SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
March 31, 1996
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 350
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 March 31, 1996, was 1,758,211.
Total Number of pages for
this 10-Q filing: 11
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
CURRENT ASSETS: 1996 1995
----------------- -----------------
Cash and cash equivalents $ 117,691 $ 69,627
Accounts receivable, less allowance for doubtful accounts
of approximately $348,000 and $412,000, respectively......................... 2,888,244 2,140,623
Notes receivable ............................................................. 5,610 13,052
Prepaid expenses and other current assets..................................... 124,663 96,806
----------------- -----------------
TOTAL CURRENT ASSETS........................................................ 3,136,208 2,320,108
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET ............................................................ 524,672 467,043
OTHER ASSETS:
Investment in and advances to joint venture ................................... 67,272 103,838
Other 137,421 179,153
$3,865,573 $3,070,142
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses ........................................ $3,841,625 $3,358,163
Current maturities of long-term debt ......................................... to majority shar16,203r in 1994) (Note21,603
----------------- ----------------
TOTAL CURRENT LIABILITIES.................................................... 3,857,828 3,379,766
DEFERRED LEASE RENTS................................................................ 36,771 52,531
LONG TERM DEBT 85,102 90,048
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 (3,747,970) (4,086,045)
Common stock held in treasury (122,950 shares), at cost........................ (169,425) (169,425)
TOTAL STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY).............................. (114,128) (452,203)
----------------- ----------------
$3,865,573 $3,070,142
================= ================
See notes to consolidated financial statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended
March 31,
-------------------------------------
1996 1995
------------------ -----------------
NET SERVICE REVENUES
Regular Placements $2,777,261 $2,220,999
Temporary 1,557,402 934,650
Contract Labor 1,879,336 1,387,208
------------------ -----------------
6,213,999 4,542,857
COST AND EXPENSES 5,239,895 3,934,683
------------------ -----------------
INCOME FROM OPERATING ENTITIES 974,104 608,174
GENERAL AND ADMINISTRATIVE EXPENSES (540,442) (390,904)
OTHER INCOME (EXPENSES):
Gain (loss) on sale of assets held for sale, net 4,500 3,500
Loss from joint venture operations (34,368) -
Interest expense, net (70,190) (59,783)
Other, net 4,471 16,571
(95,587) (39,712)
----------------- -----------------
INCOME BEFORE INCOME TAXES 338,075 177,558
INCOME TAXES, net of tax benefit from utilization
of net operating loss carry forward - -
----------------- -----------------
NET INCOME $ 338,075 $ 177,558
================= =================
INCOME PER SHARE $ .19 $ .10
================= =================
WEIGHTED AVERAGE COMMON AND
COMMON SHARES OUTSTANDING 1,758,211 1,758,211
================= =================
See notes to consolidated financial statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
------------------------------------
1996 1995
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 338,075 $ 177,558
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 44,652 25,258
Increase (decrease) in provision for losses on accounts
receivable............................................................ (64,410) 11,644
Increase in accounts receivable (683,211) (171,264)
Increase in prepaid expenses and other current assets (20,415) (12,936)
Equity in loss of joint venture 36,566 -
Decrease in other assets 41,732 5,265
Increase in accounts payable and accrued expenses 395,646 178,288
Decrease in deferred lease rents (15,760) (17,790)
Net cash provided by operating activities 72,875 196,023
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (102,281) (60,590)
----------------- -----------------
Net cash used in investing activities (102,281) (60,590)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt - (14,500)
Increase (decrease) in proceeds from factored receivables 87,816 (112,602)
Principal payments under long-term debt obligations
to others........................................................... (10,346) (6,548)
Net cash provided by (used in) financing activities................... 77,470 (133,650)
----------------- -----------------
Net increase in cash and cash equivalents 48,064 1,783
Cash and cash equivalents at beginning of year 69,627 45,780
Cash and cash equivalents at end of period $ 117,691 $ 47,563
================= =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for interest...................................... $ 82,459 $ 76,318
See notes to consolidated 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 months ended March 31, 1996, 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, 1995, included in the
Company's annual report on Form 10-K.
Operating results for the three months ended March 31, 1996, are not necessarily
indicative of the results that may be expected for the entire year ended
December 31, 1996.
Nature of Operations
Diversified Corporate Resources, Inc. (the "Company") is a Texas
corporation. The Company, through its wholly-owned subsidiaries, is engaged in
the full-time (regular) and temporary placement of personnel in various
industries, and in the contract placement of personnel in various industries.
The Company operates branch offices in a number of cities with the Company's
staff in such offices responsible for marketing to clients, recruitment of
personnel, operations, local advertising, credit and collections. The Company's
executive office provides centralized training, payroll, collections and
certain accounting and administrative services for the branch offices.
Revenue Recognition
Fees for placement of full-time (regular) personnel are recognized as income
at the time the applicants accept employment. Provision is 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 is recognized upon performance of
services by the Company. The Company's operating expenses consist principally of
commissions, direct wages paid to temporary personnel, payroll taxes, rent and a
provision for uncollectible accounts (approximately $50,000 in 1996 and $28,000
in 1995).
Cash and Cash Equivalents
Cash and cash equivalents includes certificates of deposit of approximately
$32,000 at March 31, 1995. 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.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
Joint Venture Operations
During January, 1995, the Company entered into a joint venture agreement
with CFS, Inc., for the purpose of providing personnel services to certain
businesses requiring minority suppliers and to others. CFS, Inc. is a minority
operated corporation, which because of its status, supplies services to clients
requiring a certain portion of its business to be allocated to minority owned
and operated vendors. The Company provides the joint venture with personnel and
contract labor on a subcontractor basis. The Company has a 49% ownership
interest in the joint venture and is allocated 65% of the net income or loss
resulting from the joint venture operations. The joint venture recorded a net
loss for the first quarter of 1996 of $53,000. Accordingly, the Company
recognized a $34,000 loss from joint venture operations in the Consolidated
Statement of Operations for the quarter ended March 31, 1996. For more
discussion of joint venture operations, refer to the Company's Form 10-K for the
year ended December 31, 1995.
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 $4.4
million as of December 31, 1995, which, if unused, expires in 2002 through 2008.
However, due to a more than 50% change in ownership of the Company's stock
beginning with an April 1991 transaction, the Company's use of its 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 as of December 31, 1995, was approximately $1.6 million. An
additional amount of approximately $467,000 will become available annually
through 2001.
Income Per Share
Income per share was determined by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding (common stock equivalents are excluded if the effects of inclusion
are antidilutive). The weighted average number of shares outstanding for the
quarters ended March 31, 1996 and 1995 were 1,758,211.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Accounting Pronouncements
During the first quarter of 1996, the Company changed its valuation of
long-lived assets to conform to the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Accordingly, the Company
recognized a reduction in market value of certain long-lived assets. This write
down resulted in a charge to current earnings of approximately $37,000.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 31, 1996, Compared to Three Months
Ended March 31, 1995
Total revenues were $6.2 million for the first quarter ended March 31,
1996,
compared to $4.5 million in 1995. This increase of 36.8% resulted from an
increase in regular placements, temporary and contract labor revenues. Cost and
expenses were $5.2 million in the first quarter of 1996 as compared to $3.9
million in the first quarter of 1995. This represents a 33.2% increase. The
increases in revenues and the related cost and expenses in the first quarter of
1996 as compared to the first quarter of 1995 resulted from an increase in all
areas of service revenues and operations of the Company's wholly-owned
subsidiaries, which were engaged in the employment placement business (the
"Employment Placement Business") during the first quarter of 1996.
General and administrative expenses increased approximately $150,000, or
38.3%, in 1996 as compared to the first quarter of 1995. This increase is
primarily the result of an increase in corporate operating expenses for rent,
telephone, professional services and depreciation, as well as payroll expenses
in the Company's Employment Placement Business. As a result of joint venture
operations, the Company recorded a loss of $34,000 during the first quarter of
1996. The joint venture was formed in January of 1995 for the purpose of
providing personnel services to certain businesses requiring minority suppliers
and to others. No accruals were made for such losses until the fourth quarter of
1995.
Interest expense for the first quarter of 1996 increased approximately
$10,000 over the prior year quarter, which is the result of an increase in the
amount of factored accounts receivable of the Employment Placement Business.
As a result of these factors, the Company recorded net income of
approximately $338,000 for the first quarter of 1996, compared to net income of
approximately $178,000 for the first quarter of 1995.
Liquidity and Capital Resources
Working capital was a $722,000 deficit at March 31, 1996, compared with a
$1.1 million deficit at December 31, 1995. This deficit decrease of
approximately $338,000 during the first quarter of 1996 can be primarily
attributed to an increase in the accounts receivable of the Employment Placement
Business, partially offset by an increase in the related accounts payable.
Cash flow provided by operating activities of $73,000 resulted primarily
from the profitable operations of the Employment Placement Business and an
increase in accounts payable and accrued expenses, offset in part by a
corresponding increase in accounts receivable.
Net cash used in investing activities of $102,000 resulted from capital
expenditures made by the Company during the first quarter of 1996. The Company
retired approximately $10,000 in debt obligations during the first quarter of
1996, and utilized approximately $88,000 of proceeds from factored accounts
receivable to fund the operations of the Employment Placement Business during
the first quarter ended March 31, 1996. Presently, the Company's only major
source of income relates to the operations of its Employment Placement Business.
However, management of the Company anticipates that the cash flow of its
employment Placement Business (a) will provide sufficient liquidity to fund its
future operations,
Management's Discussion and Analysis of Financial
Condition and Results of Operations - Continued
and enable the Company to reduce certain current obligations, and (b) will
result in the Company having a positive shareholders' equity at December 31,
1996.
Although the Company significantly lowered its cost of factored funds in
1995 through negotiations with its factoring sources, the Company is presently
seeking alternative sources of funds to be utilized in expanding the Employment
Placement Business and possibly to fund future growth or acquisitions.
The Company is currently evaluating the possibility of expanding its
Employment Placement Business in 1996 through acquisitions, joint venture
operations, the development of training center operations to assist in
increasing the number of potential applicants, and enhancing its data base
services to facilitate employee placement.
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: May 20, 1996 By: /s/ J. Michael Moore
----------------------
J. Michael Moore,
Chief Executive Officer
DATE: May 20, 1996 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: May 20, 1996 By:____________________________
J. Michael Moore,
Chief Executive Officer
DATE: May 20, 1996 By:____________________________
M. Ted Dillard
Chief Financial Officer