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): September 29, 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 September 29, 1997, Headway Corporate Resources, Inc.
("Company"), acquired through its wholly owned subsidiary
substantially all the assets of Quality OutSourcing, Inc., a New
Jersey corporation engaged in the business of offering temporary
staffing services ("QOS"). The principal office of QOS is
located in Ramsey, New Jersey. The purchase price for QOS was
$795,000 paid at closing, plus an earnout over the two year
period commencing September 30, 1997, and ending September 30,
1999, equal to a multiple of the earnings before interest taxes
and amortization attributable to the assets acquired. At the
closing, the company also advanced $140,000 to the seller, which
is payable out of the earnout. The purchase price was determined
through arms-length negotiations between the Company and QOS on
the basis of the tangible assets of QOS and the goodwill
associated with the business. The former shareholders of QOS
(which includes the former executive officers) are George J.
Burt, Richard E. Gaudy, and Peter F. Notaro, none of whom
(including QOS) 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"), under the acquisition loan
facility previously established between the Company and ING.
On September 30, 1997, the Company acquired through a wholly
owned subsidiary formed for that purpose, all of the capital
stock of E.D.R. Associates, Inc., a Connecticut corporation, and
substantially all the assets of Electronic Data Resources,
L.L.C., a Connecticut limited liability company (collectively
referred to as "EDR"). EDR is engaged in the business of
offering information technology staffing and consulting services.
The principal office of EDR is located in Windsor, Connecticut.
The purchase price for EDR was $7,000,000 paid at closing,
$250,000 of which was deposited into escrow to fund any EDR
indemnification obligations, plus the assumption of liabilities
in the amount of approximately $372,000, and an earnout in
respect of the calendar years 1997 through 2000, equal to a
multiple of the earnings before interest taxes and amortization
attributable to the business acquired. The purchase price was
determined through arms-length negotiations between the Company
and EDR on the basis of the tangible assets of EDR and the
goodwill associated with the business. The equity holders of EDR
(which includes the former executive officers) are Maurice Dusel,
James Roberts, and Michael Russell, none of whom (including EDR)
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"), under the acquisition loan facility
previously established between the Company and ING.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. Included with this report are the
historical financial statements of QOS for the calendar years
ended December 31, 1996 and 1995 (audited), and for the periods
ended July 4, 1997, and July 5, 1996 (unaudited), consisting of
the following:
Report of Independent Auditors
Balance Sheets
Statements of Income and Retained Earnings
Statements of Cash Flows
Notes to Financial Statements
Based on the application of the significance tests set forth
under Item 7, historical financial statements of EDR are not
required.
(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.
Based on the application of the significance tests set forth
under Item 7, pro forma financial information giving effect to
the acquisition of EDR is not required.
(c) Exhibits. Included in this report are the following
exhibits.
Exhibit SEC Ref. Title of Document Page
No. No.
1 (10) Asset Purchase Agreement dated
September 29, 1997, pertaining to
the purchase of QOS assets E-1
2 (23) Consent of Eichler Bergsman & Co., LLP E-30
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: October 14, 1997 By: Barry Roseman (Signature)
President
QUALITY OUTSOURCING INC.
TABLE OF CONTENTS
PAGE
ACCOUNTANTS' AUDIT REPORT 1
BALANCE SHEET 2-3
STATEMENTS OF INCOME AND RETAINED EARNINGS 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-8
To the Board of Directors and Shareholders
Quality OutSourcing Inc.
We have audited the accompanying balance sheet of Quality
OutSourcing Inc. as of December 31, 1996, and the related
statements of income, retained earnings, and cash flows for each
of the two years in the period ended December 31, 1996. 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 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 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 audit provides 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 Quality OutSourcing Inc. as of December 31, 1996, and the
results of its operations and its cash flows for each of the two
years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
EICHLER BERGSMAN & CO., LLP
New York, New York
September 15, 1997
QUALITY OUTSOURCING INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996
AND
AS OF JULY 4, 1997 (UNAUDITED)
ASSETS
UNAUDITED
December 31, July 4,
1996 1997
Current assets:
Cash $ 36,085 $ 44,246
Accounts receivable and accrued income (Note 6) 1,028,806 690,600
Prepaid expenses 14,230 36,598
Total current assets 1,079,121 771,444
Fixed assets:
Automobile, net of accumulated
depreciation of $10,556
(Notes 1 and 2) 12,476 -
Other assets:
Rent and other deposits 9,391 9,391
Loans receivable - affiliated companies 21,000 39,342
- Other 21,842 -
Employee advances 19,531 2,595
Total other assets 71,764 51,328
Total Assets $1,163,361 $ 822,772
The accompanying notes are an integral part of these financial statements.
QUALITY OUTSOURCING INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996
AND
AS OF JULY 4, 1997 (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
UNAUDITED
December 31, July 4,
1996 1997
Current liabilities:
Accounts payable and accrued expenses $ 197,770 $ 37,546
Bank loan - line of credit (Note 6) 200,000 125,000
Bank loan - current portion (Note 6) 50,000 50,000
Other current liabilities 15,287 -
Total current liabilities 463,057 212,546
Long-term debt:
Automobile loan (Note 2) 11,934 -
Other: employee loans without interest - 40,000
Bank loan (Note 6) 100,000 75,000
Total long-term debt 111,934 115,000
Commitments (Notes 3 and 4)
Subordinated notes payable (Note 5) 242,331 350,430
Shareholders' equity:
Common shares - no par value; authorized
100,000 shares, 300 shares issued and
outstanding 9,440 9,440
Retained earnings 336,599 135,356
Total shareholders' equity 346,039 144,796
Total Liabilities and Shareholders' Equity $1,163,361 $ 822,772
The accompanying notes are an integral part of these financial statements.
QUALITY OUTSOURCING INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Years Ended UNAUDITED
December 31, For the Six Months Ended
July 4, July 5,
1995 1996 1997 1996
Revenues $ 5,803,685 $ 7,836,413 $ 4,164,223 $ 3,871,023
Less direct costs 4,615,145 6,257,043 3,388,861 3,064,067
Net revenues 1,188,540 1,579,370 775,362 806,956
Operating expenses:
Executive compensation 284,000 389,978 235,002 102,536
Employee salaries 329,413 202,026 89,273 90,121
Rents (Note 3) 60,174 52,624 23,224 26,250
Consulting, marketing,
general and
administrative 338,329 346,737 181,079 132,499
Bad deb 60,304 - - -
Interest 43,389 39,631 37,928 24,453
Total 1,115,609 1,030,996 566,506 375,859
Operating income 72,931 548,374 208,856 431,097
Loss on sale of assets 42,747 - - -
Net income 30,184 548,374 208,856 431,097
Retained earnings,
beginning of year 71,049 30,184 336,599 30,184
Less distribution of Sub-S
income (Note 1) (71,049) (241,959) (410,099) (103,259)
Retained earnings,
end of year $ 30,184 $ 336,599 $ 135,356 $ 358,022
The accompanying notes are an integral part of these financial statements.
QUALITY OUTSOURCING INC.
STATEMENT OF CASH FLOWS
For the Years Ended UNAUDITED
December 31, For the Six Months Ended
July 4, July 5,
1995 1996 1997 1996
Cash flows from
operating activities:
Net income $ 30,184 $ 548,374 $ 208,856 $ 431,097
Adjustments to reconcile
net income to net cash
provided by operations -
Depreciation and
amortization 4,798 5,758 12,476 3,359
Changes in assets and liabilities:
(Increase) Decrease in accounts
receivables, accrued
income and prepaid
expenses (166,223) (491,023) 315,838 (170,541)
(Increase) Decrease in
other assets 132,639 3,678 20,436 (844)
(Decrease) Increase in
current liabilities 48,534 127,468 (250,511) (111,072)
Net cash provided
from operating
activities 49,932 194,255 307,095 151,999
Cash used in investing activities:
Purchase of fixed assets (23,032) - - -
Cash flows from financing activities:
Distributions of Sub-S income (71,049) (241,959) (410,099) (103,259)
Increase in long-term debt 24,177 98,685 111,165 30,732
Net cash used in
financing activities (46,872) (143,274) (298,934) (72,527)
Net (Decrease) Increase in cash (19,972) 50,981 8,161 79,472
Cash (Overdraft), beginning 5,076 (14,896) 36,085 (14,896)
Cash (Overdraft), end $ (14,896) $ 36,085 $ 44,246 $ 64,576
The accompanying notes are an integral part of these financial statements.
QUALITY OUTSOURCING INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1 - The Company and Significant Accounting Policies
Quality OutSourcing Inc.'s (the Company) principal
business is providing managed services in the areas of
finance, administration and consumer banking on a
contract basis for major companies. In 1996, most of the
Company's revenue was from four such customers, each with
revenues ranging from 12.5% to 35.9% of the year's total.
In 1995, most of the Company's revenue was from two such
customers representing 10.6% and 86.5% of the year's
total revenues.
The statements are prepared in conformity with generally
accepted accounting principles, the accrual method of
accounting. Generally accepted accounting principles
require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
Equipment is carried at cost less accumulated
depreciation computed on an accelerated basis over the
estimated useful lives of the assets.
The Company has elected Subchapter S status under
provisions of the Internal Revenue Code and related New
York and New Jersey tax provisions, and therefore is not
subject to income tax, which is paid by the shareholders
on corporate profits.
The interim financial statements as of July 4, 1997 and
July 5, 1996 are unaudited and have been prepared on a
basis substantially consistent with the audited financial
statements. Pursuant to the requirements of the
Securities and Exchange Commission, the unaudited interim
financial statements include all adjustments which, in
the opinion of management, are of a normal and recurring
nature.
Note 2 - Automobile Loan
The Company is obligated on an automobile bank loan to
pay $459 per month for 26 months to amortize the loan
including interest.
QUALITY OUTSOURCING INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 3 - Leases
The Company is obligated under a three year lease for
office space as follows:
1997 $46,452
1998 $46,452
1999 $38,710
The Company is also obligated under an automobile lease
as follows:
1997 $6,600
1998 $6,600
Note 4 - Commitment
In the event of the death of any of the three officer/
stockholders, his spouse will receive $50,000 from the
proceeds of an insurance policy currently in place. The
Company will purchase from the decedent's estate his
shares for a total of $800,000 payable in semi-annual
installments over an eight year period providing that the
Company's annual revenues are at least equal to
$6,000,000 in the years of payments. In the event that
the annual revenues decline below the $6,000,000 base,
the total purchase price and accordingly the payments for
that year will be reduced in the same ratio as the
decline in revenue.
Note 5 - Notes Payable -Shareholders
The shareholder notes bear interest at 10% and are
subordinated to the bank loans (see Note 6).
Note 6 - Bank Loans
The Company has an available line of credit in the amount
of $550,000 of which $200,000 was used at December 31,
1996 for working capital needs. Interest is at the rate
of prime plus 1-1/4%.
QUALITY OUTSOURCING INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 6 - Bank Loans (Cont'd)
In addition, the Company has borrowed on a term loan
basis $150,000 to be repaid at the rate of $4,167 per
month for 36 months plus interest at prime plus 1-1/2%.
The loans are secured by accounts receivable and personal
guarantees. In addition, the loan agreements contain
covenants requiring the Company to maintain certain
minimum capital and subordinated debt levels.
Note 7 - Retirement Plan
In 1996, the Company had sponsored a 401k plan for its
eligible employees. The plan does not require the
Company to make contributions; however, it may do so on a
voluntary basis. There were no contributions made for
1996.