13
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ 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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-23170
HEADWAY CORPORATE RESOURCES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 75-2134871
(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
850 Third Avenue, New York, New York 10022
(Address of principal executive offices)
(212) 508-3560
(Issuer's telephone number)
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period
that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d)
of the Exchange Act subsequent to the distribution of
securities under a plan confirmed by a court. Yes [ ]
No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the
issuerOs classes of common equity, as of the latest
practicable date: 6,900,403 shares of common stock.
<PAGE>
FORM 10-QSB
HEADWAY CORPORATE RESOURCES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. Financial Information
Financial Statements
Unaudited Consolidated Balance Sheet-
March 31, 1997 3
Unaudited Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 5
Unaudited Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. Other Information 12
Signatures 12
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Balance Sheet
March 31, 1997
(Unaudited)
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 1,120
Accounts receivable, trade, net of
allowance for doubtful accounts of $130 12,823
Deferred income taxes 496
Prepaid expenses and other current assets 1,276
Total current assets 15,715
Property and equipment, net 1,857
Cash surrender value of officers' life insurance 442
Due from related party 178
Intangibles, net of accumulated amortization of $761 18,119
Investment - at cost 1,945
Deferred financing costs 2,611
Deferred income taxes 773
Other assets 598
Total assets $ 42,238
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Balance Sheet (continued)
March 31, 1997
(Unaudited)
(In thousands, except share and per share amounts)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 2,463
Line of credit 5,379
Capital lease obligations, current portion 87
Notes and loans payable, current portion 2,325
Accrued payroll 2,552
Income taxes payable 845
Total current liabilities 13,651
Notes and loans payable, less current portion 12,375
Capital lease obligations, less current portion 92
Deferred rent 1,168
Stockholders' equity
Preferred stock - $.0001 par value, 4,415,274
shares authorized, none issued or outstanding -
Series A, 8% cumulative convertible preferred
stock - $.0001 par value, 2,800 shares
authorized, issued and outstanding (aggregate
liquidation value $700) 700
Series B, convertible preferred stock - $.0001 par
value, 6,858 shares authorized, 1,201 issued
and outstanding (aggregate liquidation value $420) 420
Series C, convertible preferred stock - $.0001 par
value, 24 shares authorized, 5 issued and outstanding 100
Series D, convertible preferred stock - $.0001 par
value, 44 shares authorized, 35 issued and outstanding 1,750
Series E, convertible preferred stock - $.0001 par
value, 575,000 shares authorized, none issued
and outstanding -
Common stock - $.0001 par value, 20,000,000 shares
authorized, 6,900,403 shares issued and outstanding 1
Additional paid-in capital 10,459
Cumulative translation adjustments 57
Notes receivable - preferred stock (421)
Retained earnings 1,886
Total stockholders' equity 14,952
Total liabilities and stockholders' equity $ 42,238
See accompanying notes
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31
1997 1996
Revenues:
Human resources management $ 22,037 $ 4,663
Advisory services 1,073 837
23,149 5,500
Operating expenses:
Direct cost of human resources management 14,433 -
General and administrative 6,627 4,194
Depreciation and amortization 269 85
21,329 4,279
Operating income 1,820 1,221
Other expenses (income):
Interest expense 449 85
Interest income (13) (6)
Gain on sale of investment (1,219) -
(783) 79
Income before income tax expense 2,603 1,142
Income tax expense (benefit):
Current 1,060 549
Deferred (16) (13)
1,044 536
Net income 1,559 606
Preferred dividend requirements (52) (14)
Net income available for common stockholders $ 1,507 $ 592
Primary earnings per common share $ .19 $ .10
Fully diluted earnings per common share $ .16 $ .08
See accompanying notes
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31
1997 1996
Operating activities
Net Income $ 1,559 $ 606
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization 269 85
Amortization of deferred financing costs 136 -
Deferred income taxes (16) (13)
Gain on sale of investment (1,219) -
Changes in assets and liabilities:
Accounts receivable (420) (1,615)
Prepaid expenses and other current assets (842) 773
Other assets (32) (536)
Accounts payable and accrued expenses (603) (334)
Accrued payroll (1,325) 204
Income taxes payable 464 429
Deferred rent - 42
Net cash (used in) operating activities (2,029) (359)
Investing activities
Expenditures for property and equipment (258) (60)
Repayment from employees 36 60
Advances to employees - (103)
Proceeds from sale of investment 1,642 -
Cash paid for acquisitions (4,169) -
Increase in cash surrender value of
officers life insurance (16) (16)
Net cash (used in) investing activities (2,765) (119)
Financing activities
Proceeds from officers life insurance loan - 213
Net change in revolving credit line 1,529 38
Proceeds from notes 4,000 -
Repayment of notes (250) (302)
Payment of capital lease obligations (18) (15)
Payments of loan acquisition fees (332) -
Net cash provided by (used in) financing activities 4,929 (66)
Effect of exchange rate changes on cash
and cash equivalent (23) (9)
Increase (decrease) in cash and cash equivalents 112 (553)
Cash and cash equivalents at beginning of period 1,008 1,063
Cash and cash equivalents at end of period $ 1,120 $ 510
See accompanying notes
<PAGE>
HEADWAY CORPORATE RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(1) BASIS OF PRESENTATION
These financial statements are presented on a
consolidated basis and include the results of operations of
the parent corporation, Headway Corporate Resources, Inc.,
formerly AFGL International, Inc., and its wholly-owned
subsidiaries Whitney Partners Inc. and its United Kingdom
and Asian subsidiaries ("Whitney"), Furash & Company, Inc.
("Furash"), and Headway Corporate Staffing Services, Inc.
(OHeadwayO), (collectively referred to as the OCompany).
In the opinion of management, the accompanying
unaudited financial statements included in this Form 10-QSB
reflect all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the results
of operations for the periods presented. The results of
operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
For further information, refer to the financial
statements and footnotes included in the CompanyOs Form 10-
KSB for the year ended December 31, 1996, filed on March 27,
1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share - Primary earnings per share of
common stock are based on the weighted average number of
common shares outstanding for each period presented. Common
stock equivalents are included if dilutive. Fully diluted
earnings per share of common stock amounts are based on an
increased number of shares that would be outstanding
assuming conversion of the convertible preferred stock at
the highest potential conversion rate. Net income has been
adjusted for the dividend requirements on the convertible
preferred stock. The number of shares used in the
computation of primary earnings per share was 8,072,834 and
5,646,222 for the three months ended March 31, 1997 and
1996, respectively. The number of shares used in the
computation of fully diluted earnings per share was
9,924,576 and 7,136,751 for the three months ended March 31,
1997 and 1996, respectively.
In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings per Share, which is
required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options
will be excluded. The impact is expected to result in an
increase in primary earnings per share for the first quarter
ended March 31, 1997 and March 31, 1996 of $.04 and $.03 per
share, respectively. The impact of Statement 128 on the
calculation of fully diluted earnings per share for these
quarters is not expected to be material.
Reclassifications - Certain reclassifications of 1996
balances have been made to conform to the 1997 presentation.
(3) ACQUISITIONS
On May 31, 1996, the Company closed the purchase of all
of the capital stock of Irene Cohen Temps, Inc., Corporate
Staffing Alternatives, Inc. and Certified Technical
Staffing, Inc. and certain assets of Irene Cohen Personnel,
Inc. through its newly formed subsidiary, Headway Corporate
Staffing Services, Inc. The capital stock of Irene Cohen
Temps, Inc., Corporate Staffing Alternatives, Inc., and
Certified Technical Staffing, Inc. was purchased at a price
of $9,230,391. The operating assets of Irene Cohen
Personnel, Inc. were purchased for $500,000 payable out of
future earnings derived from the use of the assets acquired.
The businesses acquired offer a broad range of employment-
related services. These acquisitions were accounted for
under the purchase method of accounting on May 31, 1996.
The following are the summarized, unaudited pro forma
results of operations for the three months ended March 31,
1996, assuming the acquisition occured as of the beginning
of the period:
Net sales $ 19,514,000
Net income 732,000
Deemed dividend on preferred stock (1,187,000)
Preferred dividend requirements (54,000)
Net (loss) applicable to common stockholder (509,000)
Net (loss) per common share (.06)
On March 31, 1997, the Company acquired substantially
all of the assets of Advanced Staffing Solutions, Inc.
(OAdvancedO), a North Carolina corporation engaged in the
business of offering human resource management services.
The assets of Advanced were purchased at a price of up to
$7,000,000, 4,000,000 of which was paid on March 31, 1997,
and up to an additional $3,000,000 of which is payable in
July 1998 based on future earnings. In addition,
transaction costs were approximately $200,000. Funding for
the acquisition consists of a term loan of $6,200,000, of
which $4,000,000 has been drawn, and the remaining
$2,200,000 is available to fund the purchase price. This
acquisition was accounted for under the purchase method of
accounting and the excess of the probable purchase price of
$6,400,000, over the fair value of assets acquired was
recorded as an intangible asset (approximately $6,300,000).
An additional acquisition loan facility of up to $2,550,000
is available, $800,000 of which is reserved to complete
payment of the maximum $7,000,000 payable to the sellers, if
necessary.
(4) SALE OF INVESTMENT
In March 1997, Citigate Communications Group Limited
(OCitigateO), in which the company had an 18.3% interest,
was acquired by Incepta Group, plc. (OInceptaO), a United
Kingdom public company. The Company received 13,805,406
shares of Incepta in exchange for its investment in
Citigate. The Company sold 5,128,295 of these shares for
$1,642,000 in March 1997. The Company realized a gain of
$1,219,000 ($805,000 after tax) in the first quarter in
connection with the acquisition of Citigate by Incepta. An
additional 7,072,307 shares of Incepta is receivable in May
1998 if Incepta meets certain earnings targets. Any
additional gain will be recognized when Incepta realizes its
earnings target.
MANAGEMENTOS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The CompanyOs financial performance was favorable in
the first quarter of 1997. This can be attributed to the
addition of the temporary staffing companies acquired in
1996 and the continued strong performance in the executive
search division. The Company expects this trend to continue
as long as there is no drastic change in the economy or the
financial services industry. The Company expects to
continue to grow the Human Resources Management segment both
through internal growth and acquisitions primarily in the
temporary staffing industry.
Consolidated
Consolidated revenues increased $17,649,000 to
$23,149,000 for the three months ended March 31, 1997, from
$5,500,000 for the same period in 1996. This increase is
primarily attributable to the temporary staffing
acquisitions completed in 1996.
Consolidated operating income increased $599,000 to
$1,820,000 for the three months ended March 31, 1997,
compared to $1,221,000 for the three months ended March 31,
1996. The increase is related to the results of the
temporary staffing companies.
Fully diluted earnings per share was $.16 for the first
quarter of 1997 compared to $.08 for the first quarter of
1996. Included in the results for the first quarter of this
year was an after tax gain of approximately $805,000 equal
to $.08 per share on a fully diluted basis which the company
realized on its investment in Citigate Communications Group,
Ltd. stock upon CitigateOs merger with Incepta Group PLC.
Human Resource Management
Revenue from human resource management increased
$17,413,000 to $22,076,000 for the three months ended March
31, 1997, from $4,663,000 for the same period last year.
The acquisitions of the temporary staffing companies
accounted for $17,383,000 of the revenue. WhitneyOs revenue
of $4,693,000 was slightly better than the same period last
year of $4,663,000.
Total operating expenses increased $17,004,000 to
$20,120,000 for the quarter ended March 31, 1997, from
$3,116,000 for the same period last year. Of the increase,
$16,830,000 relates to the staffing companies acquired of
which $14,433,000 is the direct cost of revenues relating to
wages, taxes and benefits of worksite employees. The
increase in operating expenses of Whitney related to the
startup expenses associated with the opening of its
Singapore office.
Revenue from Asia operations decreased $314,000 to
$121,000 for the first quarter of 1997, from $435,000 for
the same period last year. The decrease in revenues, as
well as start up costs for the Singapore office, resulted in
an operating loss of $207,000 for the first quarter of this
year compared to operating income of $154,000 for the same
period last year. Results from WhitneyOs Asia operations
are expected to improve for the balance of 1997 and beyond
as a result of several very key new hires and the opening of
the Singapore office.
Revenue from operations in Europe was $899,000 and
$891,000 for the first quarter of 1997 and 1996,
respectively. There was not a significant contribution to
operating income for either period.
Operating income from human resource management
services increased $409,000 to $1,957,000 for the three
months ended March 31, 1997, compared to $1,548,000 for the
same period last year. The increase can be primarily
attributed to the operating income of the temporary staffing
companies in the amount of $554,000.
Advisory Services Segment
Revenue from the advisory services offered by Furash
increased $236,000 to $1,073,000 for the quarter ended March
31, 1997, compared to $837,000 for the same period in 1996.
Furash total operating expenses decreased $75,000 to
$1,063,000 for the three months ended March 31, 1997, from
$1,138,000 for the same period in 1996. The decrease in
operating expenses is the result of the reorganization plan
implemented in the second half of 1996 resulting in a
reduction to the operating expense structure for 1997.
Furash contributed $10,000 of operating income for the
quarter ended March 31, 1997 as compared to an operating
loss of $302,000 for the same period in 1996. Management is
optimistic that Furash will continue to show improvement in
its operating results for the balance of 1997.
Liquidity and Capital Resources
Cash used in operations during the three months ended
March 31, 1997 was $2,029,000, as compared to cash used in
operations of $359,000 during the same period in 1996. The
cash used in the current quarter was primarily attributable
to the payment of the 1996 bonuses and other accrued
expenses.
The Company's working capital improved to $2,064,000 at
March 31, 1997, from $1,648,000 at December 31, 1996.
Management expects that the Company's working capital
position will continue to improve based on anticipated
continued positive operating results and will be sufficient
to handle all of the working capital needs for the remainder
of the year.
For the three months ended March 31, 1997, the Company
used $2,765,000 in investing activities, compared to cash
used in investing activities of $119,000 for the same period
last year. The cash used for investing activities in 1997
related to the acquisition of Advanced Staffing Solutions on
March 31, 1997 in the amount of $4,169,000 offset by
proceeds from the sale of a portion of the investment in
Incepta stock for $1,642,000.
Total net cash received from financing activities was
$4,929,000 for the first quarter of 1997, compared to net
cash used in financing activities of $66,000 for the same
period in 1996. The cash generated in 1997 primarily
related to the $4,000,000 term loan received in connection
with the acquisition of Advanced and an increase in the
revolving credit line of $1,529,000 used to pay the accrued
bonus obligation.
The acquisition of Advanced was funded by a term loan
of $6,200,000 of which $4,000,000 has been drawn, and the
remaining $2,200,000 is available to fund the purchase
price. An additional acquisition loan facility of up to
$2,550,000 is available, $800,000 of which is reserved to
complete payment of the maximum $7,000,000 payable to the
sellers, if necessary.
In the first quarter of 1997 there was a conversion of
5,657 shares of Series B Preferred Stock, with a carrying
value of $1,979,950, into 565,700 shares of common stock.
PART II. OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS: Attached only to the electronic filing by the
Company with the Securities and Exchange Commission is the
Financial Data Schedule, Exhibit Reference Number 27, in
accordance with Item 601(c) of Regulation S-B.
REPORTS ON FORM 8-K: On April 14, 1997, the Company filed a
report on Form 8-K dated March 31, 1997 reporting under Item
2, the acquisition of Advanced Staffing Solutions, Inc. and
included with this report, under Item 7, are the historical
audited financial statements of Advanced Staffing Solutions,
Inc. for the calendar years ended December 31, 1996 and
1995, consisting of the following:
Report of Independent Auditors
Balance Sheets
Statements of ShareholdersO (Deficiency) Equity
Statement of Cash Flows
Notes to Financial Statements
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.
HEADWAY CORPORATE RESOURCES, INC.
Date: May 14, 1997 By: (Signature)
Barry S. Roseman, President and
Chief Operating Officer
(Duly Authorized and Principal
Financial Officer)
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,120,000
<SECURITIES> 0
<RECEIVABLES> 12,823,000
<ALLOWANCES> 130,000
<INVENTORY> 0
<CURRENT-ASSETS> 15,715,000
<PP&E> 1,857,000
<DEPRECIATION> 1,220,000
<TOTAL-ASSETS> 42,238,000
<CURRENT-LIABILITIES> 13,651,000
<BONDS> 12,467,000
2,549,000
0
<COMMON> 1,000
<OTHER-SE> 12,402,000
<TOTAL-LIABILITY-AND-EQUITY> 42,238,000
<SALES> 0
<TOTAL-REVENUES> 23,149,000
<CGS> 0
<TOTAL-COSTS> 21,329,000
<OTHER-EXPENSES> (783,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 449,000
<INCOME-PRETAX> 2,603,000
<INCOME-TAX> 1,044,000
<INCOME-CONTINUING> 1,559,000
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