15
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 June 30, 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
(IssuerOs 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:
7,254,047 shares of common stock.
FORM 10-QSB
HEADWAY CORPORATE RESOURCES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. Financial Information
Financial Statements
Unaudited Consolidated Balance Sheet-
June 30, 1997 3
Unaudited Consolidated Statements of Operations
Three Months and Six Months Ended
June 30, 1997 and 1996 5
Unaudited Consolidated Statements of Cash Flows
Six Months Ended June 30, 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 11
Signatures 11
Headway Corporate Resources, Inc.
Consolidated Balance Sheet
June 30, 1997
(Unaudited)
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 3,393
Accounts receivable, trade,
net of allowance for doubtful accounts of $196 17,378
Deferred income taxes 496
Prepaid expenses and other current assets 789
Total current assets 22,056
Property and equipment, net 2,544
Cash surrender value of officers' life insurance 461
Due from related party 178
Intangibles, net of accumulated amortization of $1,019 17,973
Investment-at cost 1,945
Deferred financing costs 2,712
Deferred income taxes 790
Other assets 711
Total assets $ 49,370
Headway Corporate Resources, Inc.
Consolidated Balance Sheet (continued)
June 30, 1997
(Unaudited)
(In thousands, except share and per share amounts)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 3,307
Line of credit 7,218
Capital lease obligations, current portion 228
Notes and loans payable, current portion 2,525
Accrued payroll 5,639
Income taxes payable 1,260
Total current liabilities 20,177
Notes and loans payable, less current portion 11,750
Capital lease obligations, less current portion 459
Deferred rent 1,167
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, 572 issued and outstanding
(aggregate liquidation value $200) 200
Series C, convertible preferred stock-$.0001 par value,
24 shares authorized, none issued and outstanding -
Series D, convertible preferred stock-$.0001 par value,
44 shares authorized, 22 issued and outstanding 1,100
Series E, convertible preferred stock-$.0001 par value,
575,000 shares authorized, none issued and outstanding -
Common stock-$.0001 par value, 20,000,000 shares
authorized, 7,254,047 shares issued and outstanding 1
Additional paid-in capital 11,484
Cumulative translation adjustments 82
Notes receivable-preferred stock (390)
Retained earnings 2,640
Total stockholders' equity 15,817
Total liabilities and stockholders' equity $ 49,370
See accompanying notes
Headway Corporate Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Six Months
Ended June 30 Ended June 30
1997 1996 1997 1996
Revenues:
Human resources management $ 34,176 $ 10,194 $ 56,252 $ 14,858
Advisory services 787 821 1,860 1,658
34,963 11,015 58,112 16,516
Operating expenses:
Direct cost of human
resources management 24,153 4,030 38,586 4,030
General and administrative 8,454 5,941 15,080 10,135
Depreciation and amortization 392 225 662 311
32,999 10,196 54,328 14,476
Operating income 1,964 819 3,784 2,040
Other expenses (income):
Interest expense 644 185 1,093 269
Interest income (3) (20) (16) (26)
Gain on sale of investment - - (1,219) -
641 165 (142) 243
Income before income tax expense 1,323 654 3,926 1,797
Income tax expense (benefit):
Current 553 431 1,614 980
Deferred (16) (21) (33) (34)
537 410 1,581 946
Net income 786 244 2,345 851
Deemed dividend on preferred stock - (513) - (513)
Preferred dividend requirements (31) (86) (83) (100)
Net income (loss) available
for common stockholder's $ 755 $ (355) $ 2,262 $ 238
Primary earnings (loss) per
common share $ .09 $ (.06) $ .28 $ .04
Fully diluted earnings (loss)
per common share $ .08 $ (.14) $ .24 $ (.08)
See accompanying notes
Headway Corporate Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended June 30
1997 1996
Operating activities
Net Income $ 2,345 $ 851
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 662 311
Amortization of deferred financing costs 290 43
Deferred income taxes (33) (33)
Gain on sale of investment (1,219) -
Changes in assets and liabilities:
Accounts receivable (4,975) (1,550)
Prepaid expenses and other current assets (392) 777
Other assets (173) (405)
Accounts payable and accrued expenses 291 (161)
Accrued payroll 1,763 2,063
Income taxes payable 881 806
Deferred rent (2) 41
Net cash provided by (used in) operating activities (562) 2,743
Investing activities
Expenditures for property and equipment (526) (107)
Repayment from employees 67 -
Advances to employees - (318)
Due from related party - (213)
Proceeds from sale of investment 1,642 -
Cash paid for acquisitions (4,225) (9,772)
Increase in cash surrender value
of officers life insurance (35) (35)
Net cash (used in) investing activities (3,077) (10,445)
Financing activities
Sale of preferred stock - 6,267
Cash dividends paid (28) -
Net change in revolving credit line 3,368 1,302
Proceeds from notes 4,000 9,000
Repayment of notes (675) (6,477)
Payment of capital lease obligations (57) (33)
Payments of loan acquisition fees (586) (856)
Net cash provided by financing activities 6,022 9,203
Effect of exchange rate changes on
cash and cah equivalents 2 (6)
Increase in cash and cash equivalents 2,385 1,495
Cash and cash equivalents at beginning of period 1,008 1,063
Cash and cash equivalents at end of period $ 3,393 $ 2,558
HEADWAY CORPORATE RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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., and its
wholly-owned subsidiaries Whitney Partners Inc. and its United
Kingdom and Asain subsidiaries (OWhitneyO), Furash & Company, Inc.
(OFurashO), and Headway Corporate Staffing Services, Inc.
(OHeadwayO), (collectively referred to as the OCompanyO).
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.
(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 8,241,511 and 6,108,950 for the three months
ended June 30, 1997 and 1996, respectively and 8,161,797 and
5,845,983 for the six months ended June 30, 1997 and 1996,
respectively. The number of shares used in the computation of fully
diluted earnings per share was 9,917,178 and 8,529,208 for the three
months ended June 30, 1997 and 1996, respectively and 9,917,178 and
7,810,340 for the six months ended June 30, 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 quarter ended June 30, 1997 of $.01 and a decrease of $.01 for
the quarter ended June 30, 1996. The impact is expected to result in
an increase in primary earnings per share for the six months ended
June 30, 1997 of $.04 and no change for the six months ended June
30, 1996. The impact of Statement 128 on the calculation of fully
diluted earnings per share for these periods 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.
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.
The following are the summarized, unaudited pro forma
results of operations for the three months ended June 30, 1996, and
the six months ended June 30, 1997 and 1996, assuming the
acquisition occured as of the beginning of the period:
Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30,
1996 1997 1996
Total revenue $26,696,000 $58,892,000 $47,915,000
Net income 311,000 2,249,000 504,000
Deemed dividend on
preferred stock (1,187,000) - (1,250,000)
Preferred dividend
requirements (28,000) (83,000) (28,000)
Net income (loss)
applicable to common
shareholders (904,000) 2,166,000 (774,000)
Primary earnings (loss)
per common share (.10) .27 (.09)
Fully diluted earnings
(loss) per common share $ (.10) $ .23 $ (.09)
(4) DEBT TRANSACTION
The Company closed a Third Amendment to the ING Credit
Agreement on June 6. This Amendment increased the facility from $25
million to $35 million.
(5) SUBSEQUENT EVENT
On July 28, 1997, the Company completed the acquisition of
substantially all the assets of Administrative Sales Associates
Temporaries, Inc. and Administrative Sales Associates, Inc., both
New York corporations engaged in the business of offering permanent
and temporary staffing services to the financial services industry.
MANAGEMENTOS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The CompanyOs financial performance continued to be favorable
in the second quarter of 1997. This can be attributed to the
positive results of the temporary staffing companies acquired in
1996 and the first half of 1997 and the continued strong performance
in the executive search division. While the second half of the year
is typically slower in the executive search business, the CompanyOs
temporary staffing division should continue to perform well. 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 $23,948,000 or 217% to
$34,963,000 for the three months ended June 30, 1997, from
$11,015,000 for the same period in 1996. For the six months ended
June 30, 1997, revenues were $58,112,000, up from $16,516,000 a year
earlier. These increases are primarily attributable to the
temporary staffing acquisitions.
Consolidated operating income increased $1,145,000 or 140% to
$1,964,000 for the three months ended June 30, 1997, compared to
$819,000 for the three months ended June 30, 1996. Consolidated
operating income for the six months ended June 30, 1997, increased
$1,744,000 to $3,784,000 from $2,040,000 a year earlier. The
increase is primarily related to the results of the temporary
staffing companies.
Fully diluted earnings per share was $.08 for the second
quarter of 1997 compared to a loss of $.14 for the second quarter of
1996. For the six months ended June 30, 1997, fully diluted
earnings per share were $.24 compared to a loss of $.08 for the same
period in 1996. Included in the results for the first half 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 $23,982,000 to
$34,176,000 for the three months ended June 30, 1997, from
$10,194,000 for the same period last year. For the six months ended
June 30, 1997, revenues increased $41,394,000 to $56,252,000
compared to $14,858,000 from a year earlier. The acquisitions of
the temporary staffing companies accounted for $41,301,000 of the
revenue increase for six months. WhitneyOs revenue of $10,209,000
was slightly better than the same six month period last year of
$10,116,000.
Total operating expenses increased $22,934,000 to $31,378,000
for the quarter ended June 30, 1997, from $8,444,000 for the same
period last year. Of the increase, $23,134,000 relates to the
staffing companies acquired of which $20,123,000 is the direct cost
of revenues relating to wages, taxes and benefits of worksite
employees.
Revenue from Asian operations increased $349,000 to $609,000
for the second quarter of 1997, from $260,000 for the same period
last year. The increase in revenues resulted in operating income of
$134,000 for the second quarter of this year compared to an
operating loss of $122,000 for the same period last year. Results
from WhitneyOs Asian 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.
Operating income from human resource management services
increased $1,047,000 to $2,797,000 for the three months ended June
30, 1997, compared to $1,750,000 for the same period last year. For
the six months ended June 30, 1997 operating income increased
$1,456,000 to $4,754,000 from $3,298,000 last year. The six month
increase to the operating income of the temporary staffing companies
was $1,246,000 and WhitneyOs increase amounted to $210,000..
Advisory Services Segment
Revenue from the advisory services offered by Furash were
$787,000 for the quarter ended June 30, 1997, compared to $821,000
for the same period in 1996.
Furash total operating expenses decreased $262,000 to $962,000
for the three months ended June 30, 1997, from $1,224,000 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 recorded an operating loss of $265,000 for the quarter
ended June 30, 1997 as compared to an operating loss of $480,000 for
the same period in 1996. A large amount of new business has recently
been contracted, therefore, Management is optimistic that Furash
will show improvement in its operating results for the balance of
1997.
Liquidity and Capital Resources
Cash used in operations during the six months ended June 30,
1997 was $562,000, as compared to cash provided by operations of
$2,743,000 during the same period in 1996. The cash used in the
current period was primarily attributable to the funding of accounts
receivable related to the March 31, 1997 acquisition of Advanced
Staffing Solutions, Inc. offset by cash generated by the CompanyOs
positive operating results. The cash generated from operations in
1996 was primarily attributable to the strong performance of the
company.
The Company's working capital improved to $1,879,000 at June
30, 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 six months ended June 30, 1997, the Company used
$3,077,000 in investing activities, compared to cash used in
investing activities of $10,445,000 for the same period last year.
The cash used for investing activities in 1997 related to the
acquisition of the temporary staffing company on March 31, 1997 in
the amount of $4,225,000, expenditures for property and equipment
for $526,000 offset by proceeds from the sale of a portion of the
investment in Incepta stock for $1,642,000. The cash used in the
prior period was for the acquisition of the temporary staffing
companies on May 31, 1996.
Total net cash received from financing activities was
$6,022,000 for the first six months of 1997, compared to net cash
received of $9,203,000 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 $3,368,000 used to pay the
accrued bonus obligation and fund the accounts receivables of
Advanced, offset by the repayment of the note payable for $675,000
and payments of loan acquisition fees of $586,000. The cash
generated in 1996 related to the CompanyOs equity offering and the
credit facility received in connection with the acquisition of the
temporary staffing companies.
In the second quarter of 1997 there was a conversion of 629
shares of Series B Preferred Stock, with a carrying value of
$220,150 into 62,900 shares of common stock, a conversion of 5
shares of Series C Preferred Stock, with a carrying value of
$100,000 into 39,489 shares of common stock and a conversion of 13
shares of Series D Preferred Stock, with a carrying value of
$650,000 into 249,805 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 August 7, 1997, the Company filed a
report on Form 8-K dated July 28, 1997 reporting under Item 2, the
acquisition of Administrative Sales Associates Temporaries, Inc. and
Administrative Sales Associates, Inc. (collectively OASAO), and
included with this report, under Item 7, are the historical audited
financial statements of OASAO for the calendar years ended December
31, 1996 and 1995, consisting of the following:
Report of Independent Auditors
Combined Balance Sheets
Combined Statements of Income and Retained Earnings
Combined Statement of Cash Flows
Notes to Combined 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: August 8, 1997 By: (Signature)
Barry S. Roseman,
President and Chief Operating Officer
(Duly Authorized and Principal
Financial Officer)