturale, the acquisition
of Outside Industrial Services, Inc., Industrial Fabrication & Repair, Inc. and
the acquisition of machinery, equipment, and real property, the Company issued
483,000 shares of common stock valued at $ 2,599,607 and cash totaling $ 298,500
to officers and other related parties associated with the Company's major
stockholder, as defined under FASB 57, for the year ended June 30, 1995, in
payment of organization, start up and acquisition costs. Of this amount,
approximately $ 1,900,000 was charged to expense as disclosed in Note 13 to the
financial statements.
F-21
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED)
From time to time the Company has borrowed funds from Yucatan Holding Company,
the Company's principal shareholder ("Yucatan"), for working capital purposes.
On June 30, 1995 the Company issued Yucatan that certain promissory note in the
principal amount of $936,770 (the "June Note"), bearing quarterly interest at
the prime rate as published in the Wall Street Journal, the initial rate of
interest being 8.75 %, which such note was due on June 30, 1997. Yucatan, at
sole option, could convert all or a portion of the principal and accrued unpaid
interest into shares of common stock of the Company at a conversion ratio to be
established by the Holder and Maker at the time of conversion. On November 27,
1995 Yucatan converted the face value of the June 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 $5.50 per share. Accordingly, the Company
issued Yucatan 170,322 shares of its common stock.
On November 4, 1994, the Company entered into an agreement with Naturale Home
Products Inc., an unaffiliated third party, whereby the Company was named the
exclusive manufacturer for all products developed and marketed by Naturale. In
addition to the revenue to be generated through the manufacturing and sale by
the Company of the products to Naturale, the Company is entitled to a royalty of
$.30 to $.50 per unit in perpetuity on all products sold by Naturale.
NOTE 9 - BUSINESS SEGMENTS
Workforce Systems Corp. is a diversified company with operations in three
business segments: (1) staffing industry, (2) consumer products industry, (3)
manufacturing industry. (See Note 1 - Nature of Operations.)
Results of operations of the Company's business segments are reported in the
consolidated statement of income.
F-22
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 9 - BUSINESS SEGMENTS (CONTINUED)
Identifiable assets, revenue, and operating earnings for each business segment
are:
Identifiable Assets
June 30, June 30,
1996 1995
---- ----
Staffing $ 104,161 $ 235,061
Consumer Products 1,115,353 1,054,038
Manufacturing 6,483,333 4,309,149
---------- ----------
Total $7,702,847 $5,598,248
========== ==========
Revenues
June 30, June 30,
1996 1995
---- ----
Staffing $ 582,217 $1,286,786
Consumer Products 787,140 1,174,921
Manufacturing 2,451,323 363,323
---------- ----------
Total $3,820,680 $2,825,030
========== ==========
Operating (Losses)
Profits
June 30, June 30,
1996 1995
---- ----
Staffing $ (9,745) $ (154,533)
Consumer Products (1,480,415) (681,541)
Manufacturing 382,553 (431,709)
----------- -----------
Total $(1,107,607) $(1,267,783)
=========== ===========
NOTE 10 - INCOME TAXES
The Company provides deferred income tax assets and liabilities under FASB 109
for timing differences between book and taxable income. The Company files tax
returns on a separate company basis which can result in income tax expense or
income tax benefits while having an overall consolidated loss.
F-23
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES (CONTINUED)
The provision for income taxes is made up as follows:
June 30, June 30,
1996 1995
Currently Payable:
Federal $ 56,226 $ 53,890
State 10,553 11,109
--------- ---------
66,779 64,999
--------- ---------
Deferred Tax Liability:
Federal (37,122) 1,260
State (6,969) 240
--------- ---------
(44,091) 1,500
--------- ---------
Deferred Tax Asset:
Federal 200,159 (201,727)
State 37,473 (37,773)
--------- ---------
237,632 (239,500)
--------- ---------
Income Tax Provision $ 260,320 $(173,001)
========= =========
The components of deferred income tax liability and deferred income tax asset
are as follows:
June 30, June 30,
1996 1995
---- ----
Liability:
Expenses $ -- $ 1,500
Inventory (18,980) --
Depreciation (25,111) --
--------- ---------
$ (44,091) $ 1,500
========= =========
Assets:
Expenses $ 632 $ (2,500)
Net operating loss carryover 237,000 (237,000)
--------- ---------
$ 237,632 $(239,500)
========= =========
F-24
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES (CONTINUED)
The deferred tax liability and asset at year end are as follows:
June 30, June 30,
1996 1995
---- ----
Liability:
Expenses $ 1,500 $ 1,500
Inventory 39,620 58,600
Depreciation / Tax Basis 151,289 176,400
----------- -----------
192,409 236,500
----------- -----------
Assets:
Expenses (1,868) (2,500)
Net operating loss carryover -- (237,000)
----------- -----------
(1,868) (239,500)
----------- -----------
Net Liability (Asset) $ 190,541 $ (3,000)
=========== ===========
The net liability (assets) are reflected in the financial statements as follows:
June 30, June 30,
1996 1995
---- ----
Current (Tax Benefit) $ 65,000 $ (193,000)
Non Current $ 125,541 $ 190,000
The Company and subsidiaries also had available the following net operating loss
carryovers and timing differences which were subjected to the valuation process
and were determined to have no value at year end.
June 30, June 30,
1996 1995
Total net operating losses and timing differences $ 2,671,559 $ 880,253
=========== ===========
Potential future tax benefit 1,014,124 334,144
Less valuation reserve (1,014,124) (334,144)
----------- -----------
Future tax benefit from net operating losses $ 0 $ 0
=========== ===========
The Company utilized the required statutory rate of 6% for state income taxes
and 34% for federal income taxes. The net operating losses will begin to expire
in 2010.
F-25
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 11 - PREFERRED STOCK
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.
The designations, rights and preferences of the Series B Preferred Stock
provides that the holders thereof (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 shareholders, (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. An annual dividend rate of $ 36,000 for the balance of calendar
1994 and for the calendar year of 1995 was set by the Board of Directors. For
calendar year 1996 any dividends were to be declared and payable only upon the
discretion of 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 not convertible into any other class of equity
of the Company, (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.
F-26
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 12 - LITIGATION
The Company is not a party to any litigation, however, the Company's subsidiary,
IFR, has been notified by the Trustee of a bankrupt customer of a possible $
65,000 preference claim. IFR and the Company believes the claim is without merit
and no provision has been made.
NOTE 13 - OTHER EXPENSES
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 and June 30, 1995:
ACQUISITION COSTS -
Acquisition costs totaling $76,890 have been charged to expense for the year
ended June 30, 1996 and represents the value of 17,000 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.
Acquisition costs totaling $1,980,602 have been charged to expense for the year
ended June 30, 1995 and represents the value of 466,809 shares of common stock
and cash paid pursuant to the acquisition of OPS, NHPM, and IFR. Of this amount,
approximately $1,900,000 was incurred with related parties as defined under FASB
57. The acquisitions have been accounted for based on the purchase method of
accounting.
MINERAL EXPLORATION -
Mineral exploration costs totaling $700,000 have been charged to expense for the
year ended June 30, 1996. The mineral exploration costs was 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 FASB 57, with the issuance of 140,000
shares of common stock.
F-27
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 13 - OTHER EXPENSES (CONTINUED)
STARTUP EXPENSES -
Startup costs totaling $1,091,308 have been charged to expense for the year
ended June 30, 1996. Startup costs 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, 141,000 shares of stock were
issued to unrelated parties. The remaining $386,308 in startup costs represents
operating expenses incurred during the startup phase.
WEB DEVELOPMENT -
Web development costs totaling $400,000 have been charged to expense for the
year ended June 30, 1996. The costs were incurred in connection 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 80,000 shares of stock to an unrelated party.
F-28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Articles of Incorporation of the Company provide indemnification of
directors and officers and other corporate agents to the fullest extent
permitted pursuant to the laws of Florida. The Articles of Incorporation also
limit the personal liability of the Company's directors to the fullest extent
permitted by the Florida Business Corporation Act. The Florida Business
Corporation Act contains provisions entitling directors and officers of the
Company to indemnification from judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees, as the result of an action or
proceeding in which they may be involved by reason of being or having been a
director or officer of the Company, provided said officers or directors acted in
good faith.
Insofar as indemnification or liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable in
the. In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as express
in the Act and will be governed by the final adjudication of such issue.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and resale of the securities offered hereby. The
Company is responsible for the payment of all expenses in connection with the
Offering.
Registration fee $ 700.00*
Blue Sky filing fees and expenses 2,000.00*
Printing and engraving expenses 2,000.00*
Legal fees and expenses 10,000.00*
Accounting fees and expenses 5,000.00*
Miscellaneous 300.00*
-------
Total $25,000.00*
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1994 the Company issued 70,000 shares of Series B Preferred Stock
in exchange for 51.9% of the issued and outstanding stock of OIS from an
unaffiliated third-party. Also in June 1994 the Company acquired all of the
issued and outstanding stock of Prime from Yucatan, the Company's principal
shareholder, for 750,000 shares of the Company's Common Stock. In November 1994
the Company exchanged 30 shares of Series A Preferred Stock for 15 shares of
common stock of OIS thereby completing its plan to acquire at least 80% of OIS.
All of the foregoing transactions were exemption from registration under the Act
in reliance on Section 4(2) thereof as each transaction did not involve a public
offering. See "Business - Overview - Acquisition of Prime Florida and OIS."
In May 1995 the Company acquired all of the issued and outstanding stock
of IFR from an unaffiliated third party who is deemed to be a sophisticated
investor in a private transaction not involving a public offering based upon an
exemption from registration under the Act pursuant to Section 4(2) of the Act in
exchange for 125,925 shares of the Company's Common Stock. See "Business -
Overview Acquisition and Expansion of Industrial Fabrication & Repair."
In December 1995 the Company acquired $500,000 of prepaid radio
advertising time from an unaffiliated third-party who is deemed to be a
sophisticated investor in exchange for 97,466 shares of Common Stock in private
II-2
<PAGE>
transaction not involving a public offering based upon an exemption from
registration under the Act pursuant to Section 4(2) of the Act. See Note 3 of
the Company's financial statements for the year ended June 30, 1996.
In February 1996 the Company acquired 100% of the issued and outstanding
stock of AIM from unaffiliated third parties who were deemed to be sophisticated
investors in a private transaction not involving a public offering based upon an
exemption from registration under the Act pursuant to Section 4(2) of the Act in
exchange for 17,500 shares of the Company's Common Stock. See "Business Overview
- - Acquisition of American Industrial Management, Inc."
In June 1996 the Company sold an aggregate of 222,000 shares of its Common
Stock to two institutional investors and two accredited investors, all of whom
are sophisticated within in the meaning of the Act, in a series of private
transactions exempt from registration under the Act pursuant to Regulation D,
Section 506. An aggregate of 180,000 shares were sold at $4.125 per shares and
the balance of 42,000 shares at $4.80 per share. In November 1996 the Company
sold an additional 33,334 shares of Common Stock to two accredited investors,
both of whom are sophisticated within the meaning of the Act, in a private
transaction exempt from registration under the Act in reliance upon Regulation
D, Section 506 thereof. In connection with such sales, not later than 15 days
after the filing of the Company's annual report on Form 10-KSB for the year
ended June 30, 1996, the Company agreed to cause a registration statement
registering the shares to be filed with the Securities and Exchange Commission
in order to permit a public distribution of such shares. The Company agreed to
pay all costs of such registration statement, exclusive of fees and expenses of
the holder's counsel or accounts or other professionals, if any. Such shares are
included in this registration statement. See "Selling Security Holders."
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
- ----------- -----------------------
<C> <C>
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,
II-3
<PAGE>
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
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 refer
ence 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
II-4
<PAGE>
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 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.
3.7 Articles of Amendment to the Articles of Incorporation increasing
the amount of authorized common stock and setting the
redemption for the Series D Preferred Stock.
3.8 Articles of Amendment to the Articles of Incorporation
decreasing the number of authorized common stock and
effecting a four for one reverse stock split of the common stock.
5** Opinion of Atlas, Pearlman, Trop & Borkson, P.A. as to the
validity of the securities being registered.
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
10.3 Employment Agreement between Industrial Fabrication &
Repair, Inc. and Lester E. Gann
10.4 Employment Agreement between American Industrial
Management, Inc. and Robert Lovelace
10.5* Lease for mineral rights
II-5
<PAGE>
10.6 Form of Subscription Agreements for Crestwood Capital
International, Ltd., Crestwood Capital Partners, L.P., Peqout
Scout Fund, Mr. Ed Hajim, Dr. Aiden O'Rourke, Mary Anne
Richter and Patricia Saad
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
21 Subsidiaries of the Registrant
22 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
23(i)^ Consent of Lyle H. Cooper
23(ii)^ Consent of Atlas, Pearlman, Trop & Borkson, P.A. (including as
part of Exhibit 5
* Confidential treatment is being sought for portions of this document.
** To be filed by amendment
</TABLE>
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities being made, a post-effective amendment to this Registration
Statement:
(I) To include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
II-6
<PAGE>
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities Act of 1933,
as amended, treat each post-effective amendment as a new registration statement
relating to the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of Alcoa,
State of Tennessee, on March , 1997.
WORKFORCE SYSTEMS CORP.
By: /s/Ella Boutwell Chesnutt
--------------------------
Ella Boutwell Chesnutt
Principal Executive Officer
and President
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
/s/ Ella Boutwell Chesnutt Director, President March , 1997
- -------------------------------
Ella Boutwell Chesnutt
/s/ Jayme Dorrough Director, Vice March , 1997
- ------------------------------- President, Secretary
Jayme Dorrough
II-8
EXHIBIT 3.7
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION INCREASING THE AMOUNT
OF AUTHORIZED COMMON AND SETTING THE
REDEMPTION FOR THE SERIES D PREFERRED STOCK
<PAGE>
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 amendment adopted by the Company's Board of Directors
on March 20, 1997 increasing the number of authorized shares of common stock is
as follows:
WHEREAS, pursuant to the Articles of Incorporation the Company's
authorized capital consists of 10,000,000 shares of common stock, par
value $.001 per share and 2,000,000 shares of preferred stock, par value
$.0001 per share.
WHEREAS, the Board of Directors deem it in the best interests of the
Company to increase the authorized common stock to 100,000,000 shares, par
value $.001 per share.
NOW, THEREFORE, BE IT RESOLVED, that the number of shares of common stock
the Company is authorized to issue be and hereby is increased from
10,000,000 shares, par value $.001 per share, to 100,000,000 shares, par
value $.0001 per share; and be it
FURTHER RESOLVED, that the President of the Company be and hereby is
authorized and directed to file Articles of Amendment to the Articles of
Incorporation of the Company so reflecting the foregoing increase in
authorized common stock.
3. The Company currently is authorized to issue 2,000,000 shares of
preferred stock, par value $.0001 per share (the "Preferred Stock"), issuable in
such series and bearing such voting, dividend, conversion, liquidation and other
<PAGE>
rights and preferences as the Board of Directors may determine. The Company has
previously designated 1,000,000 shares of Preferred Stock as Series D Preferred
Stock and has so filed Articles of Amendment to the Company's Articles of
Incorporation setting forth the designations, rights and privileges of such
Series D Preferred Stock. The text of the resolution of the Board of Directors
on March 20, 1997 setting forth amendments to the designations, rights and
privileges of the Series D 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 has previously deemed it to be in the best
interest of the Company to designate a series of such Preferred Stock,
consisting of 1,000,000 shares (the "Series D Preferred Stock").
WHEREAS, the Company has filed Articles of Amendment to its Articles of
Incorporation setting forth the designations, rights and preferences of
such Series D Preferred Stock (the "Designations").
WHEREAS, the Board of Directors deem it in the best interests of the
Company to delete Paragraph 4, REDEMPTION, of the Designations in its
entirety and substitute the following:
4. REDEMPTION. The shares of Series D Preferred Stock are redeemable at
any time at the option of the Company at a rate of 2.4 shares of common
stock for each share of Series D Preferred Stock to be redeemed by the
Company.
NOW, THEREFORE, be it resolved that the Designations be and hereby are
amended to delete the Paragraph 4, REDEMPTION, in its entirety and
substitute the following:
4. REDEMPTION. The shares of Series D Preferred Stock are redeemable at
any time at the option of the Company at a rate of 2.4 shares of common
stock for each share of Series D Preferred Stock to be redeemed by the
Company.
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
she deems necessary and appropriate to effect the foregoing.
<PAGE>
4. The foregoing amendment was duly adopted by unanimous written consent
of the Board of Directors on March 20, 1997 and shareholders action was not
required.
IN WITNESS WHEREOF, this Articles of Amendment to the Articles of
Incorporation has been executed on the 21st day of March, 1997.
WORKFORCE SYSTEMS CORP.
By: /s/ Ella Boutwell Chesnutt
----------------------------
Ella Boutwell Chesnutt
President
EXHIBIT 3.8
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION DECREASING THE AMOUNT
OF AUTHORIZED COMMON AND EFFECTING
A FOUR FOR ONE REVERSE STOCK SPLIT
<PAGE>
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 607.1006 and 607.10025 of the Florida Business Corporation Act:
1. The name of the corporation is Workforce Systems Corp. (the
"Corporation").
2. Article IV of the Articles of Incorporation as amended of the
Corporation shall be deleted in its entirety and substituted by the following:
ARTICLE IV
CAPITAL STOCK
The maximum number of shares that this Corporation shall be authorized to
issue and have outstanding at any one time shall be thirty million (30,000,000)
shares which are to be divided into two classes as follows:
25,000,000 shares of common stock with a par value of $.001 per share; and
5,000,000 shares of preferred stock, with a par value of $.0001 per share.
Series of the preferred stock may be created and issued from time to time,
with such designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions providing for the creation and
issuance of such series of preferred stock as adopted by the Board of Directors
pursuant to the authority in this paragraph given.
3. All issued and outstanding shares of Common Stock of the Corporation
held by each holder of record on April 3, 1997 shall be automatically combined
at a rate of four for one (4:1). Any fractional shares created as a result of
such split shall be rounded up to the next whole share.
<PAGE>
4. The foregoing amendment was duly adopted by unanimous written consent
of the Board of Directors on March 20, 1997 and shareholder action was not
required.
IN WITNESS WHEREOF, this Articles of Amendment to the Articles of
Incorporation has been executed on the 24th day of March, 1997.
WORKFORCE SYSTEMS CORP.
By: /s/ Ella Boutwell Chesnutt
---------------------------
Ella Boutwell Chesnutt
President
EXHIBIT 5
OPINION OF ATLAS, PEARLMAN, TROP & BORKSON, PA.
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
ATTORNEYS AT LAW
Direct Line: (954) 766-7816
March 31, 1997
Workforce Systems Corp.
269 Cusick Road
Suite C-2
Alcoa, Tennessee 37701
Re: Workforce Systems Corp. (the "Company")
Registration Statement
on Form SB-2 (File No. 333-11169)
Dear Sir/Madam:
We have acted as special counsel to Workforce Systems Corp., a Florida
corporation, in connection with the registration by the Company of 325,334
shares of Common Stock, par value $.001 per share (the "Securities") to be sold
by certain Selling Securityholders as set forth in the above Registration
Statement.
In our capacity as such counsel to the Company, we have examined the
original or certified copies of all such records of the Company and all such
agreements, certificates of public officials, certificates of officers or
representatives of the Company and others, and such other documents as we deem
relevant and necessary as a basis for the opinions hereinafter expressed,
including the instruments and agreements pursuant to which the Securities were
issued. In such examination we have assumed the genuineness of all signatures on
original documents and the conformity to original documents of all copies
submitted to us as conformed or photostat copies. As to various questions of
fact material to such opinions, we have relied upon statements or certificates
of officials and representatives of the Company and others.
<PAGE>
Workforce Systems Corp.
March 31, 1997
Page 2
Based upon the foregoing, it is our opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Florida; and
2. The Securities are legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement. We also hereby consent to the use of our name under
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Very truly yours,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
JDM/dcb
EXHIBIT 23 (i)
CONSENT OF LYLE H. COOPER
<PAGE>
LYLE H. COOPER
Certified Public Accountant
9051 Executive Park Drive
Suite 103
Knoxville, Tennessee 37923
Telephone: (423)691-8132 Telecopier: (423)691-8209
INDEPENDENT AUDITOR'S CONSENT
As independent certified public accountant, I hereby consent to the
incorporation by reference in the Registration Statement on Form SB-2 of my
report dated October 12, 1996, except to Note 13, as to which date is March 21,
1997, included in Workforce Systems Corp. Annual Report on Form 10-KSB for the
year ended June 30, 1996, and to all references to this accounting firm included
in the Registration Statement.
Lyle H. Cooper
Knoxville, Tennessee
March 26, 1997
