3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of event reported): March 31, 1997.
HEADWAY CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Commission File Number: 0-23170
DELAWARE 75-2134871
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
850 Third Avenue, 11th Floor
New York, NY 10022
(Address of principal executive (Zip Code)
offices)
Registrant's Telephone Number: (212) 508-3560
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 31, 1997, Headway Corporate Resources, Inc.
("Company"), acquired (through a wholly owned subsidiary formed
for that purpose) substantially all the assets of Advanced
Staffing Solutions, Inc. ("ASS"), a North Carolina corporation
engaged in the business of offering human resource management
services similar to those offered by the Company. The principal
offices of ASS are located in Durham, North Carolina. The assets
of ASS were purchased at a purchase price of up to $7,000,000,
$4,000,000 of which was paid on March 31, 1997, and up to an
additioanl $3,000,000 of which is payable in July 1998 based on
the net operating income over a 12-month period beginning April
1, 1997, derived from the ASS business acquired before taking
into account interest expense, amortization of goodwill arising
from the purchase, income taxes, and other non-cash charges and
credits. The purchase price was paid in cash, and determined
through arms length negotiations between the Company and ASS on
the basis of the tangible assets of ASS and the goodwill
associated with the business. The former shareholders of ASS
(which includes the former executive officers) are H. Wade
Gresham and Mark F. Herron, none of whom (including ASS) was
affiliated or associated with the Company or its affiliates prior
to the acquisition. Funding for the acquisition was provided by
debt financing obtained from ING (U.S.) Capital Corporation
("ING"), the lender on the Company's acquisitions in 1996. The
financing consists of a term loan in the principal amount of
$6,200,000, of which $4,000,000 was drawn on March 31, 1997, and
the remaining $2,200,000 is available to fund the purchase price.
ING also provided the Company an additioanl acquisition loan
facility of up to $2,550,000, $800,000 of which is reserved to
complete payment of the maximum $7,000,000 purchase price, if
necessary.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. Included with this report are the
historical audited financial statements of ASS for the calendar
years ended December 31, 1996 and 1995, consisting of the
following:
Report of Independent Auditors
Balance Sheets
Statements of Shareholders' (Deficiency) Equity
Statements of Cash Flows
Notes to Financial Statements
(b) Pro Forma Financial Information
It is impracticable for the Company to provide the required
pro forma financial information at the time this report on Form 8-
K is filed. The Company proposes to file the required pro forma
financial information as soon as it is available. The Company
expects that it will file the required financial information no
later than 60 days after the date on which this report on Form 8-
K is required to be filed.
(c) Exhibits. Included in this report are the following
exhibits.
Exhibit SEC Ref. Title of Document Pag
No. No. e
1 (10) Asset Purchase Agreement
dated march 31, 1997 E-1
2 (23) Consent of Ernst & Young LLP E-
34
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.
HEADWAY CORPORATE RESOURCES,
INC.
DATED: April 14, 1997, By: Barry Roseman
(Signature)
President
Audited Financial Statements
Advanced Staffing Solutions, Inc.
(d.b.a. Select Staffing Services)
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
Advanced Staffing Solutions, Inc.
(d.b.a. Select Staffing Services)
Audited Financial Statements
Years ended December 31, 1996 and 1995
Contents
Report of Independent Auditors F-1
Balance Sheets F-2
Statements of Operations F-4
Statements of Shareholders' (Deficiency) Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
Report of Independent Auditors
The Board of Directors and Shareholders
Advanced Staffing Solutions, Inc.
We have audited the accompanying balance sheets of Advanced
Staffing Solutions, Inc. (the "Company") as of December 31,
1996 and 1995, and the related statements of operations,
shareholders' (deficiency) equity, 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 our audits 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 financial
position of Advanced Staffing Solutions, Inc. at December
31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As more fully described in Note 1, the Company has sustained
net losses and has a working capital deficiency at December
31, 1996. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
Management's plans as to these matters are also described in
Note 1. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts
and classification of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
New York, New York
March 20, 1997
Advanced Staffing Solutions, Inc.
Balance Sheets
December 31
1996 1995
Assets
Current assets:
Cash and cash equivalents $ $ 6,327
66,356
Due from licensor (Note 1) 127,942 121,877
Accounts receivable_other 97,673 86,299
Prepaid expenses and other 24,108 6,503
Note receivable from shareholder (Note 493,815 419,505
3)
Interest receivable from shareholder 48,191 36,312
(Note 3)
Total current assets 858,085 676,823
Property and equipment:
Office furniture and equipment 267,862 211,939
Leasehold improvements 16,937 16,474
284,799 228,413
Less accumulated depreciation and 127,984 78,225
amortization
156,815 150,188
Other assets 46,346 10,585
Total assets $ $837,596
1,061,24
6
See accompanying notes.
Advanced Staffing Solutions, Inc.
Balance Sheets
December 31
1996 1995
Liabilities and shareholders'
(deficiency) equity
Current liabilities:
Accounts payable $ $
111,836 116,567
Termination fee payable 425,000 D
Current portion of notes payable (Note 185,391 67,492
5)
Current portion of capital lease 47,131 23,080
obligations (Note 7)
Accrued payroll and payroll taxes 32,150 27,388
Workers' compensation payable (Note 4) 170,963 110,352
Administrative fee payable D 39,571
Total current liabilities 972,471 384,450
Notes payable, less current portion 72,760 96,403
(Note 5)
Capital lease obligation, less current 87,106 97,498
portion (Note 7)
Workers' compensation payable, less - 170,963
current portion
Shareholders' (deficiency) equity:
Common stock, $1 par value; 100,000
shares authorized; 1,666 and 1,000
shares issued and outstanding at
December 31, 1996 and 1995,
respectively 1,666 1,000
Additional paid-in capital 849,740 D
(Accumulated deficit) retained earnings (922,497) 87,282
Total shareholders' (deficiency) equity (71,091) 88,282
Total liabilities and shareholders'
(deficiency) equity $ $
1,061,246 837,596
Advanced Staffing Solutions, Inc.
Statements of Operations
Year ended December
31
1996 1995
Contract revenue (Note 1) $3,079,262 $
2,434,896
Direct expenses 169,972 363,725
License fee 925,621 735,048
General and administrative (net of
lease expense repaid by affiliate of
$152,342 in 1996 and $100,970 in 1,702,295 1,376,133
1995) (Note 7)
Stock compensation (Note 2) 850,000 -
Termination fee 425,000 -
4,072,888 2,474,906
Operating (loss) (993,626) (40,010)
Other (income) expense:
Interest expense 56,319 39,806
Other income (4,908) (10,901)
Interest income (35,258) (28,392)
16,153 513
Net (loss) $(1,009,77 $
9) (40,523)
See accompanying notes.
Advanced Staffing Solutions, Inc.
Statements of Shareholders' (Deficiency) Equity
(Accumulat
Addition ed
Common al Paid- Deficit)
Stock in Retained Total
Capital Earnings
Balance at December 31, $1,000 $ - $138,960 $139,960
1994
Distribution to D D (11,155) (11,155)
shareholder
Net loss for 1995 D D (40,523) (40,523)
Balance at December 31, 1,000 D 87,282 88,282
1995
Issuance of stock option
and 666 849,740 D 850,406
exercise thereof
Net loss for 1996 D D (1,009,779 (1,009,77
) 9)
Balance at December 31, $1,666 $849,7 $(922,49 $(71,091
1996 40 7) )
See accompanying notes.
Advanced Staffing Solutions, Inc.
Statements of Cash Flows
Year ended December
31
1996 1995
Operating activities
Net (loss) $(1,009,77 $(40,523)
9)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Stock compensation 850,000 D
Depreciation and amortization 51,923 23,952
Changes in operating assets and
liabilities:
Accounts receivable_licensor (6,065) (18,072)
Accounts receivable_other (11,374) (70,134)
Prepaid expenses and other (17,605) (2,169)
Interest receivable from shareholder (11,879) (28,392)
Other assets (37,925) (259)
Accounts payable (4,731) 32,983
Termination fee payable 425,000 D
Accrued payroll and payroll taxes 4,762 (3,971)
Workers' compensation payable (110,352) 281,315
Administrative fee payable (39,571) (54,726)
Net cash provided by operating activities 82,404 120,004
Investing activities
Purchases of property and equipment (13,753) (18,171)
Loans made to shareholder (74,310) (113,936)
Net cash used in investing activities (88,063) (132,107)
Financing activities
Proceeds from issuing common stock 406 D
Proceeds from notes payable 120,000 45,000
Payment of notes payable (25,744) (25,097)
Payment of capital lease obligations (28,974) (12,553)
Distribution to shareholder D (11,155)
Net cash provided by (used in) financing 65,688 (3,805)
activities
Net increase (decrease) in cash and cash 60,029 (15,908)
equivalents
Cash and cash equivalents at beginning of 6,327 22,235
year
Cash and cash equivalents at end of year $66,356 $ 6,327
Supplemental disclosure of cash flow
information
Cash paid during the year for interest $56,319 $39,806
Noncash investing and financing
activities
Capital lease obligations incurred when
the Company entered into leases for
property and equipment $42,633 $133,000
See accompanying notes.
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies
Description of Business
Advanced Staffing Solutions, Inc. (the "Company") operates
an employment staffing agency with the focus on the
contingent workforce or temporary worker.
The Company does business as Select Staffing Services
("Select") pursuant to a licensing agreement with Select
Temporary Services Inc. (the "Licensor") to operate a Select
Temporary Service in certain counties in North Carolina.
Under the terms of the licensing agreement, the Licensor is
responsible for invoicing and collecting from clients and
employing the temporary worker. The Company receives a fee
for temporary personnel assigned to clients which represents
the difference between the amount invoiced to clients and
the payroll costs related to the temporary personnel
assigned. In addition, the Licensor is paid a processing fee
and is reimbursed for certain direct expenses.
On October 17, 1996 the Company gave notice of its election
to terminate the licensing agreement and pursuant to the
terms of the agreement the license will terminate six months
from the date of the notice. In accordance with the terms of
the agreement, the Company accrued a termination charge of
$425,000 payable upon the termination of the license.
The Company has sustained losses in the past two years and
has a working capital and shareholders' deficiency at
December 31, 1996. The Company's election to terminate the
licensing agreement was made in connection with the proposed
sale of the Company's client list and property and equipment
pursuant of a letter of intent. While management believes
that such proposed sale will be consummated, there is no
assurance that such sale will occur or if such sale is not
consummated that adequate financing will be obtained from
other sources for the business to continue as a going
concern.
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
Revenue Recognition
Contract revenue from the placement of temporary personnel
is recognized as the related services are provided and
represents the difference between the amounts invoiced to
clients, $32,437,000 and $24,075,000 for the years ended
December 31, 1996 and 1995, respectively, and the payroll
costs related to the temporary personnel assigned,
$29,358,000 and $21,640,000 for the years ended December 31,
1996 and 1995, respectively.
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.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets beginning when the assets are
placed in service.
Income Taxes
The Company operates under the provisions of Subchapter S of
the Internal Revenue Code and, consequently, is not subject
to federal income tax; rather the shareholders are liable
for individual income taxes on their respective shares of
taxable income.
Advertising Expense
The cost of advertising is expensed when incurred. The
Company incurred advertising expense of $111,385 and
$105,001 in 1996 and 1995, respectively.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results
could differ from those estimates.
2. Stockholders' Equity
On February 2, 1996, the Company issued an option to
purchase six hundred and sixty-six shares of common stock at
sixty-one cents per share to an officer. The option which
was exercised on February 2, 1996 was valued, based on an
independent appraisal, at $850,000.
3. Notes Receivable from Shareholders
The Company holds a note from one of its shareholders with a
balance at December 31, 1996 and 1995 of $493,815 and
$419,505, respectively. The note bears interest at 8% and
was due in May 1996, subsequently extended to June 1, 1997.
On January 3, 1997, the shareholders borrowed a total of
$30,000 from the Company in exchange for promissory notes
requiring all principal and accrued interest at 10% be paid
on May 1, 1997.
4. Workers' Compensation Payable
At December 31, 1996 and 1995, the Company owed the Licensor
$170,963 and $281,315, respectively, in back workers'
compensation related to 1995 for its contingent workforce.
This amount is being paid in monthly installments ranging
from $6,600 to $12,500, including interest at 10%.
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
5. Notes Payable
Notes payable consists of the following:
December 31
1996 1995
Notes payable to a bank in monthly
installments of $2,779, including interest
at the bank's index rate plus 1.75%, with a
final payment of all remaining principal
and interest due May 6, 1999. The notes are $97,608 $118,8
collateralized by the Company's accounts 95
receivable and the personal guarantee of a
shareholder.
Note payable to a bank, principal and
interest at the prime rate + 2% due March 100,000 D
31, 1997.
Note payable to a bank, monthly interest
installments at the bank's index rate plus
1.75%, with the total outstanding balance 45,000 45,000
due September 30, 1997, personally
guaranteed by a shareholder.
Note payable to a bank, payable in monthly
installments equal to 5% of the outstanding
balance including interest at the bank's 15,543 D
prime rate plus 3.75%. The note is due on
demand.
Total notes payable 258,151 163,895
Less current portion 185,391 67,492
Total notes payable, less current portion $72,760 $96,403
5. Notes Payable (continued)
Aggregate maturities of notes payable for the years
subsequent to December 31, 1996 are as follows:
1997 $185,391
1998 27,449
1999 45,311
$258,151
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
6. Defined Contribution Plan
The Company sponsors a 401(k) plan for its eligible
employees. Employees can make elective deferral contributions
of up to 15% of their wages. The Company makes discretionary
matching contributions. Contribution expense for 1996 and
1995 was $3,164 and $9,836, respectively.
7. Leases
The Company leases office space and equipment under
noncancelable operating leases that expire from 1997 through
2001. The Company also leases equipment under capital lease
agreements that expire in 1999 and 2000. Certain of these
leases, in the Company's name, relate to equipment used by an
affiliate of the Company. Future minimum lease payments for
noncancelable operating leases and capital leases with
initial terms of one year or more consist of the following at
December 31, 1996:
Capital Operating Total
Payments:
1997 $47,131 $248,965
$296,096
1998 47,131 216,005 263,136
1999 43,130 180,095 223,225
2000 16,721 17,102 33,823
2001 D 18,400 18,400
Total 154,113 680,567 834,680
Amount representing (19,876) D (19,876)
interest
Balance $134,237 $680,567
$814,804
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
7. Leases (continued)
Property and equipment includes the following amounts under
capitalized leases:
Office furniture and $175,764
equipment
Less accumulated 42,785
amortization
$132,979
Rental expense, net of reimbursements, charged to operations
during the years ended December 31, 1996 and 1995 for all
operating leases totaled $105,000 and $118,000,
respectively.