UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------
FORM 8-K/A
Amendment No. 1
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): May 31, 1996
AFGL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Commission File Number: 0-23170
NEVADA 75-2134871
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
850 Third Avenue
New York, New York 10022
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 508-3560
NOT APPLICABLE
(Former name,former address and former fiscal year,if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
This is the first amendment designated as "Form 8-K/A" ("Amendment No.
1"), to the report on Form 8-K of AFGL International, Inc. ("Company"), dated
May 31, 1996, and originally filed with the Securities and Exchange Commission
on or about June 14, 1996. This Amendment contains the financial statements and
information required by Item 7 of Form 8-K, which were not available at the time
of the original filing.
(a) Financial Statements
Attached are the combined financial statements of Irene Cohen Temps,
Inc. and Certified Technical Staffing, Inc. and the combined financial
statements of Irene Cohen Personnel, Inc. and Corporate Staffing
Alternatives, Inc., as of and for the periods listed in the accompanying
index.
(b) Pro Forma Financial Information
Attached are the unaudited pro forma condensed combined financial
statements of the Company, which give effect to the acquisition as of and for
the periods listed in the accompanying index.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
AFGL INTERNATIONAL, INC.
DATED: ----------------- , 1996 By
Barry S. Roseman, Chief Operating
Officer
<PAGE>
INDEX TO FINANCIAL STATEMENTS
- -----------------------------
Combined Financial Statements of Irene Cohen Temps, Inc. and
Certified Technical Staffing, Inc.:
Report of Independent Auditors............................. F-1
Combined Balance Sheets as of December 31, 1994 and 1995 and
March 31, 1996 [Unaudited]................................. F-2
Combined Statements of Income and Retained Earnings for the years ended
December 31, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 [Unaudited]........................ F-3
Combined Statements of Cash Flows for the years ended
December 31, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 [Unaudited]........................ F-4
Notes to Combined Financial Statements..................... F-5 - F-10
Combined Financial Statements of Irene Cohen Personnel, Inc. and
Corporate Staffing Alternatives, Inc.:
Report of Independent Auditors............................. F-11
Combined Balance Sheets as of December 31, 1994 and 1995 and
March 31, 1996 [Unaudited]................................. F-12
Combined Statements of Operations and Accumulated Deficit for the years
ended December 31, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 [Unaudited]........................ F-13
Combined Statements of Cash Flows for the years ended
December 31, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 [Unaudited]........................ F-14
Notes to Combined Financial Statements..................... F-15 - F-19
AFGL International, Inc. Pro Forma Condensed Combined Financial
Statements [Unaudited]:
Basis of Presentation...................................... P-1
Pro Forma Condensed Combined Balance Sheet as of March 31, 1996
[Unaudited].............................................. P-2 - P-3
Pro Forma Condensed Combined Statement of Operation for the three
months ended March 31, 1996 [Unaudited].................. P-4
Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 1995 [Unaudited]...................... P-5
Notes to Pro Forma Condensed Combined Financial Statements
[Unaudited].............................................. P-6
. . . . . . . . . . .
<PAGE>
Report of Independent Auditors
The Shareholders of
Irene Cohen Temps, Inc. and
Certified Technical Staffing, Inc.
We have audited the accompanying combined balance sheets of Irene Cohen Temps,
Inc. and Certified Technical Staffing, Inc. (collectively, the "Company") as of
December 31, 1995 and 1994 and the related combined statements of income and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Irene Cohen
Temps, Inc. and Certified Technical Staffing, Inc. at December 31, 1995 and
1994, and the combined results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
May 31, 1996
......
<PAGE>
Irene Cohen Temps, Inc.
and
Certified Technical Staffing, Inc.
Combined Balance Sheets
December 31 March 31
1994 1995 1996
----------------------------------
(Unaudited)
Assets
Current assets:
Cash $ 39,656 $1,903,073 $47,379
Accounts receivable, net of allowance of
$50,300 4,066,493 2,731,911 4,103,398
in 1994 and $55,000 in 1995 and 1996
Prepaid expenses and other current assets 53,867 49,918 156,808
Due from affiliates 997 403,323 567,764
----------------------------------
Total current assets 4,161,013 5,088,225 4,875,349
----------------------------------
Property and equipment--net 180,506 199,249 192,874
Intangible assets, net of accumulated
amortization 185,367 169,262 1,676,861
of $19,686 in 1994, $35,791 in 1995 and
$63,192 in 1996
Organization costs, net of accumulated
amortization of $16,190 in 1994, $24,085 23,284 15,389 13,415
in 1995 and $26,059 in 1996
Other assets - 100,000 -
==================================
Total assets $4,550,170 $5,572,125 $6,758,499
==================================
Liabilities and shareholders' equity Current liabilities:
Accounts payable and accrued expenses $550,213 $891,023 $1,070,253
Notes payable, shareholders 1,858,200 1,900,000 1,400,000
Current portion of note payable--Bank 50,000 50,000 50,000
Current portion of note payable--Viva
Temporary - - 630,000
Services, Inc.
Deferred income taxes 99,300 192,300 213,193
----------------------------------
Total current liabilities 2,557,713 3,033,323 3,363,446
Note payable--Bank 75,000 25,000 12,500
Note payable--Viva Temporary Services, Inc. - - 518,219
Commitments
Shareholders' equity:
Common stock 12,000 11,900 11,900
Paid in capital 441,389 441,389 441,389
Stock subscription receivable (1,000) - -
Retained earnings 1,465,068 2,060,513 2,411,045
----------------------------------
Total shareholders' equity 1,917,457 2,513,802 2,864,334
==================================
Total liabilities and shareholders' equity $4,550,170 $5,572,125 $6,758,499
==================================
See accompanying notes.
<PAGE>
Irene Cohen Temps, Inc.
and
Certified Technical Staffing, Inc.
Combined Statements of Income and Retained Earnings
Three months ended
Year ended December 31 March 31
1994 1995 1995 1996
---------------------------------------------------
(Unaudited)
Revenue from human
resource management $17,648,459 $19,658,428 $4,406,386 $8,633,480
Cost of temporary 13,570,347 14,848,537 3,383,463 6,930,624
personnel
Selling, general and
administrative expenses 3,425,855 4,005,966 891,613 1,261,398
Interest 58,510 98,041 24,982 64,089
---------------------------------------------------
17,054,712 18,952,544 4,300,058 8,256,111
---------------------------------------------------
Income before provision
for 593,747 705,884 106,328 377,369
income taxes
Provision for income
taxes:
Current 1,163 17,439 1,806 5,944
Deferred 99,300 93,000 17,361 20,893
---------------------------------------------------
100,463 110,439 19,167 26,837
---------------------------------------------------
Net income 493,284 595,445 87,161 350,532
Retained earnings,
beginning of period 971,784 1,465,068 1,465,068 2,060,513
-------------------------------------------------
Retained earnings,
end of period $1,465,068 $2,060,513 $1,552,229 $2,411,045
===================================================
See accompanying notes.
<PAGE>
Irene Cohen Temps, Inc.
and
Certified Technical Staffing, Inc.
Combined Statements of Cash Flows
Three months ended
Year ended December 31 March 31
1994 1995 1995 1996
----------------------------------------------
(Unaudited)
Cash flows from operating
activities
Net income $493,284 $595,445 $ 87,161 $350,532
Adjustments to reconcile net
income to net cash provided by
(used in) operations:
Depreciation and amortization 68,060 85,494 17,271 45,410
Deferred income taxes 99,300 93,000 17,361 20,893
Provision for doubtful accounts 300 4,700 - -
Changes in assets and
liabilities, net of
acquisition in 1996:
Accounts receivable (2,079,905)1,329,882 1,646,698 (624,197)
Due from affiliates - (402,326) (105,342) (164,441)
Prepaid expenses and other (33,112) 3,949 (13,567) (106,890)
current assets
Accounts payable and 345,498 340,810 (127,195) 179,230
accrued expenses
----------------------------------------------
Net cash provided by (used in) (1,106,575)2,050,954 1,522,387 (299,463)
operating activities
----------------------------------------------
Cash flows used by investing
activities
Purchase of property and equipment (98,622) (80,237) (3,183) (9,660)
Acquisition - (100,000) - (867,000)
----------------------------------------------
Net cash (used in) investing (98,622) (180,237) (3,183) (876,660)
activities
----------------------------------------------
Cash flows from financing
activities
Bank overdraft - - 103,640 -
Notes payable to shareholders, net 1,282,861 41,800 (1,650,000) (500,000)
Proceeds from notes payable--bank 150,000 - - -
Repayments of notes payable--bank (825,000) (50,000) (12,500) (12,500)
Repayment of note payable--Viva - - - (167,071)
Stock subscriptions - 900 - -
----------------------------------------------
Net cash (used in) provided by
financing activities 607,861 (7,300) (1,558,860) (679,571)
----------------------------------------------
Net increase (decrease) in cash (597,336)1,863,417 (39,656)(1,855,694)
Cash, beginning of period 636,992 39,656 39,656 1,903,073
----------------------------------------------
Cash, end of period $ 39,656 $1,903,073 $ - $ 47,379
==============================================
Supplemental disclosure of cash
flow information
Cash paid during the year for:
Interest $ 82,331 $47,698 $ 24,982 $ 64,089
Income taxes $ - $14,728 $ - $ -
See accompanying notes.
<PAGE>
Irene Cohen Temps, Inc.
and
Certified Technical Staffing, inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
1. Organization and Summary of Significant Accounting Policies
Basis of Presentation and Description of Business
The accompanying combined financial statements include the accounts of
Irene Cohen Temps, Inc. ("ICT") and Certified Technical Staffing, Inc.
("CTS") (collectively, the "Company"). ICT and CTS are both under common
control.
The Company is engaged in the placement of temporary personnel and related
services throughout the greater New York metropolitan area.
The interim financial statements at March 31, 1996 and for the three months
ended March 31, 1995 and 1996 are unaudited; however, in the opinion of
management, all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation have been included. Results of interim periods
are not necessarily indicative of results to be expected for the entire year.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Principles of Combination
All significant intercompany accounts and transactions have been eliminated in
combination.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
<PAGE>
================================================================================
================================================================================
Irene Cohen Temps, Inc.
and
Certified Technical Staffing, inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
1. Organization and Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost. Depreciation on computer equipment is
computed on the straight-line basis over the useful life of the computer
equipment (5 years). Leasehold improvements are amortized on a straight-line
basis over five years.
Intangible Assets
ICT acquired the businesses of two temporary agencies in 1993. Intangible
assets, consisting of customer lists and cost in excess of net assets acquired
related to these acquisitions are amortized on a straight-line basis over a
period of fifteen years.
Organization Costs
Organization costs are amortized on a straight-line basis over five years.
2. Property and Equipment
Property and equipment consist of the following:
December 31 March 31
1994 1995 1996
----------------------------------
(Unaudited)
Computer equipment $226,091 $306,328 $315,988
Leasehold improvements 10,016 10,016 10,016
----------------------------------
236,107 316,344 326,004
Less accumulated depreciation and 55,601 117,095 133,130
amortization
==================================
Property and equipment--net $180,506 $199,249 $192,874
==================================
<PAGE>
Irene Cohen Temps, Inc.
and
Certified Technical Staffing, inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
3. Common Stock
December 31 March 31
1994 1995 1996
---------------------------------
(Unaudited)
ICT
Common stock, no par value,
authorized--20,000 shares, issued and $11,000 $11,000 $11,000
outstanding--10,000 shares
CTS
Common stock, no par value,
authorized--200 shares, issued and 1,000 900 900
outstanding--100 shares
=================================
$12,000 $11,900 $11,900
=================================
100 shares of common stock of CTS, originally subscribed for in 1994, were not
issued and were cancelled in 1995.
4. Note Payable--Bank
In June 1994, ICT borrowed $150,000 from a bank to purchase computer equipment.
The loan is payable over thirty-six months, in equal monthly principal payments
of approximately $4,200, plus interest at 2% over the bank's reference lending
rate (10.5% at December 31, 1995 and 1994).
5. Loans Payable--Shareholders
The Company's shareholders have a line of credit with a bank. Borrowing under
the line of credit can only be utilized for the purpose of lending to their
affiliates.
Borrowings under the line of credit are secured by a first priority lien on any
and all payments which become due or owing to any of the shareholders. The
individual shareholders' obligations under this line of credit are guaranteed by
the Company. The Company's guarantee is secured by a first priority security
interest in all personal property and fixtures of the Company and Corporate
Staffing Alternatives, Inc. ("CSA").
<PAGE>
Irene Cohen Temps, Inc.
and
Certified Technical Staffing, inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
6. Income Taxes
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
ICT and CTS file separate income tax returns, are cash basis tax payers and have
elected to be treated as an S Corporation under Subchapter S of the Internal
Revenue Code for Federal and New York State income tax purposes. Accordingly,
ICT and CTS are not subject to federal income taxes because the stockholders
include the income from the Company in their own personal income tax returns.
For New York State purposes, S Corporations are subject to a minimum income tax.
The Company is subject to New York City income taxes. The provision for income
taxes includes New York City income tax, at approximately 9% and the New York
State minimum income tax.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the cash basis used for income tax purposes.
7. Consulting and Employment Agreements
The Company entered into consulting agreements with the owners of the two
temporary agencies acquired in 1993. The Company pays commissions to these
former owners in the amount of 25% of gross margin, as defined, generated from
the clients of those agencies (approximately $239,000 and $226,000 for the years
ended December 31, 1994 and 1995, respectively, and $48,000 and $61,000 for the
three months ended March 31, 1995 and 1996, respectively). These consulting
agreements expire in September 1996.
8. Related Party Transactions
A principal stockholder of the Company is also a principal stockholder of CSA
and Irene Cohen Personnel, Inc. ("ICP"). Due from affiliates represent amounts
due from CSA and ICP, are interest-free and have no fixed repayment terms.
<PAGE>
Irene Cohen Temps, Inc.
and
Certified Technical Staffing, inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
8. Related Party Transactions (continued)
In addition, the Company rents office space, on a month-to-month basis, from ICP
at $10,000 per month ($12,000 from January 1, 1996). Total rent expense, which
includes rent paid for additional office space rented from an unrelated third
party, amounted to $132,000 and $132,600, respectively, for the years ended
December 31, 1994 and 1995 (approximately $31,000 and $37,000 for the three
months ended March 31, 1995 and 1996, respectively).
Included in cost of temporary personnel for the years ended December 31, 1994
and 1995 are $2,098,985 and $2,572,172 of fees, invoiced by an affiliate at its
cost, to the Company ($639,879 and $918,351 for the three months ended March 31,
1995 and 1996, respectively). In addition, revenues for the years ended December
31, 1994 and 1995 include $4,691 and $20,559, respectively, invoiced to
affiliates at the Company's cost ($1,622 and $14,039 for the three months ended
March 31, 1995 and 1996).
9. Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains its cash balances in two financial
institutions in the New York City metropolitan area.
Concentrations of credit risk with respect to accounts receivable are limited
due to the Company's large customer base. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company periodically reviews the status of its accounts receivable and,
accordingly, establishes reserves for uncollectible accounts.
10. Purchase of Viva Temporary Services, Inc.
On January 2, 1996, CTS acquired substantially all of the assets of Viva
Temporary Services, Inc. (Viva) and four of its affiliates. Other assets at
December 31, 1995 consists of a deposit of $100,000 paid on December 29, 1995
for this acquisition. The Company paid additional cash of $867,000 and issued a
two year promissory note in the amount of $1,450,000 ("Note Payable--Viva") for
the remainder of the purchase price. The purchase price and Note Payable--Viva
were subsequently reduced by approximately $135,000 because certain accounts
receivable were not collected within the period specified in the agreement. The
note bears interest at the prime rate and was payable in twenty-four equal
monthly installments of approximately $60,000 including interest. The aggregate
purchase price of $2,282,000, after adjustment, exceeded the assets acquired by
approximately $1.5 million which was recorded as an intangible asset and is
being amortized on a straight-line basis over twenty years.
<PAGE>
Irene Cohen Temps, Inc.
and
Certified Technical Staffing, inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
11. Subsequent Event
Effective May 31, 1996, all of the capital stock of ICT and CTS and their
affiliate CSA were sold to AFGL International, Inc. for approximately $9,362,000
subject to adjustment. Upon the closing of this transaction, approximately
$789,000 of the Note Payable--Viva was repaid.
<PAGE>
Report of Independent Auditors
Shareholders
Irene Cohen Personnel, Inc. and
Corporate Staffing Alternatives, Inc.
We have audited the accompanying combined balance sheets of Irene Cohen
Personnel, Inc. and Corporate Staffing Alternatives, Inc. (collectively the
"Company") as of December 31, 1995 and 1994, and the related combined statements
of operations and accumulated deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Irene Cohen Personnel,
Inc. and Corporate Staffing Alternatives, Inc. at December 31, 1995 and 1994,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
June 3, 1996
<PAGE>
Irene Cohen Personnel, Inc.
and
Corporate Staffing Alternatives, Inc.
Combined Balance Sheets
December 31 March 31
1994 1995 1996
--------------------------------------
(Unaudited)
Assets
Current assets:
Cash $ 155,031 $ - $ 337,244
Accounts receivable, net of
allowance for doubtful accounts
of $47,000 in 1994, 1995 and 1996 356,220 1,234,962 1,409,808
Prepaid expenses and other current 8,110 16,383 17,278
assets
Due from affiliates, net 34,042 - 1,146
--------------------------------------
Total current assets 553,403 1,251,345 1,765,476
Property and equipment--net 3,677 5,582 4,958
Other assets 10,126 - -
--------------------------------------
$ 567,206 $1,256,927 $1,770,434
======================================
Liabilities and shareholders'deficiency
Current liabilities:
Bank overdraft $ - $ 23,387 $ -
Notes payable--bank 200,000 - -
Notes payable--affiliate - 400,000 550,000
Accounts payable and accrued 226,337 439,289 654,973
expenses
Customer deposits payable 152,592 249,385 246,731
Due to affiliates, net - 27,312 -
Accrued rent payable 600,453 - -
--------------------------------------
--------------------------------------
Total current liabilities 1,179,382 1,139,373 1,451,704
Notes payable--shareholders 125,000 300,000 350,000
Commitments
Shareholders' deficiency:
Common stock 300 300 300
Paid-in capital 4,800 4,800 4,800
Accumulated deficit (742,276) (187,546) (36,370)
--------------------------------------
--------------------------------------
Total shareholders' deficiency (737,176) (182,446) (31,270)
--------------------------------------
======================================
Total liabilities and shareholders' $ 567,206 $1,256,927 $1,770,434
deficiency
======================================
See accompanying notes.
<PAGE>
Irene Cohen Personnel, Inc.
and
Corporate Staffing Alternatives, Inc.
Combined Statements of Operations
and Accumulated Deficit
Three months ended
Year ended December 31 March 31
1994 1995 1995 1996
-------------------------------------------------
(Unaudited)
Revenue from human resource
management $ 6,791,641 $13,463,185 $ 2,641,699 $ 6,313,344
Cost of personnel 6,006,940 12,550,585 2,425,278 5,950,503
Selling, general and 993,077 767,650 194,643 210,825
administrative
Interest expense 10,068 3,581 3,560 30
Gain on lease termination - (600,453) - -
-------------------------------------------------
7,010,085 12,721,363 2,623,481 6,161,358
-------------------------------------------------
Income (loss) before
provision for income taxes (218,444) 741,822 18,218 151,986
-
Provision for income taxes 7,619 7,092 625 810
-------------------------------------------------
-------------------------------------------------
Net income (loss) (226,063) 734,730 17,593 151,176
Accumulated deficit,
beginning of year (473,313) (742,276) (742,276) (187,546)
Distributions to shareholders (42,900) (180,000) - -
================================================
Accumulated deficit, end of $(742,276) $ (187,546) (724,683) $ (36,370)
year
=================================================
See accompanying notes.
<PAGE>
Irene Cohen Personnel, Inc.
and
Corporate Staffing Alternatives, Inc.
Combined Statements of Cash Flows
Three months ended
Year ended December March 31
31
1994 1995 1995 1996
------------------------------------------
(Unaudited)
Cash flows from operating activities
Net income (loss) $(226,063) $734,730 $ 17,593 $151,176
Adjustments to reconcile net income
(loss) to net cash (used in) provided by
operating activities:
Depreciation and amortization 14,238 2,197 667 624
Bad debt expense 27,000 - - -
Gain on lease termination - (600,453) - -
Changes in assets and liabilities:
Accounts receivable (87,980) (878,742) (636,046) (174,846)
Prepaid expenses and other 4,416 (8,273) (22,547) (895)
current assets
Due to/from affiliate (6,620) 61,354 49,409 (28,458)
Other assets - 10,126 10,126 -
Accounts payable and accrued 68,317 212,952 134,008 215,684
expenses
Customer deposits payable 120,727 96,793 209,403 (2,654)
Accrued rent payable 258,748 - - -
------------------------------------------
Net cash (used in) provided by 172,783 (369,316) (237,387) 160,631
operating activities
------------------------------------------
------------------------------------------
Cash flows from investing activities
Purchase of property and equipment - (4,102) - -
Distribution to shareholders (42,900) (180,000) - -
------------------------------------------
------------------------------------------
Net cash used in investing activities (42,900) (184,102) - -
------------------------------------------
------------------------------------------
Cash flows from financing activities
Bank overdraft (14,881) 23,387 7,356 (23,387)
Repayment of notes payable--bank (13,500) (200,000) (100,000) -
Repayment of note (25,000) - - -
payable--shareholders
Proceeds from note - 175,000 175,000 50,000
payable--shareholders
Proceeds from note payable to - 400,000 - 150,000
affiliate
------------------------------------------
------------------------------------------
Net cash provided by (used in) (53,381) 398,387 82,356 176,613
financing activities
------------------------------------------
------------------------------------------
Net (decrease) increase in cash 76,502 (155,031) (155,031) 337,244
Cash at beginning of period 78,529 155,031 155,031 -
------------------------------------------
==========================================
Cash at end of period $155,031 $ - $ - $337,244
==========================================
==========================================
Supplemental disclosure of cash flow
information
Cash paid during the year for:
Income taxes $4,729 $7,308 $ - $ -
Interest $10,068 $3,581 $ 3,560 $ 30
See accompanying notes.
<PAGE>
Irene Cohen Personnel, Inc.
and
Corporate Staffing Alternatives, Inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
1. Summary of Significant Accounting Policies
Basis of Presentation and Description of Business
The accompanying combined financial statements include the accounts of Irene
Cohen Personnel, Inc. ("ICP") and Corporate Staffing Alternatives, Inc. ("CSA")
(collectively the "Company"). ICP and CSA are both under common control.
The Company is engaged in the placement of temporary and long-term contingency
personnel to businesses principally in the New York metropolitan area.
The interim financial statements at March 31, 1996 and for the three months
ended March 31, 1995 and 1996 are unaudited; however, in the opinion of
management, all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation have been included. Results of interim periods
are not necessarily indicative of results to be expected for the entire fiscal
year.
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 in the financial statements. Actual results could
differ from those estimates.
Principles of Combination
All significant intercompany accounts and transactions have been eliminated in
combination.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
<PAGE>
Irene Cohen Personnel, Inc.
and
Corporate Staffing Alternatives, Inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
================================================================================
1. Summary of Significant Accounting Policies (continued)
================================================================================
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for on the
straight-line basis over the useful life of five years for furniture and
fixtures and computer equipment. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the remaining life of the lease.
2. Property and Equipment
Property and equipment consist of the following:
December 31 March 31
1994 1995 1996
---------------------------------
(Unaudited)
Computer equipment $56,241 $56,241 $ 56,241
Furniture and fixtures - 4,102 4,102
Leasehold improvements 301,112 301,112 301,112
---------------------------------
---------------------------------
357,353 361,455 361,455
Less accumulated depreciation and 353,676 355,873 356,497
amortization
---------------------------------
=================================
Property and equipment--net $ 3,677 $ 5,582 $ 4,958
=================================
3. Common Stock
December 31 March 31
1994 1995 1996
---------------------------------
ICP (Unaudited)
Common stock, $.10 par value,
authorized--20,000 shares, issued and
outstanding--2,000 shares $200 $200 $200
CSA
Common stock, no par value,
authorized--200 shares, issued and 100 100 100
outstanding--100 shares
=================================
$300 $300 $300
=================================
<PAGE>
Irene Cohen Personnel, Inc.
and
Corporate Staffing Alternatives, Inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
4. Notes Payable--Bank
The notes were payable on demand, with interest at prime plus 1% per year and
were guaranteed by the Company's shareholders. The loan was repaid during 1995.
The Company's shareholders have a line of credit with a bank. Borrowing under
the line of credit can only be utilized for the purpose of lending to their
affiliates.
Borrowings under the line of credit are secured by a first priority lien on any
and all payments which become due or owing to any of the shareholders. The
individual shareholders' obligations under this line of credit are guaranteed by
the Company. The Company's guarantee is secured by a first priority security
interest in all personal property and fixtures of CSA and two affiliated
companies, Irene Cohen Temps, Inc. and Certified Technical Staffing, Inc.
5. Notes Payable--Shareholders
Notes payable--shareholders are noninterest bearing and are due in January 1997.
6. Income Taxes
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
ICP and CSA file separate income tax returns, are cash basis tax payers and have
elected to be treated as S Corporations under Subchapter S of the Internal
Revenue Code for Federal and New York State income tax purposes. Accordingly,
ICP and CSA are not subject to federal income taxes because the stockholders
include the Company's income in their own personal income tax returns. For New
York State purposes, S Corporations were subject to a minimum income tax. The
Company is subject to New York City income taxes. The provision for income taxes
includes New York City income tax and New York State minimum income tax.
<PAGE>
Irene Cohen Personnel, Inc.
and
Corporate Staffing Alternatives, Inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
7. Related Party Transactions
ICP incurs advertising and other expenses which are paid on its behalf by
affiliates that are controlled by a shareholder of the Company. These amounts
are included in due to affiliates, are payable on demand and are noninterest
bearing.
In addition, the Company is obligated under various lease agreements for office
space (see Note 8). The expense incurred under these leases is allocated among
the Company and its affiliates, at $10,000 per month, which is the affiliate's
share of the rent ($12,000 from January 1, 1996).
ICP has a noninterest bearing note payable on demand to an affiliate totaling
$400,000 at December 31, 1995 and $550,000 at March 31, 1996.
Included in revenues for the years ended December 31, 1994 and 1995 are
$2,098,985 and $2,572,172 of fees, invoiced to an affiliate at the Company's
cost ($639,879 and $918,351 for the three months ended March 31, 1995 and 1996,
respectively). In addition, selling, general and administrative services for the
years ended December 31, 1994 and 1995 include $4,691 and $20,559 of fees
invoiced by an affiliate at its cost ($1,622 and $14,039 for the three months
ended March 31, 1995 and 1996, respectively).
8. Commitments and Contingencies
The Company has noncancellable lease agreements expiring in June 1996 for office
space. The minimum lease obligation for 1996 amounts to $102,000.
Rent expense for the years ended December 31, 1994 and 1995 was $326,000 and
$70,000, respectively ($15,000 and $14,000 for the three months ended March 31,
1995 and 1996, respectively).
The Company was obligated under an operating lease agreement to pay rent.
However, since 1991 the amounts payable under the lease were in dispute. Through
December 31, 1994, the Company accrued $600,453 of this disputed amount. In
February 1996, the dispute was settled which resulted in the settlement of all
past-due rent in consideration for the Company vacating the premises by June 30,
1996. A gain of $600,453 was recognized in 1995 as the accrual was no longer
required. Additionally, the Company will pay $17,000 per month in rent expense
for the six months in which they remain on the premises.
<PAGE>
Irene Cohen Personnel, Inc.
and
Corporate Staffing Alternatives, Inc.
Notes to Combined Financial Statements
(Unaudited with respect to March 31, 1996 and 1995)
9. Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash balances in two financial
institutions in the New York City metropolitan area.
Concentrations of credit risk with respect to accounts receivable are limited
due to the Company's large customer base. The Company's perform ongoing credit
evaluations of its customers and generally does not require collateral. The
Company periodically reviews the status of its accounts receivable and,
accordingly, establishes reserves for uncollectible accounts.
10. Subsequent Events
Effective May 31, 1996, all of the capital stock of CSA and two affiliated
companies were sold to AFGL International, Inc. ("AFGL") at a purchase price of
approximately $9,362,000 subject to adjustment.
In addition, ICP entered into an asset purchase agreement with a subsidiary of
AFGL whereby AFGL purchased certain assets and assumed certain liabilities of
ICP for a purchase price of $500,000.
<PAGE>
AFGL INTERNATIONAL, INC.
================================================================================
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
[UNAUDITED]
================================================================================
The following pro forma condensed combined balance sheet as of
March 31, 1996 and the condensed combined statements of operations for the year
ended December 31,1995, and the three months ended March 31, 1996 give effect to
AFGL International,Inc.and subsidiaries ["AFGL" or the "Company"] acquiring,
through its newly formed subsidiary, Headway Corporate Staffing Services, Inc.
["HCSSI"], (a) 100% of the common stock of (i)Irene Cohen Temps, Inc. ["ICTI"],
(ii) Certified Technical Staffing, Inc.["CTSI"] and (iii) Corporate Staffing
Alternatives, Inc. ["CSAI"]; and (b) certain assets of Irene Cohen Personnel,
Inc. ["ICPI"].
The pro forma information is based on the historical financial
statements of the Company and the aforementioned acquired companies, giving
effect to the transactions under the purchase method of accounting and the
assumptions and adjustments in the accompanying notes to the pro forma financial
statements.
The pro forma balance sheet at March 31, 1996 gives effect to the
transactions as if they occurred on the balance sheet date.
The pro forma statements of operations for the year ended December
31, 1995 and the three months ended March 31, 1996 gives effect to these
transactions as if they occurred at the beginning of the respective periods
presented.
The pro forma condensed combined financial statements have been
prepared by the Company 's management based upon the historical financial
statements of the Company, ICTI, CTSI, CSAI and ICPI. These pro forma condensed
combined financial statements may not be indicative of the results that actually
would have occurred if the acquisitions and related financing had been in effect
on the dates indicated. The pro forma condensed combined financial statements
should be read in conjunction with the historical financial statements and notes
contained elsewhere herein, and in the Company's annual report on Form 10KSB and
the Company's quarterly report on Form 10QSB.
<PAGE>
<TABLE>
AFGL INTERNATIONAL, INC.
================================================================================
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1996.
[UNAUDITED]
[IN THOUSANDS]
================================================================================
Historicals
AFGL ICTI AND CTSI ICPI AND CSAI Pro Forma Pro Forma
<S> <C> <C> <C> <C> <C>
Consolidated Combined Combined Adjustments Combined
assets:
Cash and Cash Equivalents $ 510 $ 47 $ 337 $5,710 [1] $ 1,037
10,302 [2]
(852) [3]
(9,772) [5]
(89) [6]
(5,156) [8]
Accounts Receivable [Net] 3,979 4,103 1,410 (259) [6] 9,233
Other Current Assets 807 725 18 (20) [6] 980
(550)[14]
---------------- ---------- --------- ---------- ---------
Total Current Assets 5,296 4,875 1,765 (686) 11,250
Property and Equipment [Net] 1,401 193 5 (5) [6] 1,594
Intangibles 1,672 1,677 -- 6,798 [7] 10,147
Investments 2,368 -- -- 9,772 [5] 2,368
(9,772) [7]
Other Assets 2,043 13 -- (3) [6] 4,662
852 [3]
1,757 [4]
Total Assets $ 12,780 $ 6,758 $ 1,770 $ 8,713 $ 30,021
========== ========== ========= ======== ===========
</TABLE>
<PAGE>
<TABLE>
AFGL INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1996.
[UNAUDITED]
[IN THOUSANDS]
- -------------------------------------------------------------------------------
Historicals
AFGL ICTI AND CTSIICPI AND CSAI Pro Forma Pro Forma
Consolidated Combined Combined Adjustments Combined
<S> <C> <C> <C> <C> <C>
Liabilities and Equity:
Liabilities:
Notes Payable - Current $ 495 $ 2,080 $ 550 $2,302 [2] $ 2,452
(2,425) [8]
(550)[14]
Other Current Liabilities 3,164 1,283 901 (167) [6] 5,181
Total Current Liabilities 3,659 3,363 1,451 (840) 7,633
Long-Term Liabilities 3,154 531 350 8,000 [2] 9,461
(350) [6]
(2,224) [8]
Total Long-Term
Liabilities 3,154 531 350 5,426 9,461
---------- ---------- --------- -------- -----------
Minority Interest 82 -- -- -- 82
---------- ---------- --------- -------- -----------
Equity:
Preferred Stocks 3,100 -- -- 6,400 [1] 9,500
Common Stock 46 12 5 (12) [7] 46
(5) [6]
Additional Paid-in Capital 2,592 441 (690) [1] 3,659
1,757 [4]
(441) [7]
Other Equity 82 -- -- -- 82
Preferred Stock Subscribed (507) [8] (507)
Retained Earnings 65 2,411 (36) (2,521)[7] 65
146 [6]
Total Equity 5,885 2,864 (31) 4,127 12,845
Total Liabilities and
Equity $ 12,780 $ 6,758 $ 1,770 $ 8,713 $ 30,021
========== ========== ========= ======== ===========
</TABLE>
<PAGE>
<TABLE>
================================================================================
AFGL INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH
31, 1996.
[UNAUDITED]
[IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS]
===============================================================================
Historicals
AFGL ICTI AND CTSI ICPI AND CSAI Pro Forma AdjustmentsPro Forma
Consolidated Combined Combined DR CR Combined
<S> <C> <C> <C> <C> <C> <C>
Revenue-Human Resource
Management $ 4,663 $ 8,633 $ 6,313 $ 932[15] $ -- $ 18,677
Revenue-Advisory Services 837 -- -- -- 837
----- --- --- ---- ---- ---
Total Revenue 5,500 8,633 6,313 932 -- 19,514
Operating Expenses 4,268 8,192 6,161 85 [9] -- 17,928
131[11]
23[12] 932[15]
Operating Income 1,232 441 152 1,171 932 1,586
Interest and Other
Expenses [Income] 89 64 -- 40[10] -- 193
-------- -------- -------- ------ ------- ---------
Income Before Income
Taxes 1,143 377 152 1,211 932 1,393
Provision for Income
Taxes 536 27 -- 78[13] -- 641
-------- -------- -------- ------ ------- ---------
Income from Continuing
Operations 607 350 152 1,289 932 752
Preferred Dividend
Requirements 14 -- -- -- -- 14
-------- -------- -------- ------ ------- ---------
Income Available for
Common Stockholders $ 593 $ 350 $ 152 $1,289 $ 932 $ 738
======== ======== ======== ====== ======= =========
Primary Income Per
Common and Common
Equivalent Share $ 0.10 $ 0.09
========= =========
Fully Diluted Income Per
Common and Common
Equivalent Share $ 0.08 $ 0.07
========= =========
Average Common and
Common Equivalent Shares
Outstanding - Primary 5,646,222 8,633,976
========= =========
Average Common and
Common Equivalent
Shares Outstanding -
Fully Diluted 7,136,751 11,129,989
========= ==========
</TABLE>
<PAGE>
<TABLE>
AFGL INTERNATIONAL, INC.
================================================================================
PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31,
1995.
[UNAUDITED]
[IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
Historicals
AFGL ICTI AND CTSI ICPI AND CSAI Pro Forma Adjustments Pro Forma
Consolidated Combined Combined DR CR Combined
<S> <C> <C> <C> <C> <C> <C>
Revenue-Human Resource
Management $ 10,996 $ 19,658 $ 13,463 $2,593[15] $ -- $ 41,524
Revenue-Advisory Services 4,496 -- -- -- -- 4,496
----- --- --- ---- --
Total Revenue 15,492 19,658 13,463 2,593 -- 46,020
Operating Expenses 14,029 18,855 13,318 340 [9] -- 44,166
522[11]
305[12]
2,593[15]
Operating Income 1,463 803 145 3,455 2,898 1,854
Interest and Other
Expenses [Income] 25 98 (597) 277 [10] --
-------- -------- -------- ---- ---- (197)
Income Before Income
Taxes 1,438 705 742 3,732 2,898 2,051
Provision for Income
Taxes 564 110 7 262[13] -- 943
-------- -------- -------- ------ ------- --------
Income from Continuing
Operations 874 595 735 3,994 2,898 1,108
Preferred Dividend
Requirements 56 -- -- 161[16] -- 217
-------- -------- -------- ------ ------- ---------
Income Available for
Common Stockholders $ 818 $ 595 $ 735 $4,155 $ 2,898 $ 891
======== ======== ======== ====== ======= =========
Primary Income Per
Common and Common
Equivalent Share $ 0.15 $ 0.11
========= =========
Fully Diluted Income Per
Common and Common
Equivalent Share $ 0.13 $ 0.10
========= =========
Average Common and
Common Equivalent Shares
Outstanding - Primary 5,610,048 7,941,863
========= =========
Average Common and
Common Equivalent
Shares Outstanding -
Fully Diluted 6,942,464 10,872,215
========= ==========
<PAGE>
</TABLE>
AFGL INTERNATIONAL, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[UNAUDITED]
================================================================================
[1] To record proceeds from sale of Series C and Series D 8% Convertible
Preferred Stock.
Proceeds from sale of 150 shares of Series C $3,000,000 [A]
Proceeds from sale of 68 shares of Series D 3,400,000 [B]
---------
Subtotal 6,400,000
Expenses of offering (690,000)
---------
Net Proceeds 5,710,000
[A] Convertible into common stock with respect to 33% - 42 days from date
of issuance, 33% - 65 days from date of issuance, and 34% - 95 days from
date of issuance.
[B] Convertible into common stock with respect to 50% - 70 days from date
of issuance, and 50% - 100 days from date of issuance.
[2] To record borrowings under the Company's credit agreement used in
connection with the acquisitions.
[3] To record costs incurred in connection with the credit agreement in [2]
above.
[4] To record Series E Convertible Preferred Stock which are convertible into
warrants to purchase 575,000 shares of common stock at an exercise price of
$.02 per share. The Preferred Stock was issued in connection with the
Company's credit agreement in [2] above and convertible commencing May 31,
1997. Such amount is based on a preliminary estimate of an independent
appraisal.
[5] To record payments of $9,772,000 consisting of $9,362,000 for the purchase
of ICTI, CSAI, and CTSI and $410,000 of acquisition fees.
[6] To eliminate assets and liabilities of ICPI not acquired.
[7] To eliminate investment in subsidiaries.
[8] To record repayment of $4,649,000 of debt and $700,000 of 8% Series A
Convertible Preferred Stock utilizing borrowings under Company's credit
agreement and record employee purchase of $700,000 of 8% Series A
Convertible Preferred Stock for cash of $193,000 and notes receivable of
$507,000.
[9] To record amortization of intangibles over 20 years.
[10] To record interest expense at an assumed rate of 8.71%.
[11] To record amortization of loan acquisition costs.
[12] To record adjustment of historical salaries and administrative costs.
[13] To adjust income tax expense based on 46% effective tax rate.
[14] To eliminate intercompany loans.
[15] To eliminate intercompany sales.
[16] To reflect dividend requirements on newly issued preferred stock after
giving effect to historical conversion experience and future conversion on
or around the allowed conversion date.
