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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, 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: (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 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, 1996, WAS 1,758,211.
TOTAL NUMBER OF PAGES FOR
THIS 10-Q FILING: 13
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- -----------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents................................ $ 671,776 $ 69,627
Accounts receivable, less allowance for doubtful
accounts of approximately $431,000 and $412,000,
respectively............................................ 3,309,135 2,140,623
Notes receivable..................................... 20,070 13,052
Prepaid expenses and other current assets............ 206,395 96,806
----------- -----------
TOTAL CURRENT ASSETS............................... 4,207,376 2,320,108
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET......................................... 635,505 467,043
OTHER ASSETS:
Investment in and advances to joint venture.............. 111,906 103,838
Other.................................................... 159,028 179,153
----------- -----------
$5,113,815 $3,070,142
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................... $4,339,437 $ 3,358,163
Current maturities of long-term debt..................... 21,789 21,603
----------- -----------
TOTAL CURRENT LIABILITIES.............................. 4,361,226 3,379,766
DEFERRED LEASE RENTS....................................... 5,253 52,531
LONG TERM DEBT............................................. 73,632 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...................................... (2,960,138) (4,086,045)
Common stock held in treasury (122,950 shares), at cost.. (169,425) (169,425)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)........ 673,704 (452,203)
----------- -----------
$ 5,113,815 $ 3,070,142
----------- -----------
----------- -----------
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,
-------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
NET SERVICE REVENUES
Regular Placements .............................. $3,291,353 $2,257,701 $ 9,252,817 $ 6,988,468
Temporary ....................................... 2,022,069 1,105,730 5,386,569 3,041,574
Contract Labor .................................. 1,914,430 1,591,657 5,615,915 4,343,712
---------- ---------- ----------- -----------
7,227,852 4,955,088 20,255,301 14,373,754
COST AND EXPENSES ................................. 5,967,607 4,395,706 16,814,878 12,629,399
---------- ---------- ----------- -----------
INCOME FROM OPERATING ENTITIES .................... 1,260,245 559,382 3,440,423 1,744,355
GENERAL AND ADMINISTRATIVE EXPENSES ............... (848,553) (383,598) (2,048,970) (1,236,418)
OTHER INCOME (EXPENSES):
Loss from joint venture operations .............. (14,171) - (74,256) -
Interest expense, net ........................... (58,937) (54,858) (191,799) (162,304)
Other, net ...................................... 24 25,547 21,191 63,512
---------- ---------- ----------- -----------
(73,084) (29,311) (244,864) (98,792)
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM .......................... 338,608 146,473 1,146,589 409,145
INCOME TAXES, net of tax benefit from utilization
of net operating loss carry forward ............. (2,027) - (20,682) -
---------- ---------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM ................ 336,581 146,473 1,125,907 409,145
EXTRAORDINARY ITEM - gain on troubled debt
restructuring, net of income tax ................ - 436 - 6,057
---------- ---------- ----------- -----------
NET INCOME ...................................... $ 336,581 $ 146,909 $ 1,125,907 $ 415,202
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
INCOME PER SHARE:
Income before extraordinary item ............... $ .18 $ .09 $ .60 $ .23
Extraordinary item .............................. - - - .01
---------- ---------- ----------- -----------
INCOME PER SHARE .................................. $ .18 $ .09 $ .60 $ .24
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
WEIGHTED AVERAGE COMMON AND
COMMON SHARES OUTSTANDING ....................... 1,877,723 1,758,211 1,875,743 1,758,211
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
See Notes to Consolidated Financial Statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,125,907 $ 415,202
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 141,251 93,433
Increase (decrease) in provision for losses on accounts
receivable (30,865) 25,521
Increase in accounts receivable (1,137,647) (448,492)
(Increase) decrease in prepaid expenses and other current
assets (116,607) 3,499
Equity in loss of joint venture 74,256 -
(Increase) decrease in other assets (62,199) 3,775
Increase in accounts payable and accrued expenses 1,106,082 292,085
Decrease in deferred lease rents (47,278) (49,307)
----------- ---------
Net cash provided by operating activities 1,052,900 335,716
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (309,713) (220,056)
----------- ---------
Net cash used in investing activities (309,713) (220,056)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt - (55,323)
Increase (decrease) in proceeds from factored receivables (124,808) 9,594
Principal payments under long-term debt obligations
to others (16,230) (18,595)
----------- ---------
Net cash used in financing activities (141,038) (64,324)
----------- ---------
Net increase in cash and cash equivalents 602,149 51,336
Cash and cash equivalents at beginning of year 69,627 45,780
----------- ---------
Cash and cash equivalents at end of period $ 671,776 $ 97,116
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for interest $ 196,473 $ 199,043
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 nine months ended September 30, 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 nine months ended September 30, 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 the contract placement services industry. The Company
operates branch offices in a number of cities which are 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
$154,000 in 1996 and $66,000 in 1995).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes certificates of deposit of
approximately $22,000 at September 30, 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 majority shareholder of CFS, Inc.
purchased the 49% ownership interest of Laurie Moore, the wife of J. Michael
Moore, the Chief Executive Officer and Chairman of the Board of the Company,
pursuant to a transaction which was made effective retroactive to January 1,
1995. Ms. Moore received no monetary gain on this transaction.
The Company provides this 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 third quarter of 1996 of $22,000. Accordingly, the Company recognized a
$14,000 loss from joint venture operations in the Consolidated Statement of
Operations for the quarter ended September 30, 1996. For the nine months
ended September 30, 1996, the joint venture recorded a net loss of $114,000,
and the Company recognized a $74,000 loss from joint venture operations. 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. The effect of the stock options granted in October of 1995 had
a dilutive effect on the earnings per share calculations for the third
quarter and nine months ended September 30, 1996. Using the treasury stock
method for computing weighted average
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
shares outstanding, it was assumed that an additional 119,512 shares were
issued for the quarter ended September 30, 1996, compared to 1,758,211 in the
same quarter in 1995. For the nine months ended September 30, 1996, it was
assumed that an additional 117,532 shares were issued compared to 1,758,211
shares in the comparable period in 1995.
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 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 during the first quarter of 1996.
NOTE 2
MANAGEMENT ANNOUNCEMENTS
On August 30, 1996, Anthony J. Bruno was promoted to the position of
President of Management Alliance Corporation, a wholly-owned subsidiary of
the Company. Previously, Mr. Bruno was a regional Vice-president of
Management Alliance Corporation. He has over thirty years of industry
experience and is the author of several training manuals, planners and
motivational tapes and has held seminars and in-house training sessions all
over the world.
Effective September 13, 1996, Gary K. Steeds voluntarily terminated his
position with the Company. Mr. Steeds was President of the Company from May,
1990 to July, 1991, as well as the former acting President of Management
Alliance Corporation and Information Systems Consulting Corp., wholly-owned
subsidiaries of the Company. On November 14, 1995, Mr. Steeds' role with the
Company had been reduced to that of an operating officer of certain of the
Company's subsidiaries.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Effective October 15, 1996, M. Ted Dillard was appointed to the position
of President of the Company. Mr. Dillard has served as Chief Financial
Officer, Secretary and Treasurer of the Company since January, 1994, and has
been on the Board of Directors of the Company since August, 1991. Prior to
January, 1994, Mr. Dillard served as Controller of the Company from July,
1990. Mr. Dillard is a Certified Public Accountant, Certified Management
Accountant and Certified Financial Planner. He has a Masters of Science
degree from the University of Texas at Dallas.
OTHER
The Board of Directors of the Company has informally discussed but not
finalized, certain incentive plans for management of the Company. Vesting
benefits of any such plans is anticipated to be dependent upon the
performance of the Company over a period of years. Any such plans may be
retroactive to July 1, 1996, but shall be subject to approval of the Board of
Directors of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
As a result of continued favorable market conditions for the Company's
services and management's focus on the development of certain niche markets,
total revenues were $7.2 million for the third quarter ended September 30,
1996, compared to $5.0 million in the comparable quarter in 1995. This
increase of 45.9% resulted from an increase in all areas of the Company's
business. Cost and expenses were $6.0 million in the third quarter of 1996
as compared to $4.4 million in the third quarter of 1995. This represents a
35.8% increase. The increase in revenues and cost and expenses in the third
quarter of 1996, as compared to the third quarter of 1995, resulted from an
increase in the level of activities in all areas of the Company's operations
during the third quarter of 1996.
General and administrative expenses increased approximately $465,000, or
121.2%, in 1996 as compared to the third quarter of 1995. This increase is
the result of an increase in corporate operating expenses for legal and other
professional services, and for costs associated with the evaluation of
possible acquisitions and related funding strategies. Through October 24,
1996, the Company incurred approximately $170,000 in legal fees related to
certain litigation, of which amount $68,000 was expensed in the third quarter
of 1996. A portion of such fees may be subject to reimbursement. During the
third quarter of 1996, the Company also increased its reserve for disputed
claims established in the second quarter of 1996 by $165,000. See Part II,
Item 1 hereof for a discussion of certain legal matters involving the Company.
The Company recorded a loss of approximately $14,000 during the third
quarter of 1996 in connection with its joint venture operation with CFS,
Inc.. This 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 third quarter of 1996 increased approximately
$4,000 over the prior year quarter. Such increase is the result of the
Company factoring a larger amount of accounts receivable in 1996 as compared
to 1995, offset by a lower cost of funds in 1996 than in 1995.
Primarily as a result of these factors, the Company recorded net income
of approximately $337,000 for the third quarter of 1996, compared to net
income of approximately $147,000 for the third quarter of 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Total revenues were $20.3 million for the nine months ended September
30, 1996, compared to $14.4 million in the first nine months of 1995. This
increase of 40.9% resulted from favorable market conditions for the Company's
services in 1996, and management's focus on the development of certain niche
markets. Cost and expenses were $16.8 million for the first nine months of
1996 as compared to $12.6 million in the first nine months of 1995. This
represents a 33.1% increase. The increase in both revenues and cost and
expenses in the first nine months of 1996 as compared to the first nine
months of 1995, resulted from an increase in the level of activities in all
areas of the Company's operations during the first nine months of 1996.
General and administrative expenses increased approximately $813,000, or
65.7%, in 1996 as compared to the first nine months of 1995. This increase
is primarily the result of an increase in corporate operating expenses for
payroll, legal and other professional services incurred in connection with
litigation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
and corporate matters, and for expenses incurred during the third quarter of
1996 associated with the evaluation of possible acquisitions and related funding
strategies. In addition, the Company established a reserve totaling $275,000
for disputed claims during the nine months ended September 30, 1996. See Part
II, Item 1 hereof for a discussion of certain legal matters involving the
Company.
The Company recorded a loss of approximately $74,000 during the first
nine months of 1996 in connection with its joint venture operation. This 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 nine months of 1996 increased
approximately $29,000 over the same period during the prior year. Such
increase is the result of the Company factoring a larger amount of accounts
receivable to fund growth in its employment placement business during the
first nine months of 1996 as compared to 1995. Such increase was partially
offset by a reduction in the cost of funds in 1996 compared to 1995.
As a result of these and other factors, the Company recorded net
income of approximately $1.1 million for the first nine months of 1996, compared
to net income of approximately $415,000 for the first nine months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $154,000 at September 30,
1996, compared with an approximately $1.1 million deficit at December 31, 1995.
This working capital improvement of approximately $906,000 during the first nine
months of 1996 can be primarily attributed to the increase in revenues that
resulted in a significant 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 $1.1 million resulted
primarily from the profitable operations of the Company's employment placement
business and an increase in accounts payable and accrued expenses, offset in
part by a corresponding increase in accounts receivable.
The Company has undertaken a program to significantly upgrade its
existing office equipment, including improving its existing database and
accounting information systems. As a result, net cash used in investing
activities of $310,000 resulted from capital expenditures made by the Company
during the first nine months of 1996. The Company retired approximately $16,000
in debt obligations during the first nine months of 1996, and decreased its
utilization of proceeds from factored accounts receivable by approximately
$125,000 during the nine month period ended September 30, 1996.
Presently, the Company's only major source of income relates to the
operations of its employment placement business. Management of the Company
anticipates that the cash flow of its employment placement business will provide
sufficient liquidity to fund its future operations, and enable the Company to
continue to make reductions in its current obligations.
The Company is continuing to evaluate the possibility of expanding its
employment placement business. Management is presently evaluating potential
acquisitions and related funding strategies. In addition, subsequent to
September 30, 1996, the Company has opened an office in Raleigh-Durham, North
Carolina, and has plans to expand its existing operations in Austin, Texas and
Chicago, Illinois.
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
On September 5, 1996, a lawsuit was filed in the 114th Judicial
District of the District Court of Wood County, Texas, by Ditto Properties
Company against USFG-DHRG L.P. No. 2, Inc., aka DCRI L.P. No. 2, Inc. ("USFG
No. 2"), J. Michael Moore and the Company, as garnishees. The suit sought
injunctive relief, rescission, or in the alternative, imposition of a
constructive trust, damages, and an order of judicial foreclosure upon shares
constituting a controlling interest in the Company. Such shares are now
owned by USFG No. 2, the controlling shareholder of the Company. The sole
stockholder of USFG No. 2 is J. Michael Moore, Chairman of the Board and
Chief Executive Officer of the Company. On October 24, 1996, an Agreed
Temporary Order [the "Temporary Order"] was entered by the Court. Under the
Temporary Order, certificates evidencing the controlling block of the
Company's common stock, owned directly or beneficially by USFG No. 2, are
required to be delivered to a Special Master pursuant to the terms of the
Temporary Order. The Temporary Order provides that USFG No 2., its officers,
directors and shareholders may conduct all lawful business, but shall obtain
the approval of the Special Master prior to taking certain actions regarding
the shares of common stock. All of USFG No. 2's duties, responsibilities and
other obligations under the Temporary Order will expire upon USFG No.2
satisfying its obligations pursuant to the terms of the Temporary Order. Mr.
Moore and the Company, both named garnishees in the suit, were non-suited as
a result of the Temporary Order. However, the Company has filed a separate
lawsuit in Dallas County, Texas, against Ditto Properties for damages and
reimbursement of legal expenses.
In connection with the litigation proceedings, the Company incurred
legal expenses on its own behalf and, in addition, has funded the legal expenses
of USFG No. 2 incurred in connection with the suit. Management has caused funds
to be advanced on behalf of USFG No. 2 to insure that this litigation did not
adversely impact the Company's ability to pursue acquisitions and related
funding strategies. It is expected that (a) the Board of Directors of the
Company will ultimately determine the portion of these legal fees which, in its
opinion, should have been incurred by the Company and (b) the remaining legal
fees will be repaid to the Company by USFG No. 2. Management does not expect
the Company to incur or advance any significant amounts for legal fees in the
future relating to the initial legal proceedings discussed above. (See
Management's Discussion and Analysis of Financial Conditions and Results of
Operations.)
On September 13, 1996, a lawsuit was filed in the 44th Judicial
District of the District Court of Dallas County, Dallas, by Billie Jean Tapp
("Ms. Tapp") against the Company, two of the Company's subsidiaries (Management
Alliance Corporation and Information Systems Consulting Corp.) and three of the
Company's officers and directors (J. Michael Moore, M. Ted Dillard and Donald A.
Bailey).
In her lawsuit, Ms. Tapp (a former employee of the Company) alleges
damages of approximately $29 million for breach of contract, conspiracy and
torts, as well as mismanagement, misappropriation of corporate assets and self-
dealing by Company officers and directors. The Company has filed an answer,
counterclaim and plea in abatement and is vigorously defending the lawsuit. In
addition, the Company has filed a third party petition against Gary K. Steeds,
Ms. Tapp's husband, and also a former employee of the Company. The Company
maintains that there were no contractual agreements with Ms. Tapp and that she
is not owed anything by the Company or any of the other defendants in this case.
The Company further denies conspiring to injure Ms. Tapp.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
(CONTINUED)
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: November 18, 1996 By: /S/ J. MICHAEL MOORE
-------------------------------
J. Michael Moore,
CHIEF EXECUTIVE OFFICER
DATE: November 18, 1996 By: /S/ M. TED DILLARD
-------------------------------
M. Ted Dillard
PRESIDENT AND PRINCIPAL
FINANCIAL OFFICER