SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______
Commission file number 33-53250-A
Workforce Systems Corp.
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(Exact name of small business issuer as specified in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
65-0353816
---------------------------------
(IRS Employer Identification No.)
105 West Fifth Avenue, Knoxville, TN 37917
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(Address of principal executive offices)
423-524-4885
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(Issuer's telephone number)
269 Cusick Road, Suite C-2, Alcoa, TN 37701
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes (x) No ( ).
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of January 31 1997 the
registrant had issued and outstanding 2,503,542 shares of common stock.
Transitional Small Business Disclosure Format (check one):
Yes ( ) No (x)
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO FINANCIAL STATEMENTS
Page Number
-----------
Consolidated Balance Sheets at December 31, 1996 (Unaudited)
and June 30, 1996 (Audited) 2
Consolidated Statements of Operations for the three months and
six months ended December 31, 1996 (Unaudited) and
1995 (Unaudited) 4
Consolidated Statements of Cash Flows for the six months
ended December 31, 1996 (Unaudited) and 1995 (Unaudited) 5
Consolidated Statements of Stockholders' Equity for the three month
and six months period ended December 31, 1996 (Unaudited) 6
Notes to the Unaudited Consolidated Financial Statements 7
1
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 98,466 $ 938,487
Receivables:
Trade accounts receivables, no allowance
necessary 628,269 633,188
Inventory 1,799,200 1,412,896
Prepaid expenses 865,000 711,510
Deferred income tax assets 115,000 115,670
------------ ------------
Total Current Assets 3,505,935 3,811,751
PROPERTY, PLANT AND EQUIPMENT
Land 156,503 156,503
Building and improvements 1,417,136 1,380,422
Machinery and equipment 1,772,777 1,525,921
Mineral exploration 660,000 700,000
Autos and trucks 208,858 146,428
Accumulated depreciation (189,425) (132,856)
------------ ------------
Total Property, Plant and Equipment 4,025,849 3,776,418
OTHER ASSETS
Intangibles, net of accumulated amortization
of $289,647 and $209,658, respectively 4,506,250 4,344,771
$ 12,038,034 $ 11,932,940
============ ============
</TABLE>
2
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
----------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts Payable $ 296,717 $ 390,895
Accrued expenses 98,272 113,437
Accrued federal & state income taxes 489,500 253,261
Deferred income tax liability 250,000 326,780
Current portion of long term debt 275,000 254,159
----------- -----------
Total Current Liabilities 1,409,489 1,338,532
NON CURRENT DEFERRED INCOME TAXES 250,000 342,473
LONG TERM DEBT, less current portion 439,250 539,207
RELATED PARTY NOTE PAYABLE -- 132,667
STOCKHOLDER'S 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, no 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, 1,000,000 shares issued
and outstanding 1,000 --
Common stock, $.001 par value, 10,000,000 shares
authorized, 2,410,836 shares issued 2,421 2,421
and outstanding
Paid in capital 8,569,011 8,569,011
Retained earnings 1,366,833 1,007,599
----------- -----------
Total Stockholders' Equity 9,939,295 9,580,061
----------- -----------
$12,038,034 $11,932,940
=========== ===========
</TABLE>
3
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
---------- ---------- --------- ---------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues earned $1,191,411 $1,066,372 $2,348,782 $2,170,811
Cost of revenues earned 687,164 628,288 1,360,961 1,246,660
---------- ---------- --------- ---------
Gross Profit 504,247 438,084 987,821 924,151
Selling, general and administrative expenses 228,618 230,027 451,087 461,751
-------- ------- ------- -------
Income from operations 275,629 208,057 536,734 462,400
Income tax provision 90,000 72,250 177,500 162,500
-------- ------ ------- -------
Net Income $ 185,629 $ 135,807 $ 359,234 $ 300,150
Earnings per common and common equivalent share:
Net income before payment of dividends $ 185,629 $ 135,807 $ 359,234 $ 300,150
Dividends paid - 13,680 - 32,997
---------- --------- --------- ---------
Net income available to common $ 185,629 $ 122,127 $ 359,234 $ 267,153
========== ========= ========= =========
shareholders
Earnings Per Share:
Net Income $ .08 $ .08 $ .15 $ .18
Average weighted shares outstanding 2,410,836 1,567,728 2,410,836 1,525,516
</TABLE>
4
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the six months ended December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Preferred stock Common stock
$.001 par value $.001 par value
2,000,000 shares 10,000,000 shares
authorized authorized
1,030,030 2,410,836 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, 1996 $ 1,030 $ 2,421 $8,569,011 $1,007,599 $9,580,061
Net income for the six months
ended December 31, 1996 - - - 359,234 359,234
----------- ---------- ---------- ----------- ----------
Balance, December 31, 1996 $ 1,030 $ 2,421 $8,569,011 $1,366,833 $9,939,295
=========== ========== ========== =========== ==========
</TABLE>
5
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
December 31, December 31,
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 359,234 $ 300,150
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization and depreciation 135,000 123,022
Changes in operating assets and liabilities:
Decrease in receivables 4,919 339,701
(Increase) in prepaid expense (153,490) (461,770)
(Increase) in inventory (386,304) (248,326)
(Decrease) in accounts payable (94,178) (130,585)
Increase (decrease) in accrued federal & state taxes 159,459 (40,069)
(Decrease) in miscellaneous liabilities (15,165) (84,647)
----------- -----------
Net Cash Provided (Used) by Operating Activities 9,475 (202,524)
INVESTING ACTIVITIES:
Prepaid media -- 500,000
Debt to equity conversion -- 936,770
Start-up costs (201,469) --
(Increase) in property, plant and equipment (322,930) (331,943)
----------- -----------
Net Cash Provided (Used) by Investing Activities (524,399) (1,104,827)
FINANCING ACTIVITIES:
Debt to equity conversion -- 936,770
(Decrease) in long term debt (99,957) (35,679)
(Decrease) in non-current deferred income taxes (92,473) --
Dividends paid -- (32,997)
Increase (Decrease) in related party note payable (132,667) 83,321
----------- -----------
Net Cash Provided (Used) by Financing Activities (325,097) (922,125)
Net (Decrease) in Cash and Cash Equivalents (840,021) (19,822)
Cash and Cash Equivalents, Beginning of Period 938,487 91,652
----------- -----------
Cash and Cash Equivalents, End of Period $ 98,466 $ 76,830
=========== ===========
</TABLE>
6
<PAGE>
WORKFORCE SYSTEMS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1996
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instruction of Form 10-QSB and
Article 310 of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The preparation requires management to make
estimates and assumptions that affect the reported of amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results may differ from these estimates. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month and six month periods ended December 31,
1996 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1997.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSBA for the year ended June 30, 1996 as filed with the Securities and
Exchange Commission.
7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
Consolidated revenues for three months ended December 31, 1996
("Second Quarter Fiscal 1997") increased approximately 12 % from the three
months ended December 31, 1995 ("Second Quarter Fiscal 1996"). Gross profit in
Second Quarter Fiscal 1997 decreased approximately 15% from Second Quarter
Fiscal 1996. SG&A as a percentage of revenues decreased approximately 2% during
Second Quarter Fiscal 1997 from Second Quarter Fiscal 1996. Income from
operations increased approximately 37% 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 approximately 8% from the six months ended December 31,
1995 ("Fiscal 1996 To Date"). Gross profit in Fiscal 1997 To Date increased
approximately 7% from Fiscal 1996 To Date. SG&A as a percentage of revenues
decreased approximately 2% during Fiscal 1997 To Date from Fiscal 1996 To Date.
Income from operations increased approximately 16% in Fiscal 1997 To Date from
the comparable period in Fiscal 1996.
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 represented 71% of the
Company's revenues on a consolidated basis for Second Quarter Fiscal 1997 versus
69 % for Second Quarter Fiscal 1996 and increased on a consolidated basis
approximately 12% in Fiscal 1997 To Date versus the comparable period in Fiscal
1996. On a stand alone basis, revenues from the Manufacturing Division increased
approximately 14% in Second Quarter Fiscal 1997 versus Second Quarter of Fiscal
1996. Income from operations as a percentage of revenue increased approximately
4% in Second Quarter Fiscal 1997 and approximately 1% in Fiscal 1997 to date
from the comparable periods in Fiscal 1996.
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.
8
<PAGE>
Staffing Division
Revenues from the Staffing Division represented 21% of the Company's
revenues on a consolidated basis for Second Quarter Fiscal 1997 versus 16% for
Second Quarter Fiscal 1996 and represented approximately 20% of the consolidated
revenues for Fiscal 1997 To Date versus approximately 16% for Fiscal 1996 To
Date. On a stand alone basis, revenues from the Staffing Division increased
approximately 5% in Second Quarter Fiscal 1997 versus Second Quarter of Fiscal
1996. Income from operations as a percentage of revenue decreased remained
relatively constant at approximately 5% in Second Quarter Fiscal 1997 from
Second Quarter Fiscal 1996 and Fiscal 1997 To Date versus the comparable six
month period in Fiscal 1996. Management of the Company does not anticipate any
further increases in SG&A under the Staffing Division's current plan of
operations.
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 represented 7% of the
Company's revenues on a consolidated basis for Second Quarter Fiscal 1997 versus
15% for Second Quarter Fiscal 1996 and approximately 13% on a consolidated basis
for Fiscal 1997 To Date versus approximately 21% on a consolidated basis for
Fiscal 1996 To Date. On a stand alone basis, revenues from the Consumer Products
Division decreased approximately 50% in Second Quarter Fiscal 1997 versus Second
Quarter of Fiscal 1996 as the result of the maturity of one product (ThawMaster)
and the beginning of the introduction of another product (Mr. Food's AlloFresh).
Income from operations as a percentage of revenue remained relatively constant
at approximately 7% in Second Quarter Fiscal 1997 and in Fiscal 1997 To Date
from comparable periods in Fiscal 1996 as a result of the foregoing decrease in
revenues.
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.
9
<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. In addition, the
Company is seeking to acquire the assets of Star Hosiery which will require the
influx of approximately $4.5 million of working capital. McGinn, Smith is
assisting the Company in raising such capital. There are no assurances, however,
that the Company will be successful in either raising working capital for its
existing operations or the equity capital necessary to consummate the purchase
of the assets of Star Hosiery. In such event, the Company would be unable to
consummate the Star Hosiery transaction upon the present terms and conditions
and 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.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(Electronic filing only)
(b) None.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Workforce Systems Corp,
a Florida corporation
Date: February 18, 1997 By: /s/ Ella Boutwell Chesnutt
--------------------------
Ella Boutwell Chesnutt,
President
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORKFORCE SYSTEMS CORP. FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 98,466
<SECURITIES> 0
<RECEIVABLES> 628,269
<ALLOWANCES> 0
<INVENTORY> 1,799,200
<CURRENT-ASSETS> 3,505,935
<PP&E> 4,215,274
<DEPRECIATION> 189,425
<TOTAL-ASSETS> 12,038,034
<CURRENT-LIABILITIES> 1,409,489
<BONDS> 0
0
1,030
<COMMON> 2,421
<OTHER-SE> 9,935,844
<TOTAL-LIABILITY-AND-EQUITY> 12,038,034
<SALES> 2,348,782
<TOTAL-REVENUES> 2,348,782
<CGS> 1,360,961
<TOTAL-COSTS> 1,360,961
<OTHER-EXPENSES> 451,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 536,734
<INCOME-TAX> 177,500
<INCOME-CONTINUING> 359,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359,234
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
