UNITED STATES
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, 2000
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 (IRS 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: (972) 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 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. [X]Yes [ ]No
Number of shares of common stock of the registrant outstanding on May 12, 2000
was 2,786,352
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
--------------- ---------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 401,275 $ 847,171
Trade accounts receivable, less allowance for doubtful accounts
of approximately $1,172,000 and $1,005,000, respectively 13,425,736 9,987,318
Receivables from related parties 184,184 75,263
Prepaid expenses and other current assets 370,525 256,714
Federal income taxes receivable - 148,523
Deferred income taxes 788,775 713,853
--------------- ---------------
Total current assets 15,170,495 12,028,842
Property and equipment, net 3,312,674 3,342,524
Other assets:
Intangibles, net 9,985,670 6,882,809
Other 149,391 293,574
- -
--------------- ---------------
$ 28,618,230 $ 22,547,749
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued expenses $ 7,521,737 $ 5,128,069
Short-term borrowing under line of credit 3,750,000 1,480,000
Federal income taxes payable 126,985 -
Current maturities of capital lease obligations - 13,413
Current maturities of long-term debt 1,406,549 1,220,733
--------------- ---------------
Total current liabilities 12,805,271 7,842,215
Deferred lease rents 104,260 93,528
Deferred income taxes 145,361 93,487
Long-term debt, net of current maturities 2,041,760 1,590,757
--------------- ---------------
Total liabilities 15,096,652 9,619,987
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized,
none issued - -
Common stock, $.10 par value; 10,000,000 shares authorized,
3,364,946 and 3,289,946 shares issued, respectively 336,495 328,995
Additional paid-in capital 12,558,909 12,378,909
Retained earnings 2,488,409 1,999,549
Common stock held in treasury (578,594 and 549,594 shares,
respectively), at cost (1,623,846) (1,541,302)
Receivable from related parties (238,389) (238,389)
--------------- ---------------
Total stockholders' equity 13,521,578 12,927,762
--------------- ---------------
$ 28,618,230 $ 22,547,749
--------------- ---------------
--------------- ---------------
See notes to consolidated financial statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended
March 31,
--------------------------------------
2000 1999
--------------- --------------
Net service revenue:
Permanent placement $ 7,799,688 $ 6,481,303
Specialty services 1,908,967 1,874,978
Contract placement 7,860,348 3,320,849
--------------- --------------
17,569,003 11,677,130
Cost of services 12,542,468 8,194,610
--------------- --------------
Gross margin 5,026,535 3,482,520
Selling, general and administrative expenses:
Selling, general and administrative expenses 3,780,887 2,383,285
Depreciation and amortization expense 376,805 268,699
--------------- --------------
4,157,692 2,651,984
Other income and (expense) items:
Interest expense, net (66,060) (7,458)
Other, net 7,317 -
--------------- --------------
(58,743) (7,458)
Income from continuing operations before income taxes,
and discontinued operations 810,100 823,078
Income tax expense (321,240) (315,102)
--------------- --------------
Income from continuing operations before discontinued
operations 488,860 507,976
Discontinued operations, net of income taxes:
Loss from operations of discontinued training
operations (less income tax benefit $73,633) - (124,652)
--------------- --------------
Net income $ 488,860 $ 383,324
--------------- --------------
--------------- --------------
Basic earnings per share:
Income from continuing operations $ 0.18 $ 0.18
Loss from discontinued operations - (0.04)
--------------- --------------
$ 0.18 $ 0.14
--------------- --------------
--------------- --------------
Weighted average common shares outstanding 2,738,506 2,756,147
--------------- --------------
--------------- --------------
Diluted earnings per share:
Income from continuing operations $ 0.18 $ 0.18
Loss from discontinued operations - (0.04)
--------------- --------------
$ 0.18 $ 0.14
--------------- --------------
--------------- --------------
Weighted average common and common
equivalent shares outstanding 2,739,306 2,790,035
--------------- --------------
--------------- --------------
See notes to consolidated financial statements
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Three Months Ended March 31,
--------------------------------------------
2000 1999
------------------ ------------------
Cash flow from operating activities:
Net income $ 488,860 $ 383,324
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 376,805 270,925
Provision for allowances 159,543 50,024
Income tax effect of options exercised - 22,744
Deferred income taxes (23,048) 111,260
Accretion of interest on deferred payment
obligations 67,259 37,200
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (2,013,630) (571,281)
Federal income taxes receivables 148,523 (7,635)
Deferred lease rents 8,717 5,674
Prepaid expenses and other assets (105,019) (18,965)
Other assets (4,188) (70,902)
Trade accounts payable and accrued expenses 1,552,560 (9,219)
Federal income taxes payable 126,985 -
------------------ ------------------
Cash provided by operating activities 783,367 203,149
Cash flows from investing activities:
Capital expenditures (159,415) (411,058)
Deposits (10,548) 450
Business acquisition costs (3,124,422) -
Loans and advances to related parties (109,004) (23,166)
Repayment from related parties 83 44,028
------------------ ------------------
Cash used in investing activities (3,403,306) (389,746)
Cash flows from financing activities:
Issuance of common stock under stock options - 181,250
Net short-term borrowings 2,270,000 -
Repurchase of treasury stock (82,544) -
Principal payments under capital lease obligations (13,413) (13,545)
------------------ ------------------
Cash provided by financing activities 2,174,043 167,705
Decrease in cash and cash equivalents (445,896) (18,892)
Cash and cash equivalents at beginning of year 847,171 3,472,990
------------------ ------------------
Cash and cash equivalents at end of period $ 401,275 $ 3,454,098
------------------ ------------------
------------------ ------------------
Supplemental cash flow information:
Cash paid for interest $ 21,701 $ 1,507
------------------ ------------------
------------------ ------------------
Cash paid for taxes $ 16,588 $ 148,067
------------------ ------------------
------------------ ------------------
See notes to consolidated financial statements
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its wholly owned subsidiaries (the "Company"). The
financial information for the three months ended March 31, 2000 and 1999, 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 periods. The financial information should be read in conjunction
with the consolidated financial statements for the quarter ended March 31, 2000,
included in the Company's Annual Report on Form 10-K ("Form 10-K"). Operating
results for the three months ended March 31, 2000, are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 2000.
All inter-company accounts and transactions have been eliminated in
consolidation.
Certain reclassifications have been made to prior year balances to conform to
the current year presentation.
2. EARNINGS PER SHARE
Basic earnings per share ("EPS") was determined by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted EPS includes these shares plus common stock equivalents outstanding
during the year. (Common stock equivalents are excluded if the effects of
inclusion are anti-dilutive.)
Following is a reconciliation of the weighted average number of shares
outstanding during the period for basic and diluted EPS:
For the Three Months ended
March 31,
--------------------------------
2000 1999
-------------- --------------
Basic 2,738,506 2,756,147
Net effect of dilutive stock options 800 33,888
-------------- --------------
Diluted 2,739,306 2,790,035
-------------- --------------
-------------- --------------
Total options and warrants outstanding 668,757 667,257
-------------- --------------
-------------- --------------
Options and warrants not considered because
effects of inclusion would be anti-dilutive 631,257 277,590
-------------- --------------
-------------- --------------
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
March 31, December 31,
2000 1999
-------------- --------------
Computer equipment and software $ 3,299,819 $ 3,071,644
Equipment and furniture 1,802,145 1,814,910
Leasehold improvements 399,146 386,589
-------------- --------------
Gross property 5,501,110 5,273,143
Less accumulated depreciation and amortization (2,188,436) (1,930,619)
-------------- --------------
Net property and equipment $ 3,312,674 $ 3,342,524
-------------- --------------
-------------- --------------
Depreciation and amortization expense of property and equipment for the three
months ended March 31, 2000 and 1999 was approximately $265,000 and $209,000,
respectively.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. INTANGIBLES
Intangibles consist of:
Amortization March 31, December 31,
Period 2000 1999
------ ---- ----
Non-compete agreements 3 - 5 years $ 150,000 $ 100,000
Goodwill 10 - 20 years 10,262,064 7,097,269
----------- -----------
10,412,064 7,197,269
Accumulated amortization (426,394) (314,460)
----------- -----------
$ 9,985,670 $ 6,882,809
----------- -----------
----------- -----------
Amortization of intangibles for the three months ended March 31, 2000 and 1999
was approximately $112,000 and $62,000, respectively.
5. LINE OF CREDIT AND DEBT:
On July 8, 1999, the Company entered into a revolving line of credit agreement
with Compass Bank. The agreement permits borrowings of up to $4,500,000. The
borrowings are collateralized by the Company's accounts receivable and other
assets and are based upon a borrowing base as defined in the agreement. The
agreement also contains various financial and non-financial covenants, the most
restrictive of which require the Company to maintain net worth of $8,900,000 and
interest coverage, as defined in the agreement, of not less than 2 to 1. The
Company was in compliance with these covenants at March 31, 2000 and December
31, 1999. Outstanding balances bear interest at the bank's index rate unless the
Company elects the LIBOR base rate plus 2.25% for specific advances under the
agreement. Interest is payable quarterly and all outstanding principal and
interest is due June 30, 2000. Borrowings at March 31, 2000 amounted to
$3,750,000, with a remaining balance of $750,000 available. The weighted average
interest rate on the borrowings was 8.74% at March 31, 2000.
6. BUSINESS ACQUISITIONS
DATATEK CORPORATION:
On March 7, 2000, the Company completed the acquisition of substantially all
of the assets of Datatek Corporation ("Datatek"). The purchase price
consisted of $3,000,000 in cash, which was paid at closing; 75,000 shares of
the Company's common stock valued at $2.50 per share (which was the then
market value at the date the acquisition was announced less a discount for
the restrictive nature of the stock) and four annual installment payments,
payable on January 1 of each of the years 2001 through 2005, in the
anticipated amount of $170,625 each; contingent payments payable annually, on
April 15 of each of the years 2001 through 2005, in an amount equal to
twenty-five percent (25%) of the increased profits, as defined, of the
business acquired from Datatek (increased profits are based upon Datatek's
profits in 1999). In addition, in accordance with the provisions of the
purchase agreement, on May 8, 2000 the Company paid $1,045,242 to the
shareholders of Datatek which comprised the portion of Datatek's net working
capital at March 7, 2000 (as defined in the Purchase Agreement) in excess of
$750,000.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company incurred acquisition cost totaling $287,000 in connection with the
acquisition. Following is a summary of the transaction:
Costs:
Fair value of net assets acquired $ 829,356
Covenants not to compete 50,000
Goodwill 3,164,481
-----------
Total $ 4,043,837
-----------
-----------
Source:
Cash $ 3,286,777
Present value of minimum deferred payments 569,560
Fair value of common stock issued 187,500
-----------
Total $ 4,043,837
-----------
-----------
The Datatek acquisition was accounted for under the purchase method. The results
of Datatek are included in the statement of operations beginning March 6, 2000.
Goodwill is being amortized over twenty years utilizing the straight-line
method. The contingent deferred payments will be recorded as goodwill when
earned.
The following unaudited pro forma results of operations for the three months
ended March 31, 2000 have been prepared assuming the Datatek acquisition had
taken place at the beginning of the period. The following unaudited pro forma
results of operations for the three months ended March 31, 1999 have been
prepared assuming the Datatek acquisition and the August 6, 1999 acquisition of
Mountain, LTD ("Mountain") had taken place at the beginning of the period. The
results of operations give effect to certain adjustments, including amortization
of intangible assets, interest effects of the transaction, income taxes and the
additional shares of common stock issued in the transaction. The pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of results which may occur in the future.
For the Three Months Ended
March 31,
----------------------------------
2000 1999
---- ----
Net service revenues $ 19,616,995 $17,816,613
Net income from continuing operations before
taxes 943,389 965,503
Net income from continuing operations 569,841 593,431
Net income 569,841 468,779
Basic earnings per share:
Net income from continuing operations $ 0.21 $ 0.21
Net income $ 0.21 $ 0.17
Diluted earnings per share:
Net income from continuing operations $ 0.21 $ 0.21
Net income $ 0.21 $ 0.17
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
7. INCOME TAXES
The income tax provision and the amount computed by applying the federal
statutory income tax rate to income before income taxes differs as follows:
For the Three Months Ended
March 31,
----------------------------------
2000 1999
---- ----
Tax provision at statutory rate for
continuing operations $ 283,535 $ 288,077
Loss from discontinued operations (73,633)
Other (5,923) 11,215
State income taxes net of federal income
tax benefits 43,628 15,810
----------- ----------
$ 321,240 $ 241,469
----------- ----------
----------- ----------
The allocation of income taxes (benefit) is:
For the Three Months Ended
March 31,
----------------------------------
2000 1999
---- ----
Continuing operations $ 321,240 $ 315,102
Discontinued operations - (73,633)
----------- ----------
$ 321,240 $ 241,469
----------- ----------
----------- ----------
8. RELATED PARTY TRANSACTIONS
During the quarter ended March 31, 2000, the Company advanced approximately
$109,000 to Mr. J. Michael Moore, the Chairman of the Board and Chief
Executive Officer of the Company. The majority of this amount is related to
litigation associated with a lawsuit with Ditto Properties in connection with
the Company initially being involved therein as garnishee.
9. COMMITMENTS AND CONTINGENCIES
In 1996, the Company was named as a garnishee in a lawsuit against its largest
shareholder. As the result of an Agreed Temporary Order dated October 24, 1996,
the Company was non-suited in this matter. The Company has filed a separate
lawsuit against the plaintiff seeking damages and reimbursement of expenses,
alleging that plaintiffs interfered with Company business transactions and
proposed financing resulting in delays of certain transactions, lost
opportunities, lost profits and other significant losses.
The Company is also involved in certain other litigation and disputes not
previously noted. With respect to the aforementioned matters, management
believes the claims against the Company are without merit and has concluded that
the ultimate resolution of such will not have a material negative effect on the
Company's consolidated financial position or results of operations.
10. DISCONTINUED OPERATIONS (TRAINING OPERATIONS HELD FOR SALE)
In December 1999, the Company sold all of its assets of the Geier Assessment and
Performance Systems, Inc. ("GAPS") to the former owner and managers of the GAPS
operations. GAPS was engaged in developing software for use in testing and
improving the work performance of the Company's employees, and clients
employees.
On December 31, 1999, the Company's Board of Directors approved a plan whereby
the Company would place its remaining training business assets of Train
International, Inc. ("Train") for sale. Train has historically provided
information technology training to its client's employees and the Company's
applicant pool on a fee basis. The Company has begun discussions with various
entities regarding such sale and management believes that the Company will enter
into an agreement regarding the sale of Train by mid-year 2000. In connection
with the plan to dispose of Train, the Company recorded a loss in December 1999
which included a provision for estimated operating losses for the period from
January 1, 2000 through June 30, 2000. The operating losses noted below for the
three months ended March 31, 2000 have been recorded against this reserve.
The results of operations and remaining operating assets and liabilities of GAPS
and Train have been presented as discontinued operations and are summarized
below:
For the Three Months Ended
March 31,
----------------------------------
2000 1999
---- ----
Net service revenue $ 400,987 $ 398,456
Cost of sales 325,331 260,426
---------- ----------
Gross margin 75,656 138,030
Selling, general and administrative
expenses 203,177 339,865
Other income (expense) (3,492) 3,550
---------- ----------
Loss before income tax benefit (131,013) (198,285)
Income tax benefit 44,713 73,633
---------- ----------
Net loss $ (86,300) $(124,652)
---------- ----------
---------- ----------
Accounts receivable and other current
assets $ 313,000 $ 393,000
---------- ----------
---------- ----------
Accounts payable and accrued liabilities $ 172,000 $ 61,000
---------- ----------
---------- ----------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(FISCAL 1999 RESULTS HAVE BEEN RECLASSIFIED FOR THE EFFECTS OF DISCONTINUED
OPERATIONS)
Service Revenue Summary:
For the Three Months
(US $ in millions) Ended March 31, Increase/(decrease)
---------------- -------------------
2000 1999 2000 vs. 1999
---- ---- -------------
Permanent placement $ 7.8 $ 6.5 $ 1.3
Contract placement 7.9 3.3 4.6
Specialty services 1.9 1.9 -
------ ------ ------
Net service revenue $ 17.6 $ 11.7 $ 5.9
------ ------ ------
------ ------ ------
For the quarter ended March 31, 2000, net service revenue increased $5.9
million, or 50%, to $17.6 million as compared to $11.7 million for the previous
year period. As noted in the table above, revenue derived from contract
placements increased $4.6 million. $3.5 million of this increase was
attributable to the inclusion of the results of Mountain, which was acquired in
August 1999, and $0.9 million was attributable to the inclusion of the results
of Datatek, which was acquired in March 2000. Permanent placements revenue
increased $1.3 million, or 20% as a result of increased placements of
information technology employees on a full time basis.
As a percentage of net service revenue, revenue derived from permanent
placements declined to 44% of the total revenue for the quarter ended March
31, 2000, as compared to 56% of the revenue for the previous year period.
Management expects that this trend will continue for the foreseeable future
as the Company continues to acquire and consolidate the operations of
contract placement entities. Contract placement revenue accounted for 45% of
net service revenue for the quarter ended March 31, 2000, as compared to 28%
of the revenue for the previous year period. The inclusion of revenue from
the operations of the recently acquired Mountain and Datatek, which are
primarily contract placement operations, accounted for substantially all of
this change. Specialty service revenue was the same in each of the fiscal
year periods.
As a result of the increase in net service revenue, total gross margin increased
$1.5 million, or 44%, to $5.0 million for the quarter ended March 31, 2000 as
compared to $3.5 million in the previous year period. As a percentage of net
service revenue, the gross margin percentage for the quarter ended March 31,
2000 was 29%, down slightly as compared to the previous year period. This
decrease is largely due to the fact that a larger percentage of the fiscal 2000
period revenue was generated from contract placements, which have lower margins
than permanent placements. As the Company continues to increase its contract
placement customer base and ultimately its contract placement revenue, the
Company expects that the gross margin percentage will continue to decline
several percentage points.
Selling, general and administrative expenses ("SG&A"), net of depreciation and
amortization, increased $1.4 million, or 59%, to $3.8 million for the quarter
ended March 31, 2000, as compared to $2.4 million in the previous year period.
Nearly half of the increase in SG&A was attributed to the inclusion of the
operations of Mountain and Datatek. In addition, the Company also incurred
increased legal and professional fees as well as increased costs associated with
employee benefits and rents. Management is continuing to evaluate these
increased costs and intends to achieve synergies later in fiscal year 2000
through consolidations and integration of back office functions of its recent
acquisitions. For the quarter ended March 31, 2000, depreciation and
amortization expense amounted to $0.4 million as compared to $0.3 million in the
previous year period. This increase was due largely to amortization expense
related to the Company's acquisitions.
For the quarter ended March 31, 2000, the Company reported net interest
expense of $0.1 million, primarily associated with borrowings on its line of
credit and deferred payment obligations related to the Company's acquisitions
of Texcel Inc. ("Texcel"), Mountain and Datatek. Interest expense was
insignificant in the previous year period.
For the quarter ended March 31, 2000, income from continuing operations
before income taxes amounted to $0.8 million, approximately the same as in
the previous year period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Income tax expense from continuing operations was approximately $0.3 million for
the quarter ended March 31, 2000, the same as in the previous year period.
For the quarter ended March 31, 2000, net income from continuing operations
amounted to $0.5 million, the same as in the previous year period.
As previously reported , on December 31, 1999, the Company approved a plan to
sell Train. The Company is currently in discussions with various parties
regarding such sale. The Company contemplates that any such sale would include a
strategic alliance that would allow the Company to continue to utilize the
services of Train on an outsource basis. Accordingly, fiscal 2000 and 1999
results of operations reflect treatment of the results of operations for this
segment as discontinued operations. Losses from the operations of discontinued
operations, net of income tax, amounted to $0.1 million in the quarter ended
March 31, 1999. Approximately $0.1 million of operating losses incurred in the
quarter ended March 31, 2000 has been recorded against the reserve established
at December 31, 1999.
As a result of the items discussed above, net income for the quarter ended March
31, 2000 amounted to $0.4 million, up nearly $0.1 million over the previous year
period.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended March 31, 2000, net cash flow generated from operations
amounted to $0.8 million. In addition, the Company borrowed $2.3 million under
the Company's line of credit facility with Compass Bank. All of these proceeds
combined with $0.4 million of existing cash on hand was used as follows: (a)
$3.1 million to fund acquisitions, (b) $0.1 million to repurchase Company stock
under the Company's stock repurchase program, (c) $0.2 million for capital
expenditures for computer equipment associated with the upgrade of the Company's
computer systems and automation of the back office, and (d) $0.1 million for
other corporate purposes.
As a result of the above mentioned transactions, working capital amounted to
$2.4 million at March 31, 2000, as compared to $4.2 million at December 31,
1999.
The Company is continually evaluating various financing strategies to be
utilized in expanding its business and to fund future growth and acquisitions.
In addition, the Company is currently in discussions with several groups to
obtain additional financing, through either debt or equity, in order to
consummate additional significant acquisitions. The current line of credit
agreement with Compass Bank is scheduled to expire at June 30, 2000 and the
Company expects to have in place a new agreement, which will provide the Company
with sufficient liquidity to fund its internal 2000 growth plans and operations
for the foreseeable future. The Company's internal 2000 growth plans include the
expansion and improvement of its applicant database and back office, and the
expansion and opening of new profit centers in existing cities.
Inflation has not had a significant effect on the Company's operating results.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
ACTUAL RESULTS MAY DIFFER FROM FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q that reflect projections or expectations of future
financial or economic performance of the Company, and statements of the
Company's plans and objectives for future operations are "forward-looking"
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended. No assurance can be
given that actual results or events will not differ materially from those
projected, estimated, assumed or anticipated in any such "forward-looking"
statements. Important factors (the "Cautionary Disclosures") that could result
in such differences include: general economic conditions in the Company's
markets, including inflation, recession, interest rates and other economic
factors; the availability of qualified personnel; the level of competition
experienced by the Company; the Company's ability to implement its business
strategies and to manage its growth; the level of development revenues and
expenses; the level of litigation expenses; the Company's ability to effectively
implement an e-commerce strategy; those factors identified in the Company's
Prospectus dated September 30, 1997 as risk factors; and other factors that
affect businesses generally. Subsequent written and oral "forward-looking"
statements attributable to the Company or persons acting on its behalf are
expressly qualified by the Cautionary Disclosures.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks from fluctuations in interest rates and
the effects of those fluctuations on the earnings of its cash equivalent
short-term investments as well as interest expense on line of credit borrowings.
The cash equivalent short-term investments consist of money market mutual funds
that invest in government securities. Assuming interest rates increased by 200
basis points (2%) above the interest rate at March 31, 2000, on an annualized
basis interest expense would increase by approximately $75,000 on the
outstanding line of credit borrowings of $3,750,000 at March 31, 2000.
PART II: OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
In connection with the acquisition of Datatek on March 6, 2000, the Company
issued 75,000 shares of its Common Stock to the shareholders of Datatek. See
Item 5 below. These shares were issued in a private placement exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2).
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
On March 7, 2000, the Company completed the acquisition of substantially all of
the assets of Datatek Corporation ("Datatek") (see "Part I, Item 6 Business
Acquisitions - Datatek Corporation hereof).
On April 14, 2000, Mr. Schmeck was appointed Chief Financial Officer. Mr.
Schmeck joined the Company in September 1999 as the Principal Accounting Officer
and Director of Accounting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
2.1 Purchase Agreement, dated as of March 6, 2000, by and among
Diversified Corporate Resources, Inc., Datatek Consulting Group
Corporation, Datatek Corporation, Julia L. Wesley and Michael P.
Connolly (the schedules have been omitted pursuant to Regulation
S-K 601 (b) (2) (incorporated by reference to Exhibit 2.1 of the
Company's Form 8-K filed on March 22, 2000)).
+10.1 Employment Agreement, dated as of March 6, 2000, by and between
Datatek Consulting Group Corporation, Julia L. Wesley, and
Diversified Corporate Resources, Inc. (incorporated by reference
to Exhibit 10.1 of the Company's Form 8-K filed on March 22,
2000).
+10.2 Employment Agreement, dated as of March 6, 2000, by and between
Datatek Consulting Group Corporation, Michael P. Connolly, and
Diversified Corporate Resources, Inc. (incorporated by reference
to 10.2 of the Company's Form 8-K filed on March 22, 2000).
27* Financial Data Schedule
* Filed herewith
+ Compensation plan, benefit plan or employment contract or arrangement
B. Reports on Form 8-K
On March 22, 2000, the Company filed with the Securities and Exchange
Commission, a report on Form 8-K with respect to the Datatek
acquisition, dated March 7, 2000 (see "Item 5. Other Information"
herein).
On May 12, 2000, the Company filed with the Securities and Exchange
Commission, a report on Form 8-K/A to provide certain historical and
pro forma financial information with respect to the acquisition of
Datatek.
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 12, 2000 By: /s/ J. Michael Moore
-----------------------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
DATE: May 12, 2000 By: /s/ M. Ted Dillard
-----------------------------------
M Ted. Dillard
PRESIDENT AND SECRETARY
DATE: May 12, 2000 By: /s/ Anthony G. Schmeck
-----------------------------------
Anthony G. Schmeck
CHIEF FINANCIAL OFFICER
(Principal Financial Officer)