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 March 31, 1997
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.)
8870 Cedar Springs Road, Suite 5, Knoxville, TN 37923
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(Address of principal executive offices)
423-769-2380
--------------------------
(Issuer's telephone number)
105 West Fifth Avenue, Knoxville, TN 37917
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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 May 15, 1997 the
registrant had issued and outstanding 1,794,144 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 March 31, 1997 (Unaudited)
and June 30, 1996 (Audited) 2
Consolidated Statements of Operations for the three months
and nine months ended March 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flow for the
nine months ended March 31, 1997 and 1996 (Unaudited) 5
Consolidated Statements of Stockholders' Equity for the nine
month period ended March 31, 1997 (Unaudited) 6
Notes to the Unaudited Consolidated Financial Statements 7
1
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 98,765 $ 938,487
Receivables:
Trade accounts receivables, no allowance necessary 607,505 633,188
Inventory 1,825,575 1,412,896
Prepaid expenses 775,000 711,510
----------- -----------
Total Current Assets 3,306,845 3,696,081
PROPERTY, PLANT AND EQUIPMENT
Land 156,503 156,503
Building and improvements 1,380,442 1,380,442
Machinery and equipment 1,395,706 1,125,921
Autos and trucks 146,428 146,428
Accumulated depreciation (157,856) (132,856)
----------- -----------
Total Property, Plant and Equipment 2,921,223 2,676,418
OTHER ASSETS
Intangibles, net of accumulated amortization
of $ 90,281 and $75,281, respectively 2,516,350 1,330,348
----------- -----------
$ 8,744,418 $ 7,702,847
=========== ===========
</TABLE>
2
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 322,195 $ 390,895
Accrued expenses 129,853 113,507
Accrued federal & state income taxes 315,000 132,359
Deferred income tax liability 65,000 65,000
Current portion of long term debt 275,000 254,159
----------- -----------
Total Current Liabilities $ 1,107,048 $ 955,920
NON CURRENT DEFERRED INCOME TAXES 125,000 125,541
LONG TERM DEBT, less current portion 499,555 539,207
RELATED PARTY NOTE PAYABLE -0- 132,667
STOCKHOLDER'S EQUITY
Series A Preferred Stock, $.001 par value, 30 shares
authorized, 30 shares issued and outstanding -0- -0-
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 1,000
Common stock, $.001 par value, 25,000,000 shares
authorized, shares and 2,752,426
shares issued and outstanding 2,752 2,421
Paid in capital 9,169,181 8,569,011
Retained earnings (2,160,148) (2,622,950)
----------- -----------
Total Stockholders' Equity 7,012,815 5,949,512
----------- -----------
$ 8,744,418 $ 7,702,847
=========== ===========
</TABLE>
3
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues earned $1,238,055 $ 987,641 $3,586,837 $3,158,452
Cost of revenues earned 731,022 608,820 2,091,983 1,855,480
---------- ---------- ---------- ----------
Gross Profit 507,033 378,821 1,494,854 1,302,972
Selling, general and administrative expenses 358,465 155,460 809,552 617,211
---------- ---------- ---------- ----------
Income from operations 148,568 223,361 685,302 685,761
Income tax provision 45,000 72,250 222,500 234,500
---------- ---------- ---------- ----------
Net Income $ 103,568 $ 151,111 $ 462,802 $ 451,261
========== ========== ========== ==========
Earnings per common and common equivalent share:
Net income before payment of dividends $ 103,568 $ 151,111 $ 462,802 $ 451,261
Dividends paid -- 6,840 -- 39,837
---------- ---------- ---------- ----------
Net income available to common shareholders $ 103,568 $ 144,271 $ 462,802 $ 411,424
========== ========== ========== ==========
Earnings Per Share:
Net Income $ .04 $ .08 $ .19 $ .26
Average weighted shares outstanding 2,430,850 1,703,306 2,430,850 1,598,903
</TABLE>
4
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WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
March 31, March 31,
1997 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 462,802 $ 451,261
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization and depreciation 170,000 171,024
Changes in operating assets and liabilities:
(Increase) decrease in receivables 25,683 370,292
(Increase) decrease in prepaid expense (63,490) (436,225)
(Increase) decrease in inventory (412,679) (679,059)
(Decrease) in accounts payable (68,700) (67,649)
Increase (decrease) in accrued federal & state taxes 182,641 60,000
Increase (decrease) in miscellaneous liabilities 37,187 30,845
----------- -----------
Net Cash Provided (Used) by Operating Activities 333,444 (99,511)
NET CASH PROVIDED FROM INVESTING AND
FINANCING ACTIVITIES: (1,173,166) 148,274
Net Increase (Decrease) in Cash and Cash Equivalents (839,722) (48,763)
Cash and Cash Equivalents, Beginning of Period 938,487 91,652
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 98,765 $ 42,889
=========== ===========
</TABLE>
5
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the nine months ended March 31, 1997
(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 2,670,836 Additional Total
shares issued shares issued Paid-In Retained
Stockholders'
and outstanding and outstanding Capital Earnings Equity
--------------- --------------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1996 $ 1,030 $ 2,421 $8,569,011 $(2,622,950) $5,949,512
Issuance of shares of common
stock 331 600,170 600,501
Net income for the nine months
ended March 31, 1997 462,802 $ 462,802
----------- ----------- ---------- -------- ----------
Balance, March 31, 1997 $ 1,030 $ 2,752 $9,169,181 $(2,160,148) $7,012,815
=== ==== =========== =========== ========== =========== ==========
</TABLE>
6
<PAGE>
WORKFORCE SYSTEMS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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. 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 nine month periods
ended March 31, 1996 and 1995 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1996.
On August 30, 1996, the Company filed a registration statement on Form
SB-2 under the Securities Act of 1933, as amended, with the Securities and
Exchange Commission (the "SEC"). 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 which are reflected in the balance sheets presented herein.
Acquisition costs totaling $76,890 have been charged to expense for the
year ended June 30, 196 and represents the value of 17,000 shares of common
stock and cash paid to unrelated parties pursuant to the acquisition of American
Industrial Management, Inc. 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 represent the value of 466,809 shares of common
stock and cash paid pursuant to the acquisitions of Outside Plant Services,
Inc., NHP Manufacturing Corp. and Industrial Fabrication & Repair, Inc. 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 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
geophysical analysis of the mineral under 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.
7
<PAGE>
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
Productions Division. As a result of the formation of Products That Produce,
Inc., 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 costs totaling $400,000 have been charged to expense for
the year ended June 301, 1996. The costs were incurred in connection with
certain contracts to acquire equipment and to develop and maintain Internet web
sites ultimately as an Internet provider to market its consumer products and,
through its Manufacturing Division, its inventory of refurbished gear boxes and
other power transmission components internationally. The web development was
paid for with the issuance of 80,000 shares of stock to an unrelated party.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB/A
for the year ended June 30, 1996 as filed with the Securities and Exchange
Commission.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
Consolidated revenues for three months ended March 31, 1997 ("Third
Quarter Fiscal 1997") increased approximately $ 250,414 or approximately 25%
from the three months ended March 31, 1996 ("Third Quarter Fiscal 1996"). Gross
profit increased modestly in Third Quarter Fiscal 1997 as compared to Third
Quarter Fiscal 1996. Selling, general and administrative expenses (SG&A)
increased approximately $203,005 or 130% in Third Quarter Fiscal 1997 from Third
Quarter Fiscal 1996 as a result of the continued expansion of the Manufacturing
Division which commenced in the fourth quarter of Fiscal 1996. Income from
operations decreased approximately $75,000 or approximately 34% in Third Quarter
Fiscal 1997 from the comparable period in Fiscal 1996 as a result of the
increase in SG&A in the Manufacturing Division as hereinafter discussed.
Consolidated revenues for nine months ended March 31, 1997 ("Fiscal 1997
To Date") increased approximately $428,000 or approximately 14% from the nine
months ended March 31, 1996 ("Fiscal 1996 To Date"). Gross profit in Fiscal 1997
To Date remained relatively constant as compared to Fiscal 1996 To Date. SG&A
increased approximately $192,341 or approximately 131% in Fiscal 1997 To Date
from Fiscal 1996 To Date as a result of the continued expansion of the
Manufacturing Division. Income from operations remained relatively constant 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 were approximately $935,400 for
Third Quarter Fiscal 1997 versus revenues of approximately $701,000 for the
comparable period in Fiscal 1996. Revenues from the Manufacturing Division were
approximately $2,555,430 for Fiscal 1997 To Date versus revenues of
approximately $2,148,225 for the comparable period in Fiscal 1996. Income from
operations increased approximately 15.5% in Third Quarter Fiscal 1997 from the
comparable period in Third Quarter Fiscal 1996.
The increase in revenues at the Manufacturing Division is a result of the
expansion of that division which began in Fiscal 1997 through a broadening of
the core operations to include both a diversification of the fabrication work to
include more CNC and other higher margin fabrication work as well as the sale as
an authorized distributor of power transmission components to pre-existing
customers and to various new industrial clients with the opening of the new
Dalton, Georgia location of Maintenance Requisition Order Corp. ("MRO"). The
increase in SG&A expenses for the three months and nine months ended March 31,
1997 from the comparable periods in Fiscal 1996 reflects increased sales and
9
<PAGE>
marketing efforts. For the balance of Fiscal 1997 and beyond, management of the
Company anticipates, as a result of the aggresive growth posture of the
Manufacturing Division, that SG&A will continue to increase as the revenues base
increases. 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 approximately $ 277,000 for Third
Quarter Fiscal 1997 versus revenues of approximately $148,000 for the comparable
period in Fiscal 1996. Revenues from the Staffing Division were approximately
$700,555 for Fiscal 1997 To Date versus revenues of approximately $495,000 for
the comparable period in Fiscal 1996. Income from operations decreased
approximately 14% for Third Quarter Fiscal 1997 from the comparable period in
Third Quarter Fiscal 1996 as a result of the increase in revenues attributable
to lower margin accounts.
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 approximately $25,000
for Third Quarter Fiscal 1997 versus revenues of approximately $128,000 for the
comparable period in Fiscal 1996. Revenues from the Consumer Products Division
were approximately $330,070 for Fiscal 1997 To Date versus revenues of
approximately $504,000 for the comparable period in Fiscal 1996. Income from
operations decreased approximately 4% for Third Quarter Fiscal 1997 from the
comparable period in Third Quarter Fiscal 1996 as a result of the 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.
As hereinafter described in Liquidity and Capital Resources as well as
Part II, Item 5, should the Company conclude its acquisition of Federal, such
acquisition would have a material impact on the Company's revenues which could
be reflected as early as the fourth quarter of Fiscal 1997. There can be no
assurances, however, that such acquisition will ultimately be consummated.
Liquidity and Capital Resources
The Company's working capital at March 31, 1997 was $2,199,797, a decrease
of approximately $540,000 from June 30, 1996. This decrease in working capital
is primarily the result of the acquisition of additional inventory, property,
plant and equipment related to the growth of the Manufacturing Division as well
as additional costs incurred by the Consumer Products Division with respect to
its newest product, Mr. Food's AlloFresh. At the present time the Company's
operations are sufficient to satisfy its cash needs. Currently, the Company has
10
<PAGE>
no external sources of working capital; however, 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. At the present time, the Company has no material
commitments for any additional capital expenditures.
As hereinafter described in Part II, Item 5, the Company has signed a
letter of intent to acquire 100% of the issued and outstanding capital stock of
Federal Supply, Inc. and Federal Fabrication, Inc. (collectively, "Federal")
which together serve as a fabricator and distributor of custom-designed fire
sprinkler systems and components in exchange for 110,000 shares of the Company's
restricted common stock. Based upon the Company's due diligence to date, while
there can be no assurances, such due diligence reflects that Federal's existing
receivable factoring arrangements and internal sources of working capital are
sufficient to satisfy Federal's cash needs. Accordingly, assuming the conclusion
of such acquisition, of which there can be no assurance, it presently appears to
management of the Company based upon information known to date that no
additional working capital is required by Federal to continue its operations on
the basis now conducted.
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.
On May 7, 1997 the registrant executed a letter of intent to acquire 100%
of the issued and outstanding capital stock of Federal Supply, Inc. and Federal
Fabrication, Inc. (collectively, "Federal") which together serve as a fabricator
and distributor of custom-designed fire sprinkler systems and components in
exchange for 110,000 shares of the registrant's restricted common stock. Under
the terms of the letter of intent, following the completion of the acquisition,
which is expected to within 30 days of the execution of the letter of intent,
11
<PAGE>
Robert Hausman, President of Federal, will join the registrant's Board of
Directors and assume the additional post of President of the Registrant. Mrs.
Ella Chesnutt, currently Chairman and President of the registrant, will remain
as Chairman.
Item 6. Exhibits and Reports on Form 8-K.
(a) None.
(b) None.
12
<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: May 20, 1997 By: /s/ Ella Boutwell Chesnutt
---------------------------------
Ella Boutwell Chesnutt,
President
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORKFORCE SYSTEMS CORP. FOR THE NINE MONTHS ENDED MARCH
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 98,765
<SECURITIES> 0
<RECEIVABLES> 607,505
<ALLOWANCES> 0
<INVENTORY> 1,825,575
<CURRENT-ASSETS> 3,306,845
<PP&E> 3,079,079
<DEPRECIATION> 157,856
<TOTAL-ASSETS> 8,744,418
<CURRENT-LIABILITIES> 1,107,048
<BONDS> 0
0
1,030
<COMMON> 2,752
<OTHER-SE> 7,009,033
<TOTAL-LIABILITY-AND-EQUITY> 8,744,418
<SALES> 3,586,837
<TOTAL-REVENUES> 3,586,837
<CGS> 2,091,983
<TOTAL-COSTS> 2,091,983
<OTHER-EXPENSES> 809,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 685,302
<INCOME-TAX> 222,500
<INCOME-CONTINUING> 462,802
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462,802
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
