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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