UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934: For the fiscal year ended December 31, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934: For the transition period from           to

                         Commission file number 1-16025

                        HEADWAY CORPORATE RESOURCES, INC.
             (Exact name of registrant as specified in its charter)

                Delaware                               75-2134871
    (State or Other Jurisdiction of                   (IRS Employer
     Incorporation or Organization)                Identification No.)

                      317 Madison Avenue New York, NY 10017
              (Address of Principal Executive Offices and Zip Code)

                  Registrant's Telephone Number: (212) 672-6501

Securities registered pursuant to Section 12(b) of the Act:

      Common Stock, Par Value $0.0001          American Stock Exchange

Securities registered pursuant to section 12(g) of the Act:

      None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12(b)-2 of the Act). Yes [ ] No [ X ]

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the registrant  based of the last sale price on June 28, 2002
is  $787,000.  The  number of  shares  outstanding  of each of the  registrant's
classes of common stock as of March 31, 2003, was 13,914,627.





                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the  definitive  proxy  statement  of Headway  for the 2003  annual
meeting  of  stockholders  are  incorporated  by  reference  in Part III of this
report.

                           FORWARD LOOKING STATEMENTS

     This Annual Report on Form 10-K contains  forward-looking  statements  that
are subject to certain risks,  uncertainties  or assumptions and may be affected
by certain  other  factors,  including  but not limited to the specific  factors
discussed in Part II, Item 5 under  "Market for  Registrant's  Common Equity and
Related Stockholder  Matters",  "Liquidity and Capital Resources",  and "Factors
Which May Impact Future Results and Financial Condition". In some cases, you can
identify  forward-looking  statements by  terminology  such as "may,"  "should,"
"could,"   "expects,"   "plans,"   "projected,"    "anticipates,"    "believes,"
"estimates,"  "predicts,"  "potential," or "continues," or the negative of these
terms or other comparable terminology. In addition, except for historical facts,
all  information   provided  in  Part  II,  Item  7A,  under  "Quantitative  and
Qualitative Disclosures About Market Risk" should be considered  forward-looking
statements.  Should one or more of these risks,  uncertainties  or other factors
materialize,  or should underlying assumptions prove incorrect,  actual results,
performance  or  achievements  of Headway  may vary  materially  from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

     Forward-looking   statements  are  based  on  beliefs  and  assumptions  of
Headway's management and on information  currently available to such management.
Forward-looking  statements speak only as of the date they are made, and Headway
undertakes  no  obligation  to  update  publicly  any of  them in  light  of new
information  or  future  events.  Undue  reliance  should  not be placed on such
forward-looking   statements,   which   are  based  on   current   expectations.
Forward-looking statements are not guarantees of performance.


                                       2




                                TABLE OF CONTENTS

ITEM NUMBER AND CAPTION                                                    Page

Part I
1.    Business                                                                4

2.    Properties                                                              8

3.    Legal Proceedings                                                       9

4.    Submission of Matters to a Vote of Security Holders                     9

Part II
5.    Market for Registrant's Common Equity and Related Stockholder           9
      Matters

6.    Selected Financial Data                                                11

7.    Management's Discussion and Analysis of Financial Condition            12
      and Results of Operations

7A.   Quantitative and Qualitative Disclosures About Market Risk             18

8.    Financial Statements and Supplementary Data                            18

9.    Changes in and Disagreements with Accountants                          19
      on Accounting and Financial Disclosure

Part III
10.   Directors and Executive Officers of the Registrant                     19

11.   Executive Compensation                                                 19

12.   Security Ownership of Certain Beneficial Owners and Management and     19
      Related Stockholder Matters

13.   Certain Relationships and Related Transactions                         19

Part IV
14. Controls and Procedures                                                  19

15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K          20

                                       3





                                     PART I

                                Item 1. Business

General

     Headway  Corporate  Resources,  Inc.  ("Headway") is a leading  provider of
staffing services to businesses in a variety of industries, including, financial
services,  media,  entertainment,   biotechnology,  information  technology  and
telecommunications.  Headway  established its human resource business through 20
acquisitions of staffing and professional  services  companies from 1996 through
1999.  Headquartered in New York City, we operate domestically from regional and
local offices in, California,  Connecticut,  Florida,  New York, North Carolina,
Virginia and, until recently, Texas. Until recently,  Headway was also a leading
provider of executive  search  services to the  financial  services  through its
Whitney subsidiaries. In March 2003, Headway exited the executive search segment
through a sale of the  Whitney  subsidiaries  so that it could focus on its core
staffing business.

     Headway's goal is to build a national human  resource  business  focused on
providing  staffing  services  to the  industries  identified  above.  Headway's
strategy for achieving this goal is to emphasize programs that generate internal
growth  and market  penetration  in the  industries  and  geographical  areas we
service.

     Effective  January 1, 2002,  the Company  adopted  Statements  of Financial
Accounting  Standards No. 142,  "Goodwill and Other  Intangible  Assets"  ("SFAS
142").  Under the new  rules,  goodwill  and  intangible  assets  deemed to have
indefinite  lives are no longer  amortized but are subject to annual  impairment
tests in  accordance  with SFAS 142.  Other  intangible  assets  continue  to be
amortized over their useful lives. Under SFAS 142, goodwill impairment is deemed
to exist if the net carrying value of a reporting  unit's  goodwill  exceeds its
estimated  fair value.  Upon  adoption of SFAS 142 in the first quarter of 2002,
the Company  recorded a non-cash  charge of $45  million to reduce the  carrying
value of its goodwill. Such charge is non-operational in nature and is reflected
as a  cumulative  effect  of an  accounting  change  in  the  2002  consolidated
statement of operations.  Based on the results of our annual goodwill impairment
test in the  fourth  quarter  of 2002  and the  estimated  implied  value of the
Company based on the various restructuring proposals received by the Company, it
was determined that there was a further impairment of the remaining goodwill and
accordingly the balance of $42,471,000 was written off. This amount is reflected
in  impairment  of  goodwill  and  long-lived  assets  in the 2002  consolidated
statement of operations.

The Company has a working capital deficiency and, as more fully described in the
Liquidity and Capital Resources  section of Item 7. Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations,  the Company is in
default on its Senior Credit Facility,  Senior  Subordinated  Notes and Series G
Convertible  Preferred  Stock.  Management  is  negotiating  with its lenders to
restructure  these  liabilities  and for other  potential  sources of financing.
There can be no assurance that such  negotiation  will be concluded on favorable
terms or at all.

Market Overview

In the recent years prior to 2001,  the temporary  employment  service  industry
experienced  significant  growth in response to the changing work environment in
the United  States.  Employers  developed  increasingly  stringent  criteria for
permanent employees, while moving toward project-oriented temporary and contract
hiring. These changes were the result of increasing  automation that resulted in
shorter technological cycles, and global competitive  pressures.  Many employers

                                       4



responded to these challenges by turning to temporary and contract  personnel to
keep personnel costs variable,  achieve maximum  flexibility,  outsource  highly
specialized skills, and avoid the negative effects of layoffs.  However, in 2002
and 2001 the temporary  employment  service  industry  experienced a significant
slow  down in  demand in  response  to  unfavorable  conditions  in the  overall
economy.  Many  companies  initiated  layoffs of both  temporary  and  permanent
workers,   and  implemented   hiring  freezes.   Due  to  substantial   economic
uncertainty,  we cannot predict when this trend will change or improve. However,
we believe that when the economy does begin to recover,  employers  will look to
use  temporary  and  contract  workers  as a way to keep their  personnel  costs
variable and maintain maximum flexibility, and that this will fuel growth in the
temporary employment service industry.

Growth Strategy

We intend to focus on internal growth as the key element of our growth strategy.
We will continue to concentrate on existing market locations, customer segments,
and skill areas that value high levels of service to improve growth. Further, we
will  endeavor to increase  penetration  of existing  markets,  expand  existing
specialties into new and contiguous  geographic  markets to the ones we service,
and identify new service  areas that  complement  our current  services  that we
believe will be attractive to the industries we serve. Finally, we will continue
our  practice of  enhancing  the  knowledge  and skills of our  consultants  and
employees to strengthen our existing  relationships with clients and enhance our
reputation for providing highly skilled personnel.

Services

     The human resource management services offered by Headway include

     o    temporary staffing and value added services

     o    IT/professional staff services

     o    permanent placement services, and

     o    human resource administration services.

     Temporary Staffing and Value Added Services.  Headway provides employees to
clients for periods ranging from one day to several months to satisfy a specific
job skill need arising from absenteeism,  special projects,  fluctuations in the
client's  volume of business  inherent in the  business  cycle,  technology  and
business  system changes,  and other causes.  The job skills required by clients
and offered by Headway range from  entry-level  clerks and secretaries to master
administrative assistants.

     Under   vendor-on-premise    programs,   Headway   assumes   administrative
responsibility  for  coordinating  some or all  staffing  services at a client's
location or organization,  including recruiting  activities,  skills testing and
training.  Headway  also  provides  payroll  services  to its  clients  for  its
permanent employees, thereby mitigating the administrative burden of employment.
By using  Headway's  services,  clients can make  changes in  workforce  quickly
without the administrative burden and cost of hiring and firing.

     IT/Professional Staff Services. Rapid changes in technology and competitive
pressures in the  financial  services  industry  create  demand by employers for
computer  programmers and technicians,  desktop  publishing  operators,  network
administrators,  and computer graphic  specialists to help implement the systems

                                       5



required to meet these challenges. Headway offers to its clients IT/professional
staff  services  in which  persons  with  these  special  skills are placed on a
temporary, contract, or permanent basis.

     Executive  Search  and  Permanent  Placement.  Headway  provides  permanent
placement   services   to  its  clients  for   office/clerical   positions   and
IT/professional personnel.  Clients use Headway's temporary staffing services as
a means for  locating  and  evaluating  new  personnel  with a view to permanent
employment.  Clients are able to evaluate  the  abilities  and  productivity  of
workers during temporary  employment through Headway and make informed decisions
on  whether  to retain  the  workers  on a  permanent  basis,  all  without  the
administrative burden associated with adding the workers to their workforce from
the outset.

     Headway, through its Whitney subsidiaries, also provided search services to
the financial  services  industry.  In March 2003,  Headway exited the executive
search  business  through the sale of its Whitney  subsidiaries so that it could
focus on its core staffing business.

     Human  Resource  Administration  Services.  Many of  Headway's  clients use
long-term  contingent  workers on a regular basis to satisfy recurring needs for
highly  skilled   workers  in  the  areas  of  accounting,   finance,   business
administration,  marketing,  computer programming,  computer graphics, and other
areas  requiring  a high level of business or  technical  expertise.  The use of
contingent  workers  on a regular  basis can  create a number  of  problems  for
clients. The possibility always exists that these workers will accept employment
elsewhere  that  prevents  them from being  available to the client when needed.
Furthermore, there is always a risk contingent workers will be viewed by federal
and state taxing  authorities as employees  rather than  contingent  workers for
income tax  withholding  and  benefits  purposes.  To mitigate  these  potential
problems, Headway offers a service where it assumes the position of employer for
the independent contractors.  As an employer,  Headway manages the scheduling of
these people to make them  available  to service the needs of the  clients,  and
implements  income tax withholding and other employee benefit programs to ensure
compliance with the legal  requirements of employment under  applicable  federal
and state laws.

Operating Strategy

     In 2002,  Headway  continued  its program to diversify  its  specialization
outside of financial services to include media, entertainment, biotechnology and
information  technology and continued to expand its service offerings to include
accounting and finance,  legal and mortgage  underwriters.  Headway has a strong
presence in the financial services  industry.  Headway will continue to focus on
this industry,  because Headway believes there is a substantial  untapped market
for its  services in this  industry  and because its core  strengths of industry
experience  and  human  resources   expertise   enable  it  to  develop  unique,
value-added staffing solutions for the financial services industry. Headway will
work to  maintain  its  relationships  with  existing  clients in the  financial
services industry, expand service offerings in existing locations and cross-sell
services to existing clients.  It will also look to complete small but strategic
acquisitions.  Although  Headway  expects to focus on this industry,  it expects
that it will continue to have a diversified  client base,  with no more than 50%
of its annual revenues being derived from financial services clients.

     Headway employs a decentralized, Hub-Spoke management model. Local regional
managers  manage  Headway's  operations in each market,  including any satellite
offices in that market. Headway believes it has a strong market presence in each
of its major markets largely due to the commitment,  ability,  and creativity of
its  regional  managers  who drive each local  business.  Headway  fosters  this
entrepreneurial  environment  by giving its regional  managers the  authority to
respond  quickly  and  creatively  to  client  needs.   Regional   managers  are
responsible  for  achieving  operational  and  financial  objectives,  including
revenues and  earnings  growth,  and have  authority  over  hiring,  recruiting,

                                       6



compensation,   pricing,   and   sales   management.   Headway   believes   that
accountability and authority,  combined with the support of Headway's  corporate
level support services, enables its regional managers to compete successfully in
the local marketplace.  Headway also believes this  entrepreneurial  environment
allows Headway to attract talented managers and successfully  serve its clients'
needs.

     Headway emphasizes  recruiting,  training,  and retaining experienced sales
consultants and providing highly qualified temporary  employees.  Headway trains
its sales  consultants  to operate as partners  with their clients in evaluating
and meeting the client's  staffing  requirements.  Headway promotes and monitors
quality of  service in a number of ways.  It seeks  highly  qualified  temporary
employees  through  referrals  from  existing  temporary  employees and conducts
in-depth interviews by Headway personnel experienced in the temporary employees'
field.  Headway performs skill  evaluations and offers programs to its temporary
employees to improve their skills.  Headway contacts clients within hours of the
beginning of a project to receive a preliminary  determination  of satisfaction,
and obtains client satisfaction reports upon the completion of projects. Headway
seeks to understand and proactively  assess clients' needs,  respond promptly to
clients'   requests,   and  continually   monitor  job  performance  and  client
satisfaction.  Headway believes that its commitment to providing quality service
has enabled it to establish and maintain long-term relationships with clients.

     Headway's  services are marketed through its network of Hubs whose managers
and placement  coordinators  make regular  personal  sales visits to clients and
prospective clients.  Headway emphasizes  long-term personal  relationships with
clients who are developed through regular assessment of client  requirements and
constant  monitoring of temporary  staff  performance.  New clients are obtained
through sales calls,  consultation  meetings with target  companies,  and client
referrals.  Headway's  management and regional managers  participate in national
and regional trade  associations,  local  chambers of commerce,  and other civic
associations.  Headway monitors sales,  marketing,  and recruiting  functions to
identify  opportunities to deliver high value-added  quality  services.  Headway
believes that its client's select service providers  principally on the basis of
quality of  service,  range of  services  offered,  specialized  expertise,  and
ability to service multiple locations,  and Headway is striving to satisfy these
criteria in its marketing efforts.

Human Resources

     As of December 31, 2002, Headway had approximately 309 full-time employees.
In the fourth quarter of 2002,  Headway employed  approximately  7,400 temporary
employees  in a  typical  week.  None  of  Headway's  employees,  including  its
temporary  employees,  is  represented  by a  collective  bargaining  agreement.
Headway believes its employee relations to be strong. Hourly wages for Headway's
temporary employees are determined according to local market conditions. Headway
pays mandated  costs of  employment,  including the  employer's  share of social
security taxes, federal and state unemployment taxes,  unemployment compensation
insurance, general payroll expenses and workers' compensation insurance. Headway
offers  access  to  various  insurance  programs  and  other  benefits,  such as
vacations,  holidays and 401(k)  programs to qualified  temporary  employees and
professionals.

Competition

     The  staffing  industry is intensely  competitive  and  fragmented  and has
limited  barriers  to entry.  Headway  competes  for  employees  and  clients in
national,   regional,  and  local  markets  with  full-service  and  specialized
temporary  staffing  service  businesses.  A  significant  number  of  Headway's
competitors  have greater  marketing,  financial,  and other  resources and more
established  operations than Headway. Price competition in the staffing industry

                                       7



is intense and pricing  pressures from competitors and customers are increasing.
Many of Headway's clients have relationships with more than one staffing service
company.  However,  in recent  years,  an  increasing  number of companies  have
consolidated  their  staffing  services  purchases  and entered  into  exclusive
contracts with a single temporary  staffing company or small number of temporary
staffing  companies.  If  current or  potential  clients  enter  into  exclusive
contracts with  competitors  of Headway,  it will be difficult or impossible for
Headway to obtain business from such clients.  Headway expects that the level of
competition will remain high in the future,  which could limit Headway's ability
to maintain or increase its market share or maintain or increase  gross margins.
However,  Headway believes that its strategy of becoming a dominant  provider in
each of its markets will allow it to remain competitive in this environment.

Regulation

     Generally, Headway's operations are not subject to state or local licensing
requirements  or other  regulations  specifically  governing  the  provision  of
commercial  and  professional  staffing  services.  There  can be no  assurance,
however, that states in which Headway operates or may operate in the future will
not adopt such licensing or other regulations affecting Headway.

     The  laws  of  various   states  require   Headway  to  maintain   workers'
compensation and unemployment  insurance  coverage for its temporary  employees.
Headway  maintains  state  mandated   workers'   compensation  and  unemployment
insurance  coverage.  The  extent  and type of health  insurance  benefits  that
employers  are  required  to provide  employees  has been the subject of intense
scrutiny  and  debate in recent  years at both the  national  and state  levels.
Proposals  have been made to mandate that  employers  provide  health  insurance
benefits to staffing  employees.  In  addition,  some states  could impose sales
taxes, or raise sales tax rates, on staffing services. Further increases in such
premiums or rates,  or the  introduction  of new  regulatory  provisions,  could
substantially  raise the costs  associated  with hiring and  employing  staffing
employees.

Intellectual Property

     Headway  maintains a number of trademarks,  trade names,  service marks and
other intangible  rights.  Headway believes that it has all rights to trademarks
and trade names  necessary  for the conduct of its business and is not currently
aware of any  infringing  uses or other  conditions  that would  materially  and
adversely affect its use of proprietary rights.

Availability of Reports and Other Information

     Our corporate website is http://headwaycorp.com.  We make available on this
website,  free of charge,  access to our Annual  Report on Form 10-K,  Quarterly
Reports on Form 10-Q,  Current  Reports on Form 8-K, Proxy Statement on Schedule
14A and  amendments to those  materials  filed or furnished  pursuant to Section
13(a) or 15(d) of the  Securities Exchange Act of 1934  as  soon  as  reasonably
practicable  after we  electronically  submit such  material  to the  Securities
Exchange and Commission.    In   addition,   the    Commission's    website   is
http://www.sec.gov.  The  Commission  makes  available on its  website,  free of
charge,  reports,  proxy  and  information  statements,  and  other  information
regarding  issuers,  such as us, that file  electronically  with the Commission.
Information  provided on our website or on the Commission's  website is not part
of this Annual Report on Form 10-K.

                               Item 2. Properties

     Headway's  corporate  headquarters  are located at 317 Madison Avenue,  New
York, NY 10017.  Headway believes that space at its corporate  headquarters will
be adequate for its needs.

                                       8




     In March 2003,  Headway exited the executive  search  business  through the
sale of its Whitney subsidiaries. Headway is the tenant of record for the office
space  currently  occupied by Whitney's New York office.  In connection with the
sale,  Headway  entered  into a  sublease  agreement  with  Whitney's  New  York
subsidiary,  under which Whitney will be responsible  for the rent for the space
it occupies through the term of the underlying lease,  unless earlier terminated
by Headway.

     Headway leases space for all of its  Hub-Centers  and does not own any real
property.  Headway  believes that its  facilities are adequate for its needs and
does not  anticipate  inordinate  difficulty  in replacing  such  facilities  or
opening additional facilities, if needed.

                            Item 3. Legal Proceedings

     In the ordinary course of its business,  Headway is periodically threatened
with or named as a  defendant  in various  lawsuits,  including  discrimination,
harassment,  and other  similar  claims.  Headway  maintains  insurance  in such
amounts and with such  coverage  and  deductibles  as  management  believes  are
reasonable.

     In May 2000, a lawsuit was filed in the Judicial  District  Court of Dallas
County,  Texas  alleging  breach  of  contract,  fraud,  negligence,   negligent
retention and supervision,  civil conspiracy and harmful access by computer.  In
July 2002, a judgment was entered in the amount of $790,000  against Headway and
the other  defendants.  This  judgment is reflected in the net loss for the nine
months ended  September 30, 2002. In January 2003, the lawsuit was settled for a
substantially  lesser amount with Headway's  insurance covering all but $60,000.
During the quarter  ending  December  31,  2002,  $730,000  of such  accrual was
reversed.

           Item 4. Submission of Matters to a Vote of Security Holders

     No matter was submitted to a vote of security holders in the fourth quarter
of 2002.

                                     PART II

  Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Market Price Information

     Headway's  common stock is traded on the American  Stock Exchange under the
symbol "HEA."

     The following table sets forth the high and low closing sale prices for the
common stock as reported on the American Stock Exchange for 2001 and 2002.

Calendar Quarter Ended                         High ($)           Low ($)

March 31, 2001                                  2.400              1.375
June 30, 2001                                   1.850              0.950
September 30, 2001                              1.100              0.400
December 31, 2001                               0.700              0.300

March 31, 2002                                  0.520              0.220
June 30, 2002                                   0.280              0.060
September 30, 2002                              0.150              0.040
December 31, 2002                               0.120              0.040

                                       9



     Headway has recently  received  inquiries  from the American Stock Exchange
regarding  whether  Headway  continues  to meet the  criteria for listing on the
exchange.  In light of the current  market  price of Headway  common  stock,  we
believe  this  will  be  an  on-going  concern  and  may  ultimately  result  in
termination of our listing on the American Stock Exchange. Should this occur, it
is  likely  we  would  seek  to have  quotations  for our  common  stock  in the
over-the-counter  market  reported on the OTC  Bulletin  Board,  but there is no
assurance  that an active  market  for our  common  stock  will  develop  in the
over-the-counter market.

     Since its inception, no dividends have been paid on Headway's common stock.
Headway intends to retain any earnings for use in its business activities, so it
is not expected that any dividends on the common stock will be declared and paid
in the foreseeable  future. As of March 31, 2003,  Headway had approximately 244
stockholders of record.

                                       10





                         Item 6. Selected Financial Data

     The selected consolidated  financial data set forth below as of and for the
years ended December 31, 2002,  2001,  2000,  1999, and 1998,  were derived from
audited consolidated financial statements of Headway.


Statement of Operations Data
In Thousands, Except Share and Per Share Data


                                                                       For Year Ended December 31
                                                                       --------------------------
                                                        1998         1999         2000         2001         2002
                                                        ----         ----         ----         ----         ----
                                                                                         
Revenues                                            $   291,303  $   360,742  $   371,115  $   323,037  $   267,784

Direct costs                                            224,993      274,360      272,872      253,354      219,830
Selling, general and administrative expenses             48,638       63,349       74,690       62,587       49,596
Impairment of  goodwill and long-lived assets                 -            -            -            -       43,639
Termination of employment contract                            -        2,329            -            -            -
Depreciation and amortization                             2,952        4,411        5,337        5,787        2,267
                                                    ----------------------------------------------------------------
Total operating expenses                                276,583      344,449      352,899      321,728      315,332

Operating income (loss)                                  14,720       16,293       18,216        1,309      (47,548)

Other (income) expenses:
  Interest expense                                        4,515        6,331        8,049       10,879       11,998
  Interest income                                          (152)        (122)        (105)        (113)         (70)
  (Gain) on sale of investment                             (901)           -            -            -            -
                                                    ----------------------------------------------------------------
                                                          3,462        6,209        7,944       10,766       11,928
                                                    ----------------------------------------------------------------
Income (loss) before income tax expense (benefit),
  cumulative effect of accounting change and
  extraordinary item                                     11,258       10,084       10,272       (9,457)     (59,476)

Income tax expense (benefit)                              4,639        4,299        4,388       (3,778)      (5,938)
                                                    ----------------------------------------------------------------

Income (loss) before cumulative effect of
  accounting change and extraordinary item                6,619        5,785        5,884       (5,679)     (53,538)

Cumulative effect of accounting change                        -            -            -            -      (45,000)
                                                    ----------------------------------------------------------------

Income (loss) before extraordinary item                   6,619        5,785        5,884       (5,679)     (98,538)

Extraordinary (loss)                                     (1,557)           -            -         -               -
                                                    ----------------------------------------------------------------
Net income (loss)                                         5,062        5,785        5,884       (5,679)     (98,538)
                                                    ----------------------------------------------------------------

Preferred dividend requirements                            (866)      (1,100)      (1,414)      (1,500)      (2,159)
                                                    ----------------------------------------------------------------
Net income (loss) available for common stockholders $     4,196  $     4,685  $     4,470  $    (7,179) $  (100,697)
                                                    ================================================================

Basic earnings (loss) per common share:
  Income (loss) before cumulative effect of
   accounting change and extraordinary item         $      0.58  $      0.46  $      0.42  $     (0.67) $     (4.45)
  Cumulative effect of accounting change                      -            -            -            -        (3.60)
  Extraordinary item                                      (0.15)           -            -            -            -
                                                    ----------------------------------------------------------------
  Net income (loss)                                 $      0.43  $      0.46  $      0.42  $     (0.67) $     (8.05)
                                                    ================================================================

Diluted earnings (loss) per common share:
  Income (loss) before cumulative effect of
   accounting change and extraordinary item         $      0.47  $      0.40  $      0.41  $     (0.67) $     (4.45)
  Cumulative effect of accounting change                      -            -            -            -        (3.60)
  Extraordinary item                                      (0.11)           -            -            -            -
                                                    ----------------------------------------------------------------
  Net income (loss)                                 $      0.36  $      0.40  $      0.41  $     (0.67) $     (8.05)
                                                    ================================================================
Average shares outstanding
  Basic                                               9,853,354   10,287,978   10,590,461   10,729,627   12,504,969
  Diluted                                            14,157,012   14,328,754   14,248,902   10,729,627   12,504,969


                                       11




Balance Sheet Data
In Thousands


                                                           As of December 31
                                                           -----------------
                                             1998      1999      2000      2001      2002
                                             ----      ----      ----      ----      ----
                                                                   
Working capital                           $ 32,139  $ 30,566  $ 27,457  $ 34,813  $(54,581)
Total assets                               126,946   148,419   154,186   149,164    48,357
Long term debt, excluding current portion   60,959    72,750    69,700    82,000         -
Stockholders' equity (deficit)              42,571    48,001    32,739    26,429   (73,121)


       Item 7. Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

Liquidity and Capital Resources

     As of December 31, 2002,  $72.0 million in aggregate  principal  amount was
outstanding  under the  Senior  Credit  Facility,  $10.0  million  in  aggregate
principal amount was outstanding  under the Senior  Subordinated  Notes due 2006
and $20.0 million in face amount of Series G Convertible  Preferred Stock of the
Company (the "Preferred  Stock") was  outstanding.  The Company failed to comply
with certain  financial  ratios during the fourth  quarter of 2002,  creating an
event of default under the Senior Credit Facility,  the Indenture for the Senior
Subordinated  Notes and the Certificate of Designations for the Preferred Stock.
On December 20, 2002, the Company entered into an amendment of the Senior Credit
Facility and obtained a waiver of the events of default.  The amendment provided
a waiver of the events of default and  reduced  the amount of the  monthly  cash
interest  payment  through March 31, 2003.  The  amendment  expired on March 31,
2003,  causing the Company to be in default of its Senior Credit  Facility.  The
existence  of events  of  default  under  the  Senior  Credit  Facility  creates
cross-defaults  under the  Indenture for the Senior  Subordinated  Notes and the
Certificate of  Designations  for the Preferred  Stock.  Upon the occurrence and
during  the  continuation  of an event  of  default  under  the  Certificate  of
Designations,  holders of the  Preferred  Stock may  require  redemption  of the
Preferred Stock by the Company.

     The Senior Credit  Facility  expires on June 30, 2003, with all outstanding
amounts  then due.  The Company is  currently  in  negotiations  with its Senior
Lenders and the holders of its Senior  Subordinated  Notes and  Preferred  Stock
(collectively,  the  "Senior  Creditors")  to further  amend the  Senior  Credit
Facility,  Indenture  and  Certificate  of  Designations,  which would include a
waiver and an extended  maturity  date as well as modified  financial  covenants
that would give the Company greater flexibility to operate.  The Company is also
currently  in  negotiations  with the  Senior  Creditors  concerning  a possible
restructuring  of  the  Company's   outstanding   debt  and  equity.   Any  such
restructuring  would likely  involve a  significant  reduction in the  Company's
debt, new debt and equity financing and a significant dilution in the percentage
of  the  outstanding   common  stock  held  by  the  Company's   current  common
stockholders.  No  assurances  can be  given  that  any  restructuring  will  be
accomplished  or as to the terms  thereof.  If such  waivers and  amendments  or
restructuring is not achieved and the Senior Creditors exercise their rights and
remedies  as a result of the pending  events of default or upon the  maturity of
the  Senior  Credit  Facility  on June 30,  2003,  the  Company  would  not have
sufficient  liquidity  to  meet  its  obligations,  and may  need  to  file  for
bankruptcy pursuant to chapter 11 of the Bankruptcy Code.

     Net cash provided by operating activities was $0.5 million in 2002 compared
to $4.5  million in 2001.  Our net loss of $66.8  million in 2002 was  primarily
offset by  non-cash  charges of $45  million  and $12.0  million  related to the
write-off of goodwill and long-lived  assets,  respectively and depreciation and
amortization of $5.3 million. Furthermore, the net loss was offset by a decrease
in accounts receivable.  The resulting cash provided by operating activities was
offset  by a  decrease  in  accrued  payroll  and an  increase  in  prepaid  and

                                       12



refundable income taxes, and prepaid expenses and other current assets. Net cash
provided by  operating  activities  was $4.5  million in 2001  compared to $15.3
million in 2000.  This is  primarily  due to a decrease in  accounts  receivable
partially offset by a decrease in accrued payroll and income taxes payable.

     Net cash used in  investing  activities  of $3.7  million  in 2002 and $7.1
million in 2001 was primarily the result of the earnout  payments related to the
acquisitions   completed  during  1999,  1998  and  1997,  as  well  as  capital
expenditures.  Additionally  during  2002 there was a purchase  of a  short-term
investment.

     Net cash used in  financing  activities  of $2.7  million  in 2002  related
primarily  to the  payments of fees for loan  amendments.  Net cash  provided by
financing  activities of $9.6 million in 2001 related to  additional  borrowings
made on Headway's  revolving  credit  facility,  partially offset by payments of
loan acquisition fees, dividends and capital lease obligations.

     Headway's contractual obligations and commercial commitments are summarized
below,  and  are  fully  disclosed  in  the  Notes  to  Consolidated   Financial
Statements.  The following table includes aggregate  information about Headway's
contractual  obligations  as of  December  31,  2002  and the  periods  in which
payments are due:

- ------------------------------------------------------------------------------
  Contractual Obligations                 Payments Due by Period
                                          ----------------------
                                              (in thousands)
- ------------------------------------------------------------------------------
                              Total   Less than  1 - 3     4 - 5     After 5
                                       1 year    years     years      years
- ------------------------------------------------------------------------------
Loans Payable               $82,000   $82,000   $     -   $     -   $     -
                                            -
- ------------------------------------------------------------------------------
Capital Lease Obligations       128       123         5         -         -
- ------------------------------------------------------------------------------
Operating Leases              8,343     2,494     3,163     1,880       806
- ------------------------------------------------------------------------------
Unconditional Purchase
Obligations                    None
- ------------------------------------------------------------------------------
Other Long Term                   2         2         -         -         -
Obligations
- ------------------------------------------------------------------------------
Total Contractual Cash
Obligations                 $90,473   $84,619   $ 3,168   $ 1,880   $   806
- ------------------------------------------------------------------------------
Preferred Stock (1)         $23,285   $23,285   $     -   $     -   $     -
- ------------------------------------------------------------------------------
(1)   In default of its terms, therefore, currently redeemable.

     The  following  table  includes   aggregate   information  about  Headway's
commercial commitments as of December 31, 2002. Commercial commitments are items
that Headway  could be obligated to pay in the future.  They are not required to
be included in the consolidated balance sheet.


- -------------------------------------------------------------------------------------
     Other Commercial            Total     Amount of Commitment Expiration Per Period
        Commitments             Amounts                  (in thousands)
                               Committed   ------------------------------------------
                                           Less than   1 - 3      4 - 5       Over 5
                                             1 year    years      years       years
- -------------------------------------------------------------------------------------
                                                              
Lines of Credit                   None
- -------------------------------------------------------------------------------------
Standby Letters of Credit       $1,687      $1,687    $    -     $    -      $    -
- -------------------------------------------------------------------------------------
Guarantees                        None
- -------------------------------------------------------------------------------------
Standby Repurchase Obligations    None
- -------------------------------------------------------------------------------------
Other Commercial Commitments      None
- -------------------------------------------------------------------------------------
Total Commercial Commitments    $1,687      $1,687    $    -     $    -      $    -
- -------------------------------------------------------------------------------------


                                       13




Overview

     Headway is a leading  provider of  staffing  services  to  businesses  in a
variety of industries,  including,  financial  services,  media,  entertainment,
biotechnology,   information   technology   and   telecommunications.    Headway
established its human resource  business through 20 acquisitions of staffing and
professional  services  companies  from 1996 through 1999.  Headway's goal is to
continue  to build a  national  staffing  business  focused on  providing  these
services to a variety of industries.  Headway's strategy for achieving this goal
is to  emphasize  programs  that  generate  internal  growth.  In 2002 and 2001,
Headway  focused  its efforts on  reducing  costs in  response  to the  weakened
economy.  This included a reduction of headcount and operating  expenses as well
as the consolidation of certain business lines.

Recent Transaction

     On March 13, 2003, Headway Corporate  Resources,  Inc. exited the executive
search segment of its business through a sale of its Whitney  subsidiaries.  All
of Headway's  interest in the Whitney  subsidiaries  were sold to Whitney Group,
LLC,  a New  York  limited  liability  company  (the  Whitney  Group").  Gary S.
Goldstein,  who had resigned his positions as an officer and director of Headway
and its subsidiaries,  is an officer and principal owner of membership  interest
in the Whitney Group.

     In consideration  for the sale, the Whitney Group (i) issued to the Company
a 15 percent membership  interest in the Whitney Group (subject to adjustment in
certain circumstances), (ii) issued a promissory note in the principal amount of
$2,000,000,  and (iii) is obligated  to pay an earnout  equal to five percent of
Whitney Group's gross revenues, as defined, during a five-year period commencing
January 1, 2003.  The note bears interest at the Prime Lending Rate as in effect
from time to time, plus two percent per annum. Interest is payable quarterly and
the full  principal  amount of the note is payable in January 2005.  The Whitney
Group may, at its election, prepay and terminate the promissory note and earnout
obligation  through a lump sum payment of  $5,000,000  less the actual amount of
principal  previously  paid on the  promissory  note and earnout  payments.  The
Whitney Group is obligated to prepay the promissory note and earnout  obligation
on the foregoing terms if one or more specified events occur prior to January 1,
2006, that constitute a change in control or ownership of the Whitney Group. The
Company has estimated the fair market value of the promissory note at $1,400,000
and the 15% equity interest at $45,000. This transaction will be recorded in the
2003  financial  statements  and is not expected to result in a material gain or
loss on the Company's results of operations.

Critical Accounting Policies

     Revenue Recognition

     Information  technology  staffing,  temporary  staffing and human  resource
staffing revenue is recognized when the temporary  personnel perform the related
services.  Permanent  placement  revenue is  recognized  when the  placement  is
employed.  Provisions are made for estimated losses in realization  (principally
due to applicants not remaining in employment for the guaranteed period, usually
90 days) and for bad debts. These provisions are reviewed  periodically and have
always  been found to be  adequate  based on the  Company's  experience  in this
regard.

     Executive search services are primarily engaged on a retainer basis. Income
from retainer  contracts which provide for periodic  billings over periods of up
to one year, is recognized as earned based on the terms of the contract.

                                       14




     Goodwill and Long-lived Assets

     Goodwill prior to January 1, 2002 was amortized utilizing the straight-line
method  over a period  of 20 to 30 years.  Headway  periodically  evaluated  the
carrying value and the periods of  amortization of goodwill based on the current
and expected future non-discounted income from operations of the entities giving
rise to the goodwill to determine  whether  events and  circumstances  warranted
revised  estimates of carrying value or useful lives. No such  write-downs  were
made.

     Effective  January 1, 2002,  the Company  adopted  Statements  of Financial
Accounting  Standards No. 142,  "Goodwill and Other  Intangible  Assets"  ("SFAS
142").  Under the new  rules,  goodwill  and  intangible  assets  deemed to have
indefinite  lives are no longer  amortized but are subject to annual  impairment
tests in  accordance  with SFAS 142.  Other  intangible  assets  continue  to be
amortized over their useful lives. Under SFAS 142, goodwill impairment is deemed
to exist if the net carrying value of a reporting  unit's  goodwill  exceeds its
estimated  fair value.  Upon  adoption of SFAS 142 in the first quarter of 2002,
the Company  recorded a non-cash  charge of $45  million to reduce the  carrying
value of its goodwill. Such charge is non-operational in nature and is reflected
as a  cumulative  effect  of an  accounting  change  in  the  2002  consolidated
statement of operations.  Based on the results of our annual goodwill impairment
test in the  fourth  quarter  of 2002  and the  estimated  implied  value of the
Company based on the various restructuring proposals received by the Company, it
was determined that there was a further impairment of the remaining goodwill and
accordingly the balance of $42,471,000 was written off. This amount is reflected
in  impairment  of  goodwill  and  long-lived  assets  in the 2002  consolidated
statement of operations.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-lived  Assets",  effective  for fiscal  years
beginning  after December 15, 2001.  This standard  supersedes  SFAS No. 121 and
provides a single  accounting  model for  long-lived  assets to be disposed  of.
Based on the  results  of our  long-lived  asset  impairment  test in the fourth
quarter of 2002, it was determined  that there was an impairment to property and
equipment in the amount of  $1,168,000  ($854,000  and  $314,000  related to the
Executive  Search and  Technology  Staffing  asset groups,  respectively).  This
amount is reflected in impairment of goodwill and long-lived  assets on the 2002
consolidated statement of operations. In calculating the impairment charges, the
fair  value  of the  impaired  asset  groups  (see  Note 16 to the  consolidated
financial statements) were estimated using a discounted cash flow methodology.

     In March  2003,  the Company  exited the  executive  search  segment of its
business  through a sale of its Whitney  subsidiaries.  In connection  with this
transaction, the Company recognized impairment charges to write-off the goodwill
and fixed assets  relating to this  segment.  These charges are reflected in the
2002 consolidated  statement of operations.  The transaction will be recorded in
the 2003  financial  statements  and is not expected to have a material  gain or
loss on the Company's results of operations.

Results of Operations

     Years Ended December 31, 2002 and 2001

     Revenue  decreased  $55.2  million  to $267.8  million  for the year  ended
December 31, 2002, from $323.0 million for the year ended December 31, 2001. The
decrease  in  revenue  for  2002 is  attributable  to the  soft  economy  and is
consistent  with the  performance  of the other  staffing and  executive  search
companies in the sector.  Many companies have instituted hiring freezes for both
temporary and permanent  positions.  The financial services industry reduced its

                                       15



demand for the  Company's  executive  search  services as a direct result of the
poor financial performance across the financial services industry in 2002.

     The  Whitney   executive  search  segment   contributed  $14.4  million  to
consolidated revenues in 2002, a decrease of $11.7 million from $26.1 million in
2001. This decrease  reflects a sharp decline in the demand for new hires in the
financial services industry.

     The staffing subsidiary,  Headway Corporate Staffing Services,  Inc. (HCSS)
contributed  revenues of $253.3 million, a decrease of $43.6 million from $296.9
million in 2001. The decline in revenues was a result of negative  impact of the
unfavorable  economic  conditions on the demand for  information  technology and
clerical staffing services.

     Total operating  expenses decreased $6.4 million to $315.3 million for 2002
from $321.7  million  for 2001.  The  decrease is the result of a $33.5  million
decrease in direct  costs,  a $13.0  million  decrease  in selling,  general and
administrative   expenses,   a  $3.5  million   decrease  in  depreciation   and
amortization  offset by a $43.6 million  impairment  of goodwill and  long-lived
assets. Direct costs increased as a percentage of revenues to 82.1% in 2002 from
78.4% in 2001.  This  increase in direct costs as a percentage  of revenues is a
result  of a  change  in  Headway's  business  mix in  2002.  Specifically,  the
executive  search and permanent  placement  businesses that have no direct costs
experienced  more  significant  declines than the staffing  business,  therefore
reducing  its   percentage  of  our  total   revenues.   Selling,   general  and
administrative expenses decreased as a percentage of revenues from 19.4% in 2001
to 18.5% in 2002. The decrease in selling,  general and administrative  expenses
is primarily  attributed to the lower  commission  expenses  associated with the
reduction  in  revenues,  as well as staff  reductions  and  other  cost-cutting
initiatives  implemented  in  the  latter  half  of  2001  in  response  to  the
unfavorable economic  conditions.  The decrease in depreciation and amortization
for 2002 as  compared  to 2001 is a result  of the  adoption  of  Statements  of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS  142"),  effective  January 1, 2002.  Under the new rules,  goodwill  and
intangible  assets deemed to have indefinite  lives are no longer  amortized but
are  subject  to  annual  impairment  tests in  accordance  with the  Statement.
Amortization of goodwill  recorded for 2001 was $4.0 million.  The impairment of
goodwill and long-lived assets of $43.6 million is a result of the deterioration
in the Company's results of operations.

     The selling,  general and administrative  expenses for the executive search
segment  decreased $5.9 million to $17.5 million for the year ended December 31,
2002 as compared to $23.4  million for the same period last year.  The  decrease
relates  primarily  to the reduced  commissions  related to the lower  executive
search revenues.

     HCSS' selling,  general and administrative  expenses decreased $6.7 million
to $30.3  million  for the year ended  December  31,  2002 as  compared to $37.0
million  for the same  period last year.  The  decrease in selling,  general and
administrative  expenses  is  primarily  attributable  to the  lower  commission
expense associated with the decline in revenues, as well as staff reductions and
other cost-cutting initiatives that were implemented in the latter half 2001.

     Interest expense increased $1.1 million to $12.0 million for the year ended
December  31, 2002 as  compared to $10.9  million for the same period last year.
The increase in interest  expense is due to increased  amortization  of deferred
financing  costs relating to the  amendments  completed in April 2002 and August
2001,  and an  increase in the  applicable  margin for base rate loans under the
Amended Senior Credit Facility.

     As a  result  of the  foregoing  factors,  Headway  had a net loss of $98.5
million  for the year ended  December  31,  2002  compared to a net loss of $5.7
million for the year ended December 31, 2001.

                                       16




     Years Ended December 31, 2001 and 2000

     Revenue  decreased  $48.1  million  to $323.0  million  for the year  ended
December 31, 2001, from $371.1 million for the year ended December 31, 2000. The
decrease  in revenue for 2001 is  attributable  to the slowing of the economy in
2001 and the resulting decline in demand for staffing services. In addition, the
tragic  events of September  11, 2001 had a profound  impact on two of Headway's
primary markets:  the financial  services industry and the New York metropolitan
area.

     The  Whitney   executive  search  segment   contributed  $26.1  million  to
consolidated revenues in 2001, a decrease of $11.5 million from $37.7 million in
2000.  This  decrease is  attributable  to the  economic  slowdown in 2001.  The
Whitney subsidiaries primarily serve the financial services industry,  which was
significantly  impacted by the events of September  11th.  Many of our executive
search clients  experienced  significant  layoffs and implemented hiring freezes
during 2001.

     The staffing subsidiary,  Headway Corporate Staffing Services,  Inc. (HCSS)
contributed  revenues of $296.9 million, a decrease of $36.6 million from $333.5
million in 2000. The decline in revenues was a result of negative  impact of the
unfavorable  economic  conditions on the demand for  information  technology and
clerical staffing services.

     Total operating expenses decreased $31.2 million to $321.7 million for 2001
from $352.9  million  for 2000.  The  decrease is the result of a $19.5  million
decrease in direct  costs,  a $12.1  million  decrease  in selling,  general and
administrative  expenses,  offset by a $0.5 million increase in depreciation and
amortization.  Direct costs  increased  as a percentage  of revenues to 78.4% in
2001 from  73.5% in 2000.  This  increase  in direct  costs as a  percentage  of
revenues is a result of a change in Headway's  business mix in 2001,  as well as
pricing pressure that we experienced in some of our markets.  Specifically,  the
executive search business that has no direct costs  experienced more significant
declines than the staffing  business,  therefore  reducing its percentage of our
total revenues. The decrease in selling,  general and administrative expenses is
primarily  attributed  to the  lower  commission  expenses  associated  with the
reduction  in  revenues,  as well as staff  reductions  and  other  cost-cutting
initiatives  implemented  this  year in  response  to the  unfavorable  economic
conditions.

     The selling,  general and  administrative  expenses of the executive search
segment  decreased $5.0 million to $23.4 million for the year ended December 31,
2001 as compared to $28.4  million for the same period last year.  The  decrease
relates  primarily  to the reduced  commissions  related to the lower  executive
search revenues.

     HCSS' selling,  general and administrative  expenses decreased $5.9 million
to $37.0  million  for the year ended  December  31,  2001 as  compared to $42.9
million  for the same  period last year.  The  decrease in selling,  general and
administrative  expenses  is  primarily  attributable  to the  lower  commission
expense associated with the decline in revenues, as well as staff reductions and
other cost-cutting initiatives that were implemented in 2001.

     Interest expense increased $2.9 million to $10.9 million for the year ended
December 31, 2001 as compared to $8.0 million for the same period last year. The
increase in  interest  expense  related to  increased  amortization  of deferred
financing costs relating to the amendment  completed in August 2001, an increase
in the  applicable  margin for base rate loans under the Amended  Senior  Credit
Facility,  the default  penalty on the Senior Credit  Facility during the fourth
quarter of 2001, and expense relating to Headway's interest rate swap.

                                       17



     Headway had a net loss of $5.7 million for the year ended December 31, 2001
compared to net income of $5.9 million for the year ended December 31, 2000.

New Accounting Standards

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44,  and  62,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections".  SFAS No.  145  eliminates  the  requirement  under  SFAS  No.  4,
"Reporting  Gains and Losses from  Extinguishment  of Debt," to report gains and
losses  from  extinguishments  of  debt as  extraordinary  items  in the  income
statement.  Accordingly, gains or losses from extinguishments of debt for fiscal
years beginning after May 15, 2002 shall not be reported as extraordinary  items
unless  the  extinguishment   qualifies  as  an  extraordinary  item  under  the
provisions of APB 30. Upon adoption of this  pronouncement,  any gain or loss on
extinguishment of debt previously  classified as an extraordinary  item in prior
periods  presented  that  does not  meet the  criteria  of  Opinion  30 for such
classification should be reclassified to conform with the provisions of SFAS No.
145.  Management  does not believe the  adoption  of this  standard  will have a
material impact on the consolidated financial statements.

     In July  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities" and nullifies EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity  (including  Certain  Costs  Incurred  in a  Restructuring)"
("EITF No. 94-3").  SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal  activity be recognized when the liability is incurred,
whereas EITF No. 94-3 had recognized the liability at the commitment  date to an
exit plan.  The  Company is  required  to adopt the  provisions  of SFAS No. 146
effective for exit or disposal  activities  initiated  after  December 31, 2002.
Management  does not believe the adoption of this  standard will have a material
impact on the consolidated financial statements.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and  Disclosure."  SFAS No. 148 amends SFAS No. 123 to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based methods of accounting  for  stock-based  employee  compensation.  In
addition,  SFAS No. 148 amends the  disclosure  requirements  of SFAS No. 123 to
require  more  prominent  disclosures  in  both  annual  and  interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported  results.  The Company has elected
to continue to follow the intrinsic  value method of accounting as prescribed by
APB Opinion No. 25 to account for stock options.

       Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     Headway used interest rate swap contracts for hedging purposes. Headway had
entered into interest rate swap agreements that effectively  converted a portion
of its  floating-rate  debt to a fixed-rate  basis through April 18, 2002,  thus
reducing the impact of interest-rate changes on interest expense. As of December
31,  2002,  there  were  no  such  instruments  outstanding.  See  Note 7 to the
consolidated financial statements.

               Item 8. Financial Statements and Supplementary Data

     The consolidated  financial  statements and  supplementary  data of Headway
appear  at the end of this  report  beginning  with the  Index  to  Consolidated
Financial Statements on page F-1.

                                       18




            Item 9. Changes In and Disagreements With Accountants on
                       Accounting and Financial Disclosure

     There  were no  changes  in or  disagreements  with  Headway's  independent
auditors during the preceding two calendar years.

                                    PART III

           Item 10. Directors and Executive Officers of the Registrant

     Information  required by "Item 10. Directors and Executive  Officers of the
Registrant," is incorporated by reference to the proposed caption "Directors and
Executive  Officers" in the definitive  proxy  statement of Headway for the 2003
annual meeting of stockholders.

                         Item 11. Executive Compensation

     Information required by "Item 11. Executive  Compensation," is incorporated
by reference to the proposed caption "Executive  Compensation" in the definitive
proxy statement of Headway for the 2003 annual meeting of stockholders.

     Item 12. Security Ownership of Certain Beneficial Owners and Management
                         and Related Stockholder Matters

     Information  required by "Item 12. Security Ownership of Certain Beneficial
Owners and  Management," is  incorporated  by reference to the proposed  caption
"Security Ownership of Management and Principal  Stockholders" in the definitive
proxy statement of Headway for the 2003 annual meeting of stockholders.

             Item 13. Certain Relationships and Related Transactions

     Information  required  by  "Item  13.  Certain  Relationships  and  Related
Transactions,"  is  incorporated by reference to the proposed  caption  "Certain
Relationships  and Related  Transactions"  in the definitive  proxy statement of
Headway for the 2003 annual meeting of stockholders.

                                     Part IV

                        Item 14. Controls and Procedures

     Within  90 days  prior to the  filing of this  report,  an  evaluation  was
performed  under the  supervision  and with the  participation  of the Company's
management,  including  the  President  and  Chief  Financial  Officer,  of  the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures.  Based on that evaluation,  the Company's management,  including
the  President  and  Chief  Financial  Officer,  concluded  that  the  Company's
disclosure controls and procedures were effective.

     There have been no significant  changes in the Company's  internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of their evaluation.

                                       19




    Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Financial Statements and Financial Statement Schedules

     The  information  required by this  subsection of this item is presented in
the index to the financial statements on page F-1.

Reports on Form 8-K

     No  reports on Form 8-K were  filed by  Headway  during  the last  calendar
quarter of 2002.

Exhibits

     Copies of the  following  documents are included as exhibits to this report
pursuant to Item 601 of Regulation S-K.

Exhibit No. Title of Document                                       Location

    3.1     Certificate of Incorporation (1)                        Ex. No. 1

    3.2     By-Laws (1)                                             Ex. No. 2

    3.3     By-Law Amendments (2)                                   Ex. No. 5

    4.1     Series F Preferred Stock Designation (2)                Ex. No. 4

    4.6     Securities Purchase Agreement dated March 19, 1998 (2)  Ex. No. 6

    4.7     Registration Rights Agreement dated March 19, 1998 (2)  Ex. No. 7

    4.8     Indenture dated March 19, 1998 (2)                      Ex. No. 8

    4.9     Fourth Supplemental Indenture, dated as of August 24,   Ex. No. 4.1
              2001 (3)

   4.10     Limited Waiver and Amendment dated as of August 24,     Ex. No. 4.3
              2001 (3)

   4.11     Form of Senior Subordinated Note (2)                    Ex. No. 9

   4.12     Guaranty Agreement dated March 19, 1998 (2)             Ex. No. 10

   4.13     Credit Agreement dated March 19, 1998, including        Ex. No. 11
              Exhibit A - Commitment Percentage, and
              Exhibit F - Form of Revolving Note (2)

   4.14     Seventh Amendment and Limited Waiver to Credit          Ex. No. 4.2
              Agreement dated as of August 24, 2001, to the Credit
              Agreement dated as of March 19, 1998 (3)

   4.15     Guaranty Agreement dated March 19, 1998 (2)             Ex. No. 12

   4.16     Security Agreement dated March 19, 1998 (2)             Ex. No. 13

   4.17     Pledge Agreement dated March 19, 1998 (2)               Ex. No. 14

                                       20



   4.18     LC Account Agreement dated March 19, 1998 (2)           Ex. No. 15

   4.19     Intellectual Property Security Agreement dated March    Ex. No. 16
              19, 1998 (2)

   4.20     Amended and Restated Indenture dated April 18, 2002 (4) Ex. No. 4.8

   4.21     Amended and Restated Credit Agreement dated April 17,   Ex. No. 4.10
              2002 (4)

   10.1     Purchase Agreement between Headway Corporate            Ex. No. 10.1
              Resources, Inc., and Whitney Group, LLC dated
              March 7, 2003 (5)

   21.1     Subsidiaries of Headway (6)                             Ex. No. 16

   99.1     Certification of the Chief Executive Officer pursuant   E-1
              to Section 906 of the Sarbanes-Oxley Act of 2002

   99.2     Certification of the Chief Financial Officer pursuant   E-2
              to Section 906 of the Sarbanes-Oxley Act of 2002

(1) These exhibits are included in Headway's  annual report on Form 10-KSB,  for
the fiscal year ended  December  31,  1996,  and filed with the  Securities  and
Exchange  Commission  on March 27,  1997,  and are  incorporated  herein by this
reference. The reference under the column "Location" is to the exhibit number in
the report on Form 10-KSB.

(2) These  exhibits are included in Headway's  current report on Form 8-K, dated
March  19,  1998,  and  filed  with the  Commission  on April 3,  1998,  and are
incorporated herein by this reference. The reference under the column "Location"
is to the exhibit number in the report on Form 8-K.

(3) These exhibits are included in Headway's  quarterly report on Form 10-Q, for
the quarter ended September 30, 2001, and filed with the Securities and Exchange
Commission on November 14, 2001, and are incorporated  herein by this reference.
The reference under the column "Location" is to the exhibit number in the report
on Form 10-Q.

(4) These  exhibits are included in Headway's  annual  report on Form 10-K/A for
the fiscal year ended  December  31,  2001,  and filed with the  Securities  and
Exchange  Commission  on April  30,  2002,  and is  incorporated  herein by this
reference. The reference under the column "Location" is to the exhibit number in
the report on Form 10-K.

(5) This exhibit is included in Headway's current report on Form 8-K dated March
13, 2003, and filed with the Securities and Exchange Commission on March 28,
2003, and is incorporated herein by this reference. The reference under the
column "Location" is to the exhibit number in the report on Form 8-K.

(6) This  exhibit is included in  Headway's  annual  report on Form 10-K for the
fiscal year ended  December 31, 2000, and filed with the Securities and Exchange
Commission on March 30, 2001, and is incorporated herein by this reference.  The
reference under the column  "Location" is to the exhibit number in the report on
Form 10-K.

                                       21




                                   Signatures

     Pursuant to the  requirements  of Section 13 or 15(d) of the Exchange  Act,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          Headway Corporate Resources, Inc.



Date:  April 17, 2003                     By: /s/ Barry S. Roseman, President
                                              and Chief Executive Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

Dated: April 17, 2003        /s/ Barry S. Roseman, Director


Dated: April 17, 2003        /s/ Ehud D. Laska, Director


Dated: April 17, 2003        /s/ Richard B. Salomon, Director

Date:  April 17, 2003        /s/ Philicia G. Levinson, Chief Financial Officer
                                 (Principal Financial and Accounting Officer)



                                       22




                                  CERTIFICATION

I, Barry S. Roseman, certify that:

1.   I have  reviewed  this  annual  report  on Form 10-K of  Headway  Corporate
     Resources, Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: April 17, 2003                      By: /s/ Barry S. Roseman
                                              ----------------------------------
                                              Barry S. Roseman, President

                                       23




                                  CERTIFICATION

I, Philicia G. Levinson, certify that:

1.   I have  reviewed  this  annual  report  on Form 10-K of  Headway  Corporate
     Resources, Inc.;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the  registrant  as of, and for, the periods  presented  in this  quarterly
     report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: April 16, 2003                      By: /s/ Philicia G. Levinson
                                              ----------------------------------
                                              Philicia G. Levinson,
                                              Chief Financial Officer


                                       24




                         Form 10-K Item 15(a)(1) and (2)

               Headway Corporate Resources, Inc. and Subsidiaries




         List of Financial Statements and Financial Statement Schedules

The following  consolidated financial statements of Headway Corporate Resources,
Inc. and Subsidiaries are included in Item 8:

Report of Independent Auditors..............................................F-2

Consolidated Balance Sheets as of December 31, 2002 and 2001................F-3
Consolidated Statements of Operations for the years ended
  December 31, 2002, 2001 and 2000..........................................F-4
Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended December 31, 2002, 2001 and 2000......................F-5
Consolidated Statements of Cash Flows for the years ended
  December 2002, 2001 and 2000..............................................F-8
Notes to Consolidated Financial Statements..................................F-9


The following  consolidated  financial  statement  schedule of Headway Corporate
Resources, Inc. and Subsidiaries is included in Item 15(a)(2):

Schedule II - Valuation and Qualifying Accounts.............................F-33

All other  schedules for which  provision is made in the  applicable  accounting
regulation of the Securities and Exchange  Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.

                                      F-1





                         Report of Independent Auditors


To the Board of Directors and Stockholders
Headway Corporate Resources, Inc.

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Headway
Corporate  Resources,  Inc. and Subsidiaries  (the "Company") as of December 31,
2002  and  2001,  and  the  related   consolidated   statements  of  operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2002. Our audits also included the financial statement
schedule  listed in the Index at Item  15(a).  These  financial  statements  and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Headway
Corporate  Resources,  Inc. and  Subsidiaries at December 31, 2002 and 2001, and
the  consolidated  results of their  operations and their cash flows for each of
the three  years in the  period  ended  December  31,  2002 in  conformity  with
accounting  principles  generally  accepted in the United  States.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the  basic  financial  statements  taken as a whole,  presents  fairly in all
material respects the information set forth therein.

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 a working capital  deficiency and is in default on its Senior Credit
Facility,  Senior  Subordinated Notes and Series G Convertible  Preferred Stock.
These conditions raise substantial doubt about the Company's ability to continue
as a going  concern.  Management's  plans in  regard 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.

As  discussed  in Notes 2 and 6 to the  consolidated  financial  statements,  on
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets."

                                                               ERNST & YOUNG LLP

New York, New York
March 21, 2003

                                      F-2




               Headway Corporate Resources, Inc. and Subsidiaries

                           Consolidated Balance Sheets
                  (Dollars in Thousands, except for share data)

                                                                 December 31
                                                                2002     2001
                                                             -------------------
Assets
Current assets:
  Cash and cash equivalents                                  $  2,635  $  8,641
  Short-term investments                                        1,200         -
  Accounts receivable, trade, net of allowance for
   doubtful accounts of  $2,127 (2002)
   and $1,430 (2001)                                           29,919    37,713
  Prepaid expenses and other current assets                     2,460     2,181
  Deferred financing costs, current                             1,156       979
  Prepaid and refundable income taxes                           5,325     4,279
                                                             -------------------
Total current assets                                           42,695    53,793

Property and equipment, net                                     3,302     5,691
Goodwill                                                            -    87,313
Deferred financing costs                                          413       509
Other assets                                                    1,947     1,858
                                                             -------------------
Total assets                                                 $ 48,357  $149,164
                                                             ===================

Liabilities and stockholders' (deficit) equity
Current liabilities:
  Accounts payable                                           $  1,093  $  1,302
  Accrued interest                                              3,323     1,130
  Accrued expenses                                              4,144     5,593
  Accrued payroll                                               6,591     8,319
  Capital lease obligations, current portion                      123       224
  Loans payable in default                                     82,000         -
  Earnouts payable                                                  2     1,287
                                                             -------------------
Total current liabilities                                      92,276    17,855

Capital lease obligations, less current portion                     5       111
Long-term debt                                                      -    82,000
Deferred rent                                                     912     1,073
Deferred income taxes                                               -       307
Other liabilities                                                   -       264

Commitments and contingencies

Preferred  stock--$.0001 par value, 5,000,000 shares
  authorized:
  Series G, convertible preferred stock--$.0001 par
   value, 1,000 shares authorized, issued and
   outstanding (aggregate liquidation
   value $23,285 (2002) currently redeemable by its terms)     23,285    21,125

Stockholders' (deficit) equity:
  Common stock--$.0001 par value, 80,000,000 shares
   authorized; 13,914,627 shares issued and
   outstanding at December 31, 2002, and 10,914,627
   shares issued and outstanding at December 31, 2001               1         1
  Additional paid-in capital                                   18,920    18,268
  Notes receivable                                                (71)      (71)
  Deferred compensation                                          (267)     (382)
  (Accumulated deficit) retained earnings                     (91,477)    9,220
  Other comprehensive (loss)                                     (227)     (607)
                                                             -------------------
Total stockholders' (deficit) equity                          (73,121)   26,429
                                                             -------------------
Total liabilities and stockholders' (deficit) equity         $ 48,357  $149,164
                                                             ===================

See accompanying notes.

                                      F-3




               Headway Corporate Resources, Inc. and Subsidiaries

                      Consolidated Statements of Operations
                  (Dollars in Thousands, except per share data)

                                                     Year ended December 31
                                                    2002      2001       2000
                                                 -------------------------------

Revenues                                         $ 267,784  $323,037   $371,115
Operating expenses:
  Direct costs                                     219,830   253,354    272,872
  Selling, general and administrative               49,596    62,587     74,690
  Impairment of goodwill and long-lived assets      43,639        -          -
  Depreciation and amortization                      2,267     5,787      5,337
                                                 -------------------------------
                                                   315,332   321,728    352,899
                                                 -------------------------------
Operating (loss) income                            (47,548)    1,309     18,216

Other (income) expenses:
  Interest expense                                  11,998    10,879      8,049
  Interest income                                      (70)     (113)      (105)
                                                 -------------------------------
                                                    11,928    10,766      7,944
                                                 -------------------------------
(Loss) income before income tax (benefit)
  expense and cumulative effect of
  accounting change                                (59,476)   (9,457)    10,272

Income tax (benefit) expense                        (5,938)   (3,778)     4,388
                                                 -------------------------------
(Loss) income before cumulative effect of
  accounting change                                (53,538)   (5,679)     5,884
Cumulative effect of accounting change             (45,000)        -          -
                                                 -------------------------------
Net (loss) income                                  (98,538)   (5,679)     5,884

Preferred dividend requirements                     (2,159)   (1,500)    (1,414)
                                                 -------------------------------
Net (loss) income available or common
  stockholders                                   $(100,697) $ (7,179)  $  4,470
                                                 ===============================

Basic and diluted (loss) earnings per share:
  Basic and diluted (loss) earnings per
   share before cumulative effect of
   accounting change                             $   (4.45) $   (.67)  $    .42
  Cumulative effect of accounting change             (3.60)        -          -
                                                 -------------------------------
  Basic (loss) earnings per common share         $   (8.05) $   (.67)  $    .42
                                                 ===============================

  Diluted (loss) earnings per common share
   before cumulative effect of accounting
   change                                        $   (4.45) $   (.67)  $    .41
  Cumulative effect of accounting change             (3.60)        -          -
                                                 -------------------------------
  Diluted (loss) earnings per common share       $   (8.05) $   (.67)  $    .41
                                                 ===============================

See accompanying notes.

                                      F-4




               Headway Corporate Resources, Inc. and Subsidiaries

            Consolidated Statements of Stockholders' Equity (Deficit)
                    (Dollars in Thousands, except share data)


                                               Series F
                                              Convertible                     Additional
                                            Preferred Stock    Common Stock    Paid-in
                                           ---------------- ----------------- ----------
                                            Shares  Amount    Shares   Amount  Capital
                                           ---------------------------------------------
                                                                
Balance at December 31, 1999                1,000  $20,000  11,372,561  $1     $19,820
  Repayment of notes receivable                 -        -           -   -           -
  Issuance of stock for acquisitions            -        -     157,166   -         416
  Issuance of common stock to an
   employee for services                        -        -      60,000   -         143
  Amortization of stock-based compensation      -        -           -   -           -
  Preferred stock dividends                     -        -           -   -           -
  Treasury stock                                -        -           -   -           -
  Comprehensive income:
  Translation adjustment                        -        -           -   -           -
  Net income                                    -        -           -   -           -
  Comprehensive income                          -        -           -   -           -
                                           ---------------------------------------------
Balance at December 31, 2000                1,000   20,000  11,589,727   1      20,379
  Retirement of treasury stock                  -        -    (675,100)  -      (3,211)
  Repayment of notes receivable                 -        -           -   -           -
  Amortization of stock-based compensation      -        -           -   -           -
  Preferred stock dividends                     -        -           -   -           -
  Issuance of warrants                          -        -           -   -       1,100
  Transfer to temporary equity             (1,000) (20,000)          -   -           -
  Comprehensive (loss):
  Translation adjustment                        -        -           -   -           -
  Cumulative effect of change in
   accounting for derivative
   financial instrument, net of
   applicable income tax of $187                -        -           -   -           -
  Change in fair value of
   derivative, net of applicable
   income tax of $12                            -        -           -   -           -
  Net (loss)                                    -        -           -   -           -
  Comprehensive (loss)                          -        -           -   -           -
                                           ---------------------------------------------
Balance at December 31, 2001                    -        -  10,914,627   1      18,268
  Amortization of stock-based compensation      -        -           -   -           -
  Preferred stock dividends                     -        -           -   -           -
  Exercise of warrants                          -        -   3,000,000   -         474
  Repricing of warrants                                                             73
  Issuance of warrants                          -        -           -   -         105
  Comprehensive (loss):
  Translation adjustment                        -        -           -   -           -
  Change in fair value of derivative,
   net of applicable income tax of $199         -        -           -   -           -
  Net (loss)                                    -        -           -   -           -
  Comprehensive (loss)                          -        -           -   -           -
                                           ---------------------------------------------
Balance at December 31, 2002                    -  $     -  13,914,627  $1     $18,920
                                           =============================================

See accompanying notes.

                                      F-5




               Headway Corporate Resources, Inc. and Subsidiaries

      Consolidated Statements of Stockholders' Equity (Deficit) (continued)
                    (Dollars in Thousands, except share data)



                                            Treasury Stock
                                          ------------------   Notes      Deferred
                                           Shares    Amount  Receivable Compensation
                                          ------------------------------------------
                                                               
Balance at December 31, 1999              (670,100) $(3,191)  $(126)       $(440)
  Repayment of notes receivable                  -        -      42            -
  Issuance of stock for acquisitions             -        -       -            -
  Issuance of common stock to an
   employee for services                         -        -       -         (143)
  Amortization of stock-based compensation       -        -       -           86
  Preferred stock dividends                      -        -       -            -
  Treasury stock                            (5,000)     (20)      -            -
  Comprehensive income:
  Translation adjustment                         -        -       -            -
  Net income                                     -        -       -            -
  Comprehensive income                           -        -       -            -
                                          ------------------------------------------
Balance at December 31, 2000              (675,100)  (3,211)    (84)        (497)
  Retirement of treasury stock             675,100    3,211       -            -
  Repayment of notes receivable                  -        -      13            -
  Amortization of stock-based compensation       -        -       -          115
  Preferred stock dividends                      -        -       -            -
  Issuance of warrants                           -        -       -            -
  Transfer to temporary equity                   -        -       -            -
  Comprehensive (loss):
  Translation adjustment                         -        -       -            -
  Cumulative effect of change in
   accounting for derivative
   financial instrument, net of
   applicable income tax of $187                 -        -       -            -
  Change in fair value of
   derivative, net of applicable
   income tax of $12                             -        -       -            -
  Net (loss)                                     -        -       -            -
  Comprehensive (loss)                           -        -       -            -
                                          ------------------------------------------
Balance at December 31, 2001                     -        -     (71)        (382)
  Amortization of stock-based compensation       -        -       -          115
  Preferred stock dividends                      -        -       -            -
  Exercise of warrants                           -        -       -            -
  Repricing of warrants                          -        -       -            -
  Issuance of warrants                           -        -       -            -
  Comprehensive (loss):
  Translation adjustment                         -        -       -            -
  Change in fair value of
   derivative, net of applicable
   income tax of $199                            -        -       -            -
  Net (loss)                                     -        -       -            -
  Comprehensive (loss)                           -        -       -            -
                                          ------------------------------------------
Balance at December 31, 2002                     -  $     -   $ (71)       $(267)
                                          ==========================================

See accompanying notes.

                                      F-6




               Headway Corporate Resources, Inc. and Subsidiaries

      Consolidated Statements of Stockholders' Equity (Deficit) (continued)
                             (Dollars in Thousands)



                                                                       Other           Total
                                              Retained Earnings    Comprehensive   Stockholders'
                                            (Accumulated Deficit)  Income (Loss)  Equity (Deficit)
                                            ------------------------------------------------------
                                                                            
Balance at December 31, 1999                    $ 11,929              $   8          $ 48,001
  Repayment of notes receivable                        -                  -                42
  Issuance of stock for acquisitions                   -                  -               416
  Issuance of common stock to an
   employee for services                               -                  -                 -
  Amortization of stock-based
   compensation                                        -                  -                86
  Preferred stock dividends                       (1,414)                 -            (1,414)
  Treasury stock                                       -                  -               (20)
  Comprehensive income:
  Translation adjustment                               -               (256)             (256)
  Net income                                       5,884                  -             5,884
                                                                                     -------------
  Comprehensive income                                 -                  -             5,628
                                            ------------------------------------------------------
Balance at December 31, 2000                      16,399               (248)           52,739
  Retirement of treasury stock                         -                  -                 -
  Repayment of notes receivable                        -                  -                13
  Amortization of stock-based compensation             -                  -               115
  Preferred stock dividends                       (1,500)                 -            (1,500)
  Issuance of warrants                                 -                  -             1,100
  Transfer to temporary equity                         -                  -           (20,000)
  Comprehensive (loss):
  Translation adjustment                               -                (95)              (95)
  Cumulative effect of changein
   accounting for derivative financial
   instrument, net of applicable )
   income tax of $187                                  -               (248)             (248
  Change in fair value of derivative,
   net of applicable income tax of $12                 -                (16)              (16)
  Net (loss)                                      (5,679)                 -            (5,679)
                                                                                     -------------
  Comprehensive (loss)                                 -                  -            (6,038)
                                            ------------------------------------------------------
Balance at December 31, 2001                       9,220               (607)           26,429
  Amortization of stock-based compensation             -                  -               115
  Preferred stock dividends                       (2,159)                 -            (2,159)
  Exercise of warrants                                 -                  -               474
  Repricing of warrants                                -                  -                73
  Issuance of warrants                                 -                  -               105
  Comprehensive (loss):
  Translation adjustment                               -                116               116
  Change in fair value of derivative,
   net of applicable income tax of $199                -                264               264
  Net (loss)                                     (98,538)                 -           (98,538)
                                                                                     -------------
  Comprehensive (loss)                                 -                  -           (98,158)
                                            ------------------------------------------------------
Balance at December 31, 2002                $    (91,477)             $(227)         $(73,121)
                                            ======================================================

See accompanying notes.

                                      F-7




               Headway Corporate Resources, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows
                             (Dollars in Thousands)
                                                       Year ended December 31
                                                       2002     2001     2000
                                                     --------------------------
Operating activities
Net (loss) income                                    $(98,538) $(5,679) $ 5,884
Adjustments to reconcile net (loss) income to net
  cash provided by operating activities:
Cumulative effect of accounting charge                 45,000        -        -
Impairment of goodwill                                 43,639        -        -
  Depreciation and amortization, including
   deferred financing costs                             5,268    7,218    5,864
  Amortization of deferred compensation                   115      115       86
  Provision for bad debt                                1,619      611      297
  Deferred income taxes                                  (307)    (149)     403
  Changes in assets and liabilities, net of
   effects of acquisitions:
   Accounts receivable                                  7,329   15,229     (732)
   Prepaid expenses and other current assets             (700)      33     (181)
   Prepaid and refundable income taxes                   (882)       -        -
   Other assets                                           (91)    (667)    (199)
   Accounts payable, accrued interest and
     expenses                                            (165)      43    2,224
   Accrued payroll                                     (1,662)  (8,838)   3,102
   Income taxes payable                                     -   (3,358)  (1,378)
   Deferred rent                                         (161)     (70)    (103)
                                                    ---------------------------
Net cash provided by operating activities                 464    4,488   15,267
                                                    ---------------------------
Investing activities
Expenditures for property and equipment                (1,035)  (1,442)  (1,750)
Repayment from notes receivable                             -       13       42
Purchase of short-term investment                      (1,200)       -        -
Cash paid for acquisitions                             (1,423)  (5,638)  (7,787)
                                                    ---------------------------
Net cash used in investing activities                  (3,658)  (7,067)  (9,495)

Financing activities
Net change in revolving credit line                         -   12,300   (3,050)
Repayment of long-term debt                                 -        -     (152)
Payment of capital lease obligations                     (207)    (333)    (426)
Payments of loan acquisition fees                      (2,512)  (1,610)    (289)
Payment of other loans                                      -        -   (1,020)
Purchase of treasury stock                                  -        -      (20)
Cash dividends paid                                         -     (750)  (1,039)
                                                    ---------------------------
Net cash (used in) provided by financing
  activities                                           (2,719)   9,607   (5,996)
Effect of exchange rate changes on cash and
  cash equivalents                                        (93)      64      (94)

Net increase (decrease) in cash and cash
  equivalents                                          (6,006)   7,092     (318)
Cash and cash equivalents at beginning of year          8,641    1,549    1,867
                                                    ---------------------------
Cash and cash equivalents at end of year            $   2,635  $ 8,641  $ 1,549
                                                    ===========================
Supplemental disclosure of cash flow information
Cash paid during the year for:
  Interest                                          $   6,340  $ 8,074  $ 8,511
                                                    ===========================
  Income taxes                                      $      37  $   844  $ 5,388
                                                    ===========================

Supplemental disclosure of noncash investing and financing activities

In May 2002,  the  holders  of the  Senior  Subordinated  Notes and the Series G
Convertible Preferred Stock exchanged $474,000 in accrued and unpaid interest on
the Senior  Subordinated Notes to exercise the Series G Warrants.  In connection
with this exercise, the Company issued 3.0 million shares of common stock to the
Holders. In 2000 the Company issued 157,166 shares of its common stock valued at
$416,000 for acquisitions.

In 2000,  the Company  purchased  property and equipment  under  capital  leases
amounting to approximately $136,000.

See accompanying notes.

                                      F-8




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                                December 31, 2002

1. Organization and Basis of Presentation

Headway  Corporate  Resources,  Inc.  and its  wholly  owned  subsidiaries  (the
"Company")  provide strategic staffing  solutions and personnel  worldwide.  Its
operations include information  technology staffing,  temporary staffing,  human
resource staffing,  permanent  placement and executive search.  Headquartered in
New York, the Company has temporary staffing offices in California, Connecticut,
Florida, New Jersey, North Carolina,  Virginia,  and, until recently,  Texas and
had executive search offices in New York, Illinois,  the United Kingdom and Hong
Kong. In March 2003, the Company exited its executive search segment through the
sale of its Whitney subsidiaries (see Note 17).

The Company's financial statements have been presented on the basis that it is a
going concern,  which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.  The Company has a working capital
deficiency  and as more fully  described in Note 8, the Company is in default on
its Senior Credit Facility , Senior  Subordinated Notes and Series G Convertible
Preferred Stock.  These conditions raise  substantial  doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not  include  any  adjustment  to reflect  the  possible  future  effects on the
recoverability and  classification of assets or the amounts and  classifications
of liabilities that may result from the outcome of this uncertainty.

As more fully described in Note 8, management is negotiating with its lenders to
restructure  these  obligations  and for other  potential  sources of financing.
There can be no assurance that such  negotiation  will be concluded on favorable
terms or at all.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated  financial statements include the accounts of Headway Corporate
Resources,  Inc. and its subsidiaries after elimination of intercompany accounts
and transactions.

Revenue Recognition

Information technology staffing,  temporary staffing and human resource staffing
revenue is recognized when the temporary personnel perform the related services.
Permanent  placement  revenue is  recognized  when the  placement  is  employed.
Provisions  are made for estimated  losses in  realization  (principally  due to
applicants  not remaining in employment for the  guaranteed  period,  usually 90
days).

                                      F-9




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

Executive search services are primarily engaged on a retainer basis. Income from
retainer contracts which provide for periodic billings over periods of up to one
year, is recognized as earned based on the terms of the contract.

Cash Equivalents

Cash  equivalents  are  comprised of certain  highly liquid  investments  with a
maturity of three months or less when purchased.

Short-Term Investments

Short-term  investments are comprised of a certificate of deposit.  The maturity
of the certificate of deposit at acquisition was one year. The book value of the
investment  approximates  the market value as a result of the short-term  nature
and the low level of risk of the investment.

Property and Equipment

Property and equipment are stated at cost.  Depreciation  is computed  utilizing
the  straight-line  method over the  estimated  useful lives of the assets which
range from three to seven years.  Leasehold improvements are amortized utilizing
the straight-line  method over the lesser of the useful life of the leasehold or
the term of the lease.

Deferred Rent

The Company leases  premises  under leases which provide for periodic  increases
over the lease term.  Pursuant to Statement of  Financial  Accounting  Standards
("SFAS") No. 13,  "Accounting for Leases," the Company records rent expense on a
straight-line  basis.  The effect of these  differences  is recorded as deferred
rent.

Deferred Taxes

The Company  provides for deferred taxes  pursuant to SFAS No. 109,  "Accounting
for Income  Taxes," which requires the  recognition of deferred taxes  utilizing
the liability method.

Foreign Currency Translation

Balance sheet accounts of the Company's United Kingdom,  and Asian  subsidiaries
are translated using year-end exchange rates.  Statement of operations  accounts
are translated at monthly  average  exchange  rates.  The resulting  translation
adjustment is reported as other  comprehensive  income  (loss) in  stockholders'
equity (deficit).  Foreign exchange gains and losses for all the years presented
were not significant.

                                      F-10




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


Goodwill

During 2001 and 2000, goodwill was amortized utilizing the straight-line  method
over periods of 20 to 30 years. The Company periodically  evaluated the carrying
value and the  periods of  amortization  of  goodwill  based on the  current and
expected future  un-discounted  cash flow from operations of the entities giving
rise to the  goodwill to  determine  whether  events and  circumstances  warrant
revised  estimates of carrying value or useful lives. No such  write-downs  were
made during 2001 and 2000.

On January 1, 2002,  the  Company  adopted  SFAS No.  142,  "Goodwill  and Other
Intangible Assets".  Under the new rules,  goodwill and intangible assets deemed
to have  indefinite  lives  will no longer be  amortized  but will be subject to
annual  impairment  tests in accordance with the SFAS No. 142. Other  intangible
assets will continue to be amortized over their useful lives.

Deferred Financing Costs

Deferred financing costs are amortized  utilizing the straight-line  method over
the term of the related debt.

Concentration of Credit Risk

Financial  instruments that potentially  subject the Company to concentration of
credit  risk  include  cash and cash  equivalents,  short-term  investments  and
accounts  receivable  arising from its normal business  activities.  The Company
places its cash and cash equivalents and short-term investments with high credit
quality financial institutions.

The Company  believes  that its credit risk  regarding  accounts  receivable  is
limited due to the large number of entities  comprising  the Company's  customer
base. In addition,  the Company routinely assesses the financial strength of its
customers and, based upon factors  surrounding the credit risk of its customers,
establishes an allowance for uncollectible accounts, where appropriate and, as a
consequence,  believes  that its  accounts  receivable  credit risk  exposure is
limited.

Fair Value of Financial Instruments

The  carrying  amount of the  Company's  cash and cash  equivalents,  short-term
investments,   accounts  receivable,   accounts  payable  and  accrued  expenses
approximates fair value. It is not practicable to estimate the fair value of the
borrowings  under the Senior Credit Facility and Senior  Subordinated  Notes and
the Series G Preferred Stock. (See Note 8).


                                      F-11




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Segment Information

The  Company  reports  segment  information  in  accordance  with SFAS No.  131,
"Disclosures about Segments of an Enterprise and Related Information".  SFAS No.
131  establishes  standards  for  the way  companies  report  information  about
operating segments in annual financial statements. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers (see Note 16).

Stock-Based Compensation

The Company  grants stock options for a fixed number of shares to employees with
an  exercise  price  equal to the fair value of the shares at the date of grant.
The Company  accounts for stock option grants in accordance with APB Opinion No.
25,   "Accounting  for  Stock  Issued  to  Employees"  ("APB  25")  and  related
interpretations   because  the  Company  believes  the  alternative  fair  value
accounting  provided  for  under  SFAS  No.  123,  "Accounting  for  Stock-Based
Compensation",  requires  the use of  option  valuation  models  that  were  not
developed for use in valuing  employee stock options.  Under APB 25, because the
exercise  price of the Company's  employee stock options equals the market price
of the  underlying  stock on the  date of  grant,  no  compensation  expense  is
recognized on the date of grant.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation - Transition and  Disclosure."  SFAS No. 148 amends SFAS No. 123 to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based methods of accounting  for  stock-based  employee  compensation.  In
addition,  SFAS No. 148 amends the  disclosure  requirements  of SFAS No. 123 to
require  more  prominent  disclosures  in  both  annual  and  interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported  results.  The Company has elected
to continue to follow the intrinsic  value method of accounting as prescribed by
APB Opinion No. 25 to account for stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the vesting  period of the options.  The  Company's
pro forma information is as follows:

                                      F-12




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


                                                  Year ended December 31
                                              2002          2001         2000
                                         ---------------------------------------
 Net (loss) income available for
   common stockholders as reported       $(100,697,000) $(7,179,000) $4,470,000
 Pro forma SFAS 123 compensation
   income (expense), net of
   income tax expense                    $     122,000  $  (283,000) $ (431,000)
                                         ---------------------------------------
 Pro forma net (loss) income
   available for common
   stockholders                          $(100,575,000) $(7,462,000) $4,039,000
                                         =======================================

 (Loss) earnings per share as reported
   Basic                                 $       (8.05) $      (.67) $     0.42
   Diluted                               $       (8.05) $      (.67) $     0.41
  Pro forma SFAS 123
   compensation income
   (expense), net of income
   taxes per share
   Basic                                           .01         (.03)      (0.04)
   Diluted                                         .01         (.03)      (0.03)
 Pro forma (loss) earnings per
   basic share
   Basic                                 $      (8.04)  $      (.70) $      .38
   Diluted                               $      (8.04)  $      (.70) $      .38

Reclassifications

Certain items previously reported in specific financial statement captions have
been reclassified to conform with the 2002 presentation.

New Accounting Standards

In July 2001, the FASB issued SFAS No. 141, "Business Combinations, and No. 142,
Goodwill and Other  Intangible  Assets",  effective  for fiscal years  beginning
after December 15, 2001.  Under the new rules,  goodwill and  intangible  assets
deemed to have  indefinite  lives are no longer  amortized,  but are  subject to
annual  impairment  tests in accordance  with the statements.  Other  intangible
assets  continue to be amortized over their useful lives.  Upon adoption of SFAS
No. 142 in the first quarter of 2002, the Company  recorded a non-cash charge of
$45 million to reduce the carrying  value of its goodwill.  Based on the results
of the Company's  annual goodwill  impairment test in the fourth quarter of 2002
and  the   estimated   implied  value  of  the  Company  based  on  the  various
restructuring  proposals  received by the Company,  it was determined that there
was a further  impairment of the remaining  goodwill and accordingly the balance
of  $42,471,000  was written off (see Note 6). The  adoption of SFAS No. 141 did
not have a material  impact on the Company's  results of operations or financial
position.

                                      F-13




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets"  which  addresses  financial   accounting  and
reporting for the  impairment or disposal of  long-lived  assets and  supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of", and the  accounting  and reporting  provisions of APB
Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment
of a Business"  ("APB  30").  The Company  evaluates  whether  there has been an
impairment  in any of its  long-lived  assets on an annual  basis or if  certain
circumstances  indicate that a possible  impairment may exist.  An impairment in
value exits where the  carrying  value of a  long-lived  asset  exceeds its fair
value.  If it is  determined  that an  impairment  in value  has  occurred,  the
carrying value is written down for its fair value.  The Company adopted SFAS No.
144 in 2002 (see Note 6).

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 62,  Amendment of FASB Statement No. 13, and Technical  Corrections".
SFAS No. 145 eliminates the requirement  under SFAS No. 4, "Reporting  Gains and
Losses  from   Extinguishment   of  Debt,"  to  report  gains  and  losses  from
extinguishments  of  debt  as  extraordinary  items  in  the  income  statement.
Accordingly,  gains or losses  from  extinguishments  of debt for  fiscal  years
beginning after May 15, 2002 shall not be reported as extraordinary items unless
the  extinguishment  qualifies as an extraordinary  item under the provisions of
APB 30. Upon adoption of this pronouncement,  any gain or loss on extinguishment
of  debt  previously  classified  as an  extraordinary  item  in  prior  periods
presented that does not meet the criteria of Opinion 30 for such  classification
should  be  reclassified  to  conform  with  the  provisions  of SFAS  No.  145.
Management  does not believe the adoption of this  standard will have a material
impact on the consolidated financial statements.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal Activities" and nullifies EITF Issue No. 94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity  (including  Certain  Costs  Incurred in a  Restructuring)"  ("EITF No.
94-3").  SFAS No. 146 requires  that a liability for a cost  associated  with an
exit or disposal activity be recognized when the liability is incurred,  whereas
EITF No. 94-3 had  recognized  the liability at the  commitment  date to an exit
plan.  The Company is required to adopt the provisions of SFAS No. 146 effective
for exit or disposal  activities  initiated after December 31, 2002.  Management
does not believe the adoption of this  standard  will have a material  impact on
the consolidated financial statements.

                                      F-14




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


3. Property and Equipment

Property and equipment consists of the following:

                                                      December 31
                                                   2002          2001
                                                -------------------------

Leasehold improvements                          $  544,000   $ 1,720,000
Furniture and fixtures                             539,000     1,884,000
Office and computer equipment                    6,719,000     8,141,000
                                                -------------------------
                                                 7,802,000    11,745,000
Less accumulated depreciation and amortization   4,500,000     6,054,000
                                                -------------------------
                                                $3,302,000   $ 5,691,000
                                                =========================

See Note 6 for a discussion of impairment of property and equipment.

4. Related Party Transactions

In August 2000,  the Company issued 60,000 shares of common stock to an employee
for  services.  These  shares  vest in August  2003.  Such shares were valued at
$143,000,  the  then  current  market  value.  Deferred  compensation  is  being
amortized on a straight-line basis through August 2003.

In July  1999,  the  Company  granted  125,000  shares  of  common  stock to the
Company's Chairman.  These shares vest at the earlier of i) the Company's common
stock price reaching a certain level,  as defined,  or ii) on July 1, 2006. Such
shares were valued at $475,000 and the related  deferred  compensation  is being
amortized on a straight-line basis through July 1, 2006.

During the years ended December 31, 2002,  2001 and 2000,  the Company  incurred
fees of approximately  $82,000,  $61,000 and $204,000,  respectively,  for legal
services  to an  entity,  whose  partner is a member of the  Company's  Board of
Directors.

5. Acquisitions

In  connection  with  acquisitions  the Company  made in 1997,  1998 and 1999 in
addition to the purchase price paid at closing, the Company was obligated to pay
additional cash and common stock earnout  consideration  to the sellers based on
future  earnings.   In  2002,  2001  and  2000,   additional   consideration  of
approximately $158,000, $2,966,000 and $8,062,000,  respectively,  was recorded.
As  consideration  for a portion of the earnouts  recorded in 2000,  the Company
issued 157,166 shares of the Company's common stock, valued at $416,333.


                                      F-15




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


6. Goodwill and Long-lived Assets

Upon adoption of SFAS No. 142 in the first quarter of 2002, the Company recorded
a non-cash  charge of $45 million to reduce the carrying  value of its goodwill.
Such charge is non-operational in nature and is reflected as a cumulative effect
of an  accounting  change in the  accompanying  2002  consolidated  statement of
operations.  Based on the results of the Company's  annual  goodwill  impairment
test in the  fourth  quarter  of 2002  and the  estimated  implied  value of the
Company based on the various restructuring proposals received by the Company, it
was determined that there was a further impairment of the remaining goodwill and
accordingly the balance of $42,471,000 was written off. This amount is reflected
as  impairment  of  goodwill  and  long-lived  assets  in the 2002  consolidated
statement of operations.

A summary of the change in the Company's goodwill during the year ended December
31, 2002, by reporting units is as follows:

                                           Goodwill
                    ----------------------------------------------------------
                     January 1,                                   December 31,
Reporting Units        2002        Adjustments(i)  Impairments       2002
- ---------------     -------------  -------------  --------------  ------------
Executive Search    $11,086,000     $ 92,000      $(11,178,000)   $       -
Temporary Staffing   42,415,000       66,000       (42,481,000)           -
Technology Staffing  33,812,000            -       (33,812,000)           -
                    -------------  -------------  --------------  ------------
Total               $87,313,000     $158,000      $(87,471,000)   $       -
                    =============  =============  ==============  ============

(i)  During the year ended  December  31,  2002,  additional  purchase  price of
$158,000 was recorded as goodwill upon the  determination  that the earnouts had
been met on certain acquisitions made in 1997, 1998 and 1999.

The 2001 and 2000 results on a historical basis do not reflect the provisions of
SFAS No. 142. Had the Company adopted SFAS No. 142 on January 1, 2000 and ceased
to amortize  goodwill at such date,  the  historical net (loss) income and basic
and diluted net (loss)  income per common  share would have been  changed to the
adjusted amounts indicated below:

                                       Year Ended December 31, 2001
                                   ------------------------------------
                                                 Net loss per basic and
                                     Net loss    diluted common share
                                   ------------------------------------
As reported--historical basis      $(7,179,000)   $     (.67)
Add:  Goodwill amortization          4,013,000           .37
Income tax impact                   (1,746,000)         (.16)
                                   ------------------------------------
Adjusted                           $(4,912,000)   $     (.46)
                                   ====================================


                                      F-16




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




                                         Year Ended December 31, 2000
                              -----------------------------------------------------
                                          Net income per basic   Net income per
                              Net income      common share     diluted common share
                              -----------------------------------------------------
                                                         
As reported--historical basis $4,470,000     $      .42           $      .41
Add: Goodwill amortization     3,891,000            .37                  .27
Income tax impact             (1,673,000)          (.16)                (.11)
                              -----------------------------------------------------
Adjusted                      $6,688,000     $      .63           $      .57
                              =====================================================


In  accordance  with the  provisions  of SFAS No. 144, in the fourth  quarter of
2002,  the Company  determined  that there was an  impairment  to  property  and
equipment in the amount of  $1,168,000  ($854,000  and  $314,000  related to the
Executive  Search and  Technology  Staffing  asset groups,  respectively).  This
amount is reflected in impairment of goodwill and long-lived  assets in the 2002
consolidated  statements of operations.  In calculating the impairment  charges,
the fair value of the impaired asset groups (see Note 16) were estimated using a
discounted cash flow methodology.

7. Derivative Financial Instruments

As of January  1, 2001,  the  Company  adopted  SFAS No.  133,  "Accounting  for
Derivative  Instruments and Hedging  Activities," which was issued in June 1998.
The Company  accounted  for the  accounting  change as a cumulative  effect of a
change in an accounting  principle.  The adoption of Statement 133 resulted in a
cumulative  effect of an  accounting  change of $248,000,  net of an  applicable
income  tax  benefit  of  $187,000,  which was  recognized  as a charge to other
comprehensive income (loss) in 2001.

The Company used interest rate swap contracts for hedging purposes.  The Company
had entered into  interest rate swap  agreements  that  effectively  converted a
portion of its floating-rate  debt to a fixed-rate basis through April 18, 2002,
thus  reducing  the  impact  of  interest-rate   changes  on  interest  expense.
Approximately  $30,000,000 of the Company's  outstanding  debt was designated as
the hedged item to an interest  rate swap  agreement  which expired on April 18,
2002. For interest rate swaps,  the net amounts paid or received and net amounts
accrued  through  the end of the  accounting  period  were  included in interest
expense.  Unrealized  gains or losses on interest rate swap  contracts  were not
recognized  in income.  During the years ended  December 31, 2002 and 2001,  the
Company  recognized  a change in fair value of the  derivative  of $264,000  and
$16,000, respectively,  related to the change in fair value of the interest rate
swap  contract  net  of  applicable   income  taxes  of  $199,000  and  $12,000,
respectively, as a component of other comprehensive income.

8. Long-Term Debt and Credit Facilities

In March 1998,  the Company  obtained $105 million of financing  consisting of a
$75 million  senior credit  facility  ("the Senior Credit  Facility")  which was
subsequently increased to $100 million, $10 million of senior subordinated notes

                                      F-17




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


(the  "Senior  Subordinated  Notes"),  and $20  million of Series F  Convertible
Preferred Stock (see Note 9).

In August 2000, the Senior Credit Facility was amended and the amount that could
be borrowed  was reduced to  $85,000,000.  In August 2001,  the Company  further
amended the Senior Credit  Facility,  reducing the amount that could be borrowed
to $72,000,000.

In April 2002, the Company  further  amended the Senior Credit  Facility,  which
extended the  maturity  date to June 30, 2003,  waived  compliance  with certain
financial  ratios,  which the Company had failed,  and  required  the Company to
issue warrants to purchase  2,455,522  shares of common stock at $0.25 per share
(the "Bank Warrants") to the lenders.

As  of  December  31,  2002,  $72,000,000  in  aggregate  principal  amount  was
outstanding  under the Company's  Senior Credit  Facility.  The Company's Senior
Credit  Facility  expires in June 2003 with all  outstanding  amounts  then due.
Substantially  all assets of the Company have been pledged as collateral for the
senior credit facility.

In December 2002,  the Company  further  amended the Senior Credit  Facility and
obtained a waiver of  compliance  with certain  financial  covenants,  which the
Company had failed as of that date, including  maintenance of a minimum level of
EBITDA and the requirement that the Company make a partial repayment of the loan
if the accounts  receivable is below a certain level.  The amendment  provided a
waiver and reduced the amount of the monthly cash interest payment through March
31,  2003.  Although  the Company was in  compliance  with the  Amendment  as of
December 31, 2002,  the waiver  expired on March 31, 2003 causing the Company to
be in default of the Senior Credit Facility.  The existence of events of default
under the Senior Credit Facility creates  cross-defaults under the Indenture for
the  Senior  Subordinated  Notes and the  Certificate  of  Designations  for the
Preferred Stock.  Upon the occurrence and during the continuation of an event of
default under the  Certificate of  Designations,  holders of the Preferred Stock
may require redemption of the Preferred Stock by the Company.

The Company is currently in negotiations with its Senior Lenders and the holders
of its Senior Subordinated Notes and Preferred Stock (collectively,  the "Senior
Creditors")  to  further  amend  the  Senior  Credit  Facility,   Indenture  and
Certificate  of  Designations,  which  would  include a waiver  and an  extended
maturity  date as well as  modified  financial  covenants  that  would  give the
Company  greater  flexibility  to  operate.  The  Company is also  currently  in
negotiations  with the Senior Creditors  concerning a possible  restructuring of
the Company's  outstanding debt and equity. Any such restructuring  would likely
involve a  significant  reduction  in the  Company's  debt,  new debt and equity
financing and a significant dilution in the percentage of the outstanding common
stock held by the Company's  current common  stockholders.  No assurances can be
given that any restructuring will be accomplished or as to the terms thereof. If
such  waivers and  amendments  or  restructuring  is not achieved and the Senior
Creditors  exercise  their rights and remedies as a result of the pending events
of default or upon the maturity of the

                                      F-18




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


Senior Credit  Facility on June 30, 2003, the Company would not have  sufficient
liquidity to meet its obligations,  and may need to file for bankruptcy pursuant
to chapter 11 of the Bankruptcy Code.

As  of  December  31,  2002,  the  Company  had a  working  capital  deficit  of
approximately $54,581,000 compared to working capital of $34,813,000 at December
31, 2001. The deficiency was a direct result of the classification of the Senior
Credit Facility and Senior Subordinated Notes as current liabilities.

As  of  December  31,  2002,  $10,000,000  in  aggregate  principal  amount  was
outstanding under the Senior  Subordinated  Notes and $20,000,000 in face amount
of Preferred Stock was outstanding. The Senior Subordinated Notes are payable in
March 2006 and  originally  bore  interest  at 12% per annum  until  March 2001,
increasing to 14% per annum thereafter. In January 2001, the terms of the Senior
Subordinated  Notes were amended,  including  increasing the effective  interest
rate to 13% until March 2001 and 15%  thereafter.  In August  2001,  the Company
entered into a Limited Waiver and Amendment with the Senior  Subordinated  Notes
Holders and the Preferred  Stockholders,  which  provided the  following,  among
other things:

i.   A waiver of the events of default on the Senior  Subordinated Notes and the
     Preferred Stock.
ii.  A waiver of the payment of (but not the accrual of) interest and  dividends
     under the Senior Subordinated Notes and the Preferred Stock, respectively.
iii. An increase in the interest  rate on the Senior  Subordinated  Notes to 20%
     per annum (which increase has since been waived).
iv.  An increase in the annual dividend rate to 10%.
v.   A reduction in the  conversion  price of the  Preferred  Stock to $1.00 per
     share.
vi.  The  issuance of  warrants in the  aggregate,  exercisable  into  3,000,000
     shares of the Company's common stock (the "Series G Warrants").
vii. Required maintenance of a certain amount of EBITDA, as defined, and maximum
     amonts of capital  expenditures.  Such EBITDA requirement was not met as of
     December 31, 2001.
viii.The  reduction of the  exercise  price of all Series G Warrants to $.01 per
     share if certain requirements are not met (see below).
ix.  The  exchange  of the  Series F  Preferred  Stock in to an equal  number of
     shares  of a newly  created  Series G  Convertible  Preferred  Stock.  Such
     exchange took place as of September 7, 2001.  The Series G Preferred  Stock
     has the same  features  as the  Series F  Preferred  Stock,  other than the
     reduction in the conversion price under the conditions described above.

On April 17, 2002, the Senior  Subordinated  Notes were further  amended and the
Company  entered into the Second  Limited  Waiver with the holders of the Senior
Subordinated Notes Holders and Preferred Stock, which provided the following:


                                      F-19




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


i)   A waiver of the events of default  on the  Senior  Subordinated  Notes from
     March 31, 2002 through the "Recap Amendment  Termination Date",  defined as
     the  earliest  of (1) June 30,  2003 or such  earlier  on date on which the
     Senior  Credit  Facility may mature;  (2) the date on which all amounts due
     under the Senior Credit  Facility shall have been paid in full in cash; (3)
     the date on which the Senior  Credit  Facility  is amended or modified in a
     manner that (A) increases the Base Rate,  the Default Rate,  the Applicable
     Margin or any other interest rate on the Senior  Indebtedness (B) decreases
     the PIK Amount (C)  increases  the amount of fees or other  payments due to
     the agent or any  lender  under the  Senior  Credit  Facility  (other  than
     increases made in connection with events of default under the Senior Credit
     Facility that do not exceed,  in the  aggregate,  0.50% of the  outstanding
     payment   obligations  under  the  Senior  Credit  Facility),   or  (D)  in
     consideration  of which,  the agent or any lender  under the Senior  Credit
     Facility is issued any additional  equity interest in the Company;  and (4)
     the  acceleration of any  indebtedness  under the Senior Credit Facility or
     the  exercise of any rights or  remedies  by any of the  lenders  under the
     Senior Credit Facility.
(ii) A waiver of the payment of interest (but not the accrual of interest) under
     the  Senior  Subordinated  Notes  from  March 31,  2002  through  the Recap
     Amendment Termination Date.
(iii)A waiver  of the  Preferred  Stock  events of  default  and a waiver of the
     payment of dividends  (but not the accrual of  dividends)  on the Preferred
     Stock from March 31, 2002  through the Recap  Amendment  Termination  Date.
     Under the terms of the Second  Limited  Waiver,  dividends on the Preferred
     Stock accrue as additional liquidation preference. Accordingly, the accrued
     dividend  balance  as of  December  31,  2001 has been  re-classified  from
     accrued expenses to preferred stock.
(iv) A waiver of the increase in interest rate on the Senior  Subordinated Notes
     from 15% to 20% retroactive to July 1, 2001.
(v)  An adjustment to the exercise  price of certain of the Series G Warrants to
     $0.25 per  share.  The  re-pricing  of the Series G  Warrants  resulted  in
     deferred  financing  costs  based on the  fair  value  of the  warrants  of
     $73,000, which is being amortized through June 2003.
(vi) Required  maintenance of certain amounts of EBITDA, as defined, and maximum
     amounts of capital  expenditures,  as defined. Such EBITDA covenant was not
     met as of December 31, 2002.
(vii)That the Company take all actions  necessary to obtain  common  stockholder
     approval of an increase in the number of  authorized  common  shares of the
     Company to  80,000,000  at a  stockholder  meeting to be held no later than
     July 15,  2002,  subject to extension  under  certain  circumstances.  Such
     approval was obtained on July 15, 2002.
(viii) That the Company  issue Bank  Warrants to  purchase  2,455,522  shares of
     common  stock at $0.25  per share to the  lenders  in  connection  with the
     amendment of its Senior Credit Facility. Such warrants were issued in April
     2002. The issuance of these warrants  resulted in deferred  financing costs
     based  on the  fair  value  of the  warrants  of  $105,000,  which is being
     amortized through June 2003.


                                      F-20




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


In May 2002,  the  holders of the Senior  Subordinated  Notes and the  Preferred
Stock  exchanged   $474,000  in  accrued  and  unpaid  interest  on  the  Senior
Subordinated  Notes to exercise the Series G Warrants.  In connection  with this
exercise, the Company issued 3.0 million shares of common stock to the holders.

As of December 31, 2002, the unpaid  aggregate  dividend was $3,285,000 of which
$2,160,000 and $1,125,000  relate to the years ended December 31, 2002 and 2001.
The unpaid  interest  on the Senior  Credit  Facility  at  December  31, 2002 is
$1,138,000,  which is included in accrued  interest.  The unpaid interest on the
Senior Subordinated Notes at December 31, 2002 is $2,151,000,  which is included
in accrued interest.

9. Stockholders' Equity

In March  1998,  the  Company  authorized  and issued  1,000  shares of Series F
Convertible Preferred Stock for $20,000,000.  The Series F Convertible Preferred
Stock is non-voting, accrues dividends at the rate of 5.5% (increased to 7.5% in
March  2000) per annum  and was  convertible  into  common  stock at an  initial
conversion  price of $5.58 per share (the market value of the  Company's  common
stock at  closing).  On September 7, 2001,  the Series F  Convertible  Preferred
Stock  were  exchanged  into an  equal  number  of the  newly  created  Series G
Convertible  Preferred  Stock.  Expenses in connection  with the issuance of the
preferred  stock amounted to $1,367,000 and were accounted for as share issuance
expenses.  The  Series  F and  Series G  Convertible  Preferred  Stock  requires
redemption for cash upon the occurrence of a change of control, as defined.  The
change of control event which triggers redemption at the option of the holder is
not deemed  solely within the control of the Company.  Accordingly,  the Company
has  classified  the Series G Convertible  Preferred  Stock outside of permanent
stockholders'  equity on the  December  31, 2002 and  December  31, 2001 balance
sheets.

In September 1998, the Company  authorized a stock  repurchase  program of up to
1,000,000  shares of the Company's  common  stock.  The Company did not make any
purchases under this program in 2002 and 2001. In 2000, the Company  repurchased
5,000 shares of the Company's common stock for approximately $20,000.

At December 31, 2002,  approximately 28,982,000 shares of common stock have been
reserved for future issuance as follows:

  Convertible Preferred Stock                      23,285,000
  Bank Warrants                                     2,456,000
  Stock Incentive Plan (see Note 10)                3,241,000
                                                   ----------
                                                   28,982,000
                                                   ==========


                                      F-21




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



At December 31, 2002, the Bank Warrants are fully vested, have an exercise price
of $0.25 per share and expire in April 2007.  During 2002,  3,000,000  shares of
the Company's  common stock were issued in  connection  with the exercise of the
Series G Warrants. The holders of the Senior Subordinated Notes and the Series G
Convertible Preferred Stock exchanged $474,000 in accrued and unpaid interest on
the Senior Subordinated Notes to exercise the Series G Warrants. During 2001, no
warrants were exercised and approximately 270,000 warrants expired. During 2000,
no warrants were exercised and  approximately  102,000 warrants that were issued
upon the conversion of Series D convertible preferred stock were cancelled.

10. (Loss) Earnings Per Share

The  following  table sets forth the  computation  of basic and  diluted  (loss)
earnings per share for the years ended December 31, 2002, 2001 and 2000:


                                      F-22




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




                                                      2002          2001         2000
                                                 ---------------------------------------
                                                                    
 Numerator:
   Net (loss) income                             $ (98,538,000) $(5,679,000) $ 5,884,000
   Cumulative effect of accounting change           45,000,000
   Preferred stock dividend requirements            (2,159,000)  (1,500,000)  (1,414,000)
                                                 ---------------------------------------
   Numerator for basic (loss)
    earnings per share - net (loss) income
    available for  common stockholders before
    cumulative effect of accounting change         (55,697,000)  (7,179,000)   4,470,000
   Cumulative effect of accounting change          (45,000,000)           -            -
                                                 ---------------------------------------
   Numerator for basic (loss)
    earnings per share - net (loss)
    income available for common stockholders      (100,697,000)  (7,179,000)   4,470,000
   Effect of dilutive securities:
    Preferred dividend requirements                          -            -    1,414,000
                                                 ---------------------------------------
 Numerator for diluted (loss)
   earnings per share - net (loss) income
   available for common stockholders
   after assumed conversions (2000)              $(100,697,000) $(7,179,000) $ 5,884,000
                                                 =======================================
 Denominator:
   Denominator for basic (loss)
    earnings per share - weighted average shares    12,504,969    10,729,627  10,590,461
   Effect of dilutive securities:
    Stock options, warrants and
      restricted shares                                      -             -      74,142
    Convertible preferred stock                              -             -   3,584,299
                                                 ---------------------------------------
    Dilutive potential common stock                          -             -   3,658,441
                                                 ---------------------------------------
 Denominator for diluted (loss)
   earnings per share - adjusted weighted-average
   shares and assumed conversions                   12,504,969    10,729,627  14,248,902
                                                 =======================================
 Basic (loss) earnings per share
   before cumulative effect of
   accounting change                             $       (4.45) $       (.67) $      .42
                                                 =======================================
 Basic (loss) earnings per share                 $       (8.05) $       (.67) $      .42
                                                 =======================================
 Diluted (loss) earnings per share
   before cumulative effect of
   accounting change                             $       (4.45) $       (.67) $      .41
                                                 =======================================
 Diluted (loss) earnings per share               $       (8.05) $       (.67) $      .41
                                                 =======================================

The calculation of diluted (loss) earnings per share excludes  potential  common
shares. During the years ended December 31, 2002 and December 31, 2001, Series G
and Series F  preferred  stock,  restricted  common  stock,  warrants  and stock
options  were  outstanding  but were  excluded  because to include them would be
antidilutive.

                                      F-23




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


11. Income Taxes

Pre-tax (loss) income from foreign operations was $(2,734,000), $(1,053,000) and
$1,718,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Income  tax  (benefit)  expense  from  continuing  operations  consists  of  the
following:

                                          Year ended December 31
                                    2002           2001          2000
                               -------------------------------------------
 Current:
   Domestic                     $(5,696,000)   $(3,745,000)   $3,368,000
   Foreign                           65,000        116,000       443,000
                               -------------------------------------------
                                 (5,631,000)    (3,629,000)    3,811,000
                               -------------------------------------------
 Deferred expense:
   Domestic                        (506,000)        50,000       577,000
   Foreign                          199,000       (199,000)            -
                               -------------------------------------------
 Total deferred expense            (307,000)      (149,000)      577,000
                               -------------------------------------------
                                $(5,938,000)   $(3,778,000)   $4,388,000
                               ===========================================

The components of deferred tax assets and liabilities are as follows:

                                              December 31
                                           2002          2001
                                      ---------------------------
 Deferred tax assets:
   Deferred rent                      $   400,000     $  462,000
   Allowances for doubtful accounts       857,000        559,000
   Net operating loss carryforwards     2,632,000        932,000
   Depreciation                           410,000              -
   Intangibles                         19,391,000              -
   Other                                  299,000         47,000
                                      ---------------------------
                                       23,989,000      2,000,000
 Deferred tax liabilities:
   Depreciation                                 -       (216,000)
   Intangibles                                  -     (2,091,000)
                                      ---------------------------
                                                -     (2,307,000)
                                      ---------------------------
 Valuation allowance                  (23,989,000)             -
                                      ---------------------------
                                      $         -     $ (307,000)
                                      ===========================

Realization of deferred tax assets is dependent on future  earnings.  Due to the
uncertainty  of  realization  of the net  deferred  tax assets,  the Company has
provided a valuation allowance.

                                      F-24




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


A reconciliation of the statutory Federal income tax rate to the effective rates
is as follows:

                                        Year ended December 31
                                       2002      2001      2000
                                     ------------------------------

 Statutory rate                         (34)%     (34)%      34%
 State and local income taxes
   (net of federal tax benefit)          (5)       (7)        7
 Impact of valuation allowance           28%        0%        0%
 Other                                    1         1         2
                                     ------------------------------
 Effective tax rate                     (10)%     (40)%      43%
                                     ==============================

The  Company  has  a  federal  net  operating   loss  in  the  current  year  of
approximately  $17,000,000,  which will be carried  back for federal  income tax
purposes.  At December 31, 2002, the Company also has state and local  operating
loss carryforwards of approximately  $28,000,000,  which will be carried forward
for state tax  purposes.  These  carryforwards  expire at various  dates through
December 31, 2022, depending on the state or local tax jurisdiction.

12. Stock Incentive Plan

Pursuant to the Company's  Stock  Incentive  Plan (the "Plan"),  up to 3,771,567
options to purchase common stock were reserved for grant.  The Plan provides for
the granting of stock options, stock appreciation rights and stock awards. Stock
options  intended to be incentive  stock options will be granted at prices equal
to at least market price on the date of the grant.  A summary of the activity in
the Plan is as follows:


                                       Number of   Weighted Average
                                        Shares      Exercise Price
                                     --------------------------------

 Outstanding at December 31, 1999     1,985,231        $ 4.47
 Granted                                282,500          3.34
 Canceled                              (345,000)         4.59
                                     --------------
 Outstanding at December 31, 2000     1,922,731          4.27
 Granted                                 20,000          0.60
 Canceled                               (95,950)         5.23
                                     --------------
 Outstanding at December 31, 2001     1,846,781          4.19
 Canceled                              (210,500)         4.56
                                     --------------
 Outstanding at December 31, 2002     1,636,281          4.14
                                     ==============
 Exercisable at December 31, 2000     1,276,896          4.13
                                     ==============
 Exercisable at December 31, 2001     1,460,948          4.20
                                     ==============
 Exercisable at December 31, 2002     1,571,281          4.17
                                     ==============

Options  granted  vest  equally  over three  years or cliff vest at the end of a
three-year  term and are  exercisable  for a period not to exceed ten years from
the date of grant.

                                      F-25




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


Information regarding options outstanding under the Plan at December 31, 2002 is
as follows:

                         Options Outstanding             Options Exercisable
                 ------------------------------------- ----------------------
                                           Weighted-
                                Weighted-  Average                  Weighted-
Exercise         Number of      Average    Remaining   Number of    Average
Price            Options        exercise   Contractual Options      Exercise
Range            Outstanding    Price      Life        Exercisable  Price
- -----------------------------------------------------------------------------

$ 0.60              15,000      $ 0.60     8.7 years     15,000      $0.60
  2.38 - 3.50      537,500        2.81     3.4 years    510,833       2.83
  3.62 - 5.38      935,231        4.30     5.5 years    896,898       4.31
  5.50 - 8.00       65,000        6.36     5.7 years     65,000       6.36
  9.88              83,550        9.88     5.6 years     83,550       9.88
                 -----------                          ----------
                 1,636,281                            1,571,281
                 ===========                          ==========

There were no options  granted  during the year ended  December  31,  2002.  The
weighted  average fair value of options  granted during the years ended December
31,  2001 and 2000 was $0.28  and  $2.12,  respectively.  The  weighted  average
remaining  contractual life of options  exercisable at December 31, 2002 is 4.17
years.

13. Stock-Based Compensation

Pro forma information  regarding net (loss) income and (loss) earnings per share
is  required  by SFAS No.  123 and has been  determined  as if the  Company  had
accounted for its employee stock options under the fair value method of SFAS No.
123.  The fair value for the options  granted in 2001 and 2000 was  estimated at
the date of grant using a Black-Scholes  option-pricing model with the following
weighted-average assumptions:

                               Year ended December 31
                                  2001        2000
                               ----------------------
 Assumptions
 Risk-free rate                   4.61%       6.72%
 Dividend yield                      0%          0%
 Volatility factor of the
   expected market price of
   the Company's common stock       .47         .70
 Average life                   5 years     5 years

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective assumptions,  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from  those of traded  options, and  because changes in the subjective

                                      F-26




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

14. Commitments and Contingencies

The Company leases office space under operating leases which have various
expiration dates through October 2009. The leases provide for additional rent
based on increases in operating costs and real estate taxes. The Company also
leases equipment under capital leases expiring at various times through January
2004.

Future minimum lease payments at December 31, 2002 under capital leases and
noncancelable operating leases (shown net of $563,000 of sublease income per
annum through 2009) with remaining terms of one year or more are as follows:

                                         Capital        Operating
                                         Leases          Leases
                                     --------------------------------

 2003                                 $   126,000     $ 2,494,000
 2004                                       5,000       1,822,000
 2005                                           -       1,341,000
 2006                                          --       1,206,000
 2007                                          --         674,000
 Thereafter                                     -         806,000
                                     --------------------------------
 Total minimum lease payments             131,000     $ 8,343,000
                                                     ================
 Less amounts representing interest         3,000
                                     ----------------
 Present value of net minimum
   lease payments                         128,000
 Less current portion                     123,000
                                     ----------------
 Long-term portion                      $   5,000
                                     ================

Included in property  and  equipment  at December 31, 2002 and 2001 is equipment
recorded  under  capital  leases  with  a cost  of  $1,026,000  and  $1,170,000,
respectively,  and  accumulated  depreciation  and  amortization of $756,000 and
$693,000, respectively.  Amortization of equipment recorded under capital leases
is included with depreciation expense.

Rent  expense,  including  escalation  charges,  and net of  sublease  income of
$563,000,  $563,000 and $514,000 for the years ended December 31, 2002, 2001 and
2000 were $3,145,000, $3,070,000 and $2,976,000, respectively.

The  Company  has  letters  of  credit  outstanding  aggregating  $1,687,000  in
connection  with  various  guarantees  relating  to  its  workers   compensation
insurance policy, office leases and capital leases.

                                      F-27




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

In  February  1999,  a lawsuit  was filed in the  Superior  Court of  California
alleging breach of contract,  interference with prospective  business relations,
misappropriation of trade secrets and unfair competition.  In February 2002, the
lawsuit  was  settled.  The  settlement  did not have a  material  effect on the
financial position, results of operations or cash flows of the Company.

In May  2000,  a  lawsuit  was filed in the  Judicial  District  Court of Dallas
County,  Texas  alleging  breach  of  contract,  fraud,  negligence,   negligent
retention and supervision,  civil conspiracy and harmful access by computer.  In
July 2002, a judgment was entered in the amount of $790,000  against Headway and
the other  defendants.  This judgment was reflected in the net loss for the nine
months ended  September 30, 2002. In January 2003, the lawsuit was settled for a
substantially  lesser amount with Headway's  insurance covering all but $60,000.
During the quarter  ending  December  31,  2002,  $730,000  of such  accrual was
reversed.

The  Company is party to  litigation  arising  out of the  normal  course of its
business. In the opinion of management,  all matters are without merit or are of
such kind or involve such amounts,  as would not have a material  adverse effect
on the financial position, results of operations or cash flows of the Company.

15. Retirement Plan

The Company has a 401(k) plan covering substantially all its domestic employees.
The plan does not require a matching contribution by the Company.

16. Segment Information

Major Customers

For the years ended December 31, 2002 and 2001, one staffing  services  customer
accounted for 19% and 12% of the Company's revenues,  respectively. For the year
ended  December  31,  2000,  no  customer  accounted  for  more  than 10% of the
Company's revenues.

Geographic Information

For the years ended  December  31,  2002,  2001 and 2000,  the  Company  derived
substantially all of its revenues from businesses  located in the United States,
and no other country accounted for more than 10% of the Company's revenues.

                                      F-28




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


Business Segments

The Company  classifies its business into two  fundamental  areas,  staffing and
executive search. Staffing consists of the placement and payrolling of temporary
and  permanent  office,   clerical  and  information   technology   professional
personnel.  Executive search focuses on placing middle to upper level management
positions.

The Company  evaluates  performance  based on the segments'  profit or loss from
operations before unallocated corporate overhead. The accounting policies of the
reportable  segments  are  the  same  as  those  described  in  the  summary  of
significant accounting policies (see Note 2).

                                        Year ended December 31, 2002
                                                   Executive
                                      Staffing      Search
                                      Services     Services     Total
                                     ----------------------------------
                                           (Dollars in Thousands)

Revenues                              $253,344     $14,440    $267,784
Impairment of goodwill and
  long-lived assets                     39,807       3,832      43,639
Depreciation and amortization            1,874         393       2,267
Interest expense                         7,948         661       8,609
Interest income                            (70)          -         (70)
Segment (loss) before income tax
  (benefit) and cumulative effect
  of accounting change                 (46,167)     (8,060)    (54,227)
Income tax (benefit)                    (1,351)       (905)     (2,256)
Cumulative effect of accounting
  change                               (36,800)     (8,200)    (45,000)
Segment (loss)                         (81,616)    (15,355)    (96,971)
Segment assets                          38,591       3,693      42,284
Expenditures for long lived assets         813         222       1,035

                                         Year ended December 31, 2001
                                                  Executive
                                      Staffing     Search
                                      Services     Services     Total
                                     -----------------------------------
                                            (Dollars in Thousands)

Revenues                             $296,921      $26,116    $323,037
Depreciation and amortization           4,979          808       5,787
Interest expense                        9,203          443       9,646
Interest income                           (41)           -         (41)
Segment (loss) income before
  income tax (benefit) expense         (7,824)       1,496      (6,328)
Income tax (benefit) expense           (3,244)         688      (2,556)
Segment (loss) profit                  (4,580)         808      (3,772)
Segment assets                        120,419       19,579     139,998
Expenditures for long lived assets      1,157          285       1,442

                                      F-29




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


16. Segment Information (continued)

                                       Year ended December 31, 2000
                                               Executive
                                   Staffing      Search
                                   Services     Services      Total
                                   -----------------------------------
                                          (Dollars in Thousands)

Revenues                            $333,465     $37,650    $371,115

Depreciation and amortization          4,479         858       5,337
Interest expense                       6,818         253       7,071
Interest income                          (98)          -         (98)
Segment income before income tax
  expense                              6,141       8,127      14,268
Income tax expense                     2,641       3,413       6,054
Segment profit                         3,500       4,714       8,214
Segment assets                       128,478      23,356     151,834
Expenditures for long lived assets     1,435         315       1,750



                                          Year ended December 31
                                      2002         2001        2000
                                   -----------------------------------
                                          (Dollars in Thousands)

Reconciliation to net income
Total (loss) profit for             $(96,971)    $(3,772)    $ 8,214
  reportable segments
Unallocated amounts:
  Interest expense                    (3,389)     (1,233)       (978)
  Interest income                          -          72           7
  Corporate overhead                  (1,860)     (1,968)     (3,025)
  Income tax benefit                   3,682       1,222       1,666
                                   -----------------------------------
Net (loss) income                   $(98,538)    $(5,679)    $ 5,884
                                   ===================================

                                               December 31
                                      2002        2001         2000
                                   -----------------------------------
                                          (Dollars in Thousands)
Reconciliation to total assets
Total assets for reportable
  segments                          $ 42,284    $139,998    $151,834
Other assets                           6,073       9,166       2,352
                                   -----------------------------------
Total assets                        $ 48,357    $149,164    $154,186
                                   ===================================

                                      F-30




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


17. Subsequent Event

On March 13, 2003, Headway Corporate Resources, Inc. exited the executive search
segment  of its  business  through a sale of its  Whitney  subsidiaries.  All of
Headway's interest in the Whitney  subsidiaries were sold to Whitney Group, LLC,
a New York limited  liability  company (the Whitney Group").  Gary S. Goldstein,
who had  resigned  his  positions  as an officer and director of Headway and its
subsidiaries,  is an officer and principal  owner of membership  interest in the
Whitney Group.

In consideration  for the sale, the Whitney Group (i) issued to the Company a 15
percent  membership  interest in the Whitney  Group  (subject to  adjustment  in
certain circumstances), (ii) issued a promissory note in the principal amount of
$2,000,000,  and (iii) is obligated  to pay an earnout  equal to five percent of
Whitney Group's gross revenues, as defined, during a five-year period commencing
January 1, 2003.  The note bears interest at the Prime Lending Rate as in effect
from time to time, plus two percent per annum. Interest is payable quarterly and
the full  principal  amount of the note is payable in January 2005.  The Whitney
Group may, at its election, prepay and terminate the promissory note and earnout
obligation  through a lump sum payment of  $5,000,000  less the actual amount of
principal  previously  paid on the  promissory  note and earnout  payments.  The
Whitney Group is obligated to prepay the promissory note and earnout  obligation
on the foregoing terms if one or more specified events occur prior to January 1,
2006, that constitute a change in control or ownership of the Whitney Group. The
Company has estimated the fair market value of the promissory note at $1,400,000
and the 15% equity interest at $45,000. This transaction will be recorded in the
2003 financial statements and is not expected to have a material gain or loss on
the Company's results of operations.

The assets and  liabilities  of the  executive  search  segment  consists of the
following:

                                                   December 31,
                                              2002             2001
                                             -----------------------
Cash and cash equivalents                    $  134          $ 1,041
Accounts receivable                           1,600            3,336
Prepaid expenses and other current assets     1,146              528
Prepaid and refundable income taxes             572              722
Property and equipment                            -              973
Goodwill                                          -           11,086
Other assets                                    102              962
                                             -----------------------
   Total Assets                              $3,554          $18,648
                                             =======================

Accounts payable                                191              384
Accrued expenses                                398              905
Accrued payroll                               1,367            3,349
Capital lease obligations, current portion        3                5
Deferred rent                                   773              876
                                             -----------------------
   Total liabilities                         $2,732          $ 5,519
                                             =======================

                                      F-31




               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

18. Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results for the years ended December
31, 2002 and 2001.

                                              2002 Quarter Ended
                             ---------------------------------------------------
                               March         June       September      December
                             ---------------------------------------------------
                                (Dollars in Thousands, except per share data)

Revenues                     $ 69,641      $ 65,877      $66,560       $ 65,706
Operating (loss) income        (1,225)          103         (663)       (45,763)
(Loss) before cumulative
  effect of accounting change  (3,509)       (1,900)      (1,855)       (46,274)
Net (loss)                    (48,509)       (1,900)      (1,855)       (46,274)
Basic and diluted net (loss)
  available for common
  stockholders               $  (4.57)     $   (.21)     $  (.18)      $  (3.41)
                             =========     =========     ========      =========



                                             2002 Quarter Ended
                             ---------------------------------------------------
                               March         June       September      December
                             ---------------------------------------------------
                                (Dollars in Thousands, except per share data)

Revenues                     $ 89,713      $ 83,181      $76,140       $ 74,003
Operating income (loss)         5,755           370         (557)        (4,259)

Net income (loss)               1,984          (906)      (2,017)        (4,740)
Net income (loss) available
  for common stockholders:
     -Basic                  $    .15      $   (.12)     $  (.22)      $   (.48)
                             =========     =========     ========      =========
     -Diluted                $    .14      $   (.12)     $  (.22)      $   (.48)
                             =========     =========     ========      =========

                                      F-32





                 Schedule II - Valuation And Qualifying Accounts

               Headway Corporate Resources, Inc. and Subsidiaries

                                December 31, 2002






- ---------------------------------------------------------------------------------------------
           COL. A                   COL. B           COL. C           COL. D        COL. E
- ---------------------------------------------------------------------------------------------
                                                    Additions
                                               --------------------
                                   Balance at  Charged to  Charged                 Balance
         Description               Beginning   Costs and   to Other Deductions (a) at End
                                   of Period   Expense     Accounts                of Period
- ---------------------------------------------------------------------------------------------
                                                                    
Year Ended December 31, 2002:
  Deducted from asset account
  Allowance for doubtful accounts  $1,430,000  $1,619,000  $    -   $922,000       $2,127,000

Year Ended December 31, 2001:
  Deducted from asset account
  Allowance for doubtful accounts  $1,156,000  $  611,000  $    -   $337,000       $1,430,000

Year Ended December 31, 2000:
  Deducted from asset account
  Allowance for doubtful accounts  $  958,000  $  297,000  $    -   $ 99,000       $1,156,000



(a) Uncollectible accounts written off.


                                      F-33