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, 2001

[   ] 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:

      Common Stock, Par Value $0.0001

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 ]

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 March 28, 2002,
is $0.30. The number of shares  outstanding of each of the registrant's  classes
of common stock as of March 31, 2002, was 10,914,627.



<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the  definitive  proxy  statement  of Headway  for the 2002  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.



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                                TABLE OF CONTENTS

ITEM NUMBER AND CAPTION                                                     Page

Part I
1.    Business                                                                 4

2.    Properties                                                               8

3.    Legal Proceedings                                                        8

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                                                 12

7.    Management's Discussion and Analysis of Financial Condition             13
      and Results of Operations

7A.   Quantitative and Qualitative Disclosures About Market Risk              19

8.    Financial Statements and Supplementary Data                             19

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

Part III
10.   Directors and Executive Officers of the Registrant                      20

11.   Executive Compensation                                                  20

12.   Security Ownership of Certain Beneficial Owners and Management          20

13.   Certain Relationships and Related Transactions                          20

Part IV
14.   Exhibits, Financial Statement Schedule, and Reports on Form 8-K         20



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                                     PART I

                                Item 1. Business

General

     Headway  Corporate  Resources,  Inc.  ("Headway") is a leading  provider of
staffing and executive search services to businesses in a variety of industries,
including,   financial  services,   media,   entertainment,   biotechnology  and
information technology.  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,  Illinois,
Massachusetts,  New York, New Jersey,  North Carolina,  Virginia and Texas,  and
overseas in the United Kingdom, Japan, Hong Kong, Singapore and Australia.

     Headway's goal is to build a national human  resource  business  focused on
providing  staffing and executive  search 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.

     On April 17,  2002,  the Company  entered  into an  amendment to the Senior
Credit  Facility  and obtained a waiver of the  financial  ratio  defaults.  The
amendment  provides  for an increase in the margin for base rate loans,  partial
pay down of the loan balance with the Company's  cash balance over $8 million or
if the accounts  receivable  balance  falls below certain  thresholds,  modified
financial  covenants,  and an extended  maturity date. The amended Senior Credit
Facility,  which was set to expire on April 18,  2002,  has been  extended to an
expiration date of June 30, 2003,  with all  outstanding  amounts then due. Even
though the Company has obtained amendments and waivers, the Company will need to
negotiate a further  extension of these  agreements  or complete a  re-financing
prior to the expiration date of the Senior Credit Facility in June 2003.

Market Overview

     In  2001,  the  temporary   employment   service  industry   experienced  a
significant slow down in demand in response to the unfavorable conditions in the
overall  economy.  Many  companies  initiated  layoffs  of  both  temporary  and
permanent workers, and implemented hiring freezes during 2001.

     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  have  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 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.  Rapidly changing regulations  concerning employee benefits,  health
insurance,  retirement plans, and the highly  competitive  business climate also
prompted many employers to take  advantage of the  flexibility  offered  through
temporary and human resource  staffing.  Additionally,  Internal Revenue Service
and Department of Labor regulations  concerning the  classification of employees
and independent  contractors  significantly  increased  demand by prompting many
independent contractors to affiliate with employers like Headway.

     By using  temporary  and contract  workers,  many  companies  significantly
increased  flexibility to respond to the difficult economic  conditions and were
able to reduce their cost  structures,  while minimizing the negative effects of
layoffs. As a result,  Headway believes that as the economy recovers,  employers
will once  again 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 future growth in the industry.

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<PAGE>


Growth Strategy

     We intend to focus on  internal  growth as the key  element  of our  growth
strategy.  We will 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  compliment  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     executive search and 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
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,  through its Whitney
subsidiary,  is one of the  leading  executive  search  firms  in the  financial
services industry. Beginning in 1998, Headway has expanded its industry focus to
include management consulting,  e-commerce,  media,  entertainment,  information
technology   and   telecommunication   businesses.   Headway   uses  a  complete
consultative  approach with its clients,  including,  market  analysis,  product
recommendations,  and  staffing  new  and  existing  business  divisions  of its
clients.  Headway conducts  executive searches in a broad range of product areas
in the financial  services  industry,  including,  investment  banking,  capital

                                       5
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markets, leveraged finance, research,  emerging markets,  investment management,
financial  administration,  and risk  management.  Executive search services are
provided in major  financial  markets,  including,  New York,  Chicago,  Boston,
London, Tokyo, Hong Kong, Singapore and Australia.

     Headway  also  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.

     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 2001,  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,
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

                                       6
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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, 2001, Headway had approximately 435 full-time employees.
In the fourth quarter of 2001,  Headway employed  approximately  7,900 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
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

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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.

                               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.

     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 February  1999, a lawsuit was filed in the Superior  Court of California
alleging breach of contract,  interference with prospective  business relations,

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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.
Plaintiffs have alleged damages in the amount of $10 million.  Headway  believes
the claims are unfounded and intends to defend itself vigorously.

                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 2001.

                                     PART II

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

Market Price Information

     Since  August 3, 2000,  Headway's  common  stock has traded on the American
Stock  Exchange  under the symbol "HEA."  Previously,  quotations  for Headway's
common stock were reported on the Nasdaq National Market.

     The following table sets forth the high and low closing sale prices for the
common stock as reported on the  American  Stock  Exchange  and Nasdaq  National
Market for 2000 and the American Stock Exchange for all of 2001.

Calendar Quarter Ended                        High ($)            Low ($)

March 31, 2000                                  5.060              3.380
June 30, 2000                                   3.750              2.940
September 30, 2000                              3.380              2.190
December 31, 2000                               3.130              1.130

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

     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, 2002,  Headway had approximately 242
stockholders of record.

Recent Sales of Unregistered Securities

     As of June 30, 2001,  Headway failed to comply with certain financial ratio
covenants  in  an  existing  senior  credit  facility  and  outstanding   senior
subordinated  notes.  As a result,  the agent for the  lenders  under the senior
credit  facility  issued a notice of payment  blockage to prevent  Headway  from
paying  interest on the senior  subordinated  notes.  In June 2001, the board of
directors determined not to declare a dividend on Headway's outstanding Series F
Convertible  Preferred Stock (the "Series F Stock") believing that it was not in

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the interest of Headway to declare a dividend until the covenant  defaults under
the senior credit facility and senior subordinated notes were resolved.  Holders
of the senior subordinated notes are also the holders of the Series F Stock.

     In August 2001,  Headway  amended the senior credit facility and obtained a
waiver of the financial ratio defaults.  This amendment increased the margin for
base rate  loans and the letter of credit  fee,  added a default  interest  rate
payable upon the occurrence of an event of default,  required a partial pay down
of the loan balance with Headway's cash balance over $8 million,  terminated the
obligation of the senior  lenders to make further  advances  under the facility,
modified  certain  financial  covenants,  and  required  Headway to negotiate an
extended  payment schedule for  approximately  $2.3 million of earn out payments
due for  prior  acquisitions.  Concurrently,  Headway  amended  the terms of the
senior subordinated notes and exchanged all 1,000 shares of outstanding Series F
Stock for an equal number of shares of Series G Convertible Preferred Stock (the
"Series G Stock").  As a  negotiated  element of the  transaction,  Headway also
issued to the holders of the Series G Stock warrants to purchase an aggregate of
1,000,000  shares of common  stock at an exercise  price of $1.10 per share that
expire on the later of  September  7, 2006 and the date on which all  principal,
premiums and interest on the Subordinated Notes has been paid in full and all of
the  Preferred  Stock  has been  redeemed  or  converted  (the  "First  Series G
Warrants");  warrants to purchase an additional  1,150,000 shares at an exercise
price of $0.01 per share  (the  "Second  Series G  Warrants")  and  warrants  to
purchase an additional  850,000  shares at an exercise price of $3.05 per shares
(the "Third  Series G Warrants,  and,  together with the First Series G Warrants
and the Second  Series G Warrants,  the "Series G Warrants"),  exercisable  from
January 2, 2002,  through the later of January 2, 2007 and the date on which all
principal, premiums and interest on the Subordinated Notes has been paid in full
and all of the Preferred Stock has been redeemed or converted.

     Under the  amendments to the senior  subordinated  notes  Headway  obtained
waivers of the financial  covenant and interest payment  defaults,  agreed to an
increase in the note interest rate to 20 percent retroactive to July 1, 2001, if
all  interest  accrued  at April 1,  2002,  is not paid in full as of that date,
modified certain financial covenants, and agreed to negotiate for the payment of
alternative  consideration if all accrued payment  obligations at April 1, 2002,
are not paid as of that date,  which shall  include a decrease  in the  exercise
price of all  warrants  issued  to the  holders  of  Series G Stock to $0.01 per
share. None of the foregoing interest or dividend payments were made.

     On April 17, 2002,  Headway  further amended the senior credit facility and
obtained a waiver of the financial  ratio  defaults,  as well as an extension of
the maturity date to June 30, 2003. This amendment  further increased the margin
for base rate loans and the letter of credit fee, required a partial pay down of
the loan balance with  Headway's cash balance over $8 million or if the accounts
receivable  balance falls below certain  thresholds,  modified certain financial
covenants,  and  required  Headway to issue  warrants  to the Senior  Lenders to
purchase an aggregate of 2,455,522  shares of common stock at an exercise  price
of $0.25 per share.

     Concurrently, but effective as of March 31, 2002, Headway amended the terms
of the senior  subordinated  notes. As a negotiated  element of the transaction,
the  exercise  prices  of the First  Series G  Warrants  and the Third  Series G
Warrants  was  changed to $0.25 per share.  Under the  amendments  to the senior
subordinated  notes  Headway  obtained  waivers of the  financial  covenant  and
interest payment  defaults,  modified certain  financial  covenants,  as well as
continued deferral of interest and dividend payments through the Recap Amendment
Termination  Date (as  defined  in Note  8).  As part of this  transaction,  the
holders  of the  senior  subordinated  notes  agreed to the  elimination  of the
requirement to pay 5.0% of additional interest on the senior subordinated notes,
which was to take effect  retroactively,  as of July 1, 2001,  in the event that

                                       10
<PAGE>

all accrued and unpaid interest on the senior subordinated notes and accrued and
unpaid  dividends on the Preferred  Stock were not paid in full in cash by April
1, 2002.

     The Series G Stock  issued to the former  holders of the Series F Stock was
convertible to common stock of Headway at a conversion price of $5.58 per share;
provided,  that the  conversion  price would  decrease to $2.75 per share if all
accrued interest on the senior  subordinated  notes and accrued dividends on the
Series G Stock are not paid in full as of January 2,  2002,  and would  decrease
further to $1.00 per share if such  interest and  dividends are not paid in full
as of April 1,  2002.  The  Series G Stock is senior to the  common  stock  with
respect to payment of dividends and distributions in liquidation. Holders of the
Series G Stock are entitled to receive dividends payable quarterly equal to 7.5%
of the liquidation  preference value of the Series G Stock, which is $20,000 per
share  or a total  of  $20.0  million;  provided,  that  the  dividend  rate was
increased  to nine  percent as all accrued  dividends on the Series G Stock were
not paid in full on January 2, 2002, and were increased further to 10 percent as
all such  dividends  were not  paid in full as of  April  1,  2002.  None of the
foregoing  interest  or  dividend  payments  were made,  and,  accordingly,  the
conversion  price for the Series G Stock is now $1.00 per share. No dividends or
distributions  may be made with  respect to the common stock unless all dividend
payments on the Series G Stock are current.  Holders of Headway's Series G Stock
have the right to elect one member of the board of directors, elect one-third of
the board of directors so long as a default in dividend  payments  exists and is
continuing,   and  approve  certain   corporate   transactions  and  activities,
including,  acquisitions  in excess of specified  limits,  sales of  substantial
assets or  subsidiaries,  implementing  additional  debt facilities in excess of
specified limits, sales of Headway securities in certain circumstances, amending
Headway's charter documents,  effecting or permitting a sale of Headway, issuing
stock options and similar incentive arrangements involving Headway's securities,
and other  matters.  The  existence of these rights could inhibit the ability of
Headway to effect or participate in  transactions  acceptable to Headway but not
the holders of the Series G Stock, or the ability of stockholders to participate
in a  transaction  in which they  might  otherwise  receive a premium  for their
shares over the then-current market price.

     The foregoing  transactions were effected in reliance on the exemption from
registration  set  forth  in  Section  4(2) of the  Securities  Act of 1933  for
transactions  by an issuer not involving a public  offering.  No underwriter was
involved  in the  transaction,  and no  commissions  were  paid  to any  person.
However, Headway agreed to pay to the lenders under the senior credit facility a
waiver and amendment fee in the aggregate amount of $618,750,  of which $368,750
was paid in August 2001, and the balance of $250,000 was due April 1, 2002. Such
balance was paid on April 17, 2002 as part of the amendment to the senior credit
facility  completed on that date. In connection with the amendment to the senior
credit  facility  completed  on April 17,  2002,  Headway also agreed to pay the
lenders a deferred  restructuring  fee of approximately  $2.2 million,  which is
payable on the maturity date and may be reduced or waived if certain  conditions
are met. An additional restructuring fee of $368, 434 was paid to the lenders on
April 17, 2002. In connection the Second Limited  Waiver,  Headway agreed to pay
to the  holders  of the  senior  subordinated  notes and the  preferred  stock a
restructuring  fee of approximately  $175,000,  which is payable on or about the
Recap Amendment Termination Date (as defined in Note 8).


                                       11
<PAGE>


                         Item 6. Selected Financial Data

     The selected consolidated  financial data set forth below as of and for the
years ended December 31, 2001,  2000,  1999,  1998, and 1997,  were derived from
audited consolidated financial statements of Headway.

Statement of Operations Data
In Thousands, Except Per Share Data
<TABLE>
<S>                                         <C>         <C>           <C>       <C>         <C>
                                                             For Year Ended December 31
                                                             --------------------------
                                                1997        1998        1999        2000        2001
                                                ----        ----        ----        ----        ----

Revenues                                    $   142,842 $   291,303 $   360,742 $   371,115 $   323,037
Direct costs                                    104,396     224,993     274,360     272,872     253,354

Selling, general and administrative expenses     29,588      48,638      63,349      74,690      62,587
Termination of employment contract                    -           -       2,329           -           -
Depreciation and amortization                     1,453       2,952       4,411       5,337       5,787
                                            ------------------------------------------------------------
Total operating expenses                         31,041      51,590      70,089      80,027      68,374

Operating income from continuing operations       7,405      14,720      16,293      18,216       1,309

Other (income) expenses:
  Interest expenses                               2,662       4,515       6,331       8,049      10,879
  Interest income                                  (104)       (152)       (122)       (105)       (113)
  (Gain) on sale of investment                   (4,272)       (901)          -           -           -
  Other (income) expenses, net                     (750)          -           -           -           -
                                            ------------------------------------------------------------
                                                 (2,464)      3,462       6,209       7,944      10,766
                                            ------------------------------------------------------------
Income (loss) from continuing operations
    before income tax expense (benefit)           9,869      11,258      10,084      10,272      (9,457)

Income tax expense (benefit)                      4,064       4,639       4,299       4,388      (3,778)
                                            ------------------------------------------------------------

Income (loss) from continuing operations          5,805       6,619       5,785       5,884      (5,679)

(Loss) from discontinued operations              (2,999)          -           -           -           -
                                            ------------------------------------------------------------

Net income (loss) before extraordinary item       2,806       6,619       5,785       5,884      (5,679)

Extraordinary (loss)                                  -      (1,557)          -           -           -
                                            ------------------------------------------------------------
Net income (loss)                                 2,806       5,062       5,785       5,884      (5,679)
                                            ------------------------------------------------------------

Preferred dividend requirements                    (137)       (866)     (1,100)     (1,414)     (1,500)
                                            ------------------------------------------------------------
Net income (loss) available
  for common stockholders                   $     2,669 $     4,196 $     4,685 $     4,470 $    (7,179)
                                            ============================================================
Basic earnings (loss) per common share:
  Continuing operations                     $      0.79 $      0.58 $      0.46 $      0.42 $     (0.67)
  Discontinued operations                         (0.42)          -           -           -           -
  Extraordinary item                                  -       (0.15)          -           -           -
                                            ------------------------------------------------------------
  Net income (loss)                         $      0.37 $      0.43 $      0.46 $      0.42 $     (0.67)
                                            ============================================================
Diluted earnings (loss) per common share:
  Continuing operations                     $      0.58 $      0.47 $      0.40 $      0.41 $     (0.67)
  Discontinued operations                         (0.30)          -           -           -           -
  Extraordinary item                                  -       (0.11)          -           -           -
                                            ------------------------------------------------------------
  Net income (loss)                         $      0.28 $      0.36 $      0.40 $      0.41 $     (0.67)
                                            ============================================================
Average shares outstanding
  Basic                                       7,223,462   9,853,354  10,287,978  10,590,461  10,729,627
  Diluted                                    10,012,198  14,157,012  14,328,754  14,248,902  10,729,627

</TABLE>

                                       12
<PAGE>


Balance Sheet Data
In Thousands

                                               As of December 31
                                               -----------------
                                  1997      1998      1999      2000      2001
                                  ----      ----      ----      ----      ----

Working capital                 $    450  $ 32,139  $ 30,566  $ 27,457  $ 34,813
Total assets                      67,336   126,946   148,419   154,186   149,164
Long term debt, excluding
 current portion                  19,059    60,959    72,750    69,700    82,000
Stockholders' equity              16,452    42,571    48,001    32,739    26,429

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

Overview

     Headway is a leading  provider of staffing and executive search services to
businesses  in  a  variety  of  industries,   including,   financial   services,
e-commerce, media, entertainment,  information technology and telecommunication.
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 with an emphasis in the financial  services  industry as well as
other identified  industries.  Headway's  strategy for achieving this goal is to
emphasize programs that generate internal growth.

     In 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.  We also  began the
national rollout of our newly developed  operating software,  Staffserv.  In May
2001, Headway opened a new clerical staffing office in Torrance, California.

     In March 1999,  Headway  bought out the  employment  agreement  of the vice
chairman and executive vice president of Headway Corporate Staffing Services,  a
wholly owned subsidiary. In connection with this termination, Headway incurred a
non-recurring  pre-tax  charge of $2.3 million or $1.4 million  after tax in the
first quarter of 1999.

     In June  1999,  Headway  acquired  substantially  all of the  assets of the
Resource Management division of Nine Rivers Technology Corporation, with offices
in Florida,  Texas and North  Carolina.  The  acquired  offices were folded into
existing  Headway  locations in North Carolina,  Florida and Texas. The acquired
division  of Nine  Rivers is  engaged  in the  business  of  offering  temporary
information technology staffing services.

     In November 1999, Headway acquired all of the outstanding  capital stock of
Tyzack Holding Limited,  the oldest established  executive search firm in the UK
with offices in London and Leeds.  While Tyzack  performs  executive  search for
financial  services  companies,  it  also  provides  search  services  in  other
industries  such  as;  e-commerce,  media  and  entertainment,  consumer  goods,
information technology and telecommunications.

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

                                       13
<PAGE>

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.

      Goodwill

     Goodwill is amortized  utilizing the straight-line  method over a period of
20 to 30 years.  The Company  periodically  evaluates 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 warrant revised estimates
of carrying value or useful lives. No such write-downs have been made.

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statements of Financial Accounting  Standards No. 141, "Business  Combinations",
effective  for all  combinations  initiated  after June 30,  2001,  and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"),  effective for fiscal years
beginning after December 15, 2001. 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  Statement.  Other
intangible assets will continue to be amortized over their useful lives.

     The Company will apply the new rules on  accounting  for goodwill and other
intangible  assets  beginning in the first quarter of 2002.  Application  of the
non-amortization  provisions  of SFAS 142 is expected to result in a decrease in
amortization  expense of approximately  $4,000,000 ($0.37 per share) pre-tax per
year. During 2002, the Company will perform the first of the required impairment
tests of goodwill and indefinite lived intangible  assets as of January 1, 2002.
Based on steps the Company has taken to prepare  for the  adoption of  Statement
142, it is likely that  between $35 and $45 million of the  goodwill  related to
the acquisitions  completed by the Company will be impaired using the impairment
test required by Statement 142. The impairment that is required to be recognized
when  adopting  Statement  142 will be reflected as the  cumulative  effect of a
change in accounting  principle in the first quarter of 2002.  The Company plans
to complete the measurement of the impairment loss in 2002.

Results of Operations

      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 the
Company's  primary  markets:  the financial  services  industry and the New York
metropolitan area.

     Whitney,   the  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.  Whitney
primarily  serves  the  financial  services  industry,  which was  significantly
impacted by the events of September 11th. Many of Whitney's clients  experienced
significant layoffs and implemented hiring freezes during 2001.

                                       14
<PAGE>

      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.

     Whitney's  selling,  general and  administrative  expenses  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 the Company's interest rate swap.

     The Company 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.

      Years Ended December 31, 2000 and 1999

     Revenue  increased  $10.4  million  to $371.1  million  for the year  ended
December 31, 2000, from $360.7 million for the year ended December 31, 1999. The
increase in revenue for 2000 is  attributable to a full year of results from the
executive  search  acquisition  completed  in  the  latter  part  of  1999.  The
relatively modest growth in revenue is misleading and will continue to be a less
significant  measurement  criterion  as Headway  focuses its growth  strategy on
higher margin business and reduces the emphasis on high revenue low margin human
resource staffing business. This is evident in the decrease in direct costs as a
percentage of revenues to 73.5% for the year ended  December 31, 2000 from 76.1%
for the same period in 1999. During 2000, Headway experienced strong performance
in the executive search and permanent  placement  business offset by a continued
decline in the information technology staffing business.

                                       15
<PAGE>

     Whitney,   the  executive  search  segment  contributed  $37.7  million  to
consolidated  revenues in 2000,  an increase of $11.7 million from $26.0 million
in 1999.  This increase is due to the  continued  strong demand for new hires in
the  financial  services  industry  and the full year  results  from the  Tyzack
acquisition made in November 1999.

     The staffing subsidiary,  Headway Corporate Staffing Services,  Inc. (HCSS)
contributed  revenues of $333.4 million,  a decrease of $1.3 million from $334.7
million in 1999.  Revenues  were  slightly  behind 1999,  as Headway  focused on
reducing it's lower margin human resource staffing business, as well as the very
low supply of information technology staffing candidates,  which has resulted in
slightly lower revenue for information technology staffing.

     Total operating expenses (excluding the $2.3 million termination payment in
1999) increased $10.8 million to $352.9 million for 2000 from $342.1 million for
1999. The increase is the result of a $11.4 million increase in selling, general
and   administrative   expenses,   a  $900,000   increase  in  depreciation  and
amortization, offset slightly by a $1.5 million decrease in direct costs. Direct
costs decreased as a percentage of revenues to 73.5% in 2000 from 76.1% in 1999.
This  decrease  in  direct  costs as a  percentage  of  revenues  is a result of
Headway's  changing  business mix.  Specifically,  the executive search business
that has no direct cost is becoming a larger  percentage  of our total  revenues
and the human resource staffing business,  which traditionally has a high direct
cost,  has  decreased.  The  increase  in selling,  general  and  administrative
expenses is primarily  attributed to the higher commission  expenses  associated
with a larger  portion of revenues being  generated  from  executive  search and
permanent placements.

     Whitney's  operating  expenses  increased $9.5 million to $28.4 million for
the year ended  December  31,  2000 as  compared  to $18.9  million for the same
period last year. The increase  relates  primarily to the increased  commissions
related  to the  higher  executive  search  revenues  as well as a full  year of
operating expenses of Tyzack.

     HCSS operating  expenses  increased  $900,000 to $42.9 million for the year
ended  December  31, 2000 as compared to $42.0  million for the same period last
year. The increase in selling,  general and administrative expenses is primarily
attributable to the higher  commission  expense  associated with higher revenues
generated from permanent placements.

     Net income  increased  $99,000 to $5.9 million for the year ended  December
31, 2000 compared to $5.8 million for the year ended December 31, 1999.

Liquidity and Capital Resources

     As of December 31, 2001,  $72.0 million in aggregate  principal  amount was
outstanding  under the  Senior  Credit  Facility,  $10.0  million  in  aggregate
principle 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 2001,  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 April 17, 2002,  the Company  entered into an amendment to the Senior  Credit
Facility and obtained a waiver of the financial  ratio  defaults.  The amendment
provides for an increase in the margin for base rate loans,  partial pay down of
the loan  balance  with the  Company's  cash  balance  over $8 million or if the
accounts receivable balance falls below certain  thresholds,  modified financial
covenants,  and an extended  maturity date. The amended Senior Credit  Facility,


                                       16
<PAGE>

which was set to expire on April 18, 2002,  has been  extended to an  expiration
date of June 30, 2003,  with all  outstanding  amounts then due. Even though the
Company has obtained amendments and waivers,  the Company will need to negotiate
a further extension of these agreements or complete a re-financing  prior to the
expiration date of the Senior Credit Facility in June 2003.

     On April 17, 2002,  but  effective  as of March 31, 2002,  the Company also
entered into an amendment of the Indenture for the Senior Subordinated Notes and
the Second  Limited  Waiver with the Senior  Subordinated  Notes Holders and the
Preferred Stockholders,  which provided for a waiver of the events of default on
the Senior  Subordinated  Notes and a waiver of the  Preferred  Stock  events of
default  through  the Recap  Amendment  Termination  Date (See Note 8 (i) to the
Financial Statements). The Second Limited Waiver also waived the payment of (but
not  the  accrual  of)  interest  and  dividends  through  the  Recap  Amendment
Termination Date, modified certain financial  covenants,  waived the increase in
the interest  rate on the Senior  Subordinated  Notes and decreased the exercise
price on the First Series G Warrants and the Third Series G Warrants.

     In connection with the transactions described above,  discussions regarding
the  employment  arrangements  that  will  likely  be  required  to  induce  the
management  team to  commit  to  remain  with the  Company  and to  align  their
compensation  incentives with the interests of the shareholders and creditors of
the Company,  have been held among  representatives  of the  Company's  Board of
Directors,  senior  management  as well as  representatives  of the senior  debt
holders  and  certain of the  holders of the  senior  subordinated  debt and the
Preferred Stock. While no definitive  agreement has been reached, it is expected
that such  employment  arrangements  would  include  base  salaries  and bonuses
consistent with current levels, retention bonuses, and customary non-competition
and non-solicitation  provisions.  In addition,  it is expected that the Company
would  establish a new "Management  Incentive Plan" ("MIP").  Under the MIP, the
management group would receive, as incentive compensation,  amounts based on the
total  realized by the  Company in one or more  liquidity  transactions  such as
sales of assets,  merger or sale of the entire  company,  or  refinancing of the
Company's  indebtedness:  10% between $40 and $75  million;  20% between $75 and
$107.5 million;  and, 30% above $107.5  million.  No assurance can be given that
the Company and the executives will enter into such arrangements.

     Net cash provided by operating activities was $4.5 million in 2001. This is
primarily  due to a net  loss of $5.7  million,  depreciation  and  amortization
expenses of $7.2 million and a $14.6 million decrease in accounts receivable and
other assets.  This was partially  offset by an $8.8 million decrease in accrued
payroll  and a $3.4  million  decrease  in income  taxes  payable.  In 2000 cash
provided by  operating  activities  of $15.3  million was  primarily  due to net
income of $5.9  million  and  depreciation  and  amortization  expenses  of $5.9
million,  a $2.2 million increase in accounts payable and accrued expenses and a
$3.1 million  increase in accrued  payroll,  partially  offset by a $1.4 million
decrease in income taxes payable.

     Total cash used in  investing  activities  of $7.1 million in 2001 and $9.5
million in 2000 was primarily  the result of the  earn-outs  paid related to the
acquisitions  completed  during  1999,  1998 and  1997,  and to a lesser  extent
purchases of property and equipment.

     Total cash provided by financing  activities  was $9.6 million  compared to
total cash used in financing activities of $6.0 million for 2000. Cash generated
by  financing  activities  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.  Cash  used  in
financing  activities  in 2000 related to payments  made on Headway's  revolving
credit facility, payments of other loans and dividend payments.

                                       17
<PAGE>


     In  September  1998,  Headway  announced  that its Board of  Directors  had
authorized  a stock  repurchase  program of up to 1.0 million  shares.  In 2000,
Headway spent $20,000 to repurchase approximately 5,000 shares. Such shares were
retired in 2001.

     On January 22, 2002, the Securities and Exchange  Commission  issued FR-61,
Commission  Statement  about  Management's  Discussion and Analysis of Financial
Condition and Results of Operations. The release sets forth certain views of the
Securities  and  Exchange  Commission   regarding   disclosure  that  should  be
considered by  registrants.  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, 2001 and
the periods in which payments are due:

  Contractual Obligations                Payments Due by Period
                                         ----------------------
                                             (in thousands)
------------------------------------------------------------------------------
                              Total    Less     1-3 years  4 - 5     After 5
                                       than 1              years     years
                                       year
------------------------------------------------------------------------------
Loans Payable               $82,000   $     -   $82,000   $     -  $      -
------------------------------------------------------------------------------
Capital Lease Obligations       362       246       116         -         -
------------------------------------------------------------------------------
Operating Leases             10,400     2,880     3,899     2,336     1,285
------------------------------------------------------------------------------
Unconditional Purchase
Obligations                    None
------------------------------------------------------------------------------
Other Long Term               1,287     1,287         -         -         -
Obligations (1)
------------------------------------------------------------------------------
Total Contractual Cash
Obligations                 $94,049    $4,413   $86,015   $ 2,336   $ 1,285
------------------------------------------------------------------------------

     The  following  table  includes   aggregate   information  about  Headway's
commercial commitments as of December 31, 2001. 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  $1,750     $1,750    $       -  $      -   $      -
--------------------------------------------------------------------------------
Guarantees                   None
--------------------------------------------------------------------------------
Standby Repurchase           None
Obligations
--------------------------------------------------------------------------------
Other Commercial             None
Commitments
--------------------------------------------------------------------------------
Total Commercial          $ 1,750     $1,750    $       -  $      -   $      -
Commitments
--------------------------------------------------------------------------------

(1)  Represents  earnout  amounts  payable  to the former  owners of  businesses
previously acquired by Headway.

New Accounting Standards

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statements of Financial Accounting  Standards No. 141, "Business  Combinations",
effective  for all  combinations  initiated  after June 30,  2001,  and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"),  effective for fiscal years

                                       18
<PAGE>

beginning after December 15, 2001. 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  Statement.  Other
intangible assets will continue to be amortized over their useful lives.

     The Company will apply the new rules on  accounting  for goodwill and other
intangible  assets  beginning in the first quarter of 2002.  Application  of the
non-amortization  provisions  of SFAS 142 is expected to result in a decrease in
amortization  expense of approximately  $4,000,000 ($0.37 per share) pre-tax per
year. During 2002, the Company will perform the first of the required impairment
tests of goodwill and indefinite lived intangible  assets as of January 1, 2002.
Based on steps the Company has taken to prepare  for the  adoption of  Statement
142, it is likely that  between $35 and $45 million of the  goodwill  related to
the acquisitions  completed by the Company will be impaired using the impairment
test required by Statement 142. The impairment that is required to be recognized
when  adopting  Statement  142 will be reflected as the  cumulative  effect of a
change in accounting  principle in the first quarter of 2002.  The Company plans
to complete the measurement of the impairment loss in 2002.

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144") 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". The Company is
required to adopt SFAS 144 in the first  quarter of 2002.  The Company  does not
expect the adoption of this statement to have a material effect on its financial
position and results of operations.

       Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     Headway  is  exposed  to  changes  in  interest  rates  primarily  from its
long-term debt arrangements.  Under its current policies,  Headway uses interest
rate derivative  instruments to manage exposure to interest rate changes.  As of
December 31, 2001, Headway had one interest rate exchange  agreement  converting
$30.0 million of variable rate borrowings under the senior credit agreement to a
fixed rate of 6.868% per annum plus the applicable margin, expiring in 2002.

     Headway is exposed to credit  loss in the event of  non-performance  by the
counter-party,  a  large  financial  institution.   However,  Headway  does  not
anticipate nonperformance by the counter-party.

               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 21.

            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.


                                       19
<PAGE>


                                    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 2002
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 2002 annual meeting of stockholders.

     Item 12. Security Ownership of Certain Beneficial Owners and Management

     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 2002 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 2002 annual meeting of stockholders.

                                     Part IV

    Item 14. 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 21.

Reports on Form 8-K

     No  reports on Form 8-K were  filed by  Headway  during  the last  calendar
quarter of 2001.

                                       20
<PAGE>


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
              for an aggregate of 850,000 shares

    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

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

                                       21
<PAGE>

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

   21.1     Subsidiaries of Headway (4)                            Ex. No. 16


(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) 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.



                                       22
<PAGE>


                                   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, 2002                     By: /s/ Barry S. Roseman
                                                Barry S. Roseman, President

     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, 2002           /s/ Gary S. Goldstein
                                Gary S. Goldstein, Principal Executive Officer
                                  and Director


Dated: April 17, 2002           /s/ Barry S. Roseman
                                Barry S. Roseman, President and Director


Dated: April 17, 2002           /s/ Philicia G. Levinson
                                Philicia G. Levinson, Senior Vice President
                                  and Chief Financial Officer

Dated: April 17, 2002           /s/ G. Chris Andersen
                                G. Chris Andersen, Director


Dated: April 17, 2002           /s/ E. Garrett Bewkes, III
                                E. Garrett Bewkes, III, Director


Dated: April 17, 2002           /s/ Ehud D. Laska
                                Ehud D. Laska, Director


Dated: April 17, 2002           /s/ Richard B. Salomon
                                Richard B. Salomon, Director




                                       23
<PAGE>




                         Form 10-K Item 14(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, 2001 and 2000.................F-3
Consolidated Statements of Income for the years ended
  December 31, 2001, 2000 and 1999...........................................F-4
Consolidated Statements of Stockholders' Equity
  for the years ended December 31, 2001, 2000 and 1999.......................F-5
Consolidated Statements of Cash Flows for the years ended
  December 2001, 2000 and 1999...............................................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 14(a)(2):

Schedule II - Valuation and Qualifying Accounts.............................F-30

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
<PAGE>




                         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,
2001  and  2000,  and  the  related   consolidated   statements  of  operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2001. These financial  statements 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, 2001 and 2000, and
the  consolidated  results of their  operations and their cash flows for each of
the three  years in the  period  ended  December  31,  2001 in  conformity  with
accounting principles generally accepted in the United States.

                                                               ERNST & YOUNG LLP

New York, New York
March 1, 2002, except for the second paragraph of Note 1,
      and the fifth paragraph of Note 8, as to which the date
      is April 17, 2002


                                      F-2
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

                           Consolidated Balance Sheets
                             (Dollars in Thousands)

                                                             December 31
                                                           2001      2000
                                                        -------------------
Assets
Current assets:
  Cash and cash equivalents                             $  8,641  $  1,549
  Accounts  receivable, trade, net of allowance for
   doubtful accounts of $1,430 (2001) and $1,156 (2000)   37,713    53,714
  Prepaid expenses and other current assets                2,181     1,151
  Deferred financing costs, current                          979         -
  Prepaid and refundable income taxes                      4,279       900
                                                        -------------------
Total current assets                                      53,793    57,314

Property and equipment, net                                5,691     6,016
Intangibles, net of accumulated amortization of
  $14,865 (2001) and $10,825 (2000)                       87,313    88,374
Deferred financing costs                                     509     1,308
Other assets                                               1,858     1,174
                                                        -------------------
Total assets                                            $149,164  $154,186
                                                        ===================

Liabilities and stockholders' equity Current liabilities:
  Accounts payable                                      $  1,302  $  3,576
  Accrued expenses                                         7,848     4,853
  Accrued payroll                                          8,319    17,248
  Capital lease obligations, current portion                 224       377
  Earnouts payable                                         1,287     3,803
                                                        -------------------
Total current liabilities                                 18,980    29,857

Capital lease obligations, less current portion              111       291
Long-term debt                                            82,000    69,700
Deferred rent                                              1,073     1,143
Deferred income taxes                                        307       456
Other liabilities                                            264         -

Commitments and contingencies

Preferred stock--$.0001 par value, 5,000,000 shares
authorized:
  Series F, convertible preferred stock--$.0001 par
   value, 1,000 shares authorized, 0 and 1,000 shares
   issued and outstanding (aggregate liquidation value
   $20,000) as of December 31, 2001 and 2000, respectively     -    20,000
  Series G, convertible preferred stock--$.0001 par value,
   1,000 shares authorized, 1,000 and 0 shares issued  and
   outstanding   (aggregate   liquidation  value  $20,000)
   as of  December  31, 2001 and 2000, respectively       20,000         -

Stockholders' equity:
  Common  stock--$.0001  par  value,  20,000,000  shares
   authorized, 10,914,627 shares issued and
   outstanding at December 31, 2001 and 11,589,727             1         1
   shares issued and outstanding at December 31, 2000
  Additional paid-in capital                              18,268    20,379
  Treasury stock, at cost                                      -    (3,211)
  Notes receivable                                           (71)      (84)
  Deferred compensation                                     (382)     (497)
  Retained earnings                                        9,220    16,399
  Other comprehensive (loss)                                (607)     (248)
                                                        -------------------
Total stockholders' equity                                26,429    32,739
                                                        -------------------
Total liabilities and stockholders' equity              $149,164  $154,186
                                                        ===================

See accompanying notes.

                                      F-3
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

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

                                                  Year ended December 31
                                                2001       2000       1999
                                              --------------------------------

Revenues                                      $323,037  $371,115   $360,742
Operating expenses:
  Direct costs                                 253,354   272,872    274,360
  Selling, general and administrative           62,587    74,690     63,349
  Termination of employment contract                -         -       2,329
  Depreciation and amortization                  5,787     5,337      4,411
                                              --------------------------------
                                               321,728   352,899    344,449
                                              --------------------------------
Operating income                                 1,309    18,216     16,293

Other (income) expenses:
  Interest expense                              10,879     8,049      6,331
  Interest income                                 (113)     (105)      (122)
                                              --------------------------------
                                                10,766     7,944      6,209
                                              --------------------------------
(Loss) income before income tax (benefit)
  expense                                       (9,457)   10,272     10,084

Income tax (benefit) expense                    (3,778)    4,388      4,299
                                              --------------------------------
Net (loss) income                               (5,679)    5,884      5,785

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

Basic (loss) earnings per common share:       $   (.67) $    .42   $    .46
                                              ================================

Diluted (loss) earnings per common share      $   (.67) $    .41   $    .40
                                              ================================

See accompanying notes.

                                      F-4
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

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

<TABLE>
<S>                                           <C>     <C>      <C>        <C>     <C>
                                                  Series F
                                                Convertible                       Additional
                                              Preferred Stock     Common Stock     Paid-in
                                              --------------- ------------------- ---------
                                              Shares  Amount   Shares     Amount   Capital
                                              ---------------------------------------------

Balance at December 31, 1998                  1,000   $20,000  10,419,220  $  1    $ 15,779
  Repayment of notes receivable                   -         -           -     -
  Issuance of stock for acquisitions              -         -     425,110     -       1,969
  Exercise of options                             -         -     403,231     -       1,597
  Issuance of common stock to an officer for
   services                                       -         -     125,000     -         475
  Amortization of stock-based compensation        -         -           -     -           -

  Preferred stock dividends                       -         -           -     -           -
  Treasury stock                                  -         -           -     -           -
  Comprehensive income:
  Translation adjustment                          -         -           -     -           -
  Net income                                      -         -           -     -           -
  Comprehensive income                            -         -           -     -
                                              ---------------------------------------------
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
                                              =============================================
</TABLE>
See accompanying notes.

                                      F-5
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

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

<TABLE>
<S>                                        <C>        <C>       <C>        <C>
                                              Treasury Stock
                                           -------------------     Notes     Deferred
                                            Shares     Amount   Receivable Compensation
                                           --------------------------------------------

Balance at December 31, 1998                 (57,200) $   (290)  $   (172) $      -
  Repayment of notes receivable                    -         -         46         -
  Issuance of stock for acquisitions               -         -          -         -
  Exercise of options                              -         -          -         -
  Issuance of common stock to an officer for
   services                                        -         -          -      (475)
  Amortization of stock-based compensation         -         -          -        35
  Preferred stock dividends                        -         -          -         -
  Treasury stock                            (612,900)   (2,901)         -         -
  Comprehensive income:
  Translation adjustment                           -         -          -         -
  Net income                                       -         -          -         -
  Comprehensive income                             -         -          -         -
                                           ---------------------------------------------
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)
                                          =============================================
</TABLE>

See accompanying notes.

                                      F-6
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

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



                                                      Other        Total
                                         Retained Comprehensive Stockholders'
                                         Earnings Income (Loss)   Equity
                                         -----------------------------------

Balance at December 31, 1998             $ 7,244    $     9     $ 42,571
  Repayment of notes receivable                -          -           46
  Issuance of stock for acquisitions           -          -        1,969
  Exercise of options                          -          -        1,597
  Issuance of common stock to an
   officer for services                        -          -            -
  Amortization of stock-based
   compensation                                -          -           35
  Preferred stock dividends               (1,100)         -       (1,100)
  Treasury stock                               -          -       (2,901)
  Comprehensive income:
  Translation adjustment                       -         (1)          (1)
  Net income                               5,785          -        5,785
                                                               ------------
  Comprehensive income                         -          -        5,784
                                        -----------------------------------
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 change in 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
                                        ===================================
See accompanying notes.

                                      F-7
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows

                             (Dollars in Thousands)

                                                  Year ended December 31
                                                   2001    2000     1999
                                                 --------------------------

Operating activities
Net (loss) income                               $(5,679)  $ 5,884 $ 5,785
Adjustments to reconcile net (loss) income to
  net cash provided by operating activities:
  Depreciation and amortization, including        7,218     5,864   4,798
   deferred financing costs
  Amortization of deferred compensation             115        86      35
  Provision for bad debt                            611       297     504
  Deferred income taxes                            (149)      403     513
  Changes in assets and liabilities, net of
   effects of acquisitions:
   Accounts receivable                           15,229      (732) (4,584)
   Prepaid expenses and other current assets         33      (181)    (36)
   Other assets                                    (667)     (199)    (98)
   Accounts payable and accrued expenses             43     2,224    (425)
   Accrued payroll                               (8,838)    3,102     749
   Income taxes payable                          (3,358)   (1,378)    500
   Deferred rent                                    (70)     (103)     (5)
                                                 --------------------------
Net cash provided by operating activities         4,488    15,267   7,736
                                                 --------------------------
Investing activities
Expenditures for property and equipment          (1,442)   (1,750) (1,919)
Repayment from notes receivable                      13        42      46
Cash paid for acquisitions                       (5,638)   (7,787)(17,164)
                                                 --------------------------
Net cash used in investing activities            (7,067)   (9,495)(19,037)

Financing activities
Net change in revolving credit line              12,300    (3,050) 11,950
Repayment of long-term debt                           -      (152)   (157)
Payment of capital lease obligations               (333)     (426)   (213)
Payments of loan acquisition fees                (1,610)     (289)   (176)
Payment of other loans                                -    (1,020)      -
Proceeds from exercise of options                     -         -   1,597
Purchase of treasury stock                            -       (20) (2,901)
Cash dividends paid                                (750)   (1,039) (1,100)
                                                 --------------------------
Net cash provided by (used in) financing
  activities                                      9,607    (5,996)  9,000

Effect of exchange rate changes on cash and
  cash equivalents                                   64       (94)     11
                                                 --------------------------
Increase (decrease) in cash and cash equivalents  7,092      (318) (2,290)
Cash and cash equivalents at beginning of year    1,549     1,867   4,157
                                                 --------------------------
Cash and cash equivalents at end of year        $ 8,641   $ 1,549 $ 1,867
                                                 ==========================

Supplemental disclosure of cash flow information
Cash paid during the year for:
  Interest                                      $ 8,074   $ 8,511 $ 5,901
                                                 ==========================
  Income taxes                                  $   844   $ 5,388 $ 3,176
                                                 ==========================

Supplemental disclosure of noncash investing and financing activities

In 1999,  the Company  issued common stock valued at $475,000 for  services.  In
2000 and 1999 the Company  issued 157,166 and 425,110 shares of its common stock
valued at $416,000 and $1,969,000 respectively, for acquisitions.

In 2001,  the Company did not purchase any property and equipment  under capital
leases.  In 2000 and 1999, the Company  purchased  property and equipment  under
capital leases amounting to approximately $136,000 and $198,000, respectively.


See accompanying notes.

                                      F-8
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                                December 31, 2001

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 Texas and executive search
offices in New York, Illinois,  the United Kingdom,  Japan, Hong Kong, Singapore
and Australia.

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. As more fully described in Note 8,
the Company was in default on its Senior Credit  Facility,  Senior  Subordinated
Notes and Series G Convertible Preferred Stock as of December 31, 2001. On April
17, 2002, the Senior Credit Facility was amended,  including an extension of the
expiration  date of the Senior Credit Facility to June 30, 2003, and waivers for
the events of default on the Senior  Subordinated Notes and Series G Convertible
Preferred Stock were obtained.

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).

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.

                                      F-9
<PAGE>

               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Summary of Significant Accounting Policies (continued)

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 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  Statement of Financial
Accounting  Standards 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,  Asian and Australian
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.  Foreign exchange gains and losses for all the
years presented were not significant.

Goodwill

Goodwill is amortized  utilizing the straight-line  method over periods of 20 to
30 years. The Company periodically  evaluates 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 have been made.

Deferred Financing Costs

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

                                      F-10
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


2. Summary of Significant Accounting Policies (continued)

Concentration of Credit Risk

Financial  instruments that potentially  subject the Company to concentration of
credit risk include cash and cash  equivalents and accounts  receivable  arising
from its  normal  business  activities.  The  Company  places  its cash and cash
equivalents 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,  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).

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  Statement  of
Financial  Accounting  Standards  No.  131,  "Disclosures  about  Segments of an
Enterprise and Related Information" ("Statement 131"). Statement 131 establishes
standards for the way companies report  information about operating  segments in
annual  financial  statements.  Statement  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


                                      F-11
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

interpretations   because  the  Company  believes  the  alternative  fair  value
accounting   provided  for  under  FASB  Statement  No.  123,   "Accounting  for
Stock-Based  Compensation"  ("SFAS 123"),  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.

New Accounting Standards

In  June  2001,  the  Financial   Accounting  Standards  Board  ("FASB")  issued
Statements of Financial Accounting  Standards No. 141, "Business  Combinations",
effective  for all  combinations  initiated  after June 30,  2001,  and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"),  effective for fiscal years
beginning after December 15, 2001. 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  Statement.  Other
intangible assets will continue to be amortized over their useful lives.

The  Company  will  apply the new rules on  accounting  for  goodwill  and other
intangible  assets  beginning in the first quarter of 2002.  Application  of the
non-amortization  provisions  of SFAS 142 is expected to result in a decrease in
amortization  expense of approximately  $4,000,000 ($0.37 per share) pre-tax per
year. During 2002, the Company will perform the first of the required impairment
tests of goodwill and indefinite lived intangible  assets as of January 1, 2002.
Based on steps the Company has taken to prepare  for the  adoption of  Statement
142, it is likely that  between $35 and $45 million of the  goodwill  related to
the acquisitions  completed by the Company will be impaired using the impairment
test required by Statement 142. An impairment  that is required to be recognized
when  adopting  Statement  142 will be reflected as the  cumulative  effect of a
change in accounting  principle in the first quarter of 2002.  The Company plans
to complete the measurement of the impairment loss in 2002.

In August 2001, the FASB issued Statement of Financial  Accounting Standards No.
144,  "Accounting  for the  Impairment or Disposal of Long-Lived  Assets" ("SFAS
144") 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". The Company is
required to adopt SFAS 144 in the first  quarter of 2002.  The Company  does not
expect the adoption of this statement to have a material effect on its financial
position and results of operations.

                                      F-12
<PAGE>


               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
                                              2001         2000
                                          --------------------------

Leasehold improvements                      $1,720,000   $1,667,000
Furniture and fixtures                       1,884,000    1,844,000
Office and computer equipment                8,141,000    6,890,000
                                          --------------------------
                                            11,745,000   10,401,000
Less accumulated depreciation and
  amortization                               6,054,000    4,385,000
                                          --------------------------
                                            $5,691,000   $6,016,000
                                          ==========================


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, 2001,  2000 and 1999,  the Company  incurred
fees of approximately $61,000,  $204,000 and $304,000,  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 and 1998, 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  2001,  2000  and  1999,   additional   consideration  of
approximately $3,200,000, $7,847,000 and $12,363,000 was recorded, respectively.
As  consideration  for a portion of the earnouts  recorded in 2000 and 1999, the
Company issued 80,710 and 80,710 shares of the Company's common stock, valued at
$333,333 and $333,333, respectively.

In June 1999, the Company acquired substantially all of the assets of a division
of a North Carolina  corporation and, in November 1999, the Company acquired all

                                      F-13
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

of the outstanding stock of a United Kingdom executive  placement and management
advisory  company.  The purchase price for these  acquisitions of  approximately
$8,707,000,  including earn-outs, net of adjustments,  recorded in 2001 and 2000
of  $(234,000)  and  $215,000,  and  exceeded  the fair  value of the net assets
acquired  resulting in goodwill of  approximately  $8,317,000.  A portion of the
purchase price for the United Kingdom acquisition consisted of 344,400 shares of
the Company's  common stock valued at $1,691,000,  which were issued at the time
of the  acquisition.  In December 2000, the Company issued an additional  76,456
shares  valued at  $83,000  to the former  shareholders  of the  United  Kingdom
company acquired, as additional earnout consideration.

The  aforementioned  acquisitions  have been accounted for as purchases and have
been  included  in the  Company's  operations  from the dates of the  respective
purchases. Any additional purchase price based on future earnings related to the
aforementioned  acquisitions  will be recorded as  additional  goodwill upon the
determination  that the earnouts have been met. The amortization of goodwill for
the years ended December 31, 2001, 2000 and 1999 was  approximately  $4,013,000,
$3,917,000 and $3,280,000, respectively.

The pro forma  unaudited  consolidated  results of operations for the year ended
December 31, 1999, assuming  consummation of the aforementioned  transactions as
of the  beginning  of 1999 is as  follows  (in  thousands,  except for per share
data):


Total revenue                                      $ 370,038
Net income                                             6,493
Net income available for common stockholders           5,393

Earnings per share:
Basic                                                  $0.52
                                                ===============
Diluted                                                $0.45
                                                ===============


6. Termination of Employment Contract

In March 1999,  the Company  incurred  costs of $2,329,000  associated  with the
termination of an employment contract.

7. Derivative Financial Instruments

As of January 1, 2001, the Company adopted Financial  Accounting Standards Board
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
(Statement 133) 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

                                      F-14
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

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.

The Company uses 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 future interest  expense.
Approximately  $30,000,000 of the Company's  outstanding  debt was designated as
the hedged item to an interest  rate swap  agreement at December  31,  2001.  At
December 31, 2001, the fair value of the interest rate swap contract amounted to
approximately  $463,000.  The  Company is exposed to credit loss in the event of
non-performance  by the counter party, a large financial  institution.  However,
the  Company  does not  anticipate  non-performance  by the counter  party.  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 year ended  December 31, 2001,  the Company  recognized a
change in fair value of the derivative of $16,000  related to the change in fair
value of the  interest  rate swap  contract  net of  applicable  income taxes of
$12,000 as a component of other comprehensive income.

8. Long-Term Debt and Credit Facilities

In  March  1998,  the  Company  completed  a  financing  totaling   $105,000,000
consisting  of  a  $75,000,000   senior  credit  facility  ("the  Senior  Credit
Facility"),  $10,000,000 of senior subordinated notes (the "Senior  Subordinated
Notes"), and $20,000,000 of Series F Convertible Preferred Stock (see Note 9).

In August  2000,  the 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 and  obtained a waiver  regarding  compliance  with
certain  financial  ratios,  which the Company  had failed as of June 30,  2001,
reducing the amount that could be borrowed from $85,000,000 to $72,000,000.  The
amended credit facility required, among other things, that the Company negotiate
an extended  payment schedule in connection with an earnout payment related to a
prior  acquisition,  by October 31,  2001.  The Company  did not  complete  this
negotiation  in the required  time frame and was,  therefore,  in default of its
Senior Credit  Facility.  The  negotiation  with the  shareholders  of the prior
acquisition has since been completed.  In addition, the Company failed to comply
with certain  financial  ratios during the fourth  quarter of 2001,  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
as of December 31, 2001.

As  of  December  31,  2001,  $72,000,000  in  aggregate  principal  amount  was
outstanding  under the Senior Credit Facility,  which was to mature on April 18,

                                      F-15
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

2002 (see below).  Substantially  all assets of the Company have been pledged as
collateral for the senior credit facility.

As  of  December  31,  2001,  $10,000,000  in  aggregate  principal  amount  was
outstanding under the Senior  Subordinated  Notes and $20,000,000 in face amount
of Series G Convertible  Preferred Stock of the Company (the "Preferred  Stock")
was  outstanding.  The senior  subordinated  notes are payable in March 2006 and
bear  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:

(a.i)     A waiver of the events of default  on the  Senior  Subordinated  Notes
          from April 1, 2001 through the "Bank  Maturity  Date",  defined as the
          earliest of (1) April 18, 2002,  (2) the  termination or expiration of
          the amendment to the Senior Credit Facility dated August 23, 2001, (3)
          the date on which all indebtedness under the Senior Credit Facility is
          repaid or  refinanced,  or (4) the  acceleration  of any  indebtedness
          under the Senior Credit Facility.  Since the Company was in default as
          of December 31, 2001, the waiver was nullified.
(a.ii)    A waiver of the payment of interest  (but not the accrual of interest)
          under the Senior  Subordinated  Notes from April 1, 2001  through  the
          Bank Maturity Date.
(a.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 April 1, 2001 through the Bank Maturity Date.
(a.iv)    If all  interest  accrued on and prior to April 1, 2002 is not paid in
          full in cash  by such  date,  then  the  interest  rate on the  Senior
          Subordinated  Notes will be increased to 20% per annum  commencing  on
          July 1, 2001. Such increase has since been waived.
(a.v)     If all dividends on the Preferred  Stock accrued on or before  January
          2,  2002 are not  paid in full in cash by such  date  then the  annual
          dividend  rate will be  increased  to 9%  commencing  at such time and
          further increased to 10% by April 1, 2002 if payment is not made. Such
          dividends were not paid before April 1, 2002.
(a.vi)    If all interest on the Senior  Subordinated Notes and dividends on the
          Preferred  Stock  accrued on and prior to (a) January 2, 2002 have not
          been paid in full in cash by such date,  then the conversion  price of
          the  Preferred  Stock shall be reduced to $2.75 per share at such time
          and  prior to (b)  April 1, 2002 have not been paid in full in cash by
          such date,  then the conversion  price of the Preferred Stock shall be
          further  reduced at such time to $1.00 per share.  The  ability of the
          holders  of the  Preferred  Stock to fully  convert  their  shares  is
          contingent  upon an increase  in the  Company's  authorized  number of
          shares of Common Stock, which requires common  stockholders'  approval
          ("Common Stockholders Approval"). Such interest and dividends were not
          paid before April 1, 2002, and  accordingly  the conversion  price for
          the Series G Stock is now $1.00 per share.

                                      F-16
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


(a.vii)   The issuance of (1) warrants in the aggregate, immediately exercisable
          into  1,000,000  shares of the  Company's  common stock at an exercise
          price of $1.10  per share (the  "First  Series  G  Warrants")  and (2)
          warrants in the  aggregate  exercisable  into  1,150,000  (the "Second
          Series G Warrants") and 850,000 (the "Third Series G Warrants") shares
          of the Company's common stock at exercise prices of $.01 and $3.05 per
          share,  respectively  (collectively,  the  "Series G  Warrants").  The
          Second  Series G  Warrants  and the  Third  Series G  Warrants  became
          exercisable  on  January  2, 2002  because  the  Company  did not make
          certain payments and meet certain other  obligations.  The issuance of
          the Series G Warrants resulted in estimated  deferred  financing costs
          based on the fair value of the warrants of $1,100,000,  which is being
          amortized through April 2002.
(a.viii)  Required  maintenance of a certain amount of EBITDA,  as defined,  and
          maximum amounts of capital  expenditures.  Such EBITDA requirement was
          not met as of December 31, 2001.
(a.ix)    In the event that as of April 1, 2002, (i) all payments accrued on and
          prior to such date have not been paid in full in cash by such date and
          (ii) the  Common  Stockholders  Approval  has not been  obtained,  the
          Preferred  Stockholders  and Senior  Subordinated  Note holders  would
          receive  alternative  consideration to be negotiated with the Company,
          provided unless otherwise agreed,  such  compensation  would include a
          decrease  of the  exercise  price of all Series G Warrants to $.01 per
          share  (see below).  Such  payments  have  not been  made  and  Common
          Stockholders Approval has not been obtained.
(a.x)     The  exchange of the Series F Preferred  Stock into 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 Credit Facility and Senior Subordinated Notes were
amended and the Company  entered into the Second  Limited Waiver with the Senior
Subordinated  Notes Holders and the Preferred  Stockholders,  which provided the
following:

(i)       An extension of the Senior Credit  Facility  maturity date to June 30,
          2003.
(ii)      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 Indebtedness 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

                                      F-17
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


          exceed,   in  the   aggregate,   0.50%  of  the   outstanding   Senior
          Indebtedness), or (D) in consideration of which, the Agent (as defined
          in the Senior  Credit  Facility) or any Lender under the Senior Credit
          Facility is issued any additional equity interest in the Company;  and
          (iv) 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.
(iii)     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.
(iv)      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.
(v)       A waiver of the increase in interest  rate on the Senior  Subordinated
          Notes from 15% to 20% retroactive to July 1, 2001.
(vi)      An adjustment to the exercise price of the First Series G Warrants and
          the Third Series G Warrants to $0.25 per share.
(vii)     Required  maintenance of certain  amounts of EBITDA,  as defined,  and
          maximum amounts of capital expenditures, as defined.
(viii)    That  the  Company  take  all  actions   necessary  to  obtain  Common
          Stockholder Approval at a stockholder meeting to be held no later than
          July 15, 2002, subject to extension under certain circumstances.
(ix)      That the Company issue 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.

As of December 31, 2001, the unpaid aggregate dividend for the second, third and
fourth  quarters of 2001 was  $1,125,000  and the unpaid  interest on the Senior
Subordinated Notes was $1,125,000, and are included in accrued expenses.

In connection with an acquisition  made in July 1997, the Company entered into a
$451,000  note  payable  to the  seller.  This  note was  payable  in six  equal
semi-annual  installments  commencing  in January  1998 with  interest at 6% per
annum. The note was repaid during 2000.

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.

                                      F-18
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


During July 2001,  guidance  was issued in  Emerging  Issue Task Force Topic No.
D-98, "Classification and Measurement of Redeemable Securities",  which requires
preferred  securities  that  are  redeemable  for  cash or  other  assets  to be
classified  outside of permanent equity if they are redeemable (1) at a fixed or
determinable  price on a fixed or  determinable  date;  (2) at the option of the
holder;  or (3) upon the  occurrence  of an event that is not solely  within the
control of the issuer. The Company adopted this announcement  during the quarter
ended September 30, 2001. 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, 2001  balance  sheet.  The
change in  classification  has been applied  retroactively  and the December 31,
2000  balance  sheet was  restated  with  respect  to the  Series F  Convertible
Preferred Stock.

In May 1996,  the Company  loaned a total of $507,000  to ten  employees  of the
Company at an interest rate of 8% per annum,  payable  quarterly  over a term of
five years.  The funds were used by the  employees  to purchase a total of 2,170
shares  of the  Company's  Series A  Convertible  Preferred  Stock,  (which  was
subsequently  converted  into  common  stock),  from the then  current  Series A
Convertible  Preferred  Stock  stockholder.  The loans  outstanding  ($71,000 at
December 31, 2001) are collateralized by common stock.

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 2001. In 2000 and 1999, the Company  repurchased
5,000 and 612,900 shares of the Company's common stock for approximately $20,000
and $2,901,000, respectively.

At December 31, 2001,  approximately  9,825,000 shares of common stock have been
reserved for future issuance as follows:

  Convertible Preferred Stock                       3,584,000
  Series G Warrants                                 3,000,000
  Stock Incentive Plan (see Note 10)                3,241,000
                                                   -----------
                                                    9,825,000
                                                   ===========

At December 31, 2001,  the Series G Warrants are fully vested and have  exercise
prices of $0.01 to $0.25  per share.  The First  Series G Warrants expire on the

                                      F-19
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


later of  September  7, 2006 and the date on which all  principal,  premiums and
interest  on the  Subordinated  Notes  has  been  paid  in  full  and all of the
Preferred Stock has been redeemed or converted. The Second Series G Warrants and
the Third Series G Warrants  expire on the later of January 2, 2007 and the date
on which all principal, premiums and interest on the Subordinated Notes has been
paid in full and all of the  Preferred  Stock has been  redeemed  or  converted.
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, 2001, 2000 and 1999:

                                           2001          2000          1999
                                       -----------------------------------------
 Numerator:
   Net (loss) income                   $(5,679,000)    $5,884,000    $5,785,000
   Preferred stock dividend
    requirements                        (1,500,000)    (1,414,000)   (1,100,000)
                                       -----------------------------------------
   Numerator for basic (loss)
    earnings per share - net (loss)
    income available for common
    stockholders                        (7,179,000)     4,470,000     4,685,000

   Effect of dilutive securities:
    Preferred dividend requirements             -       1,414,000     1,100,000
                                       -----------------------------------------
 Numerator for diluted (loss)
   earnings per share - net (loss)
   income available for common stock-
   holders after assumed conversions   $(7,179,000)    $5,884,000    $5,785,000
                                       =========================================

                                      F-20
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


 Denominator:
   Denominator for basic (loss)
    earnings per                         10,729,627    10,590,461    10,287,978
    share - weighted average shares
   Effect of dilutive securities:
    Stock options, warrants and
      restricted shares                           -        74,142       456,477
    Convertible preferred stock                   -     3,584,299     3,584,299
                                       -----------------------------------------
    Dilutive potential common stock               -     3,658,441     4,040,776
                                       -----------------------------------------
 Denominator for diluted (loss)
   earnings per share - adjusted
   weighted-average shares and assumed
   conversions                           10,729,627    14,248,902    14,328,754
                                       =========================================
 Basic (loss) earnings per share         $     (.67)   $      .42    $      .46
                                       =========================================
 Diluted (loss) earnings per share       $     (.67)   $      .41    $      .40
                                       =========================================

The calculation of diluted (loss) earnings per share excludes  potential  common
shares. During the year ended December 31, 2001, Series F and Series G preferred
stock, restricted common stock, warrants and stock options were outstanding that
would be dilutive  (aggregating  3,865,934 shares), but were excluded because to
include them would be antidilutive.

11. Income Taxes

Pre-tax (loss) income from foreign operations was $(1,053,000),  $1,718,000, and
$(225,000) for the years ended December 31, 2001, 2000 and 1999, respectively.

Income tax expense from continuing operations consists of the following:

                                         Year ended December 31
                                    2001          2000          1999
                               -------------------------------------------
 Current:
   Domestic                     $(3,745,000)    $3,368,000    $3,771,000
   Foreign                          116,000        443,000        15,000
                               -------------------------------------------
                                 (3,629,000)     3,811,000     3,786,000
                               -------------------------------------------
 Deferred expense:
   Domestic                          50,000        577,000       513,000
   Foreign                         (199,000)             -             -
                               -------------------------------------------
 Total deferred expense            (149,000)       577,000       513,000
                               -------------------------------------------
                                $(3,778,000)    $4,388,000    $4,299,000
                               ===========================================


                                      F-21
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


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

                                              December 31
                                           2001          2000
                                      -----------------------------
 Deferred tax assets:
   Deferred rent                       $  462,000     $  486,000
   Allowances for doubtful accounts       559,000        438,000
   NOL Carryforwards                      932,000              -
    Other                                  47,000         34,000
                                      -----------------------------
                                        2,000,000        958,000
 Deferred tax liabilities:
   Depreciation                          (216,000)      (123,000)
   Intangibles                         (2,091,000)    (1,228,000)
   Cash to accrual adjustments                  -        (63,000)
   Other                                        -              -
                                      -----------------------------
                                       (2,307,000)    (1,414,000)
                                      -----------------------------
                                      $  (307,000)    $ (456,000)
                                      =============================

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

                                        Year ended December 31
                                       2001      2000      1999
                                     ------------------------------

 Statutory rate                         (34)%      34%       34%
 State and local income taxes
   (net of federal tax benefit)          (7)        7         7
 Other                                    1         2         2
                                     ------------------------------
 Effective tax rate                     (40)%      43%       43%
                                     ==============================

The Company has federal and state net  operating  losses in the current  year of
approximately  $10,500,000,  which will be carried back for federal tax purposes
and carried forward for state tax purposes.

                                      F-22
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


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, 1998     1,968,129       $  4.16
 Granted                                560,000          4.76
 Canceled                              (139,667)         4.14
 Exercised                             (403,231)         3.47
                                     --------------
 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
                                     ==============

 Exercisable at December 31, 1999     1,111,620          3.98
                                     ==============
 Exercisable at December 31, 2000     1,276,896          4.13
                                     ==============
 Exercisable at December 31, 2001     1,460,948          4.20
                                     ==============

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.  Information  regarding options outstanding under the Plan at
December 31, 2001 is as follows:

                                           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             20,000      $ 0.60      9.7 years       20,000    $0.60
  2.38 - 3.50     558,000        2.81      4.4 years      496,333     2.84
  3.62 - 5.38   1,112,231        4.37      6.6 years      788,064     4.36
  5.50 - 8.00      72,500        6.30      6.7 years       72,500     6.30
  9.88             84,050        9.88      6.6 years       84,050     9.88
                ---------                               ---------
                1,846,781                               1,460,948
                =========                               =========

                                      F-23
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


13. Stock-Based Compensation

Pro forma information  regarding net (loss) income and (loss) earnings per share
is required by SFAS 123 and has been  determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options 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        1999
                               ------------------------------------
 Assumptions
 Risk-free rate                   4.61%       6.72%        5.83%
 Dividend yield                      0%          0%           0%
 Volatility factor of the
   expected market price of
   the Company's common stock      .47         .70          .68
 Average life                   5 years     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
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.

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:

                                          Year ended December 31
                                    2001            2000          1999
                               -------------------------------------------
 Pro forma net (loss) income
   available for common         $(7,462,000)     $4,039,000    $5,243,000
   stockholders
 Pro forma earnings per share:
   Basic                            (.70)             .38          .40
   Diluted                          (.70)             .38          .36

The  weighted  average  fair value of  options  granted  during the years  ended
December 31, 2001, 2000 and 1999 was $0.28,  $2.12 and $2.93  respectively.  The
weighted average remaining  contractual life of options  exercisable at December
31, 2001 is 5.43 years.

                                      F-24
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


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, 2001 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
                                     --------------------------------

 2002                                     246,000       2,880,000
 2003                                     111,000       2,218,000
 2004                                       5,000       1,681,000
 2005                                           -       1,211,000
 2006                                           -       1,125,000
 Thereafter                                     -       1,285,000
                                     --------------------------------
 Total minimum lease payments             362,000     $10,400,000
                                                     ================
 Less amounts representing interest        27,000
                                     ----------------
 Present value of net minimum
   lease payments                         335,000
 Less current portion                     224,000
                                     ----------------
 Long-term portion                      $ 111,000
                                     ================

Included in property and  equipment at December 31, 2001 and 2000 are  equipment
recorded  under  capital  leases  with  a cost  of  $1,170,000  and  $1,635,000,
respectively,  and  accumulated  depreciation  and  amortization of $693,000 and
$692,000, 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,  $514,000 and $498,000 for the years ended December 31, 2001, 2000 and
1999 were $3,070,000, $2,976,000 and $2,634,000, respectively.

The  Company  has  letters  of  credit  outstanding  aggregating  $1,750,000  in
connection  with  various  guarantees  relating  to  its  workers   compensation
insurance  policy,  office leases and capital leases.  The amount was reduced to
$1,687,000 in January 2002.

In  February  1999,  a lawsuit  was filed in the  Superior  Court of  California
alleging breach of contract,  interference with prospective  business relations,

                                      F-25
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

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.
Plaintiffs have alleged damages in the amount of $10 million.  Headway  believes
the claims are unfounded and intends to defend itself vigorously.

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 year ended December 31, 2001, one staffing services  customer  accounted
for 12% of the  Company's  revenues.  For the year ended  December 31, 2000,  no
customer  accounted  for more than 10% of the Company's  revenues.  For the year
ended December 31, 1999,  one staffing  services  customer  accounted for 11% of
revenues.

Geographic Information

For the years ended  December  31,  2001,  2000 and 1999,  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-26
<PAGE>


               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, 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


                                       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


                                      F-27
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


16. Segment Information (continued)

                                       Year ended December 31, 1999
                                                Executive
                                    Staffing    Search
                                    Services    Services      Total
                                   -------------------------------------
                                          (Dollars in Thousands)

Revenues                            $334,743     $25,999    $360,742
Depreciation and amortization          3,930         481       4,411
Termination of employment contract     2,329           -       2,329
Interest expense                       5,801           8       5,809
Interest income                          (89)        (18)       (107)
Segment income before income tax
  expense                              6,371       6,616      12,987
Income tax expense                     2,785       2,748       5,533
Segment profit                         3,586       3,868       7,454
Segment assets                       127,518      19,392     146,910
Expenditures for long lived assets     1,538         381       1,919




                                          Year ended December 31
                                      2001        2000         1999
                                   -------------------------------------
                                          (Dollars in Thousands)

Reconciliation to net income
Total (loss) profi for
  reportable segments                $(3,772)    $ 8,214     $ 7,454
Unallocated amounts:
  Interest expense                    (1,233)       (978)       (522)
  Interest income                         72           7          15
  Corporate overhead                  (1,968)     (3,025)     (2,396)
  Income tax benefit                   1,222       1,666       1,234
                                   -------------------------------------
Net (loss) income                    $(5,679)     $5,884     $ 5,785
                                   =====================================

                                               December 31
                                      2001        2000         1999
                                   -------------------------------------
                                          (Dollars in Thousands)
Reconciliation to total assets
Total assets for reportable
  segments                          $139,998    $151,834    $146,910
Other assets                           9,166       2,352       1,509
                                   -------------------------------------
Total assets                        $149,164    $154,186    $148,419
                                   =====================================


                                      F-28
<PAGE>


               Headway Corporate Resources, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


17. Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results for the years ended December
31, 2001 and 2000.

                                        2001 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)
                             =====       =======      =======       =======




                                        2000 Quarter Ended
                       ------------------------------------------------------
                           March         June      September     December
                       ------------------------------------------------------
                            (Dollars in Thousands, except per share data)
Revenues                  $96,315      $96,655      $91,678       $86,467
Operating Income            4,998        5,187        3,674         4,357
Net Income                  1,819        1,802          870         1,393
Net Income available for
  common stockholders:
     -Basic                 $ .14        $ .14        $ .05         $ .10
                            =====        =====        =====         =====
     -Diluted               $ .13        $ .13        $ .05         $ .10
                            =====        =====        =====         =====




                                      F-29
<PAGE>



                 Schedule II - Valuation And Qualifying Accounts

               Headway Corporate Resources, Inc. and Subsidiaries

                                December 31, 2001



<TABLE>
<S>                            <C>             <C>          <C>        <C>             <C>
------------------------------------------------------------------------------------------------
COL. A                         COL. B                 COL. C           COL. D          COL. E
------------------------------------------------------------------------------------------------
                                                     Additions
                                               ---------------------
                               Balance at      Charged to   Charged                    Balance
                               Beginning to    Costs and    to Other   Deductions(a)   at End
Description                    of Period       Expense      Accounts                   of Period
-------------------------------------------------------------------------------------------------


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


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


Year Ended December 31, 1999:
  Deducted from asset account
  Allowance for doubtful
  accounts                     $  593,000      $504,000     $    -     $139,000         $958,000

</TABLE>


(a)  Uncollectible accounts written off.


                                      F-30