SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report: August 12, 1997
WORKFORCE SYSTEMS CORP.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 333-11169 65-0353816
- --------------- ------------ --------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
1410 SW 8 Street
Pompano Beach, Fl 33069
-----------------------
(Address of executive offices and Zip Code)
Registrant's telephone number, including area code: 954-781-2100
Not Applicable
-------------------------
(Former name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Independent Auditor Report F-1
Combined Financial Statements:
Combined Balance Sheets F-2
Combined Statements of Operations F-4
Combined Statements of Capital Deficiency F-5
Combined Statements of Cash Flows F-6
Summary of Accounting Policies F-7
Notes to Combined Financial Statements F-9
Pro Forma Combined Financial Information F-12
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 11, 1997 By: /s/ Robert Hausman
------------------
Robert Hausman,
President
2
Independent Auditors' Report
To the Stockholders of
Federal Supply, Inc. and Affiliate
Pompano Beach, Florida
We have audited the accompanying combined balance sheet of Federal Supply, Inc.
and Affiliate as of December 31, 1996, and the related combined statements of
operations, capital deficiency, and cash flows for the year then ended. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined 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 audit provides 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 Federal
Supply, Inc. and Affiliate at December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
Miami, Florida Certified Public Accountants
August 6, 1997
F-1
Federal Supply, Inc. and Affiliate
Combined Balance Sheets
======================================================================================
March 31, December 31,
1997 1996
(Unaudited)
- -------------------------------------------------------------------------------------
ASSETS
Current
Cash $ 403,985 $ --
Accounts receivable, less $47,026 and $38,300 allowance
for doubtful accounts 739,120 769,941
Inventories 370,312 606,250
Prepaid expenses 72,434 43,006
- -------------------------------------------------------------------------------------
Total current assets 1,585,851 1,419,197
Property and equipment, net (Notes 1 and 3) 182,701 169,227
- -------------------------------------------------------------------------------------
$1,768,552 $1,588,424
=====================================================================================
See accompanying summary of accounting policies and notes
to combined financial statements.
F-2
Federal Supply, Inc. and Affiliate
Combined Balance Sheets
================================================================================
March 31, December 31,
1997 1996
(Unaudited)
- --------------------------------------------------------------------------------
Liabilities and Capital Deficiency
- ----------------------------------
Current liabilities
Bank overdraft $ -- $ 4,550
Note payable - stockholder (Note 2) 1,151,429 1,051,429
Accounts payable 541,635 776,003
Accrued expenses 15,803 27,888
Factoring line of credit (Note 7) 458,673 --
Current maturities of long-term debt (Note 3) 15,484 15,046
- --------------------------------------------------------------------------------
Total current liabilities 2,183,024 1,874,916
Long-term debt, less current maturities (Note 3) 29,209 32,624
- --------------------------------------------------------------------------------
Total liabilities 2,212,233 1,907,540
- --------------------------------------------------------------------------------
Commitments (Note 6)
- --------------------------------------------------------------------------------
Capital Deficiency
Common stock (Note 4) 190 190
Additional paid-in capital 209,810 209,810
Deficit (653,681) (529,116)
- -------------------------------------------------------------------------------
Total capital deficiency (443,681) (319,116)
- --------------------------------------------------------------------------------
$ 1,768,552 $ 1,588,424
================================================================================
See accompanying summary of accounting policies and notes
to combined financial statements.
F-3
Federal Supply, Inc. and Affiliate
Combined Statements of Operations
===========================================================================================
For the three For the
months ended year ended
March 31, December 31,
1997 1996 1996
(Unaudited)
- -------------------------------------------------------------------------------------------
Sales $ 879,908 $ 1,056,186 $ 3,946,587
Cost of sales 767,800 890,225 3,390,485
- -------------------------------------------------------------------------------------------
Gross profit 112,108 165,961 556,102
- -------------------------------------------------------------------------------------------
Warehouse expenses 59,428 69,329 278,958
Selling and general and administrative expenses
(Notes 5 and 6) 139,190 116,233 553,147
- -------------------------------------------------------------------------------------------
Total operating expenses 198,618 185,562 832,105
- -------------------------------------------------------------------------------------------
Operating loss (86,510) (19,601) (276,003)
Interest expense, net (Note 2) (38,055) (15,572) (70,199)
- -------------------------------------------------------------------------------------------
Net Loss $ (124,565) $ (35,173) $ (346,202)
===========================================================================================
See accompanying summary of accounting policies and notes to combined financial statements.
F-4
Federal Supply, Inc. and Affiliate
Combined Statements of Capital Deficiency
===================================================================================================
Common Stock Additional
(Note 4) Paid-in
Shares Amount Capital Deficit Total
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1995 190 $ 190 $ 209,810 $(182,914) $ 27,086
Net loss -- -- -- (346,202) (346,202)
- ---------------------------------------------------------------------------------------------------
Balance at December 31, 1996 190 190 209,810 (529,116) (319,116)
Net loss (unaudited) -- -- -- (124,565) (124,565)
- ---------------------------------------------------------------------------------------------------
Balance at March 31, 1997 (unaudited) 190 $ 190 $ 209,810 $(653,681) $(443,681)
===================================================================================================
See accompanying summary of accounting policies and notes to combined financial statements.
F-5
Federal Supply, Inc. and Affiliate
Combined Statements of Cash Flows
==================================================================================================
For the three For the
months ended year ended
March 31, December 31,
1997 1996 1996
(Unaudited)
- -------------------------------------------------------------------------------------------------
Operating Activities:
Net loss $(124,565) $ (35,173) $(346,202)
Adjustments to reconcile net loss to net cash
used in operating activities:
Bad debt expense 8,726 10,585 38,300
Depreciation and amortization 12,771 5,751 51,395
Decrease (increase) in:
Accounts receivable 22,095 (334,308) (79,475)
Inventories 235,938 (241,221) (300,500)
Prepaid expenses (29,428) 694 (39,013)
(Decrease) increase in:
Bank overdraft (4,550) -- 4,550
Accounts payable (234,368) 474,801 451,360
Accrued expenses (12,085) 24,455 7,551
- -------------------------------------------------------------------------------------------------
Net cash used in operating activities (125,466) (94,416) (212,034)
- -------------------------------------------------------------------------------------------------
Investing Activities:
Additions to property and equipment (26,245) (1,809) (77,183)
- -------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from notes payable-stockholder 100,000 100,000 300,000
Repayment of long-term debt (2,977) (4,508) (14,151)
Proceeds from factoring line of credit 458,673 -- --
- -------------------------------------------------------------------------------------------------
Net cash provided by financing activities 555,696 95,492 285,849
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 403,985 (733) (3,368)
Cash - beginning of period -- 3,368 3,368
- -------------------------------------------------------------------------------------------------
Cash - end of period $ 403,985 $ 2,635 $ --
=================================================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest $ 44,486 $ 12,251 $ 70,411
Loan obligation incurred for purchase of equipment -- -- 71,486
Reclass of accounts payable to note payable - stockholder -- 3,529 --
=================================================================================================
See accompanying summary of accounting policies and notes to combined financial statements.
F-6
Federal Supply, Inc. and Affiliate
Summary of Accounting Policies
(Unaudited with respect to the three months ended
March 31, 1997 and 1996)
================================================================================
Basis of The accompanying combined financial statements include the
Presentation accounts of Federal Supply, Inc. and Federal Fabrication,
and Business Inc. (collectively the Companies). The Companies are under
common ownership and operational control and operate
collectively to distribute and fabricate fire protection
products. All material intercompany accounts and
transactions have been eliminated in combination.
Inventories Inventories consisting mainly of finished product are
stated at lower of cost or market. Cost is determined
principally on the average cost method. Provision for
potentially obsolete or slow-moving inventory is made based
on management's analysis of inventory levels and future
sales forecasts.
Property and Property and equipment are recorded at cost. Depreciation
Equipment is computed using the straight line method over the
estimated useful lives of the assets, generally three to
five years.
Long-Lived Assets On January 1, 1996, the Companies adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long- Lived Assets and for Long-Lived Assets
to be Disposed Of," ("SFAS No. 121"). SFAS No. 121
requires, among other things, impairment loss of assets to
be held and gains or losses from assets that are expected
to be disposed of be included as a component of income from
continuing operations before taxes on income. The adoption
of SFAS 121 had no material effect on the accompanying
combined financial statements.
Income Taxes The Companies, with the consent of their stockholders,
elected to be taxed as an S Corporation. Stockholders of an
S Corporation are taxed on their proportionate share of the
Company's taxable income (loss). Accordingly, no provision
or benefit for federal income tax is recorded.
Estimates The preparation of combined financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the combined financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-7
Federal Supply, Inc. and Affiliate
Summary of Accounting Policies
(Unaudited with respect to the three months ended
March 31, 1997 and 1996)
================================================================================
Unaudited Financial The interim financial statements as of March 31, 1997 and
Statements for the three months ended March 31, 1997 and 1996, are
unaudited. In the opinion of management, such statements
reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of
the financial position, results of operations and cash
flows. The results of operations for the three months ended
March 31, 1997 are not necessarily indicative of the
results to be expected for the entire year.
New Accounting In June 1997, the Financial Accounting Standards Board
Standard Not Yet issued a new disclosure standard. Results of operations and
Adopted financial position will be unaffected by implementation of
this new standard.
Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income
is defined to include all changes in equity except those
resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current
accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with
the same prominence as other financial statements.
This new standard is effective for financial statements for
periods beginning after December 15, 1997 and requires
comparative information for earlier years to be restated.
Due to the recent issuance of this standard, management has
been unable to fully evaluate the impact, if any, it may
have on future financial statement disclosures.
F-8
Federal Supply, Inc. and Affiliate
Notes to Combined Financial Statements
(Unaudited with respect to the three months ended
March 31, 1997 and 1996)
============================================================================================
1. Property and Property and equipment at December 31, 1996 consists of the following:
Equipment
----------------------------------------------------------------------
Machinery and equipment $ 123,744
Transportation equipment 58,024
Fixtures 13,907
Leasehold improvements 8,926
Equipment under capital lease 33,875
----------------------------------------------------------------------
238,476
Accumulated depreciation and amortization 69,249
----------------------------------------------------------------------
$ 169,227
======================================================================
2. Note Payable - The note payable-stockholder is unsecured, and due on demand.
Stockholder Interest expense on the note amounted to approximately $69,000 for the
year ended December 31, 1996. The borrowings were based upon personal
borrowings by the stockholder from a financial institution. Interest
charged to the Companies was at a rate of approximately 8.5% during
1996.
3. Long-term Debt Long-term debt at December 31, 1996 consists of the following :
Various transportation equipment
obligations due 1999 with interest
ranging from 10% - 11% $ 23,962
Capitalized lease obligations with
interest at 11.50% collateralized by
certain manufacturing equipment 23,708
----------------------------------------------------------------------
47,670
Less: current maturities 15,046
-----------------------------------------------------------------------
$ 32,624
======================================================================
F-9
Federal Supply, Inc. and Affiliate
Notes to Combined Financial Statements
(Unaudited with respect to the three months ended
March 31, 1997 and 1996)
============================================================================================
At December 31, 1996, future minimum principal payments on
long-term debt and capitalized lease obligations were as
follows:
1997 $ 15,046
1998 16,797
1999 15,827
-----------------------------------------------------------------------
$ 47,670
=======================================================================
4. Capital Common stock consists of the following:
Deficiency
December 31, 1996 Shares Amounts
-----------------------------------------------------------------------
Federal Supply, Inc., $1.00 par value, 100 shares
authorized, 90 shares issued and outstanding 90 $ 90
Federal Fabrication, Inc., $1.00 par value, 1,000
shares authorized, 100 shares issued and
outstanding 100 100
-----------------------------------------------------------------------
190 $ 190
=======================================================================
5. Related Party During 1996, the Companies leased a facility from a company owned by a
Expenses stockholder. Rent expense aggregated $17,200. Additionally, certain
fixed assets aggregating $71,000 were sold at historical net book value
to the Companies during 1996. The liability for these assets is
reflected in the note payable-stockholder.
6. Commitments The Companies conduct their operations in leased facilities. The leases
expire September 2001. The Company also leases various equipment under
operating leases expiring through 1999.
F-10
Federal Supply, Inc. and Affiliate
Notes to Combined Financial Statements
(Unaudited with respect to the three months ended
March 31, 1997 and 1996)
============================================================================================
As of December 31, 1996, approximate future net minimum lease payments,
for facilities and equipment, required under operating leases that have
initial or remaining noncancelable terms in excess of one year are as
follows:
Year ended December 31,
-----------------------------------------------------------------------
1997 $ 153,400
1998 190,700
1999 208,600
2000 222,700
2001 170,700
-----------------------------------------------------------------------
$ 946,100
=======================================================================
Rent expense in 1996 aggregated $112,000.
7. Subsequent On May 29, 1997, Workforce Systems Corp. ("Workforce") acquired all of
Events the Companies' issued and outstanding stock in exchange for 110,000
shares of Workforce voting common stock and 35,000 shares as payment
for acquisition costs, valued at an aggregate of approximately
$423,000.
During March 1997, the Companies entered into a factoring agreement
providing a line of credit for up to $500,000, based upon eligible
accounts receivable. The fee charged by the factor is 3.75% of all
eligible accounts receivable and the advances are collateralized by
accounts receivable. The term of the agreement is for one year with
automatic one year extensions thereafter.
F-11
PRO FORMA COMBINED FINANCIAL INFORMATION
INTRODUCTORY NOTE
The following tables set forth certain unaudited condensed pro forma combined
financial information for the Company after giving effect to the Federal Supply
Inc. and Affiliate ("Federal") acquisition using the purchase method of
accounting as if such transaction had been consummated as of the beginning of
each period presented, and with respect to the balance sheet, as of March 31,
1997. Federal's fiscal year end was December 31, 1995. The results of operations
have been adjusted to June 30, 1996 by adding the six months ended June 30, 1996
results of operations to the year ended December 31, 1995 results of operations
and deducting the six months ended June 30, 1995 results of operations. The
results of operations have been adjusted to March 31, 1997 by adding the three
months ended March 31, 1997 results of operations to the year ended December 31,
1996, results of operations and deducting the six months ended June 30, 1996
results of operations. The information contained in the following tables does
not purport to be indicative of the results of operations of the Company which
may have been obtained had the acquisition of Federal been consummated on the
dates assumed.
The unaudited condensed pro forma combined financial information reflects a
preliminary allocation of the purchase price of Federal to costs in excess of
net assets acquired and, accordingly, is subject to change upon, among other
things, a final determination of required purchase accounting adjustments
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values which has not yet been
made. Accordingly, the purchase accounting adjustments made in connection with
the development of the unaudited condensed pro forma combined financial
information are preliminary and have been made solely for purposes of developing
such pro forma combined financial information.
The pro forma information with respect to the acquisition of Federal reflects
the issuance of 110,000 shares of the Company's common stock to the seller of
Federal as consideration for the purchase thereof and 35,000 shares as payment
for acquisition costs, valued at an aggregate of approximately $423,000.
F-12
This information should be read in conjunction with the historical financial
statements and accompanying notes of the Company contained in its Form 10-KSB
for the year ended June 30, 1996, 10-QSB for the nine months ended March 31,
1997, and the combined historical financial statements and accompanying notes of
Federal Supply, Inc. and Affiliate for the year ended December 31,1996 included
herein.
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
Workforce
Systems, Federal Supply, Inc. Pro forma
Corp. and Affiliate Adjustments Combined
------------ ------------ ------------ ------------
Cash and cash items $ 98,765 $ 403,985 $ -- $ 502,750
Accounts receivable 607,505 739,120 -- 1,346,625
Inventories 1,825,575 370,312 -- 2,195,887
Prepaids and other current assets 775,000 72,434 -- 847,434
------------ ------------ ------------ ------------
Total Current Assets 3,306,845 1,585,851 -- 4,892,696
Fixed assets, net 2,921,223 182,701 -- 3,103,924
Costs in excess of net assets acquired 1,277,637 -- 866,494(1) 2,144,131
------------ ------------ ------------ ------------
$ 7,505,705 $ 1,768,552 $ 866,494 $ 10,140,751
============ ============ ============ ============
Related party notes $ -- $ 1,151,429 $ -- $ 1,151,429
Other current liabilities 727,048 1,031,595 -- 1,758,643
------------ ------------ ------------ ------------
Total current liabilities 727,048 2,183,024 -- 2,910,072
Long-term debt and other
long-term liabilities 624,555 29,209 -- 653,764
Total Liabilities 1,351,603 2,212,233 -- 3,563,836
Capital stock and paid-in capital 9,172,963 210,000 212,813(1) 9,595,776
Accumulated deficit (3,018,861) (653,681) 653,681(1) (3,018,861)
------------ ------------ ------------ ------------
$ 7,505,705 $ 1,768,552 $ 866,494 $ 10,140,751
============ ============ ============ ============
See notes to unaudited condensed pro forma financial information.
F-13
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1997
Workforce
Systems, Federal Supply, Inc. Pro forma
Corp. and Affiliate Adjustments Combined
----------- ----------- ----------- -----------
Revenue $ 3,586,837 $ 2,209,169 $ -- $ 5,796,006
Cost of Revenue 2,091,983 1,884,957 -- 3,976,940
----------- ----------- ----------- -----------
1,494,854 324,212 -- 1,819,066
Selling, general and administrative 809,552 642,046 32,494(2) 1,484,092
----------- ----------- ----------- -----------
Operating Income (Loss) 685,302 (317,834) (32,494) 334,974
Startup expenses and other expenses 1,238,713 -- -- 1,238,713
----------- ----------- ----------- -----------
Loss Before Taxes (553,411) (317,834) (32,494) (903,739)
Income Tax Benefit (157,500) -- -- (157,500)
----------- ----------- ----------- -----------
Net Loss $ (395,911) $ (317,834) $ (32,494) $ (746,239)
=========== =========== =========== ===========
Weighted Shares Outstanding 2,430,950 145,000 2,575,950
Loss Per Share $ (.16) $ (.29)
=========== ===========
See notes to unaudited condensed pro forma financial information.
F-14
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
Workforce
Systems, Federal Supply, Inc. Pro forma
Corp. and Affiliate Adjustments Combined
----------- ----------- ----------- -----------
Revenue $ 3,820,680 $ 3,396,347 $ -- $ 7,217,027
Cost of Revenue 2,145,593 2,831,051 -- 4,976,644
----------- ----------- ----------- -----------
1,675,087 565,296 -- 2,240,383
Selling, general and administrative 514,496 769,977 43,325(2) 1,327,798
----------- ----------- ----------- -----------
Operating Income (Loss) 1,160,591 (204,681) (43,325) 912,585
Startup expenses 1,091,308 -- -- 1,091,308
Other expenses 1,176,890 -- -- 1,176,890
----------- ----------- ----------- -----------
Loss Before Taxes (1,107,607) (204,681) (43,325) (1,355,613)
Income Taxes 260,320 -- -- 260,320
----------- ----------- ----------- -----------
Net Loss $(1,367,927) $ (204,681) $ (43,325) $(1,615,933)
=========== =========== =========== ===========
Earnings per common and
common equivalent share:
Net loss (1,367,927) (1,615,933)
Less: dividends paid 54,807 54,807
----------- -----------
Net loss available to
common shareholders (1,422,734) (1,670,740)
=========== ===========
Weighted Shares Outstanding 1,686,131 145,000 1,831,131
Loss Per Share $ (.84) $ (.91)
============= ===========
See notes to unaudited condensed pro forma financial information.
F-15
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
1. To record the preliminary allocation of the cost of the Federal acquisition
(approximately $303,000) and the estimated acquisition costs (approximately
$120,000). This adjustment also eliminates the Federal capital deficit and
records additional purchase price adjustments to record cost in excess of
net assets acquired (approximately $866,000) as part of the acquisition.
2. To record amortization expense resulting from the cost in excess of net
assets acquired which amounted to approximately $43,000 and $32,000 for the
year ended June 30, 1996 and the nine months ended March 31, 1997,
respectively. Amortization was computed using the straight line method over
the estimated useful life of the asset of twenty years.
F-16