SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1565578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 North Central Expressway
Suite 260
Dallas, Texas 75243
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 458-8500
Former name, former address and former fiscal year if changed since last report:
Indicate by check mark whether registrant (1) has filed all reports
required 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
Number of shares of common stock of the registrant outstanding on
September 30, 1995, was 1,758,211.
Total Number of pages for
this 10-Q filing: 11
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1994
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 97,116 $ 45,780
Accounts receivable less allowance for doubtful
accounts of approximately $230,000 and $205,000, respectively 2,297,725 1,874,754
Refundable federal taxes - 225
Notes receivable 17,458 25,363
Prepaid expenses and other current assets 161,784 157,153
--------- -------
TOTAL CURRENT ASSETS 2,574,083 2,103,275
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET 413,452 286,829
OTHER ASSETS:
Notes receivable 1,373 11,533
Other 167,628 161,243
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$3,156,536 $2,562,880
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $3,444,786 $3,143,107
Current maturities of long-term debt 43,844 101,822
TOTAL CURRENT LIABILITIES 3,488,630 3,244,929
DEFERRED LEASE RENTS 68,290 117,597
LONG-TERM DEBT 97,300 113,240
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY):
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued - -
Common stock, $.10 par value; 10,000,000 shares
authorized, 1,881,161 shares issued 188,116 188,116
Additional paid-in capital 3,615,151 3,615,151
Accumulated deficit (4,131,526) (4,546,728)
Common stock held in treasury (122,950 shares), at cost (169,425) (169,425)
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TOTAL STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) (497,684) (912,886)
---------- ----------
$3,156,536 $2,562,880
See Notes to Consolidated Financial Statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
NET SERVICE REVENUES
Regular Placements $ 2,257,701 $ 1,960,069 $ 6,988,468 $ 5,570,204
Temporary 1,105,730 606,997 3,041,574 1,995,849
Contract Labor 1,591,657 1,428,040 4,343,712 3,413,399
------------ ------------ ------------ ------------
4,955,088 3,995,106 14,373,754 10,979,452
COST AND EXPENSES 4,395,706 3,619,956 12,629,399 9,830,020
------------ ------------ ------------ ------------
INCOME FROM OPERATING ENTITIES 559,382 375,150 1,744,355 1,149,432
GENERAL AND ADMINISTRATIVE EXPENSES (383,598) (367,210) (1,236,418) (1,076,897)
OTHER INCOME (EXPENSES):
Gain on foreclosure of divisional assets -- 6,159 -- 131,101
Interest expense, net (54,858) (28,464) (162,304) (105,752)
Other, net 25,547 52,149 63,512 93,940
------------ ------------ ------------ ------------
(29,311) 29,844 (98,792) 119,289
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 146,473 37,784 409,145 191,824
INCOME TAXES, net of tax benefit from
utilization of net operating loss carryforward -- -- -- --
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 146,473 37,784 409,145 191,824
EXTRAORDINARY ITEM - gain on troubled debt
restructuring, net of income tax 436 23,076 6,057 77,178
------------ ------------ ------------ ------------
NET INCOME $ 146,909 $ 60,860 $ 415,202 $ 269,002
============ ============ ============ ============
INCOME PER SHARE
Income before extraordinary item $ .09 $ .02 $ .23 $ .11
Extraordinary Item -- .01 .01 .04
------------ ------------ ------------ ------------
INCOME PER SHARE $ .09 $ .03 $ .24 $ .15
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND
COMMON SHARES OUTSTANDING 1,758,211 1,758,211 1,758,211 1,758,211
============ ============ ============ ============
The Notes to Consolidated Financial Statements are an Integral Part of
the Financial Statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
-----------------------
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 415,202 $ 269,002
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 93,433 50,481
(Benefit) provision for losses on accounts receivable 25,521 (31,000)
Increase in accounts receivable (448,492) (769,395)
Decrease in receivables from net assets foreclosed -- 236,973
(Increase) decrease in prepaid expenses and other current assets 3,499 (98,918)
(Increase) decrease in other assets 3,775 (102,992)
Increase in fixed assets from foreclosure -- (223,849)
Increase in accounts payable and accrued expenses 292,085 729,653
Decrease in deferred lease rents (49,307) (60,742)
Decrease in obligations resulting from settlement agreements -- (159,556)
--------- ---------
Net cash provided by (used in) operating activities 335,716 (160,343)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (220,056) (96,668)
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Net cash used in investing activities (220,056) (96,668)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loan -- 10,000
Repayment of short-term debt (55,323) (50,000)
Increase (decrease) in proceeds from factored receivables 9,594 282,310
Principal payments under long-term debt obligations to others (18,595) (14,858)
--------- ---------
Net cash (used in) provided by financing activities (64,324) 227,452
--------- ---------
Net increase (decrease) in cash and cash equivalents 51,336 (29,559)
Cash and cash equivalents at beginning of year 45,780 102,775
--------- ---------
Cash and cash equivalents at end of period $ 97,116 $ 73,216
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 199,043 $ 113,655
The Notes to Consolidated Financial Statements are an Integral Part of the
Financial Statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its subsidiaries (the "Company"). The financial
information for the three and nine month periods ended September 30, 1995, is
unaudited but includes all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for a fair presentation of the
results for the period. The financial information should be read in conjunction
with the consolidated financial statements for the year ended December 31, 1994,
included in the Company's annual report on Form 10-K. Operating results for the
three and nine month periods ended September 30, 1995, are not necessarily
indicative of the results that may be expected for the entire year ended
December 31, 1995.
The Company's Consolidated Statement of Operations for the three and nine
month periods ended September 30, 1995 and 1994, include income from the
operations of the employment placement business (the "Employment Placement
Business"). The Employment Placement Business includes the operation of the
assets foreclosed upon in January, 1994.
Revenue Recognition
Fees for full-time (regular) placement of personnel were recognized as
income at the time the applicants accepted employment. Provision was made for
estimated losses in realization (principally due to applicants not commencing
employment or not remaining in employment for the guaranteed period). Revenue
from temporary and contract personnel placements was recognized upon performance
of services. Cost of services consists of expenses for the operation of agencies
(principally commissions, direct wages paid to temporary personnel, payroll
taxes and rent) and a provision for uncollectible accounts (approximately $9,000
and $66,000, respectively, for the three and nine month periods ended September
30, 1995).
Cash and Cash Equivalents
Cash and cash equivalents includes certificates of deposit of approximately
$22,000 at September 30, 1995, and $31,000 at December 31, 1994. The Company
considers all highly liquid investment instruments purchased with remaining
maturities of three months or less to be cash equivalents for purposes of the
consolidated statements of cash flow.
Income Taxes
During 1993, the Company changed its method of accounting for income taxes
to conform to the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Accordingly, income taxes are provided for
the tax effects of transactions reported in the financial statements and consist
of taxes currently payable plus deferred taxes related primarily to differences
between the basis of installment sales, property and equipment and accounts
receivable for financial and income tax reporting. The deferred taxes represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
The Company has a net operating loss carryforward of approximately $4.9
million as of December 31, 1994, which, if unused, expires in 2002 through 2008.
However, due to a more than 50% change in ownership beginning with an April 1991
transaction, the Company's net operating loss carryforward is subject to certain
limitations
pursuant to provisions of the Internal Revenue Code. The amount of the Company's
net operating loss available for use at December 31, 1994, was approximately
$1.7 million. An additional amount of approximately $500,000 will become
available annually through 2001.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended September 30, 1995 Compared to Three Months Ended
September 30, 1994
Total revenues were $5.0 million for the third quarter ended September 30,
1995, compared to $4.0 million in the third quarter of 1994. This increase of
24.0% resulted from increases in regular placements, temporary and contract
labor revenues. Cost and expenses were $4.4 million in the third quarter of 1995
as compared to $3.6 million in the third quarter of 1994. This represents a
21.4% increase. The increases in revenues and the related cost and expenses in
the third quarter of 1995 as compared to the third quarter of 1994 resulted from
an increase in all areas of service revenues and operations of the Employment
Placement Business during the third quarter of 1995.
General and administrative expenses increased approximately $16,000, or
4.5%, in 1995 as compared to the third quarter of 1994. This increase was the
result of an increase in payroll expenses in the Company's Employment Placement
Business.
Other income for the third quarter of 1995 decreased by approximately
$59,000 as compared to the third quarter of 1994. This decrease was primarily
due to an increase in interest expense of approximately $26,000, which is the
result of an increase in liabilities relating to factored accounts receivable,
and a decrease in gain on sale of assets held for resale in prior periods of
approximately $22,000.
In the third quarter of 1994, the Company recorded approximately $23,000 as
an extraordinary item from gain on debt restructuring, net of income taxes,
which is the result of management's successful efforts in settling certain prior
year liabilities on a discounted basis.
As a result of these factors, the Company recorded approximately $147,000 of
net income for the third quarter of 1995, compared to approximately $61,000 for
the third quarter of 1994.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1994
Total revenues were $14.4 million for the first nine months ended September
30, 1995, compared to $11.0 million for the first nine months of 1994. This
increase of 30.9% resulted from increases in regular placements, temporary and
contract revenues. Cost and expenses were $12.6 million for the first nine
months of 1995 compared to $9.8 million in the first nine months of 1994. This
represents a 28.5% increase. The increases in revenues and the related cost and
expenses in the first nine months of 1995 as compared to the first nine months
of 1994 resulted from an increase in all areas of service revenues and
operations of the Employment Placement Business during the first nine months of
1995. The demand for the Company's services remained strong through the first
nine months of 1995.
General and administrative expenses increased approximately $160,000, or
14.8%, in 1995 as compared to the first nine months of 1994. This increase is
primarily the result of an increase in payroll expenses in the Company's
Employment Placement Business.
Due to a January, 1994 foreclosure transaction, the Company recognized a
gain of approximately $131,000 on foreclosure of divisional assets during the
first nine months of 1994, as compared to no gain being recognized in the
comparable period in 1995.
Interest expense increased approximately $57,000, which is the result of an
increase in liabilities relating to factored accounts receivable of the
Employment Placement Business.
In the first nine months of 1994, the Company recognized approximately
$77,000 as an extraordinary item from gain on debt restructuring, net of income
taxes, which is the result of management's successful efforts in settling
certain prior year liabilities on a discounted basis. There was a gain of
approximately $6,000 on debt restructuring recorded in the first nine months of
1995.
As a result of these factors, the Company recorded approximately $415,000 in
net income for the first nine months ended September 30, 1995, compared to
approximately $269,000 for the first nine months ended September 30, 1994.
Liquidity and Capital Resources
Working capital was a $915,000 deficit at September 30, 1995, compared with
a $1.1 million deficit at December 31, 1994. This deficit decrease of
approximately $227,000 during the first nine months of 1995 can be primarily
attributed to an increase in the accounts receivable of the Employment Placement
Business, offset by a related increase in accounts payable and accrued expenses.
Cash flow provided by operating activities of approximately $336,000
resulted primarily from net income for the first nine months of 1995 and from an
increase in accounts payable and accrued expenses, partially offset by an
increase in accounts receivable.
Net cash used in investing activities was $220,000 as a result of capital
expenditures made by the Company during the first nine months of 1995. In
addition, the Company retired approximately $74,000 in notes payable and other
obligations during the first nine months of 1995. The Company also increased its
factoring liability by approximately $10,000 during the first nine months of
1995.
Other
During the second quarter of 1995, the Company opened a new district office
in Chicago, Illinois. This office will provide employment placement services to
prospective clients in the region. Management believes that this operation will
contribute significantly to future growth and profits.
In addition, during the first nine months of 1995, the Company entered into
a long-term lease commitment for approximately 41,000 square feet of office
space, at a favorable market rate, in Dallas, Texas. This office space is
currently the corporate headquarters for the Company, and includes several of
the Company's agency operations.
During the third quarter of 1995, the Company entered into negotiations with
major financial sources to provide funding to the Company under a factoring or
an asset based lending arrangement. If such funding arrangement is finalized,
management plans to use these funds to finance the Employment Placement Business
and to replace its current factoring sources at a significantly lower cost.
In October, 1995, the Board of Directors of the Company granted options to
purchase 50,000 shares of Common Stock (150,000 shares in the aggregate) to each
of the following: J. Michael Moore, the Chairman of the Board and Chief
Executive Officer of the Company, M. Ted Dillard, Chief Financial Officer,
Secretary, Treasurer, and director of the Company, and Donald A. Bailey, a
director of the Company. The terms and conditions of each of these options, as
approved by the Board of Directors, are expected to be as follows (written
option documents have not yet been finalized): (a) each of the optionees (i) are
immediately vested as to 15,000 shares (45,000 shares in the aggregate), and
(ii) become vested as to an additional 3,000 shares (9,000 shares in the
aggregate) per quarter (commencing November, 1995) until such time as they are
fully vested as to 50,000 shares each, (b) prior to options becoming vested,
vesting is contingent upon the optionee's continued involvement as an officer or
director of the Company, (c) at such time as an optionee becomes vested as to
shares of Common Stock, such optionee may
thereafter purchase the number of shares to which the optionee is vested,
subject to certain conditions, (d) the option price for options exercised is
$.50 per share, (e) subject to earlier termination as herein provided, vested
options (i) may be exercised at any time or times within five years from the
date of vesting, and (ii) must be exercised prior to the expiration of five
years from the date of vesting, and (f) if an optionee ceases to be an officer
or director of the Company the options then vested as to such optionee must be
exercised within (i) six calendar months from the date on which optionee's
continuous involvement with the Company is terminated for any reason other than
as provided in subsections (ii) and (iii) below, (ii) twelve calendar months
from the date on which optionee's continuous involvement with the Company is
terminated due to death, total disability or retirement at age 65, (iii) three
months from the date of termination of employment of optionee by the Company for
cause, or (iv) October 31, 2000 (five years from the date of authorization of
these options).
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
Item 1. LEGAL PROCEEDINGS
Not Applicable.
Item 2. CHANGES IN SECURITIES
Not Applicable.
Item 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Item 5. OTHER INFORMATION
Not Applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIVERSIFIED CORPORATE RESOURCES, INC.
Registrant
DATE: December 22, 1995 By: /s/ J. Michael Moore
----------------------
J. Michael Moore,
Chief Executive Officer
DATE: December 22, 1995 By: /s/ M. Ted Dillard
----------------------
M. Ted Dillard
Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIVERSIFIED CORPORATE RESOURCES, INC.
Registrant
DATE: December 22, 1995 By:/s/ J. Michael Moore
----------------------------------
J. Michael Moore,
Chief Executive Officer
DATE: December 22, 1995 By:/s/ M. Ted Dillard
----------------------------------
M. Ted Dillard
Chief Financial Officer