WEIL, GOTSHAL & MANGES LLP
Attorneys for Debtor and Debtor in Possession
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
Jeffrey L. Tanenbaum, Esq. (JT 9797)
Marshall C. Turner, Esq. (MT 3551)
Jennifer Feldsher, Esq. (JF 9773)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ------------------------------------------ x
In re : Chapter 11 Case No.
:
HEADWAY CORPORATE RESOURCES, INC. : 03-14270 (ALG)
:
Debtor. :
- ------------------------------------------- x
MONTHLY OPERATING STATEMENT FOR THE
PERIOD JULY 1, 2003 THROUGH JULY 31, 2003
DISBURSEMENTS: $ 36,000
OPERATING LOSS: $(36,000)
THIS OPERATING STATEMENT MUST BE SIGNED BY A REPRESENTATIVE OF THE DEBTORS
The undersigned, having reviewed the attached and being familiar with the
debtor's financial affairs, verifies under the penalty of the perjury, that the
information contained therein is complete, accurate and truthful to the best of
my knowledge.
Date: August 18, 2003 /s/ Philicia G. Levinson
Senior Vice President,
Chief Financial Officer
Indicate if this is an amended statement by checking here:
AMENDED STATEMENT _________
Headway Corporate Resources, Inc.
(Debtor-in-Possession)
Unaudited Balance Sheet
(in thousands)
July, 31
2003
--------------
Assets
Current assets:
Cash and cash equivalents $ 5,412
Short-term investments 1,200
Accounts receivable, trade, net --
Prepaid expenses and other current assets 605
--------------
Total current assets 7,217
Property and equipment, net --
Investment in subsidiaries 21,395
Investment in and note receivable from Whitney Group, LLC 1,445
Other assets 149
--------------
Total assets $ 30,206
==============
Liabilities and stockholders' (deficit)
Liabilities not subject to compromise
Current liabilities:
Accounts payable and accrued expenses 320
Accrued payroll 35
---------------
Total current liabilities 355
Liabilities subject to compromise
Loans payable $ 82,000
Accrued interest 5,869
Pre-petition accounts payable and accruals 443
---------------
Total liabilities subject to compromise 88,312
Commitments and contingencies
Preferred stock---$.0001 par value, 5,000,000 shares
authorized: Series G, convertible preferred stock--
1,000 shares authorized and outstanding (aggregate
liquidation value $24,463), currently redeemable
by its terms 24,463
Stockholders' (deficit)
Common stock---$.0001 par value, 80,000,000 shares
authorized, 13,914,627 shares issued and outstanding
at July 31, 2003 1
Additional paid-in capital 18,679
Notes receivable (71)
(Accumulated deficit) (101,533)
---------------
Total stockholders' (deficit) (82,924)
---------------
Total liabilities and stockholders' (deficit) $ 30,206
===============
The accompanying notes are an integral part of the financial statements.
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HEADWAY CORPORATE RESOURCES, INC.
(Debtor-in-Possession)
Unaudited Statement of Operations
(in thousands)
Period from July 1, 2003
through July 31, 2003
Revenues $ --
Operating expenses
Direct expenses --
Selling, general and administrative 2
Reorganization costs 448
------------------------------
Operating (loss) (450)
Other (income) expenses:
Interest expense --
Interest (income) (33)
------------------------------
(Loss) before income taxes (417)
Income tax expense (benefit) --
------------------------------
Net (loss) $ (417)
==============================
The accompanying notes are an integral part of the financial statements.
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HEADWAY CORPORATE RESOURCES, INC.
(Debtor-in-Possession)
Statement of Cash Flows
(in thousands)
For the period
07/01/03 through
07/31/03
OPERATING ACTIVITIES:
Net Loss $ (417)
Adjustments to reconcile net loss to net cash
provided by operating activities
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 404
Accounts payable and accrued expenses 296
Intercompany, net 2,292
-----------------
Net cash provided by operating activities 2,575
Increase in cash and cash equivalents 2,575
Cash and cash equivalents at the beginning of period 2,837
-----------------
Cash and cash equivalents at the end of period $ 5,412
=================
The accompanying notes are an integral part of the financial statements.
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Headway Corporate Resources, Inc.
(Debtor-in-Possession)
Notes to the Unaudited Financial Statements
Chapter 11 Filing
On July 1, 2003 (the "Petition Date"), Headway Corporate Resources, Inc. (the
"Debtor") filed a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court"). Since that date, the Debtor has been operating as
a debtor-in-possession under Chapter 11. The Company's operating subsidiaries
were not included in the Chapter 11 filing.
The Company has reached an agreement-in-principle with the holders of its senior
and subordinated indebtedness on the terms of a financial restructuring (the
"Restructuring") to be implemented through a pre-arranged Chapter 11 plan of
reorganization (the "Plan"). The Restructuring will involve a significant
reduction of the outstanding indebtedness and a conversion of the balance of
such indebtedness into 100% of the Company's equity. Pursuant to the Plan, the
holders of the Senior Credit Facility would receive new notes in the principal
amount of $25.0 million, the holders of the Senior Subordinated Notes would
receive a subordinated note in the principal amount of $1.0 million convertible
into 5% of the common equity of the Company, and the currently outstanding
shares of the Company's common and preferred stock will be cancelled without any
distribution to be made to the holders of such shares. The
agreement-in-principle is subject to numerous conditions and further agreements,
including the entry of an order confirming the plan of reorganization as
required by Chapter 11. Consequently, there can be no assurance that the
Restructuring will be consummated. The confirmation hearing has been scheduled
for September 16, 2003.
On July 2, 2003, the Bankruptcy Court approved a series of the Company's "first
day" motions that enable the Company to continue regular operations throughout
the reorganization proceeding. These motions authorized, among other things,
normal payment of employee salaries, wages and benefits; continued participation
in workers' compensation insurance programs; continued utilization of the
Company's centralized cash management system and maintenance of existing bank
accounts; and payment to vendors for post-petition delivery of goods and
services. The Bankruptcy Court also approved a Cash Collateral Stipulation
authorizing the Debtor's use of the Senior Lenders' cash collateral to fund its
operations, provided that these expenditures are consistent with the budget
submitted by the Company.
The Debtor is currently operating its business as a debtor-in-possession
pursuant to the Bankruptcy Code. Pursuant to the Bankruptcy Code, prepetition
obligations of the Debtor, including obligations under debt instruments,
generally may not be enforced against the Debtor, and any actions to collect
prepetition indebtedness are automatically stayed, unless the stay is lifted by
the Bankruptcy Court. The rights of and ultimate payments by the Company under
prepetition obligations may be substantially altered. This could result in
claims being liquidated in the Chapter 11 proceedings at less (and possibly
substantially less) than 100% of their face value. The Debtor cannot presently
determine or reasonably estimate the ultimate liability that may result from
rejecting contracts or leases or from the filing of claims for any rejected
contracts or leases, and no provisions have yet been made with respect to these
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items. Except for the agreed upon distribution to the senior creditors and
subordinated note holders, the Plan provides for no distribution on any such
claims.
Basis of Presentation
The unaudited financial statements have been prepared for the purpose of filing
with the United States Bankruptcy Court for the Southern District of New York.
The financial statements include the accounts of Headway Corporate Resources,
Inc.
In the Chapter 11 proceedings, substantially all unsecured liabilities as of the
Petition Date are subject to compromise or other treatment under a plan of
reorganization which must be confirmed by the Bankruptcy Court after submission
to any required vote by affected parties. For financial reporting purposes,
those liabilities and obligations whose treatment and satisfaction is dependent
on the outcome of the Chapter 11 proceedings have been segregated and classified
as Liabilities Subject to Compromise in the consolidated balance sheet under SOP
90-7.
The ultimate amount of and settlement terms for the Company's pre-bankruptcy
liabilities are subject to the ultimate outcome of its Chapter 11 proceedings
and, accordingly, are not presently determinable. Pursuant to SOP 90-7,
professional fees associated with the Chapter 11 proceedings will be expensed as
incurred and reported as reorganization costs. Also, interest expense will be
reported only to the extent that it will be paid during the pendency of the
Chapter 11 proceedings or that it is probable that it will be an allowed claim.
Use of Estimates
The preparation of financial statements required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
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HEADWAY CORPORATE RESOURCES, INC.
(Debtor-in-Possession)
Case No. 03-14270 (ALG)
Insurance
I, Philicia G. Levinson, Senior Vice President, Chief Financial Officer, of
Headway Corporate Resources, Inc. the debtor and debtor-in-possession, verify to
the best of my knowledge that all insurance policies are fully paid for the
current period.
/s/ Philicia G. Levinson
Senior Vice President
Chief Financial Officer
Date: August 18, 2003
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HEADWAY CORPORATE RESOURCES, INC.
(Debtor-in-Possession)
Payments to Professional Under Code Section 327
Professional Description Period Covered Fees Holdback Expenses Total Paid
- ------------ of Services -------------- ---- -------- -------- ----------
-----------
July Payments $ - $ - $ - $ -
- ------------- -------------------------------------------
Total 07/01 - 07/31 $ - $ - $ - $ -
===========================================
For the period July 1, 2003 through July 31, 2003 no payments were made to
professionals under Code Section 327.
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HEADWAY CORPORATE RESOURCES, INC.
(Debtor-in-Possession)
Schedule of Taxes Paid
For the period from July 1, 2003 through July 31, 2003
For the period July 1, 2003 through July 31, 2003 no tax payments were made.
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