SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2
[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 1-6081
COMFORCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2262248
------------------------------- -----------------
State or other jurisdiction I.R.S. Employer
of incorporation or organization Identification No.
2001 Marcus Avenue, Lake Success, New York 11042
-------------------------------------- --------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (516) 352-3200
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1996
---------------------------- -------------------------------
Common stock, $.01 par value 9,615,365
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations
for the three Months ended March 31, 1996 and March 31, 1995
Condensed Consolidated Statement of Changes in Shareholders'
Equity (Deficit) for the three Months ended March 31, 1996
Condensed Consolidated Statements of Cash Flows
for the three Months ended March 31, 1996 and March 31, 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
March 31, December 31,
1996 1995
-------------- --------------
ASSETS
Current assets:
Cash and equivalents $175 $649
Restricted cash and equivalents 50 -
Receivables including $330 unbilled revenue at March 31, 1996
and $151 of unbilled revenue at December 31, 1995 2,130 1,754
Other 54 61
Receivable from ARTRA GROUP Incorporated 734 1,046
-------------- --------------
Total current assets 3,143 3,510
-------------- --------------
Property, plant and equipment 103 97
Less accumulated depreciation and amortization 15 7
-------------- --------------
88 90
-------------- --------------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization of $120 in 1996 and $51 in 1995 6,817 4,801
Other 170 135
-------------- --------------
6,987 4,936
-------------- --------------
$10,218 $8,536
============== ==============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
March 31, December 31,
1996 1995
-------------- --------------
LIABILITIES
Current liabilities:
Notes Payable $500 $500
Borrowings under revolving line of credit 1,900 -
Accounts payable 188 75
Accrued expenses, including $250 due to a related party in 1995 781 719
Income Taxes 66 214
Liabilities to be assumed by ARTRA GROUP Incorporated
and net of liabilities of discontinued operations 2,964 3,699
-------------- --------------
Total current liabilities 6,399 5,207
-------------- --------------
Noncurrent liabilities to be assumed by
ARTRA GROUP Incorporated - 541
-------------- --------------
Obligations expected to be settled by the
issuance of common stock 550 550
-------------- --------------
Commitments and contingencies
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; authorized 10,000 shares;
issued 9,314 shares in 1996 and 9,309 shares in 1995 93 92
Additional paid-in capital 3,076 95,993
Accumulated deficit - (93,847)
Retained earnings, since January 1, 1996 100 -
-------------- --------------
3,269 2,238
-------------- --------------
$10,218 $8,536
============== ==============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
March 31,
--------------------
1996 1995
--------- --------
Revenues $3,265 $ -
--------- --------
Costs and expenses:
Cost of revenues 2,452 -
Selling, general and administrative 568 83
Depreciation and amortization 77 -
--------- --------
3,097 83
--------- --------
Operating Income (loss) 168 (83)
--------- --------
Other income (expense):
Interest expense (1) (57)
Other income, net 3 -
--------- --------
2 (57)
--------- --------
Earnings (loss) from continuing operations before
income taxes and extrodinary credit 170 (140)
Provision for income taxes (70) -
--------- --------
Earnings (loss) from continuing operations 100 (140)
--------- --------
Discontinued Operations
Earnings from operations - (108)
Income tax provision - (2)
--------- --------
Earnings (loss) from discontinued operations - (110)
--------- --------
Earnings (loss) before extraordinary credit 100 (250)
Extraordinary credit, net discharge of indebtedness - 6,657
--------- --------
Net earnings (loss) $100 $6,407
--------- --------
Earnings (loss) per share:
Continuing operations $0.01 ($0.04)
Discontinued operations - ($0.03)
--------- --------
Earnings (Loss) before extraordinary credit $0.01 ($0.07)
Extraordinary credit - 1.79
--------- --------
Net earnings (loss) $0.01 $1.72
========= ========
Weighted average number of shares of common stock and
common stock equivalents outstanding 10,884 3,731
========= ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited in thousands, except share data)
Total
Common Stock Additional Retained Earnings, Shareholders'
--------------------- Paid-in Accumulated Since Equity
Shares Dollars Capital (Deficit) January 1, 1996 (Deficit)
--------- -------- ---------- ------------ ------------------ ------------
Balance at December 31, 1995 9,309,198 $92 $95,993 ($93,847) $2,238
Quasi-Reorganization as of
January 1, 1996 ($93,847) 93,847
Net earnings - - - - $100 100
Exercise of stock options 4,500 1 22 - - 23
Liabilities assumed by ARTRA - - 908 - - 908
----------- ------ ---------- --------- ------- --------
Balance at March 31, 1996 9,313,698 $93 $3,076 $0 $100 $3,269
=========== ====== ========== ========= ======= ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Three Months Ended March 31,
1996 1995
--------- ---------
Net cash flows used by operating activities ($216) ($920)
--------- ---------
Cash flows from investing activities:
COMFORCE global direct acquisition costs (12) -
Acquisition of Williams Telecommunications (2,074) -
Officer loans (38) -
Payment of liabilites with restricted cash - 550
Additions to property, plant and equipment (6) (21)
Retail fixtures - (338)
--------- ---------
Net cash flows (used by)from investing activities (2,130) 191
--------- ---------
Cash flows from financing activities:
Proceeds from revolving line of credit 1,900 850
Reduction of long-term debt - (750)
Other 22 (7)
--------- ---------
Net cash flows from financing activities 1,922 93
--------- ---------
Increase (decrease) in cash and cash equivalents (424) (636)
Cash and equivalents, beginning of period 649 783
========= =========
Cash and equivalents, end of period $225 $147
========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 1 $36
Income taxes paid, net - 3
Supplemental schedule of noncash investing
and financing activities:
Common stock issued as consideration
for debt restructuring - 337
Net change in ARTRA receivables
and liabilites 909 -
The accompanying notes are an integral part of the condensed consolidated
financial statements.
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of COMFORCE
Corporation ("COMFORCE" or the "Company"), formerly The Lori Corporation
("Lori"), are presented on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company currently operates in one industry segment as a
provider of telecommunications and computer technical staffing and consulting
services worldwide. In September 1995, the Company adopted a plan to discontinue
its fashion costume jewelry business ("Jewelry Business") conducted by its two
wholly-owned subsidiaries Lawrence Jewelry Corporation ("Lawrence") and
Rosecraft, Inc. ("Rosecraft").
Effective January 1, 1996, the Company effected a quasi-reorganization through
the application of $93,847,000 of its $95,993,000 Additional Paid-In-Capital
Account to eliminate its Accumulated Deficit. Under generally accepted
accounting principles, when a business reaches a turnaround point and profitable
operations seem likely, a quasi-reorganization may be appropriate to eliminate
the accumulated deficit from past unprofitable operations. The Company's Board
decided to effect a quasi-reorganization given that the Company achieved
profitability following its entry into the technical staffing business and
discontinuation of its unprofitable Jewelry Business. The Company's Accumulated
Deficit at December 31, 1995 is related primarily to the discontinued operations
and is not, in management's view, reflective of the Company's current financial
condition.
At December 31, 1994, ARTRA GROUP Incorporated ("ARTRA"), a public company whose
shares are traded on the New York Stock Exchange, owned, through its
wholly-owned subsidiary, Fill-Mor Holding, Inc.("Fill-Mor"), approximately 62.9%
of the Common Stock and all of the outstanding preferred stock of the Company.
At March 31, 1996, ARTRA owned approximately 25% of the Company's Common Stock.
On October 17, 1995 the Company acquired 100% of the capital stock of COMFORCE
Global Inc. ("COMFORCE Global"), formerly Spectrum Global Services, Inc., d/b/a
YIELD Global, a wholly owned subsidiary of Spectrum Information Technologies,
Inc. In connection with the re-focus of the Company's business, the Company
changed its name to COMFORCE Corporation. See Note 2.
As discussed in Note 2, on March 3, 1996, the Company acquired all of the assets
of Williams Communication Services, Inc. ("Williams"), a provider of
telecommunications and technical staffing services.
These condensed consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all the
disclosures required in the Company's annual report on Form 10-K. Accordingly,
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying consolidated financial statements. The
condensed consolidated balance sheet as of December 31, 1995 was derived from
the audited consolidated financial statements in the Company's Annual Report on
Form 10-K.
Reported interim results of operations are based in part on estimates which may
be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
2. CERTAIN ACQUISITIONS
On September 11, 1995, the Company signed a stock purchase agreement to
participate in the acquisition of one hundred percent of the capital stock of
COMFORCE Global. On October 17, 1995, this transaction was completed. The price
paid by the Company for the COMFORCE Global stock and related acquisition costs
was approximately $6.4 million, net of cash acquired. This consideration
consisted of cash to the seller of approximately $5.1 million, fees of
approximately $700,000, including a fee of $500,000 to a related party, and
500,000 shares of the Company's Common Stock valued at $843,000 (at a price per
share of $1.68) issued as consideration for various fees and guarantees
associated with the transaction. The 500,000 shares issued by the Company
consisted of (i) 100,000 shares issued to an unrelated party for guaranteeing
the purchase price to the seller, (ii) 100,000 shares issued to ARTRA, then the
majority stockholder of the Company, in consideration of its guaranteeing the
purchase price to the seller and agreeing to enter into the Assumption
Agreement, (iii) 150,000 issued to two unrelated parties for advisory services
in connection with the acquisition, and (iv) 150,000 shares issued to Peter R.
Harvey, then a Vice President and director of the Company, for guaranteeing the
payment of the $6.4 million purchase price to the seller. Current management of
the Company has questioned its obligation to issue the 150,000 shares to Peter
Harvey and the 100,000 shares to ARTRA in consideration of their guarantees.
However, for purposes of presenting earnings per share data, the Company is
recognizing these shares as being issued and outstanding pending resolution of
the disagreement among the parties.
COMFORCE Global provides telecommunications and computer technical staffing
services worldwide to Fortune 500 companies and maintains an extensive, global
database of technical specialists with an emphasis on wireless communications
capability. The acquisition of COMFORCE Global was accounted for by the purchase
method and, accordingly, the assets and liabilities of COMFORCE Global were
included in the Company's financial statements at their estimated fair market
value at the date of acquisition and COMFORCE Global's operations are included
in the Company's statement of operations from the date of acquisition. The
excess purchase price over the fair value of COMFORCE Global's net assets
acquired (goodwill) of $4,852,000 is being amortized on a straight-line basis
over 20 years.
The acquisition of COMFORCE Global was funded principally by private placements
of approximately 1,950,000 shares of the Company's Common Stock at $3.00 per
share plus detachable warrants to purchase approximately 970,000 shares of the
Company's Common Stock at $3.375 per share. The warrants expire five years from
the date of issue.
On March 3, 1996, the Company acquired all of the assets of Williams, a regional
provider of telecommunications and technical staffing services. The purchase
price for the assets of Williams was $2 million with a four year contingent
payout based on earnings of Williams. The value of the contingent payouts will
not exceed $2 million, for a total purchase price not to exceed $4 million. The
acquisition of Williams was accounted for by the purchase method and,
accordingly, Williams operations are included in the Company's statement of
operations from the date of acquisition. The excess purchase price over the fair
value of Williams net assets acquired (goodwill) of $2,000,000 plus related
direct costs of the acquisition of $73,000 are being amortized on a straight-
line basis over 20 years.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the three months ended March 31, 1996 and March 31, 1995, present
the Company's results of operations as if the acquisition of COMFORCE Global,
Williams, and the related revolving line of credit and private placement of the
Company's Common Stock had been consummated as of January 1, 1995.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 1996
(In thousands)
Pro Forma
Historical Williams(A) Adjustments Pro Forma
------------- ------------- ------------- -------------
Revenues $ 3,265 $ 654 $ 3,919
---------- ------------- ----------
Operating costs and expenses:
Cost of revenues 2,452 281 2,733
Other operating costs and expenses 645 38 $ 16 (B) 699
---------- ------------- ----------- ----------
3,097 319 16 3,432
---------- ------------- ----------- ----------
Operating earnings (loss) 168 335 (16) 487
---------- ------------- ----------- ----------
Other income net 3 3
Interest and other non-operating expenses (1) (30)(C) (31)
---------- ------------- ----------- ----------
2 (30) (28)
---------- ------------- ----------- ----------
Earnings (loss) from continuing operations
before income taxes 170 335 (46) 459
(Provision) credit for income taxes (70) (265) 18 (317)
---------- ------------- ----------- ----------
Income from continuing operations $ 100 $ 70 $(28) $ 142
========== =========== =========== ==========
Income per share from continuing operations $ .01 $ .01
========== =========
Weighted average shares outstanding (F) 10,884 10,884
========== =========
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 1995
(In thousands)
Lori COMFORCE Pro Forma
Historical Global (A) Williams(A) Adjustments Pro Forma
-------------- ------------ ---------- ------------ ------------
Revenues $ $ 2,690 $ 654 $ 3,344
-------------- ------------ ---------- ------------
Operating costs and expenses:
Cost of Revenues 1,975 493 2,468
Stock compensation (E) $ 3,425 3,425
Spectrum corporate
management fees (D) 268 268
Other operating costs and
expenses 83 416 63 44 (B) 606
-------------- ------------ ---------- ------------ ------------
83 2,659 556 3,469 6,767
-------------- ------------ ---------- ------------ ------------
Operating earnings (loss) (83) 31 98 (3,469) (3,423)
-------------- ------------ ---------- ------------ ------------
Interest and other non-operating
expenses (57) (40) (C) (97)
-------------- ------------ ---------- ------------ ------------
(57) (40) (97)
-------------- ------------ ---------- ------------ ------------
Earnings (loss) from continuing
operations before income taxes (140) 31 98 (3,509) (3,520)
(Provision) credit for income taxes (2) (17) (76) 1,403 1,308
-------------- ------------ ---------- ------------ ------------
Income (loss) from continuing
operations $ (142) $ 14 $ 22 $ (2,106) $ (2,212)
============== ============ =========== ============ ============
Loss per share from continuing
operations $ (.03) $ (.25)
============== ============
Weighted average shares
outstanding (F) 4,596 8,953
============== ============
Pro forma adjustments to the unaudited condensed consolidated statement of
operations:
A. The pro forma data presented for COMFORCE Global's and
Williams' operations is for the periods prior to their
acquisitions on October 17, 1995 and on March 3, 1996,
respectively. The data presented for COMFORCE Global is
for the period from January 1, 1995 through March 31,
1995. The data presented for Williams is for the periods
from January 1, 1996 through March 2, 1996 and from January
1, 1995 through March 31, 1995.
B. Amortization of goodwill arising from the COMFORCE Global
acquisition is for the three months ended March 31, 1995, and
for the Williams acquisition is for the three months ended
March 31, 1995 and the two months from January 1, 1996 to
February 29, 1996.
March 1995 March 1996
-------- --------
Historical COMFORCE Corp. $ --- $ ---
Historical Global 41,000 69,000
Williams --- ---
Proforma Adjustments 44,000 16,000
-------- --------
Adjusted Proforma $ 85,000 $ 85,000
======== ========
C. Interest expense incurred for the purchase of Williams for the
three months ended pro forma March 31, 1995 and interest
expense incurred for the purchase of Williams for the two
months from January 1, 1996 to February 29, 1996 assuming all
$1,900,000 was outstanding for the year at the rate in effect
of 8.5%.
D. Corporate management fees from COMFORCE Global's former
parent, Spectrum Information Technologies, Inc. The amount of
these management fees may not be representative of costs
incurred by COMFORCE Global on a stand alone basis.
E. Represents a non-recurring compensation charge related to the
issuance of the 35% Common Stock interest in the Company
to certain individuals to manage the Company's entry into and
development of the telecommunications and computer technical
staffing business.
F. Pro forma weighted average shares outstanding includes shares
of the Company's common stock issued in the private placement
that funded the COMFORCE Global transaction, including 100,000
shares issued to ARTRA, and 150,000 shares issued to Peter
Harvey, then a Vice President of the Company, for guaranteeing
the payment of the purchase price to the seller and other
guarantees associated with the COMFORCE Global acquisition,
and shares issued certain individuals to manage the Company's
entry into and of the telecommunications and computer
technical staffing business. Current management of the Company
has questioned its obligation to issue the 150,000 shares to
Peter Harvey and the 100,000 shares to ARTRA in consideration
of their guarantees. However, for purposes of presenting
earnings per share data, the Company is recognizing these
shares as being issued and outstanding pending resolution of
the disagreement among the parties.
3. NOTES PAYABLE
Notes payable and long-term debt (in thousands) consists of:
March 31, December 31,
1996 1995
------- -------
Notes payable
Amounts due to a former related party,
interest at the prime rate plus 1% $ -- $ 750
Other, interest at 15% 1,386 1,736
Note payable to a bank under a revolving line of credit, due in
March 1997, with interest payable monthly at the bank's prime
rate plus a varying percentage not to exceed 1% based on certain
financial criteria. At March 31 the
Company was paying prime (8.25%) plus 1%. 1,900 --
Accounts Receivable credit facility, discontinued operations 396 1,535
Less:
Liabilities to be assumed by ARTRA (see Note 7) (1,282) (3,521)
------- -------
$ 2,400 $ 500
======= =======
The revolving line of credit agreement allowing for borrowings up to a maximum
of $2,250,000 replaces the $800,000 revolving line of credit which was in place
at December 31, 1995. Borrowings against the line can not exceed 80% of
acceptable receivables as defined. The note is collateralized by accounts
receivable and other assets of COMFORCE Global and guaranteed by COMFORCE. The
fair value of the Company's notes payable is estimated based on the quoted
market prices of the same or similar issues or on the current rates offered to
the Company for notes of the same remaining maturity.
Discontinued Operations - Notes Payable Assumed By ARTRA
ARTRA, Fill-Mor, Lori and Lori's fashion costume jewelry subsidiaries entered
into an agreement with Lori's bank lender to settle obligations due the bank. As
partial consideration for the debt settlement agreement the bank received a
$750,000 Lori note payable due March 31, 1995.
The $750,000 note due the bank was paid and the remaining indebtedness of Lori
and Fill-Mor was discharged, resulting in an additional extraordinary gain to
Lori of $6,657,000 in 1995. The $750,000 note payment was funded with the
proceeds of a $850,000 short-term loan from a former director of the Company.
The loan provided for interest at the prime rate plus 1%. As consideration for
assisting with the debt restructuring, the former director received 150,000
shares of the Company's common stock valued at $337,500 ($2.25 per share) based
upon the closing market value on March 30, 1995. The $337,500 represented
additional consideration for debt restructuring and, as such, was charged
against the extraordinary gain from debt restructuring in 1995. The principal
amount of the loan was reduced $750,000 at July 31, 1995. The remaining loan
principal was not repaid on its scheduled maturity date of July 31, 1995. Per
terms of the loan agreement, the former director received an additional 50,000
of the Company's common stock as compensation for the non-payment of the loan at
its originally scheduled maturity. The additional 50,000 shares at a value of
approximately $82,000 has been charged to interest expense in 1995. At December
31, 1995, the $750,000 note was classified in the Company's consolidated balance
sheet as liabilities to be assumed by ARTRA. The loan was paid in full in March
1996 by ARTRA pursuant to the requirements of the Assumption Agreement dated
October 17, 1995 between ARTRA and the Company (the "Assumption Agreement"). See
Note 7.
During the second and third quarters of 1995, Lori entered into a series of
agreements with certain unaffiliated lenders that provided for short-term loans
with interest at 15%. As additional compensation, certain lenders received an
aggregate of 91,176 shares of the Company's Common Stock valued at approximately
$149,000 (which amount was included in interest expense in 1995) and certain
lenders received warrants to purchase an aggregate of 195,000 shares of the
Company's Common Stock at prices ranging from $2.00 per share to $2.50 per
share, the fair market value at the dates of grant. The warrants expire five
years from the date of issue. The proceeds from these loans were used to fund
the September $500,000 down payment on the COMFORCE Global acquisition, with the
remainder used to fund working capital requirements of the Company's
discontinued Jewelry Business. At March 31, 1996 and December 31, 1995, short-
term loans with an aggregate principal balance of $886,000 and $1,236,000
respectively were classified in the Company's consolidated balance sheet as
liabilities to be assumed by ARTRA.
In August, 1995 Lori obtained a credit facility for the factoring of the
accounts receivable of its discontinued Jewelry Business. The credit facility
provides for advances of 80% of receivables assigned, less allowances for
markdowns and other merchandise credits. The factoring charge, a minimum of
1.75% of the receivables assigned, increases on a sliding scale if the
receivables assigned are not collected within 45 days. Borrowings under the
credit facility are collateralized by the accounts receivable, inventory and
equipment of Lori's discontinued fashion costume jewelry subsidiaries and
guaranteed by Lori. At March 31, 1996 and December 31, 1995, outstanding
borrowings under this credit facility of $1,535,000, along with other net
liabilities of the discontinued Jewelry Business, were classified in the
Company's consolidated balance sheet as liabilities to be assumed by ARTRA and
net liabilities of the discontinued Jewelry Business.
4. EQUITY
In March 1996, 4,500 stock options were exercised at an average price of $5 per
share. No other shares were issued during the first quarter of 1996.
5. EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net earnings (loss) by the
weighted average number of shares of Common Stock and Common Stock equivalents
(stock options and warrants), unless anti-dilutive, outstanding during each
period. Fully diluted earnings per share are not presented since the result is
equivalent to primary earnings per share.
6. INCOME TAXES
The 1995 extraordinary credit represents a net gain from discharge of bank
indebtedness related to the discontinued Jewelry Business. No income tax expense
is reflected in the Company's financial statements resulting from the
extraordinary credit due to the utilization of tax loss carryforwards. In 1995,
the Company issued a significant number of shares of its Common Stock in
conjunction with the COMFORCE Global acquisition and certain related
transactions. Accordingly, the Company is currently subject to significant
limitations regarding the utilization of its Federal income tax loss
carryforwards.
7. LIABILITIES TO BE ASSUMED BY ARTRA GROUP INCORPORATED AND NET
LIABILITIES OF DISCONTINUED OPERATIONS
In conjunction with the COMFORCE Global acquisition (see Note 2), ARTRA has
agreed to assume substantially all pre-existing Lori liabilities and indemnify
COMFORCE in the event any future liabilities arise concerning pre-existing
environmental matters and business related litigation. Additionally, ARTRA
agreed to assume all of the assets and liabilities of the Company's discontinued
Jewelry Business. In April 1996, ARTRA sold the business and certain assets of
the Jewelry Business.
At March 31, 1996 and December 31, 1995 liabilities to be assumed by ARTRA and
net liabilities of the discontinued Jewelry Business (in thousands) consist of:
March 31 December 31
Current: 1996 1995
-------- --------
Liabilities to be assumed by ARTRA
Notes payable $886 $1,986
Court ordered payments 1,531 990
Accrued expenses 371 349
-------- -------
2,788 3,325
Net liabilities of the discontinued
Jewelry Business 176 374
------- -------
$ 2,964 $ 3,699
======= =======
Noncurrent:
Liabilities to be assumed by ARTRA
Court ordered payments $ - $ 541
======= =======
As noted in the table above, as of March 31,1996, remaining pre-existing Lori
liabilities assumed by ARTRA are $2,964,000. Subsequent to March 31, 1996, ARTRA
made payments of $280,000 to reduce pre-existing Lori liabilities. Such payments
have been included in the Company's consolidated financial statements at March
31, 1996 as amounts receivable from ARTRA and as additional paid-in capital. To
the extent ARTRA makes subsequent payments, they will be recorded as additional
paid-in capital.
At December 31, 1995, liabilities to be assumed by ARTRA included $1,531,000 of
court ordered payments arising from the May 3, 1993 reorganization of Lori's New
Dimensions, Inc. subsidiary. As of May 8, 1996, the $541,000 installment payment
due December 31, 1995 has not been paid.
8. LITIGATION
Prior to its entry into the Jewelry Business in 1985, the Company operated in
excess of 20 manufacturing facilities for the production of, inter alia,
photocopy machines, photographic chemical and paper coating. These operations
were sold or discontinued in the late 1970s and early 1980s. Certain of these
facilities may have used and/or generated hazardous materials and may have
disposed of the hazardous substances, particularly before the enactment of laws
governing the safe disposal of hazardous substances, at an indeterminable number
of sites. Although the controlling stockholders and current management had no
involvement in such prior manufacturing operations, the Company could be held to
be responsible for clean-up costs if any hazardous substances were deposited at
these manufacturing sites, or at off-site waste disposal locations, under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), or under other Federal or state environmental laws now or hereafter
enacted. However, except for the Gary, Indiana site described below, the Company
has not been notified by the Federal Environmental Protection Agency (the "EPA")
that it is a potentially responsible party for, nor is the Company aware of
having disposed of hazardous substances at, any site.
In December 1994, the Company was notified by the EPA that it is a potentially
responsible party under CERCLA for the disposal of hazardous substances at a
site in Gary, Indiana. The alleged disposal occurred in the mid-1970s at a time
when the Company conducted operations as APECO. In this connection, in December
1994, the Company was named as one of approximately 80 defendants in a case
brought in the United States District Court for the Northern District of Indiana
by a group of 14 potentially responsible parties who agreed in a consent order
entered into with the EPA to clean-up this site. The plaintiffs have estimated
the cost of cleaning up this site to be $45 million, and have offered to settle
the case with the Company for $991,445. This amount represents the plaintiffs'
estimate of the Company's pro rata share of the clean-up costs. The Company
declined to accept this settlement proposal, which was subsequently withdrawn.
The plaintiffs have produced only limited testamentary evidence, and no
documentary evidence, linking the Company to this site, and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised, that the Company deposited hazardous substances at
the site. Based on the foregoing, management of the Company does not believe
that it is probable that the Company will have any liability for the costs of
the clean-up of this site. The Company intends to vigorously defend itself in
this case.
Under the terms of the Assumption Agreement, ARTRA has agreed to pay and
discharge substantially all of the Company's pre- existing liabilities and
obligations, including environmental liabilities at any sites at which the
Company allegedly operated facilities or disposed of hazardous substances,
whether or not the Company is currently identified as a potentially responsible
party therefor. Consequently, the Company is entitled to indemnification from
ARTRA for any environmental liabilities associated with the Gary, Indiana site.
No assurance can, however, be given that ARTRA will be financially capable of
satisfying its obligations under the Assumption Agreement.
The Company is a party to routine contract and employment-related litigation
matters in the ordinary course of its business. No such pending matters,
individually or in the aggregate, if adversely determined, are believed by
management to be material to the business, results of operations or financial
condition of the Company. The Company maintains general liability insurance,
property insurance, automobile insurance, employee benefit liability insurance,
owner's and contractor's protective insurance and exporter's foreign operations
insurance with coverage of $1 million on a per claim basis and $2 million
aggregate (with $3 million umbrella coverage). The Company insures against
workers' compensation in amounts required under applicable state law and in the
amount of $500,000 in the case of foreign workers. The Company also maintains
fidelity insurance in the amount of $25,000 per claim. The Company is presently
soliciting quotations to obtain directors' and officers' liability insurance and
errors and omissions coverage.
9. RELATED PARTY TRANSACTIONS
The Company made a loan of $326,000 in the aggregate to Michael Ferrentino, the
President and a Director of the Company, Christopher P. Franco, an Executive
Vice President of the Company, Kevin W. Kiernan, a Vice President of the
Company, and James L. Paterek, a consultant to the Company, to cover their tax
liabilities resulting from the issuance of the Company's Common Stock to them as
inducement to join the Company. Of this amount, $55,000 was advanced in 1995,
$38,000 was advanced in February 1996 and $233,000 was advanced in April 1996.
Yield Industries, Inc., a corporation wholly-owned by Messrs. Paterek and
Ferrentino, earned a delivery fee of $500,000 in connection with the Company's
acquisition of COMFORCE Global, $250,000 of which was paid in 1995, the balance
of which was paid in January 1996.
10. SUBSEQUENT EVENTS
In April 1996, the Company amended the warrants held by two unaffiliated
stockholders to purchase 301,667 shares of the Company's Common Stock at
exercise prices ranging from $2.125 to $3.375 per share to permit immediate
exercise (in the case of warrants to purchase 241,667 shares not immediately
exercisable) and to provide for the issuance of one supplemental warrant at an
exercise price of $9.00 per share for each warrant exercised on or before April
12, 1996. Warrants to purchase all 301,667 shares were exercised in April 1996
for an aggregate exercise price of $943,000.
On May 10, 1996, the Company purchased all of the stock of Project Staffing
Support Team, Inc. and substantially all of the assets of RRA, Inc. and Datatech
Technical Services, Inc. (collectively, "RRA") for an aggregate purchase price
of $5,000,000 plus contingent income payments payable over three years in an
aggregate amount not to exceed $750,000. RRA is in the business of providing
contract employees to other businesses. The corporate headquarters for the
companies are located in Tempe, Arizona. The acquisition of RRA enables the
Compay, through its COMFORCE Technical Services, Inc. subsidiary, to provide
specialists for supplemental staffing assignments as well as outsourcing and
vendor-on-premises programs, primarily in the electronics, avionics,
telecommunications and information technology business sectors.
In April 1996, in connection with the financing of the RRA acquisition, the
Company sold 8,871 shares of a new series of Preferred Stock designated the
Series E Convertible Preferred Stock ("Series E Preferred Stock") at a selling
price of $550 per share for 8,470 shares and $750 per share for 401 shares. Each
share of Series E Preferred Stock will be automatically converted into 100
shares of Common Stock on the date the Company's Certificate of Incorporation is
amended so that the Corporation has a sufficient number of authorized and
unissued shares of Common Stock to effect the conversion, and any accrued and
unpaid dividends have been paid in full (as has been proposed for consideration
of the stockholders at the scheduled June 27, 1996 annual meeting). Holders of
shares of Series E Preferred Stock are entitled to dividends equal to those
declared on the Common Stock, or, if no dividends are declared on the Common
Stock, nominal cumulative dividends payable only if the Series E Stock fails to
be converted into Common Stock by September 1, 1996. The market price of the
Company's Common Stock ranged from $11.75 per share at the time of the initial
sale of shares of Series E Preferred Stock at $550 per share to $13.625 per
share at the time the remaining shares of Series E Preferred Stock were sold at
$750 per share.
In May 1996, the Company commenced a private placement of up to 15,000
authorized shares of a new series of Preferred Stock designated the Series D
Senior Convertible Preferred Stock ("Series D Preferred Stock"). As of May 10,
1996, 3,042 shares had been sold for $1,000 per share. The holder of each share
of Series D Preferred Stock will have the right to convert such share into 83.33
fully paid and nonassessable shares of Common Stock at any time subsequent to
the date the Company's Certificate of Incorporation is amended so that the
Corporation has a sufficient number of authorized and unissued shares of Common
Stock to effect the conversion. If at any time after the first anniversary of
the date of first issuance of the Series D Stock, the Common Stock of the
Company has a closing sale price of at least $20 per share for a period of
twenty consecutive trading days, the Company may convert all shares of the
Series D Preferred Stock then outstanding into shares of Common Stock at $12 per
share, without prior notice to the Stockholder. All shares of Series D
outstanding on the fifth anniversary of the date of first issuance of the Series
D Stock will automatically be converted into shares of Common Stock based on the
conversion price of $12 per share. Holders of shares of Series D Preferred Stock
are entitled to cumulative dividends of 6% per annum, payable quarterly in cash
on the first day of February, May, August and November in each year. For the
purposes of conversion, to the extent that the Company does not pay any accrued
and unpaid dividends within fifteen days of the conversion with respect to those
shares, such amount shall be added to the conversion value for those shares.
Except as otherwise provided by law, the holders of Series D Preferred Stock
will not be entitled to vote.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion supplements the information found in the condensed
consolidated financial statements and related notes.
Change in Business
From 1985 until September 1995, the Company, under the name The Lori Corporation
("Lori"), designed and distributed fashion costume jewelry. Due to continuing
losses in the Jewelry Business and the erosion of the markets for its products,
Lori determined to seek to enter into another line of business. In June 1995,
Lori contracted with current management to direct its entry into the technical
staffing business. On October 17, 1995, the Company acquired all of the capital
stock of Spectrum Global Services, Inc. (formerly d/b/a YIELD Global and,
following its acquisition by the Company, renamed COMFORCE Global Inc.
("COMFORCE Global")), a provider of technical staffing and consulting services
in the information technology and telecommunications sectors. Accordingly, on
October 17, 1995, the Company became a provider of technical staffing and
consulting services. Prior to its acquisition by COMFORCE, COMFORCE Global was a
wholly owned subsidiary of Spectrum Information Technologies, Inc. In connection
with its new business direction, the Company changed its name to COMFORCE
Corporation. As discussed under "Discontinued Jewelry Business" in this Item 2,
effective September 30, 1995, the Company adopted a plan to discontinue the
Jewelry Business.
The price paid by the Company for the COMFORCE Global stock and related
acquisition costs was approximately $6.4 million, net of cash acquired. This
consideration consisted of cash to the seller of approximately $5.1 million,
fees of approximately $700,000, including a fee of $500,000 to a related party,
and 500,000 shares of the Company's Common Stock issued as consideration for
various fees and guarantees associated with the transaction. The 500,000 shares
issued by the Company consisted of (i) 100,000 shares issued to an unrelated
party for guaranteeing the purchase price to the seller, (ii) 100,000 shares
issued to ARTRA, then the majority stockholder of the Company, in consideration
of its guaranteeing the purchase price to the seller and agreeing to enter into
the Assumption Agreement, (iii) 150,000 issued to two unrelated parties for
advisory services in connection with the acquisition, and (iv) 150,000 shares
issued to Peter R. Harvey, then a Vice President and director of the Company,
for guaranteeing the payment of the $6.4 million purchase price to the seller.
Current management of the Company has questioned its obligation to issue the
150,000 shares to Peter Harvey and the 100,000 shares to ARTRA in consideration
of their guarantees. However, for purposes of presenting earnings per share
data, the Company is recognizing these shares as being issued and outstanding
pending resolution of the disagreement among the parties.
In order to facilitate the COMFORCE Global acquisition, ARTRA GROUP Incorporated
("ARTRA") agreed to exchange all of the Series C Preferred Stock of the Company
then held by it (9,701 shares, which constituted all of the issued and
outstanding Preferred Stock of the Company) for 100,000 shares of the Company's
Common Stock. The liquidation value of the Series C Preferred Stock was $19.5
million in the aggregate. In addition, the Company and ARTRA entered into an
Assumption Agreement effective as of October 17, 1995. Under the Assumption
Agreement, ARTRA agreed to pay and discharge substantially all of the then
existing liabilities and obligations of the Company, including indebtedness,
corporate guarantees, accounts payable and environmental liabilities. ARTRA also
agreed to assume responsibility for all liabilities of the Jewelry Business from
and after the effective date of the Assumption Agreement, and is entitled to
receive the net proceeds, if any, from the sale thereof. On April 12, 1996,
ARTRA sold the business and certain of the assets of the Company's Lawrence
subsidiary for a selling price of $252,000 plus certain proceeds subsequently
realized from the sale of existing inventory, which proceeds were applied to pay
creditors of Lawrence or deposited in an escrow account to be applied for such
purpose. ARTRA has advised the Company that none of the proceeds from the sale
would remain following the payment of such creditors.
In October and November 1995, in order to fund the acquisition of COMFORCE
Global and meet certain working capital requirements, the Company sold 1,946,667
shares of its Common Stock in a private offering in units consisting of one
share of Common Stock with a detachable warrant to purchase one-half share of
Common Stock (973,333 shares in the aggregate) for a selling price of $3.00 per
unit. The gross proceeds from the offering were $5,840,000. The warrants have an
exercise price of $3.375 per share and are exercisable for a period of five
years from the date of grant commencing June 1, 1996 (except for certain
warrants which were subsequently amended to provide for immediate exercise).
The acquisition of COMFORCE Global was accounted for by the purchase method and,
accordingly, the assets and liabilities of COMFORCE Global were included in the
Company's financial statements at their estimated fair market value at the date
of acquisition.
In March 1996, the Company acquired all of the assets of Williams Communication
Services, Inc. (" Williams"), a provider of telecommunications and technical
staffing. The purchase price for the assets of Williams was $2 million with a
four year contingent payout based on earnings of Williams. The value of the
contingent payouts will not exceed $2 million,
for a total purchase price not to exceed $4 million. The acquisition was funded
by a revolving line of credit with Chase Manhattan Bank.
On May 10, 1996, the Company purchased all of the stock of Project Staffing
Support Team, Inc. and substantially all of the assets of RRA, Inc. and Datatech
Technical Services, Inc. (collectively, "RRA") for an aggregate purchase price
of $5,000,000 plus contingent income payments payable over three years in an
aggregate amount not to exceed $750,000. RRA, is in the business of providing
contract employees to other businesses. The headquarter offices for the
companies are located in Tempe, Arizona.
1996 Plan of Operations
The Company believes that it is currently a leading provider of
telecommunications and information technology staffing services. The Company
established its telecommunications staffing business with the acquisition of
COMFORCE Global in October 1995, and further strengthened its base with the
acquisition of Williams in March 1996. COMFORCE Global provides
telecommunications and computer specialists and expertise on a project
outsourcing basis, primarily to Fortune 500 companies worldwide. It offers
manpower on a contract basis to the telecommunications and computer industries,
on both a short-term and long-term basis, to meet its customers' needs for
virtually every staffing level within these industries, including wireless
infrastructure services, network management, engineering, design and technical
support.
The Company established its technical services platform with the acquisition of
RRA, and is actively seeking an acquisition of a platform company servicing the
information technology market sector. The Company's COMFORCE Technical Services,
Inc. subsidiary will provide specialists for supplemental staffing assignments
as well as outsourcing and vendor-on-premises programs, primarily in the
electronics, avionics, telecommunications and information technology business
sectors.
The Company has identified the area of skilled technical contract labor and
consulting for the telecommunications and information technology sectors as a
high growth, profitable market niche that could benefit from new opportunities
in the wireless telephone industry and growth in networked information systems
and the "information superhighway." The Company believes that it is positioned
to capitalize on the anticipated continued growth in the telecommunications and
information technology and technical sectors due to its size and industry
expertise in providing a wide range of staffing services. The Company will seek
to grow significantly through strategic acquisitions, the opening of offices in
new and existing markets and aggressive recruiting, training, and marketing of
industry specialists with a wide range of technical expertise.
The Company's growth strategy includes the acquisition of established,
profitable regional staffing companies in markets with attractive growth
opportunities. These "platform" companies are intended to serve as a basis for
future growth and, therefore, must have the management infrastructure and other
operating characteristics necessary to significantly expand the Company's
presence within a specific market sector or geographic area. In addition, the
Company has as an objective acquisitions of smaller companies the operations of
which supplement and can be integrated into the established platform companies
to increase market share and profits with minimal incremental expense.
The Company believes it can also increase revenues though internal growth due to
its presence in the information technology and telecommunications sectors.
Further, the Company believes that it can achieve significant economies of scale
by opening and clustering branch offices in new and existing markets through the
allocation of management, advertising, recruiting and training costs over a
larger revenue base. In addition, the Company has targeted selected areas of the
technical services markets which it believes have high growth and profit
potential.
The statements above and elsewhere in this Report that suggest that the Company
will increase revenues and become profitable, achieve significant growth through
strategic acquisitions or other means, realize operating efficiencies, and like
statements as to the Company's objectives and management's beliefs are forward
looking statements. Various factors could prevent the Company from realizing
these objectives, including the following:
Unfavorable economic conditions generally or in the telecommunications,
computing or technical services business sectors could cause potential users of
such services to decide to cancel or postpone capital expansion, research and
development or other projects which require the engagement of temporary
technical staff workers or the use of consulting and other technical expertise
offered by the Company.
The Company's ability to expand through acquisitions is dependent on its ability
to identify attractive acquisition opportunities and to finance such
acquisitions, and no assurance can be given that it will be successful in doing
so. Heightened competition in the staffing industry by existing or new
competitors could make such acquisitions uneconomic or otherwise more difficult
or costly. Unless the Company's operations are considered to be successful by
bank or other institutional lenders or investors, it will be difficult for the
Company to finance its expansion through acquisitions.
The Company is seeking to expand rapidly in what its management perceives as a
"window of opportunity" in the market. Expansion undertaken at an accelerated
pace, principally through acquisitions, creates added risk that the analysis of
businesses acquired will fail to uncover business risks or adequately reveal
weaknesses in the markets, management or operations being considered.
Furthermore, the Company expects in many cases to retain existing management of
acquired companies to manage the businesses acquired. Compensation incentives
designed to enroll the existing management, which the Company expects to offer,
are difficult to structure in a manner so as to provide lasting benefits to the
acquiring company.
Heightened competition for customers as well as for technical personnel could
adversely impact the Company's margins. Heightened competition for customers
could result in the Company being unable to maintain its current fee scales
without being able to reduce its personnel costs. Shortages of qualified
technical personnel, which currently exist in some technical specialties and
could occur in others in the future, could result in the Company being unable to
fulfill its customers' needs or in the customers electing to employ technical
staff directly (rather than using the Company's services) to ensure the
availability of such personnel. Many of the Company's competitors have more
extensive financial and personnel resources than does the Company.
Under the Assumption Agreement entered into between the parties in October 1995,
ARTRA agreed to pay and discharge substantially all of the then existing
liabilities and obligations of the Company, including indebtedness, corporate
guarantees, accounts payable and environmental liabilities. No assurance can,
however, be given that ARTRA will be financially capable of satisfying its
obligations under the Assumption Agreement, in which case the Company may be
required to satisfy such obligations.
Results of Operations
On October 17, 1995, the Company completed the acquisition of all of the capital
stock of COMFORCE Global, a provider of technical staffing and consulting
services in the information technology and telecommunications sectors. Due to a
pattern of reduced sales volume resulting in continuing operating losses, in
September 1995, the Company adopted a plan to discontinue its Jewelry Business.
The Company's condensed consolidated financial statements have been reclassified
to report separately results of operations of the discontinued Jewelry Business.
Therefore, a comparison of the Company's consolidated results of operations for
the quarters ended March 31, 1996 and March 31, 1995 is not meaningful. See
"Discontinued Jewelry Business" for a discussion of the discontinued operations.
Pro forma March 31, 1996 vs. Pro forma March 31, 1995
Set forth below is a discussion of the Company's pro forma results of continuing
operations for the three months ended March 31, 1996 and March 31, 1995. The
Company's pro forma results of continuing operations for the three months ended
March 31, 1996 and March 31, 1995 are presented in Note 2 to the financial
statements of this report as if the acquisitions of COMFORCE Global and Williams
had been consummated as of January 1, 1995.
Pro forma revenues of $3,919,000 for the three months ended March 31, 1996 were
$575,000, or 8% higher than pro forma revenues for the three months ended March
31, 1995. The increase in 1996 pro forma revenues is attributable to the overall
growth and expansion of COMFORCE Global's telecommunications and computer
staffing business as well as the acquisition of Williams. Pro forma cost of
revenues of the three months ended March 31, 1996 was 70% of pro forma revenues
compared to pro forma cost of revenues of 73% for the three months ended March
31, 1995. The 1996 pro forma cost of revenues increase is principally
attributable to increase in sales volume as noted above. The 1996 pro forma cost
of revenues percentage decrease of 2.6% is primarily attributable to higher
margins of new business.
Pro forma operating expenses for the three months ended March 31, 1996 decreased
$3,335,000 as compared to pro forma operating expenses for the three months
ended March 31, 1995. The 1996 decrease in pro forma operating expenses is
principally attributable to a compensation charge of $3,425,000 related to the
issuance of a 35% interest in the Company to certain individuals to manage the
Company's entry into and development of the telecommunications and computer
technical staffing services business and the reduction in corporate management
fees as discussed below.
Corporate management fees from COMFORCE Global's former parent, Spectrum
Information Technologies, Inc., reflect an allocation of corporate overhead;
however, such charges will no longer continue as a result of COMFORCE Global's
acquisition by the Company in October 1995. In the opinion of management, the
amount of these fees is not representative of costs incurred by COMFORCE Global
on a stand-alone basis.
Pro forma operating income for the three months ended March 31, 1996 was
$487,000 as compared to pro forma operating loss of $3,423,000 for the three
months ended March 31, 1995. The difference is principally attributable to a
compensation charge of $3,425,000 related to the issuance of a 35% interest in
the Company to certain individuals to manage the Company's entry into and
development of the telecommunications and computer technical staffing services
business.
Pro forma other expense, principally interest, net of other income for the three
months ended March 31, 1996, decreased $119,000, principally due to the
discharge of indebtedness of Lori and its Jewelry Business.
Liquidity and Capital Resources
Management believes that the Company will generate cash flow from operations
which, together with the proceeds from the exercise of certain warrants in April
1996 and the sale of shares of two new series of Preferred Stock, will be
sufficient to fund its telecommunications and computer technical staffing
services business for the remainder of 1996; however, the Company does not
expect to have sufficient liquidity or capital resources to fund its planned
expansion through acquisitions and other means. The Company intends to seek debt
and/or equity financing to fund such planned expansion. See "--Change in
Business" and "--1996 Plan of Operations" for a description of the Company's
current and proposed plans of expansion.
In April 1996, the Company amended the warrants held by two unaffiliated
stockholders to purchase 301,667 shares of the Company's Common Stock at
exercise prices ranging from $2.125 to $3.375 per share to permit immediate
exercise (in the case of warrants to purchase 241,667 shares not immediately
exercisable) and to provide for the issuance of one supplemental warrant at an
exercise price of $9.00 per share for each warrant exercised on or before April
12, 1996. Warrants to purchase all 301,667 shares were exercised in April 1996
for an aggregate exercise price of $943,000.
In April 1996, in connection with financing the RRA acquisition, the Company
sold 8,871 shares of a new series of Preferred Stock designated the Series E
Convertible Preferred Stock ("Series E Preferred Stock") at a selling price of
$550 per share for 8,470 shares and $750 per share for 401 shares, or $4,959,250
in the aggregate. See Note 10 to the condensed consolidated financial statements
for a description of the terms of the Series E Preferred Stock.
In May 1996, the Company commenced a private placement of up to 15,000
authorized shares of a new series of Preferred Stock designated the Series D
Senior Convertible Preferred Stock ("Series D Preferred Stock"). As of May 10,
1996, 3,042 shares had been sold for $1,000 per share, or $3,042,000 in the
aggregate. See Note 10 to the condensed consolidated financial statements for a
description of the terms of the Series D Preferred Stock.
Cash and cash equivalents decreased $424,000 during the three months ended March
31, 1996. Cash flows used by operating activities of $216,000 and cash flows
used by investing activities of $2,130,000 exceeded cash flows from financing
activities of $1,922,000. Cash flows used by operating activities were
principally attributable to the temporary need to fund Williams accounts
receivable and their carrying costs due to the purchase of Williams in March
1996. Cash flows used in investing activities are principally related to the
purchase of Williams for $2,000,000 plus directly related costs of $73,000 as
well as loans made to certain officers of the Company pursuant to their
employment agreements in the amount of $38,000. Cash flows from financing
activities were attributable to borrowings under the revolving line of credit of
$1,900,000 and the exercise of stock options in the amount of $22,000.
During the three months ended March 31, 1996, the Company's working capital
deficiency increased by $1,559,000. The increase in working capital deficiency
is principally attributable to the Company's acquisition of Williams, which was
funded mainly by a revolving line of credit payable in March 1997.
Discontinued Jewelry Business
In conjunction with the COMFORCE Global acquisition, the Company and ARTRA
entered into the Assumption Agreement as of October 17, 1995. Under the
Assumption Agreement, ARTRA agreed to pay and discharge substantially all of the
then existing liabilities and obligations of the Company, including
indebtedness, corporate guarantees, accounts payable and environmental
liabilities. ARTRA also agreed to assume responsibility for all liabilities of
the Jewelry Business from and after October 17, 1995, and is entitled to receive
the net proceeds, if any, from the sale thereof. On April 12, 1996, ARTRA sold
the business and certain of the assets of the Company's Lawrence subsidiary for
a selling price of $252,000 plus certain proceeds subsequently realized from the
sale of existing inventory, which proceeds were applied to pay creditors of
Lawrence or deposited in an escrow account to be applied for such purpose. ARTRA
has advised the Company that none of the proceeds from the sale would remain
following the payment of such creditors.
At March 31, 1995 and at December 31, 1994, Lori's business plan had anticipated
that the restructuring of its debt, along with a consolidation and restructuring
of its Jewelry Business, would permit it to obtain a sufficient level of
borrowings to fund its capital requirements in 1995 and beyond. However, due to
the continued losses from operations and its inability to obtain conventional
bank financing, management of Lori determined in September 1995 to discontinue
the Jewelry Business. The Company recorded a provision of $1 million for the
estimated costs to complete the disposal of this business, having earlier
recorded a charge against operations of $12.9 million to write-off the goodwill
of the Jewelry Business at June 30, 1995. In the fourth quarter of 1995, the
Company revised its estimate and provided an additional $600,000 to complete the
disposition of the Jewelry Business.
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 thereunder duly authorized.
COMFORCE CORPORATION
By:/s/Andrew C. Reiben
__________________________________
Andrew C. Reiben
Chief Accounting Officer/
Director of Finance
Dated: September 24, 1996