U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] 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 registrant as specified in its charter)
DELAWARE 75-2134871
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
850 Third Avenue, New York, New York 10022
(Address of principal executive offices)
(212) 508-3560
(Registrant's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (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:
Indicate by check mark 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:
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
10,403,877 shares of common stock.
FORM 10-Q
HEADWAY CORPORATE RESOURCES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. Financial Information
Financial Statements
Unaudited Consolidated Balance Sheets-
September 30, 1998 and December 31, 1997 3
Unaudited Consolidated Statements of Income-
Three Months and Nine Months Ended
September 30, 1998 and 1997 4
Unaudited Consolidated Statement of Stockholders' Equity-
Nine Months Ended September 30, 1998 5
Unaudited Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. Other Information 15
Signatures 15
FORWARD-LOOKING STATEMENT NOTICE
When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and
similar expressions are intended to identify forward-looking
statements within the meaning of Section 27a of the Securities Act
of 1933 and Section 21e of the Securities Exchange Act of 1934
regarding events, conditions, and financial trends that may affect
the Company's future plans of operations, business strategy,
operating results, and financial position. Persons reviewing this
report are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from
those included within the forward-looking statements as a result of
various factors. Such factors are discussed under the heading
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," and also include general economic factors
and conditions that may directly or indirectly impact the Company's
financial condition or results of operations.
-2-
Headway Corporate Resources, Inc.
Consolidated Balance Sheets
(Unaudited)
(Dollars In Thousands)
September 30, December 31,
1998 1997
Assets:
Current assets:
Cash and cash equivalents $ 4,310 $ 2,472
Accounts receivable, trade, net 48,471 27,332
Due from related party - 638
Prepaid expenses and other current assets 2,304 368
Total current assets 55,085 30,810
Property and equipment, net 3,922 2,181
Intangibles, net 61,084 28,079
Deferred financing costs 1,684 2,821
Other assets 819 3,445
Total assets $ 122,594 $ 67,336
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable and accrued expenses $ 5,838 $ 4,605
Accrued payroll 13,654 8,097
Long-term debt, current portion and line of credit 151 15,259
Capital lease obligations, current portion 161 199
Other liabilities 3,915 2,200
Total current liabilities 23,719 30,360
Long-term debt, less current portion 56,259 19,059
Capital lease obligations, less current portion 333 318
Deferred rent 1,231 1,147
Stockholders' equity:
Preferred stock---$.0001 par value, 5,000,000
shares authorized:
Series B, convertible preferred stock-$.0001 par
value, 6,858 shares authorized, none and 572
issued and outstanding in 1998 and 1997
respectively - 200
Series D, convertible preferred stock-$.0001 par
value, 44 shares authorized, none and 4 issued
and outstanding in 1998 and 1997 respectively - 200
Series F, convertible preferred stock-$.0001 par
value, 1,000 shares authorized, issued and
outstanding [aggregate liquidation value
$20,000] 20,000 -
Common stock-$.0001 par value, 20,000,000 shares
authorized, 10,304,844 and 8,907,110 issued and
outstanding in 1998 and 1997 respectively 1 1
Additional paid-in capital 15,221 13,247
Cumulative translation adjustments 41 41
Notes receivable (188) (285)
Retained earnings 5,977 3,048
Total stockholders' equity 41,052 16,452
Total liabilities and stockholders' equity $ 122,594 $ 67,336
See accompanying notes
-3-
Headway Corporate Resources, Inc.
Consolidated Statements of Income
(Unaudited)
(Dollars In Thousands)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
Revenues $ 78,078 $ 37,486 $ 208,077 $ 93,738
Operating expenses:
Direct costs 60,183 28,334 158,440 66,920
General and administrative 13,513 7,156 37,197 20,211
Depreciation and amortization 873 402 1,973 974
74,569 35,892 197,610 88,105
Operating income from
continuing operations 3,509 1,594 10,467 5,633
Other expenses (income):
Interest expense 1,236 769 3,088 1,825
Interest and dividend income (72) (17) (125) (26)
Gain on sale of investment -- -- (901) (1,219)
1,164 752 2,062 (580)
Income from continuing operations
before income tax expense and
extraordinary item 2,345 842 8,405 5,053
Income tax expense 899 395 3,429 2,109
Income from continuing operations
before extraordinary item 1,446 447 4,976 2,944
Gain (loss) from discontinued
operations -- 23 -- (129)
Income before extraordinary item 1,446 470 4,976 2,815
Extraordinary item--loss on early
retirement of debt (net of
income tax benefit of $1,241) -- -- (1,457) --
Net income 1,446 470 3,519 2,815
Preferred dividend requirements (275) (37) (590) (120)
Net income available for
common stockholders $ 1,171 $ 433 $ 2,929 $ 2,695
Basic earnings (loss) per
common share:
Continuing operations $ .11 $ .05 $ .45 $ .39
Discontinued operations -- .01 -- (.02)
Extraordinary item -- -- (.15) --
Net income $ .11 $ .06 $ .30 $ .37
Diluted earnings (loss) per
common share:
Continuing operations $ .10 $ .04 $ .36 $ .30
Discontinued operations -- .01 -- (.01)
Extraordinary item -- -- (.11) --
Net income $ .10 $ .05 $ .25 $ .29
See accompanying notes
-4-
Headway Corporate Resources, Inc.
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 1998
(Unaudited)
(Dollars in thousands)
Series B Series D Series F
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
Balance-December 31, 1997 572 $ 200 4 $ 200 - $ -
Issuance of preferred stock - - - - 1,000 20,000
Conversion of preferred stock (572) (200) (4) (200) - -
Repayment of notes receivable - - - - - -
Issuance of stock for
acquisition - - - - - -
Exercise of options and
warrants - - - - - -
Preferred stock dividends - - - - - -
Translation adjustment - - - - - -
Net income - - - - - -
Balance-September 30, 1998 - $ - - $ - 1,000 $ 20,000
-5-
Headway Corporate Resources, Inc.
Consolidated Statement of Stockholders' Equity, Continued
Nine Months Ended September 30, 1998
(Unaudited)
(Dollars in thousands)
Notes Additional Cumulative Total
Receivable Common Stock Paid-in Translation Retained Stockholders'
Amount Shares Amount Capital Adjustment Earnings Equity
Balance-December 31, 1997 $ (285) 8,907,110 $ 1 $ 13,247 $ 41 $3,048 $ 16,452
Issuance of preferred stock - - - (1,367) - - 18,633
Conversion of
preferred stock - 114,540 - 400 - - -
Repayment of notes
receivable 97 - - - - - 97
Issuance of stock for
acquisition - 94,778 - 900 - - 900
Exercise of options and
warrants - 1,188,416 - 2,041 - - 2,041
Preferred stock dividends - - - - - (590) (590)
Translation adjustment - - - - - - -
Net income - - - - - 3,519 3,519
Balance-September 30, 1998 $ (188) 10,304,844 $ 1 $ 15,221 $ 41 $5,977 $ 41,052
-6-
Headway Corporate Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended
September 30,
1998 1997
Operating activities:
Net income $ 3,519 $ 2,815
Adjustments to reconcile net income to net cash
(used in) operating activities:
Loss on early retirement of debt 1,457 -
Depreciation and amortization 1,973 1,110
Amortization of deferred financing costs 312 455
Gain on sale of investment (901) (1,219)
Changes in assets and liabilities net of effect
of acquisitions:
Accounts receivable (17,201) (9,526)
Prepaid expenses and other current assets (683) 71
Other assets (6) 329
Accounts payable and accrued expenses 870 884
Accrued payroll 4,806 1,948
Deferred rent 84 (3)
Net cash (used in) operating activities (5,770) (3,136)
Investing activities:
Expenditures for property and equipment (1,844) (586)
Repayment from notes receivable 97 107
Repayment from related party 638 -
Proceeds from sale of investment 3,178 1,642
Cash paid for acquisitions, net of cash acquired (31,587) (16,503)
Net cash (used in) investing activities (29,518) (15,340)
Financing activities:
Sale of preferred stock 18,633 -
Cash dividends paid (590) (28)
Net change in revolving credit line (13,404) 5,468
Proceeds from long-term debt 56,100 14,601
Repayment of long-term debt (23,608) (1,058)
Payment of capital lease obligations (173) (119)
Payments of loan acquisition fees (1,873) (1,032)
Proceeds from exercise of options and warants 2,041 -
Net cash provided by financing activities 37,126 17,832
Effect of exchange rate changes on cash and cash
equivalents - (33)
Increase (decrease) in cash and cash equivalents 1,838 (677)
Cash and cash equivalents at beginning of period 2,472 1,008
Cash and cash equivalents at end of period $ 4,310 $ 331
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest 2,776 1,370
Income taxes 4,174 1,631
-7-
HEADWAY CORPORATE RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(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 (i)
Headway Corporate Staffing Services, Inc. and its wholly-owned
subsidiaries ("HCSSI") and (ii) Whitney Partners, L.L.C. and its
United Kingdom and Asian subsidiaries ("WPI"), (collectively
referred to as the "Company").
In the opinion of management, the accompanying unaudited financial
statements included in this Form 10-Q 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 Company's Form 10-KSB for the year ended
December 31, 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Comprehensive Income - As of January 1, 1998, the Company adopted
Statement 130, Reporting Comprehensive Income. Statement 130
establishes new rules for the reporting and display of comprehensive
income and its components, however, the adoption of this Statement
had no impact on the Company's net income or shareholders' equity.
Statement 130 requires foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. During the
third quarter of 1998 and 1997, total comprehensive income amounted
to $1,400,000 and $435,000, respectively. Total comprehensive
income for the nine months ended September 30, 1998 and 1997 was
$3,519,000 and $2,782,000, respectively.
Reclassifications - Certain reclassifications of 1997 balances have
been made to conform to the 1998 presentation.
(3) ACQUISITIONS
In March 1998, the Company acquired directly and through its
subsidiaries three businesses in three separate transactions. The
Company acquired substantially all of the assets of Cheney
Associates and Cheney Consulting Group of New Haven, Connecticut,
for $3,772,000 paid at closing, plus an earnout for certain periods
through the end of March 2001 equal to a percentage of the earnings,
as defined. The Company also acquired substantially all of the
assets of the Southern Virginia offices of Select Staffing Services,
Inc. for $2,993,000 paid at closing, plus an earnout for certain
periods through the end of March 2001, equal to a percentage of the
earnings, as defined. The Company acquired all of the outstanding
capital stock of Shore Resources, Incorporated, of Los Angeles,
California, for $5,051,000 paid at closing, plus an earnout for
certain periods through the end of March 2001, equal to a percentage
of the earnings, as defined. The purchase price for these
acquisitions exceeded the fair value of assets acquired resulting in
goodwill of approximately $11,400,000.
-8-
In June 1998, the Company acquired through its wholly owned
subsidiary three businesses in two separate transactions. The
Company acquired substantially all the assets of Staffing Solution,
Inc., and Intelligent Staffing, Inc. (collectively "SSI"), both
Florida corporations. The purchase price for SSI was $1,300,000 paid
at closing in the form of cash and 9,170 shares of common stock,
plus an earnout over the three-year period commencing June 22, 1998,
equal to a specified portion of future earnings, as defined. The
Company also acquired substantially all the assets of Phoenix
Communication Group, Inc. of N.J. ("PCG"). The purchase price for
PCG was approximately $17,000,000 paid at closing in the form of
cash and 85,608 shares of common stock, plus an earnout over the
four-year period commencing June 29, 1998, equal to a multiple of
future earnings, as defined. The purchase price for these
acquisitions exceeded the fair value of assets acquired resulting in
goodwill of approximately $16,400,000.
In July 1998, the Company acquired all of the outstanding capital
stock of Carlyle Group, Ltd. an Illinois corporation, for $1,913,000
paid at closing, plus an earnout for certain periods through the end
of July 2001, equal to a percentage of future earnings, as defined.
The purchase price exceeded the fair value of assets acquired
resulting in goodwill of approximately $2,000,000.
The aforementioned acquisitions were accounted for under the
purchase method of accounting and their results of operations have
been included in the accompanying financial statements from their
respective dates of acquisition. Any additional purchase price
based on future earnings related to the aforementioned acquisitions
will be recorded as goodwill upon the determination that the
earnouts have been met.
The pro forma unaudited consolidated results of operations assuming
consummation of the above mentioned transactions, and the
acquisitions in 1997, as of the beginning of the respective periods,
are as follows:
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
Total revenue $ 78,205 $ 54,351 $ 222,629 $ 151,324
Net income 1,447 761 4,124 4,705
Net income available for
common stockholders 1,172 449 3,296 3,760
Earnings per share:
Basic $ .11 $ .06 $ .34 $ .51
Diluted $ .10 $ .06 $ .27 $ .35
(4) DEBT AND EQUITY TRANSACTIONS
In March 1998, the Company completed debt and equity financing
totaling $105,000,000. The financing includes a $75,000,000 senior
credit facility, $10,000,000 of senior subordinated notes, and
$20,000,000 of Series F Convertible Preferred Stock. The Company
retired its credit facility with ING (U.S.) Capital Corporation for
$37,998,000 from the proceeds of the new financing and incurred a
loss on the early retirement of this credit facility of $2,698,000
($1,457,000 net of tax benefit).
In October 1998, the Company expanded its senior credit facility to
$90,000,000 from $75,000,000. The senior credit facility is payable
within five years with mandatory reductions of $5,000,000 in March
2001 and $10,000,000 in March 2002. This revolving credit facility
bears interest at varying rates based on LIBOR ranging from 6.92% to
7.19% per annum at September 30, 1998. The Company incurred
expenses in connection with the issuance of the senior credit
facility of $1,079,000 which have been deferred and are being
amortized over the five year life of the debt. As of September 30,
1998, $46,100,000 was drawn on this facility. Substantially all
assets of the Company have been pledged as collateral for this
credit agreement. The credit agreement requires the Company to meet
certain financial ratios, as defined.
-9-
The senior subordinated notes are payable in March 2006 and bear
interest at a fixed rate of 12% per annum until March 2001,
increasing to 14% per annum thereafter. The Company incurred
expenses in connection with the issuance of the senior subordinated
notes of $759,000 which have been deferred and are being amortized
over the eight year life of the debt.
The Series F Convertible Preferred Stock accrues dividends at the
rate of 5.5% per annum and is convertible to common stock at a
conversion price to be determined based on the market price of the
common stock over the two year period ending in March 2000. The
Company incurred expenses in connection with the issuance of the
preferred stock of $1,367,000 which has been accounted for as share
issuance expenses.
(5) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share as follows:
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
Numerator:
Income from continuing
operations before
extraordinary item $ 1,446,000 $ 447,000 $ 4,976,000 $ 2,944,000
Gain (loss) from
discontinued operations - 23,000 - (129,000)
Extraordinary item - - (1,457,000) -
Preferred dividend
requirements (275,000) (37,000) (590,000) (120,000)
Numerator for basic per
share-net income available
for common shareholders 1,171,000 433,000 2,929,000 2,695,000
Effect of dilutive
securities:
Preferred dividend
requirements 275,000 37,000 590,000 120,000
Numerator for diluted
earnings per share-net
income available for
common stockholders after
assumed conversions $ 1,446,000 $ 470,000 $ 3,519,000 $ 2,815,000
Denominator:
Denominator for basic
earnings per share-
weighted average shares 10,253,163 7,463,351 9,767,785 7,211,251
Effect of dilutive
securities:
Stock options and
warrants 1,346,326 1,178,640 1,795,523 1,014,337
Convertible preferred
stock 3,584,229 1,422,279 2,389,486 1,620,653
Dilutive potential
comon stock 4,930,555 2,600,919 4,185,009 2,634,990
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed
conversions 15,183,718 10,064,270 13,952,794 9,846,241
Basic earnings per share $.11 $.06 $.30 $.37
Diluted earnings per share $.10 $.05 $.25 $.29
-10-
(6) GAIN ON SALE OF INVESTMENT
The Company sold its investment in Incepta in March and October 1997
for $4,363,000 and recognized a gain of $1,719,000 ($1,219,000
through September 30, 1997). The Company was also entitled to an
additional 7,072,307 shares of Incepta if Incepta met certain
earnings targets for the year ended September 30, 1997. In October
1997, the Company was advised that such targets have been met and,
accordingly, an additional gain of $2,553,000 was recognized, and
the shares receivable were included in other assets as of December
31, 1997. The Company sold its remaining investment in Incepta in
the second quarter of 1998 and recognized a gain of $901,000.
(7) SUBSEQUENT EVENT
In November 1998, the Company acquired substantially all of the
assets of Staffing Alternatives International, Inc. and VSG
Consulting, Inc. The two companies provide information technology
staffing in the Dallas, Texas area. The purchase price for these
acquisitions was approximately $7,000,000 plus an earnout for
certain periods through the end of December 2001, equal to a
percentage of the earnings, as defined. The purchase price exceeded
the fair value of assets acquired resulting in goodwill of
approximately $4,700,000.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The Company's financial performance remained strong for the third
quarter of 1998. The continued high demand for contingent and full
time workers as well as acquisitions made in the latter part of 1997
and the first half of 1998 are the primary reasons for the strong
results. For the nine months ended September 30, 1998, the Company
achieved record revenues and operating profits. Without exception,
all of the Company's operating units showed improvement over the
prior period. All of the acquisitions that the Company has made
over the past twenty four months have been integrated into the
Headway organization and are performing at or better than expected.
The Company expects to continue to grow both internally and through
acquisitions.
In July 1998, the Company completed the acquisition of a recruiting
firm in Chicago, specializing in real estate and management
consulting executive search. This acquisition is highly
complementary to Whitney Partners, L.L.C. as it extends their
capabilities into two new product areas as well as a new region. In
addition, the Company opened three new staffing offices; two in
California and one in Pennsylvania.
In September 1998, the Company's common stock began trading on the
Nasdaq National Market System. The Company is confident that this
listing will enhance the trading market of its common stock. In
addition, in response to the recent decline in the price of the
Company's common stock, as well as the general decline in stock
prices across the staffing industry, the Company's Board of
Directors authorized a share repurchase program of up to 1.0 million
shares, or 10% of the shares outstanding. As of the date of this
report, the Company's purchases under this program have been
nominal.
Consolidated
Revenues increased $40,592,000 or 108% to $78,078,000 for the three
months ended September 30, 1998, from $37,486,000 for the same
period in 1997. For the nine months ended September 30, 1998,
revenues were $208,077,000, an increase of 122% from $93,738,000 a
year earlier. These increases are attributable to the temporary
staffing acquisitions completed in the latter part of 1997 and early
part of 1998, as well as strong internal growth. On a pro-forma
basis, for the first nine months of 1998, the Company experienced a
40% internal growth rate.
Operating expenses increased $38,677,000 to $74,569,000 for the
three months ended September 30, 1998, from $35,892,000 for the same
period in 1997. For the nine months ended September 30, 1998,
operating expenses increased $109,505,000 to $197,610,000, up from
$88,105,000 a year earlier. For the three months and nine months
ended September 30, 1998 respectively, $60,183,000 and $158,440,000
were the direct costs of revenues relating to wages, taxes and
benefits of work site employees. This resulted in gross profit of
$17,895,000 or 22.9% and $49,637,000 or 23.9% for the three and nine
months respectively. The balance of the expenses, which represents
general and administrative expenses, depreciation and amortization,
increased $6,828,000 and $17,985,000 for the three and nine months
ended September 30, 1998, respectively, from the same periods in
1997, primarily due to the acquisition of the staffing companies
completed in the latter part of 1997 and the first nine months of
1998.
Operating income from continuing operations increased 120% or
$1,915,000 to $3,509,000 for the three months ended September 30,
1998, compared to $1,594,000 for the three months ended September
30, 1997. Operating income from continuing operations for the nine
months ended September 30, 1998, increased 86% or $4,834,000 to
$10,467,000 from $5,633,000 a year earlier. The increase is
directly related to the growth in revenue. Operating income from
continuing operations decreased as a percentage of revenues for the
nine months ended September 30, 1998 as a result of the increase in
the Company's contract staff and payrolling business, which operates
at a substantially lower gross margin.
Diluted earnings per share were $0.10 for the third quarter of 1998,
compared to $0.04 from continuing operations for the third quarter
of 1997. For the nine months ended September 30, 1998, diluted
earnings per share from continuing operations before an
extraordinary item were $0.36 compared to diluted earnings per share
from continuing operations of $0.30 for the same period in 1997.
Included in the results for the first nine months of 1998 and 1997
was an after-tax gain on the sale of investment of $0.04 and $0.08
per diluted share respectively. The extraordinary item in 1998 of
$(0.11) per share relates to the write-off of costs associated with
the early retirement of debt.
Liquidity and Capital Resources
Cash used in operations during the nine months ended September 30,
1998 was $5,770,000, compared to cash used in operations of
$3,136,000 during the same period in 1997. The cash used was
primarily attributable to the increase in accounts receivable as a
result of the Company's growth in revenue. This is a trend that is
likely to continue as the Company continues to grow the staffing
business.
In March 1998, the Company completed a new financing consisting of a
$75,000,000 senior credit facility and $30,000,000 of junior
capital. The junior capital included $20,000,000 of convertible
preferred stock and $10,000,000 of senior subordinated debt. The
Company used a portion of the new financing to pay down existing
debt obligations and a portion to finance the acquisitions, which
the Company completed in the first nine months of 1998. The balance
of the financing will be used for future acquisitions and for
general working capital. Primarily as a result of the financing,
the Company's working capital improved dramatically to $31,366,000
at September 30, 1998, from $450,000 at December 31, 1997.
Management expects that the Company's working capital position will
be sufficient to meet all of the working capital needs for the
remainder of the year.
For the nine months ended September 30, 1998, the Company used
$29,518,000 in investing activities primarily for the acquisitions
completed during the first nine months of 1998, compared to cash
used in investing activities of $15,340,000 for the same period in
1997. The cash used for investing activities in 1997 also related
to staffing acquisitions.
Net cash provided by financing activities was $37,126,000 for the
first nine months of 1998, compared to net cash provided by
financing activities of $17,832,000 for the same period in 1997.
The cash generated in 1998 related to the financing completed in
March, net of the retirement of debt.
In October 1998, the Company secured $15 million in additional
financing through expansion of its senior credit facility. The
credit facility was increased from $75 million to $90 million on
substantially the same terms as the existing facility. The Company
expects to use the proceeds of the facility for additional
acquisitions and future working capital needs.
Year 2000 Compliance
The Company's internal computer information system is Year 2000
compliant, since its database does not store dates as plain text.
The dates are converted into an internal date format that does not
rely on the year to determine the century. Any new software
purchases will conform to the same type of internal date storage
specifications, which should eliminate any internal Year 2000
issues.
The Company's Year 2000 issues and any potential business
interruptions, costs, damages or losses related thereto are
primarily dependent upon the Year 2000 compliance of third parties.
The Company's suppliers that provide mission-critical services are
primarily large companies, such as local and long distance telephone
service providers, banks, and utility companies. The Company has no
reason to believe that these suppliers will not be Year 2000
compliant. However, the Company is in the process of reviewing its
third party relationships in order to assess and address Year 2000
issues with respect to these third parties.
The costs associated with Year 2000 compliance have been nominal and
the Company believes that the remaining costs will be minimal and
will not have a material adverse effect on its financial condition
or results of operations.
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 July 13, 1998, the Company filed a
report on Form 8-K dated June 29, 1998 reporting under Item 2 the
acquisition of three businesses:
(1) Phoenix Communications Group, Inc. of N.J.
(2) Staffing Solution, Inc.
(3) Intelligent Staffing, Inc.
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: November 12, 1998 By: /s/ Barry S. Roseman
President and Chief Operating Officer
(Duly Authorized and Principal Financial Officer)