SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 3, 1997
(NOVEMBER 4, 1996)
COMFORCE CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
1-6081 36-2262248
- ----------------------------- ---------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
2001 MARCUS AVENUE, LAKE SUCCESS, NY 11042
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 328-7300
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- ------------------------------------------
As reported in the Company's Form 8-K dated November 19, 1996:
(i) November 4, 1996, COMFORCE Corporation (the "Company"), through its
subsidiary COMFORCE Technical Services, Inc., entered into a definitive
agreement with RHO Company, Inc. ("RHO"), and J. Scott Erbe, the controlling
stockholder of RHO, to purchase all of the stock of RHO; and
(ii) November 8, 1996, the Company, through its subsidiary, COMFORCE
Global, Inc., purchased, pursuant to (i) the Asset Purchase Agreement as entered
into with Continental Field Service Corporation, Michael Hill and Roy Hill and
(ii) the Asset Purchase Agreement as entered into with Progressive Telecom, Inc.
and Beth Wilson Hill, respectively, substantially all of the assets of
Continental Field Services Corporation and its affiliate, Progressive Telecom,
Inc. (collectively, "Continental").
The registrant hereby files this Form 8-K/A, Amendment No. 2 to its Form 8-
K dated November 19, 1996 as amended by Form 8-K/A, Amendment No. 1 filed
January 13, 1997 to amend the financial statements included under paragraph (b)
of this Item 7(b).
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The RHO Transaction
- -------------------
Balance sheets of RHO as of December 31, 1995 and September 30, 1996 and the
related statements of income, changes in shareholders' deficit and cash flows
for the year ended December 31, 1995 and the nine month period ended September
30, 1996.
The Continental Transaction
- ---------------------------
Combined balance sheets of Continental as of December 31, 1995 and September 30,
1996 and the related combined statements of income, changes in shareholders'
equity and cash flows for the year ended December 31, 1995 and the nine month
period ended September 30, 1996.
RHO COMPANY INCORPORATED
-----------
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
TOGETHER WITH AUDITORS' REPORT
1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
The Board of Directors and Shareholders of
Rho Company Incorporated:
We have audited the accompanying balance sheets of Rho Company Incorporated
(a Washington Corporation) as of December 31, 1995 and September 30, 1996, and
the related statements of income and changes in shareholders' deficit and cash
flows for the year ended December 31, 1995 and the nine months ended September
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rho Company Incorporated
as of December 31, 1995 and September 30, 1996, and the results of its
operations and its cash flows for the year ended December 31, 1995 and the
nine months ended September 30, 1996, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Seattle, Washington,
October 29, 1996
2
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Rho Company Incorporated
Redmond, Washington
We have audited the accompanying statements of income and cash flows of Rho
Company Incorporated for the year ended December 31, 1994. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our report dated March 2, 1995 we expressed an opinion that the 1994
financial statements did not fairly present financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles resulting from a departure from such principles because the company
excluded its obligation for deferred compensation from liabilities in the
balance sheet. The Company terminated its obligation for deferred compensation
liability effective with restated employment agreements dated January 1, 1996.
Accordingly, a liability for deferred compensation is no longer appropriate at
December 31, 1994.
In addition, as described in Note 9, the Company has changed its method of
accounting for accruing vacation earned but unpaid to its permanent employees
and the portion of bonuses accrued but unpaid to its contract employees. The
Company has restated its 1994 financial statements to reflect the adjustment for
the correction of this error to conform with generally accepted accounting
principles. Certain items in the balance sheet as of December 31, 1994 have
also been reclassified to conform to the presentation used at December 31, 1995.
Accordingly, our present opinion on the 1994 financial statements, as presented
herein, is different from that expressed in our previous report.
In our opinion, the statements of income and cash flows referred to above
present fairly, in all material respects, the results of operations and cash
flows of Rho Company Incorporated for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
/s/ Benson & McLaughlin, P.S.
Seattle, Washington
March 2, 1995, except for Note 9 and termination of the deferred compensation
agreement, as to which the date is October 25, 1996.
3
RHO COMPANY INCORPORATED
BALANCE SHEETS
--------------
(Dollar amounts in thousands)
September 30, December 31,
ASSETS 1996 1995
------ -------------- -------------
CURRENT ASSETS:
Cash $ 69 $ 412
Restricted cash 394 705
Accounts receivable, less allowance
for doubtful 8,362 8,725
accounts of $180 and $200
Prepaid expenses 377 167
-------------- -------------
Total current assets 9,202 10,009
-------------- -------------
Furniture and equipment, less
accumulated 640 513
depreciation of $949 and $1,065
OTHER ASSETS
Goodwill and organization costs,
less accumulated 13 38
amortization of $36 and $12
Deposits and other 51 94
-------------- -------------
$ 9,906 $10,654
============== =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Note payable - bank $ 5,664 $ 6,253
Current portion of long-term debt 395 130
Accounts payable 168 329
Wages payable 1,224 844
Payroll taxes and withholdings 866 1,167
payable
Accrued interest 114 147
Accrued vacations, bonuses and other 553 605
-------------- -------------
Total current liabilities 8,984 9,475
-------------- -------------
LONG TERM DEBT 9,360 9,956
-------------- -------------
SHAREHOLDERS' DEFICIT:
Common stock; $1.00 par value;
authorized 1,000,000
and 500,000 shares, 50 50
respectively, issued and
outstanding
50,000 shares
Other capital 2,180 -
Deferred stock option charge (1,983) -
Retained deficit (8,685) (8,827)
-------------- -------------
Total shareholders' deficit (8,438) (8,777)
-------------- -------------
$ 9,906 $10,654
============== =============
See accompanying notes to financial statements.
4
RHO COMPANY INCORPORATED
INCOME STATEMENTS
-----------------
(Dollar amounts in thousands)
Nine Months Ended Year Ended
September 30, December 31,
------------------------ ---------------------
1996 1995 1995 1994
---- ---- ---- ----
(unaudited)
REVENUES $63,556 $62,833 $83,631 $76,170
COST OF OPERATIONS 56,656 56,481 74,978 69,157
------- ------- ------- -------
Gross profit 6,900 6,352 8,653 7,013
GENERAL AND ADMINISTRATIVE EXPENSES 5,547 4,643 6,510 5,266
------- ------- ------- -------
Income from operations 1,353 1,709 2,143 1,747
OTHER EXPENSES:
Stock option expense 197 - - -
Interest expense, net 984 1,249 1,643 1,435
------- ------- ------- -------
Total other expenses 1,181 1,249 1,643 1,435
------- ------- ------- -------
Net income $ 172 $ 460 $ 500 $ 312
======= ======= ======= =======
See accompanying notes to financial statements.
5
RHO COMPANY INCORPORATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
----------------------------------------------
(Dollar amounts in thousands)
Deferred
Stock Total
Common Other Option Retained Shareholders'
Stock Capital Charge Deficit Deficit
------ ------- --------- --------- --------------
BALANCE, December 31, 1994 $50 $ - - ($9,222) ($9,172)
500
Net income - - - 500
Dividends paid - - - (105) (105)
--- ------- -------- -------- -------
BALANCE, December 31, 1995 50 - - (8,827) (8,777)
Net income - - - 172 172
Dividends paid - - - (30) (30)
Stock option granted - 2,180 (2,180) - -
Amortization of deferred stock
option charge - - 197 - 197
--- ------- -------- -------- -------
BALANCE, September 30, 1996 $50 $2,180 ($1,983) ($8,685) ($8,438)
=== ======= ======== ======== ========
See accompanying notes to financial statements.
6
RHO COMPANY INCORPORATED
STATEMENTS OF CASH FLOWS
-----------------------
(Dollar amounts in thousands)
Nine Months Ended Year Ended
September 30, December 31,
----------------------------- -----------------------
1996 1995 1995 1994
------- ------------------ -------- -------------
OPERATING ACTIVITIES: (unaudited)
Net income $ 172 $ 460 $ 500 $ 312
Depreciation 201 175 223 196
Amortization of intangible assets 25 3 4 4
Loss on retirement of furniture and - - 17 -
equipment
Deferred income taxes - - - (37)
Stock option expense 197 - - -
Net change in operating assets and
liabilities -
Accounts receivable and other 403 (2,086) (1,778) (1,559)
Prepaid expenses (210) (283) (70) 214
Accounts payable (161) 13 200 60
Wages payable 380 285 9 139
Payroll taxes and withholdings (301) 494 296 72
payable
Accrued interest (33) 3 15 40
Accrued vacations, bonuses and (52) 96 110 (56)
other ------ ------- ------- -------
Cash flows from operating 621 (840) (474) (615)
activities ------ ------- ------- -------
INVESTING ACTIVITIES:
Purchase of furniture and equipment (328) (303) (334) (136)
(Increase) decrease in other assets 3 (19) (24) (8)
------ ------- ------- -------
Cash flows from investing (325) (322) (358) (144)
activities ------ ------- ------- -------
FINANCING ACTIVITIES:
Increase (decrease) in bank (589) 424 1,302 1,482
borrowings
Borrowings of long-term debt - 168 168 114
Repayments of long-term debt (331) (162) (266) (270)
Dividends paid (30) (105) (105) -
------ ------- ------- -------
Cash flows from financing (950) 325 1,099 1,326
activities ------ ------- ------- -------
Increase (decrease) in cash (654) (837) 267 567
CASH, beginning of period 1,117 850 850 283
------ ------- ------- -------
CASH, end of period $ 463 $ 13 $ 1,117 $ 850
====== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for -
Interest $1,017 $ 1,246 $ 1,628 $ 1,395
Income taxes 43 6 8 8
See accompanying notes to financial statements.
7
RHO COMPANY INCORPORATED
Notes to Financial Statements
-----------------------------
(Dollar amounts in thousands)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Description of Business
The Company markets the services of temporary technical and clerical people
to various industries located primarily in the states of Washington and
California.
Prepaid Expenses
At September 30, 1996, prepaid expenses includes $177 related to prepaid
payroll taxes. The Company recognizes payroll tax expenses based on an
estimated annual effective rate, in accordance with interim reporting rules.
Furniture and Equipment
Furniture and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided using the straight-line and accelerated methods over
expected useful lives of three to seven years.
Income Taxes
The Company has elected S-corporation status for reporting taxable income.
Any income or loss from the corporation is reportable on the personal returns of
the stockholders.
Use of Estimate
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 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 and those differences could be significant.
Interim financial statements
The interim financial statements included herein for the nine months ended
September 30, 1995 are unaudited. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of such financial statements have been included.
Reclassifications
Certain reclassifications have been made to the prior year statements to
conform to the current year format.
NOTE 2: RESTRICTED CASH
- ------------------------
Collections of accounts receivable are deposited in a restricted
collateral account used for repayment of advances under the Company's bank line
of credit. The balance in the collateral account at December 31, 1995 and
September 30, 1996 was $705 and $394, respectively, shown as restricted cash in
the accompanying balance sheets. The remaining cash balance is unrestricted.
NOTE 3: NOTE PAYABLE - BANK
- ----------------------------
The Company has available a line of credit for up to $7.5 million in
borrowings, bearing interest at the bank's prime rate plus .875% (9.125% at
September 30, 1996), collateralized by accounts receivable. The line of credit
is limited to 75% of eligible accounts receivable and requires collections to be
deposited in a restricted collateral account. The outstanding balance on the
line of credit was $5,664 at September 30, 1996. The loan
8
agreement contains various covenants, including minimum levels of working
capital and net worth. The loan agreement expires June 15, 1997. Although there
can be no assurances, the Company anticipates it will be able to renew its line
of credit. If it were not able to renew the line of credit or obtain other
acceptable financing, it then could have adverse consequences, including
possible cessation of operations.
NOTE 4: LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following:
Sept. 30, Dec. 31,
1996 1995
--------- ---------
Subordinated notes payable to former
stockholder in monthly installments
equal to 55% of average monthly net
income, as defined, or $50, whichever
is greater, with total minimum
payments of $195 per quarter,
including interest at 6.6% (10.5%
prior to January 1, 1996),
collateralized by a stock pledge
agreement with the shareholders of Rho
Company Incorporated................... 6,617 6,882
Subordinated note payable to former
stockholder, 9.875%, collateralized by
accounts receivable, subordinate to
the bank line of credit. Due on
demand, but the noteholder has agreed
not to call the note before October 1,
1997................................... 1,548 1,548
Subordinated note payable to
stockholder, 9.875%, collateralized by
accounts receivable, subordinate to
the bank line of credit. Due on
demand, but the noteholder has agreed
not to call the note before October 1,
1997................................... 1,369 1,369
Subordinated note payable to
stockholder, 9.875%, collateralized by
accounts receivable, subordinate to
the bank line of credit. Due on
demand, but the noteholder has agreed
not to call the note before October 1,
1997................................... 178 178
Other.................................. 43 109
------ -------
9,755 10,086
Less: Current portion................. (395) (130)
------ -------
$9,360 $ 9,956
====== =======
All of the note payable agreements are with related parties. Total
interest expense related to these notes was $987, $1,038 and $563 for the years
ended December 31, 1994 and 1995 and the nine months ended September 30, 1996.
Effective as of January 1, 1996, the Company's 10.5% subordinated notes
were modified to provide for a new interest rate of 6.6% and for accelerated
payments based on net income. The noteholder was granted an option to purchase
up to 25% of the Company's common stock (after giving effect to the exercise of
the option) at a price based on a formula. The noteholder has the right to use
the interest calculated using the difference between the old interest rate and
the new lower interest rate as a credit toward the option price. The Company
has valued the option using the fair value method. The option was valued at
$2,180 based on the net present value of the forgone interest payments under the
modified note agreement. This amount is being amortized using the effective
interest method over the life of the note payable.
9
Debt maturities on these notes are as follows:
Year ending December 31,
1996 (Three months)....... $ 89
1997...................... 3,492
1998...................... 383
1999...................... 409
2000...................... 436
2001...................... 466
Thereafter................ 4,480
------
$9,755
======
NOTE 5: LEASE COMMITMENTS
- --------------------------
The Company leases office and storage space and equipment under noncancelable
operating leases. Future minimum rentals are as follows:
Year ending December 31,
1996 (Three months)....... $ 163
1997...................... 600
1998...................... 558
1999...................... 389
2000...................... 337
2001...................... 99
------
$2,146
======
Rental expense under operating leases totaled $316, $457 and $488 for the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1996, respectively.
NOTE 6: COMMITMENTS
- --------------------
The Company has covenant not-to-compete agreements with the former
stockholders of an acquired/merged company. Payments under the agreements are
the greater of: (a) $50 per year for five years; or (b) 8% of the gross margin
(defined as gross billings minus temporary employee wages) generated by the
merged company's clients.
The minimum future payment under these covenant not-to-compete agreements
is $50 for the year ending September 30, 1997.
The Company expensed $236, $167 and $90 under these agreements for the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1996.
NOTE 7: EMPLOYEE BENEFIT PLAN
- ------------------------------
The Company has a qualified 401(k) profit sharing plan covering eligible
employees. The plan provides for contributions by the Company without regard to
current or accumulated earnings at the discretion of the Board of Directors.
The Company did not make any matching contributions to the plan for the years
ended December 31, 1994 and 1995. Matching contributions totaling $35 were made
during the nine months ended September 30, 1996.
NOTE 8: MAJOR CUSTOMERS
- ------------------------
10
During the nine months ended September 30, 1996, the Company had two
customers with sales greater than 10% of the Company's revenues. Contracts with
one customer in the software industry accounted for approximately $22,600,
$29,000 and $19,900, of the Company's sales for the years ended December 31,
1994 and 1995 and the nine months ended September 30, 1996, respectively. As of
December 31, 1995 and September 30, 1996, this customer's accounts receivable
balance was $1,540 and $1,048, respectively. Contracts with one customer in the
aerospace industry accounted for approximately $7,600 of the Company's sales for
the nine months ended September 30, 1996. As of September 30, 1996, this
customer's accounts receivable balance was $1,722. Contracts with these two
customers can be terminated at any time with 30 days' notice.
NOTE 9: PRIOR PERIOD ADJUSTMENT
- --------------------------------
During 1995, the Company began accruing for vacations earned but unpaid
to its permanent employees and the portion of bonuses earned but unpaid to its
contract employees. The effect of this correction on the prior year financial
statements was as follows:
Net income, year ended December 31, 1994, as
previously reported $364
Less: Adjustment for correction of error (52)
----
Net income, year ended December 31, 1994, as restated 312
===
Retained deficit, as previously reported for December 31, 1994 ($8,857)
Less: Adjustment for correction of error (365)
-----
Retained deficit, as restated for December 31, 1994 ($9,222)
========
NOTE 10: CONTINGENCIES
- -----------------------
The Company is the defendant in litigation with a previous insurer
regarding a settlement paid by the insurer which the insurer alleges should be
indemnified by the Company in the amount of approximately $1.6 million. The
Company is vigorously defending the lawsuit and management, in consultation with
legal counsel, believes it is more likely than not that the Company will
prevail.
NOTE 11: LETTER OF INTENT
- --------------------------
The Company has entered into a letter of intent whereby COMFORCE
Corporation will acquire all of the outstanding stock of the Company. The
letter of intent is subject to the execution of a definitive agreement.
11
CONTINENTAL FIELD SERVICE CORPORATION AND
PROGRESSIVE TELECOM INC.
COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Continental Field Service Corporation and Progressive
Telecom Inc.:
We have audited the accompanying combined balance sheets of Continental Field
Service Corporation and Progressive Telecom Inc. (the "Companies") as of
September 30, 1996 and December 31, 1995, and the related combined statements of
income, changes in shareholders' equity, and cash flows for the nine-month
period ended September 30, 1996 and for the year ended December 31, 1995. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Continental
Field Service Corporation Inc. and Progressive Telecom Inc. as of September 30,
1996 and December 31, 1995, and the results of their operations and their cash
flows for the nine month period ended September 30, 1996 and year ended December
31, 1995, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Melville, New York
November 8, 1996.
CONTINENTAL FIELD SERVICE CORPORATION AND
PROGRESSIVE TELECOM INC.
COMBINED BALANCE SHEETS
September 30, 1996 and December 31, 1995
SEPTEMBER 30, DECEMBER 31,
ASSETS: 1996 1995
Current assets:
Cash $ 476,312 $ 308,265
Accounts receivable trade 1,610,524 1,851,364
Prepaid expenses 59,748 51,821
Employee advances 45,190
Other current assets 3,243 2,909
------------- ------------
Total current assets 2,149,827 2,259,549
Fixed assets, net 63,051 61,624
Mortgage receivable 330,724 338,690
Other assets 39,380 38,838
------------- ------------
Total assets $ 2,582,982 $ 2,698,701
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 116,236 $ 86,438
Accrued payroll 143,168 179,157
Accrued expenses 171,394 213,798
Note payable - related party 12,571 67,571
------------- ------------
Total current liabilities 443,369 546,964
------------- ------------
Commitments
Shareholders' equity:
Common stock (Note 7) 36,700 36,700
Retained earnings 2,169,334 2,181,458
Treasury stock (Note 7) (66,421) (66,421)
------------- ------------
Total shareholders' equity 2,139,613 2,151,737
------------- ------------
Total liabilities and shareholders' equity $ 2,582,982 $ 2,698,701
============= ============
The accompanying notes are an integral part of the financial statements.
CONTINENTAL FIELD SERVICE CORPORATION AND
PROGRESSIVE TELECOM INC
COMBINED STATEMENTS OF INCOME
for the nine-month period ended September 30, 1996 and for the
year ended December 31, 1995
SEPTEMBER 30, DECEMBER 31,
1996 1995
Net sales $ 7,377,404 $ 9,850,454
Costs and expenses:
Cost of goods sold 6,258,808 8,215,923
General and administrative expenses 802,395 1,125,855
Depreciation 13,011 39,035
------------- ------------
7,074,214 9,380,813
------------- ------------
Other income (expense):
Interest income 22,868 29,544
Interest expense (5,242) (60,339)
Settlements 50,000
Other 1,487
------------- ------------
Total other income 17,626 20,692
------------- ------------
Net income $ 320,816 $ 490,333
============= ============
The accompanying notes are an integral part of the financial statements.
CONTINENTAL FIELD SERVICE CORPORATION AND
PROGRESSIVE TELECOM INC.
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the nine-month period ended September 30, 1996 and for the
year ended December 31, 1995
COMMON TREASURY RETAINED
STOCK STOCK EARNINGS TOTAL
Balance, December 31, 1994 $ 36,700 $ (66,421) $ 1,859,252 $ 1,829,531
Distributions to shareholders (168,127) (168,127)
Net income 490,333 490,333
----------- -------------- --------------- -------------
Balance, December 31, 1995 36,700 (66,421) 2,181,458 2,151,737
-----------------------------------------------------------------------
Distributions to shareholders (332,940) (332,940)
Net income for the period
January 1, 1996
through September 30, 1996 320,816 320,816
----------- -------------- --------------- -------------
Balance, September 30, 1996 $ 36,700 $ (66,421) $ 2,169,334 $ 2,139,613
=========== ============== =============== =============
The accompanying notes are an integral part of the financial statements.
CONTINENTAL FIELD SERVICE CORPORATION AND
PROGRESSIVE TELECOM INC.
COMBINED STATEMENTS OF CASH FLOWS
for the nine-month period ended September 30, 1996 and for the
year ended December 31, 1995
SEPTEMBER 30, DECEMBER 31,
1996 1995
Cash flows from operating activities:
Net income $ 320,816 $ 490,333
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation 13,011 39,034
Decrease in cash surrender value 8,202
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 240,840 (95,509)
Decrease (increase) in other receivables 44,856 (20,033)
(Decrease) increase in prepaid expenses (7,927) 72,755
Increase (decrease) in accounts payable 29,798 45,818
(Decrease) increase in accrued payroll (35,989) 42,143
Increase in other long-term assets (542) (441)
(Decrease) increase in accrued expenses (42,404) 34,749
Gain on sale of fixed assets (2,300)
---------------- ----------------
Net cash provided by operating activities 562,459 614,751
---------------- ----------------
Cash flows from investing activities:
Capital expenditures (14,438) (21,604)
Decrease in mortgage receivable 7,966 7,318
Related party notes payable (55,000) (161,864)
---------------- ----------------
Net cash used in investing activities (61,472) (176,150)
---------------- ----------------
Cash flows from financing activities:
Net payments under line of credit agreements (70,000)
Distributions to shareholders (332,940) (168,127)
---------------- ----------------
Net cash used in financing activities (332,940) (238,127)
---------------- ----------------
Net increase in cash 168,047 200,474
Cash, beginning of period 308,265 107,791
---------------- ----------------
Cash, ending of period $ 476,312 $ 308,265
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 28,561 $ 26,301
================ ================
Taxes $ 8,879 $ 12,718
================ ================
The accompanying notes are an integral part of the financial statements.
CONTINENTAL FIELD SERVICE CORPORATION AND
PROGRESSIVE TELECOM INC
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ORGANIZATION
Continental Field Service Corporation ("Continental") was incorporated in
1965 under the laws of the State of Delaware. Progressive Telecom
("Progressive") was incorporated in 1991 under the laws of the State of New
York. The Companies are under common management and control. Ray Hill owns
55% and Michael Hill owns 45% of Continental. Beth Wilson Hill owns 100% of
Progressive.
PRINCIPLES OF COMBINATION
These combined financial statements include the accounts of Continental and
Progressive (the "Companies"). All significant intercompany transactions and
balances have been eliminated in combination.
NATURE OF BUSINESS
The Companies are principally engaged in telecommunications engineering,
right of way acquisition and field services. The corporate headquarters are
located in Elmsford, New York, with additional business being conducted
throughout the United States.
CASH AND CASH EQUIVALENTS
The Company considers investments with a maturity of three months or less
when purchased to be cash equivalents.
The Company has cash in financial institutions which are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000 each. At
various times throughout the year, the Company may have cash in financial
institutions which exceeds the FDIC insurance limit.
REVENUE RECOGNITION
Revenue for providing staffing services is recognized at the time such
services are rendered.
ACCOUNTS RECEIVABLE AND UNBILLED ACCOUNTS RECEIVABLE
Accounts receivable consists of those amounts due to the Company for staffing
services rendered to various customers. Accrued revenue consists of revenues
earned and recoverable costs for which billings have not yet been presented
to the customers as of the balance sheet date. Unbilled revenue at September
30, 1996 and December 31, 1995, respectively, was $254,860 and $111,766.
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
primarily on a straight-line basis over the estimated useful lives of the
assets. Maintenance and repairs are charged to income as incurred and
betterments that extend the useful life are capitalized. Upon retirement or
sale, the cost and accumulated depreciation are eliminated from the
respective accounts, and the gain or loss, if any, is included in income.
If events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable, the Company estimates the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the long-lived
asset, an impairment loss is recognized. To date, no impairment losses have
been recognized.
ESTIMATES
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.
The most significant estimates relate to the realizability of accounts
receivable. Actual results could differ from those estimates.
INCOME TAXES
The Companies have elected under applicable sections of the Internal Revenue
Code to be treated as "S" corporations for income tax purposes. Therefore,
any income, loss and tax credits are reportable by the shareholders on their
individual income tax returns.
EMPLOYEE BENEFIT PLAN
The Companies maintains a 401(k) plan for the benefit of their employees.
Employees elect to withhold specified amounts from their wages to contribute
to the plans. The Companies have a fiduciary responsibility with respect to
the plans.
2. MORTGAGE RECEIVABLE:
On June 1, 1994, Continental sold its office building located at 37 East Main
Street, Elmsford, New York to Atlantic Enterprise for $350,000. The mortgage
is payable by Atlantic in monthly installments of $3,037 (including interest
at 8.5%) through June 3, 1999. The note is collateralized by the building.
3. LINE OF CREDIT:
The Companies have a revolving line of credit agreement which provides for
borrowings up to $1,000,000 at September 30, 1996 and $750,000 at December
31, 1995, with interest at prime plus
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
1/4% per annum. The interest rate as of September 30, 1996 and December 31,
1995 was 8.50%. The line is collateralized by a blanket lien on the
Companies' assets and a personal guaranty of an officer and principal
stockholder of the Company. At September 30, 1996 and December 31, 1995,
there were no outstanding balances due. In addition, the Company was
contingently liable at September 30, 1996 for $995,031 under a standby letter
of credit under this agreement ($300,031 at December 31, 1995).
4. NOTE PAYABLE - RELATED PARTY:
Notes payable-related party, consists of the following:
SEPT. 30, DEC. 31,
1996 1995
Uncollateralized note payable to an individual, due on demand
with interest payable monthly at 5% $ $ 35,000
n
p
Uncollateralized note payable to an individual, due on demand
with interest payable monthly at 8% 12,571 32,571
-----------------------
$ 12,571 $ 67,571
=======================
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
LIFE OF SEPT. 30, DEC. 31,
EQUIPMENT 1996 1995
Equipment 5 $ 128,032 $ 116,756
Transportation Equipment 5 90,403 90,403
Furniture and fixtures 7 20,488 17,326
------------------------
$ 238,923 $ 224,485
Less: accumulated depreciation (175,872) (162,861)
------------------------
$ 63,051 $ 61,624
========================
6. COMMITMENTS:
As of December 31, 1995, the Companies have lease commitments for operating
facilities, which are accounted for as operating leases. The Companies are
responsible for property taxes, insurance and maintenance on certain leases.
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
Future maximum annual rental commitments for real property under non-
cancelable leases are as follows:
PERIOD ENDED
DECEMBER 31,
1996 $ 46,304
1997 12,416
1998 -
1999 -
2000 -
---------
$ 58,720
=========
Total rent expense was $36,367 for the period ended September 30, 1996 and
$69,146 as of December 31, 1995.
7. COMMON STOCK:
Common stock consists of the following:
Common stock, Continental, no par; authorized 30,000 shares;
issued and outstanding 10,000 shares $ 33,700
Common stock, Progressive, no par; authorized 200 shares;
issued and outstanding 200 shares 3,000
---------
$ 36,700
=========
Treasury stock, Continental, 11,985 shares at
September 30, 1996 and December 31, 1995 $ 66,421
=========
8. PENSION PLAN:
On January 1, 1995, the Company adopted a pension plan that allows
participants to contribute up to 15% of their pretax salary. Expense for the
period ended September 30, 1996 and December 31, 1995 was $2,746 and $1,810,
respectively.
9. SUBSEQUENT EVENT:
On November 8, 1996, COMFORCE Telecom Inc., purchased substantially all of
the assets of Continental Field Services Corporation and its affiliate,
Progressive Telecom, Inc., for a price of $4.425 million in cash, 36,800
shares of the Company's common stock valued at $575,000, and contingent
payments payable over three years in an aggregate amount not to exceed $1.2
million.
(b) PRO FORMA FINANCIAL INFORMATION.
In October 1995, the Company acquired all of the capital stock of Spectrum
Global Services, Inc. (formerly d/b/a YIELD Global and subsequently renamed
COMFORCE Telecom, Inc.) ("COMFORCE Telecom"), which was engaged in the
telecommunications technical staffing business. In September 1995, the Company
discontinued its then existing jewelry business. As shown in the table below,
the Company acquired five additional technical staffing businesses in 1996 and
has entered into a definitive agreement to acquire RHO Company Incorporated
("RHO"). Since September 30, 1996, the recent acquisitions have been funded
principally from proceeds received by the Company from its sale of 3,250 shares
of Series F Preferred Stock and 460,000 shares of Common Stock and related
payment rights and its issuance of 111,111 shares of Common Stock upon the
exercise of a warrant. The agreement to acquire RHO requires that the
transaction be closed by February 28, 1997.
FISCAL 1995
YEAR ACQUISITION REVENUE
ACQUIRED COMPANY FOUNDED DATE (MILLIONS) HEADQUARTERS MARKET SERVED
---------------- ------- ---- ---------- ------------ -------------
COMFORCE Telecom 1987 October 1995 $11.4 Lake Success, Telecommunications
NY
Williams 1991 March 1996 $4.2 Englewood, Telecommunications
Communications FL
Services, Inc.
("Williams")
RRA, Inc., Project 1964 May 1996 $52.0 Tempe, AZ Technical Services
Staffing Support Team,
Inc. and DataTech
Technical Services, Inc.
(collectively, "RRA")
Force Five, Inc. 1993 August 1996 $7.1 Dallas, TX Information Technology
("Force Five")
AZATAR Computer 1980 November $7.1 Rochester, Information Technology
Systems, Inc. 1996 NY
("AZATAR")
FISCAL 1995
YEAR ACQUISITION REVENUE
ACQUIRED COMPANY FOUNDED DATE (MILLIONS) HEADQUARTERS MARKET SERVED
---------------- ------- ---- ---------- ------------ -------------
Continental Field
Service Corporation and 1965 November $9.9 Elmsford, NY Telecommunications
Progressive Telecom, 1996
Inc. (collectively,
"Continental")
RHO 1971 Proposed to $83.6 Redmond, Technical Services and
be WA Information Technology
February 1997
The following information reflects (i) the treatment of the operation of
the Company's jewelry business prior to September 1995 as a discontinued
operation and (ii) the acquisition of COMFORCE Telecom in 1995, the other five
acquisitions completed in 1996, and the proposed acquisition of RHO as if such
acquisitions had occurred on January 1, 1995 (other than unaudited pro forma
balance sheet data at September 30, 1996, which has been prepared as if all such
acquisitions were consummated as of such date).
The pro forma data is being presented to show the effect of all such
transactions since the presentation of pro forma information as to the
transaction described in this Report would not otherwise be meaningful.
The following pro forma data is filed herewith:
Pro forma balance sheet as of September 30, 1996.
Pro forma statements of income for the years ended December 31, 1994 and 1995
and the nine month periods ended September 30, 1995 and 1996.
COMFORCE Corporation and Subsidiaries
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements reflect (i) the
treatment of the operation of the Company's jewelry business prior to September
1995 as a discontinued operation and (ii) the acquisitions of business operating
in the staffing industry, including COMFORCE Telecom, Inc., in 1995, the
Acquisition of Williams Communications Services, Inc., RRA, Inc., Force Five,
Inc., Continental Field Services Corp., and AZATAR Computer Systems, Inc.,
completed in 1996, and the proposed acquisition of RHO Company Incorporated as
if such acquisitions had occurred on January 1, 1994 (other than the unaudited
pro forma balance sheet at September 30, 1996, which has been prepared as if all
such acquisitions were consummated as of such date and accounted for by the
purchase method). Prior to its acquisition by the Company, each of these
acquired businesses operated as a separate independent entity. Since the
unaudited pro forma financial statements set forth below show the combined
financial condition and operating results of these recently acquired businesses
during periods when they were not under common control or management, the
information presented may not be indicative of the results which would have
actually been obtained had such acquisitions been completed on the dates
indicated, or of the Company's future financial or operating results.
Unaudited Pro Forma Balance Sheet
As Of September 30, 1996
Current Assets: COMFORCE AZATAR Continental RHO Adjustments Pro Forma
-------- ------ ----------- ----- ----------- ---------
Cash and cash equivalents 952 739 476 69 672 B 2,908
Restricted cash and equivalents 50 394 444
Accounts receivable, net 10,081 1,502 1,611 8,362 (3,113) A 18,443
Prepaid expenses 86 8 60 377 531
Due from related party 322 (322) A --
Officer loans 367 367
Deferred income taxes 54 54
Other assets 325 328
-------- ------ ----------- ----- ----------- --------
Total current assets 11,915 2,571 2,150 9,202 (2,763) 23,075
-------- ------ ----------- ----- ----------- --------
Property and equipment, net of
accumulated depreciation 492 233 63 640 1,428
Intangible assets, net of
accumulated amortization 14,036 13 23,152 F 37,201
Mortgage receivable 331 (331) A --
Other assets 231 32 39 51 (71) A 282
-------- ------ ----------- ----- ----------- --------
Total assets 26,674 2,836 2,583 9,906 19,987 61,986
======== ====== =========== ===== =========== ========
Current liabilities:
Borrowings under revolving line
of credit 3,250 5,664 8,914
Current portion of long-term debt 395 (395) A --
Accounts payable 283 35 116 168 (151) A 451
Accrued expenses 2,785 23 171 553 (194) A 3,338
Accrued payroll and payroll taxes 119 143 2,090 (262) A 2,090
Income taxes 694 601 (601) A 694
Notes payable 13 (13) A --
Accrued interest 112 114 (226) A --
Liabilities to be assumed by ARTRA
GROUP Incorporated 350 350
-------- ------ ----------- ----- ----------- --------
Total current liabilities 7,362 890 443 8,984 (1,842) 15,837
-------- ------ ----------- ----- ----------- --------
Obligations to be settled by the
issuance of Common Stock 541 (541) C --
Deferred income tax 55 55
Long-term debt 9,360 (9,360) A --
Borrowings for the purchase of RHO 15,000 B 15,000
Commitments and contingencies
Stockholders equity:
Series E convertible preferred stock 1 (1) D --
Series D Senior convertible preferred
stock 1 1
Series F Senior convertible preferred
stock 1 B 1
Common Stock 98 1 37 50 (52) E 134
Additional paid-in capital 17,902 12,342 G 30,244
Other capital 2,180 (2,180) A --
Deferred stock option charge net (1,983) 1,983 A --
Retained earnings, since January 1,
1996 714 714
Retained earnings (deficit) 1,945 2,169 (8,685) 4,571 A --
Treasury stock (66) 66 A --
-------- ------ ----------- ----- ----------- --------
Total stockholders equity 18,716 1,946 2,140 (8,438) 16,730 31,094
-------- ------ ----------- ----- ----------- --------
Total liabilities and stockholders
equity 26,674 2,836 2,583 9,906 19,987 61,986
======== ====== =========== ===== =========== ========
See notes to unaudited pro forma financial statements.
COMFORCE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996(2)
COMFORCE FORCE
Corporation* Williams* RRA* FIVE* RHO**
------------ -------- --------- ------ -----------
Revenues $33,514 $657 $22,799 $4,589 $63,556
Cost of revenues 28,690 499 20,959 3,454 56,656
-------- -------- -------- -------- --------
Gross profit 4,824 158 1,840 1,144 6,900
Operating expenses:
Selling, general and administrative 2,891 64 1,375 1,274 5,321
Depreciation and amortization 343 1 34 14 226
-------- -------- -------- -------- --------
Income (loss) from operations 1,590 93 431 (144) 1,353
Other (income) expenses:
Other (29) 197
Interest 102 34 7 984
-------- -------- -------- -------- --------
73 - 34 7 1,181
-------- -------- -------- -------- --------
Income (loss) before income taxes 1,517 93 397 (151) 172
Provision (credit) for income taxes 610 39 - (49) -
-------- -------- -------- -------- --------
Net income (loss) 907 $54 $397 $(102) $172
======== ======== ======== ========
Dividends on preferred stock (193)
Dividends on Common Stock equivalents 18
--------
Income available for Common Stock $732
========
Income per share $0.06
========
Weighted average shares outstanding
and common stock equivalents 12,661
========
Pro Forma Pro
AZATAR*** Continental Adjustments(3) Forma
------------ ----------- ------------ --------------
Revenues $5,781 $7,377 $138,282
Cost of revenues 4,619 6,259 121,136
-------- -------- -------- --------
Gross profit 1,162 1,118 17,146
Operating expenses:
Selling, general and administrative 555 802 (404) 11,878
Depreciation and amortization 25 13 558 1,214
-------- -------- -------- --------
Income (loss) from operations 582 303 (154) 4,054
Other (income) expenses:
Other (54) (23) (197) (106)
Interest 29 5 443 1,604
-------- -------- -------- --------
(25) (18) 246 1,498
-------- -------- -------- --------
Income (loss) before income taxes 607 321 (400) 2,556
Provision (credit) for income taxes 254 - 364 1,218
-------- -------- -------- --------
Net income (loss) $353 $321 $(764) 1,338
======== ======== ========
Dividends on preferred stock (323) (7)
Dividends on Common Stock equivalents 26
--------
Income available for Common Stock $1,041
========
Income per share $0.07
========
Weighted average shares outstanding 14,067 (6)
and common stock equivalents ========
* The financial statements of these companies for the nine month period
ended September 30, 1996 have been audited by Coopers & Lybrand L.L.P.,
which financial statements are included in this Prospectus.
** The financial statements of this company for the nine month period ended
September 30, 1996 have been audited by Arthur Andersen L.L.P., which
financial statements are included in this Prospectus.
*** The financial statements of this company for the nine months ended August
31, 1996 have been audited by Coopers & Lybrand L.L.P., which financial
statements are included in this Prospectus.
See notes to unaudited pro forma financial statements
COMFORCE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995(2)
COMFORCE COMFORCE
Corporation Telecom Williams RRA FORCE FIVE
----------- -------- -------- ------ ----------
Revenues $9,007 $2,975 $37,441 $4,941
Cost of revenues 6,765 2,120 34,559 3,761
-------- -------- -------- -------- --------
Gross profit 2,242 855 2,882 1,180
Operating Expenses:
Selling, general and administrative 265 1,017 418 2,016 849
Depreciation and amortization 142 - 86 14
Non-recurring items:
Stock Compensation 3,000 (4)
Management fees to former parent
company 1,140 (5)
-------- -------- -------- -------- --------
Income (loss) from operations (3,265) (57) 437 780 317
Other (income) expenses:
Other (7) (36)
Interest expense 410 1 115 36
-------- -------- -------- -------- --------
410 (7) 1 115 -
-------- -------- -------- -------- --------
Income (loss) before income taxes (3,675) (50) 436 665 317
Provision (credit) for income taxes - 15 203 - 98
-------- -------- -------- -------- --------
Net income (loss) (3,675) $(65) $233 $665 $219
======== ======== ======== ========
Dividends on preferred stock -
--------
Income available for common stock $(3,675)
========
Loss per share from operations $(1.11)
========
Weighted average shares outstanding 3,321
========
Pro Forma Pro
RHO AZATAR Continental Adjustments(3) Forma
------------ ---------- ----------- -------------- ----------
Revenues $62,833 $5,071 $7,371 $129,639
Cost of revenues 56,481 4,196 6,098 113,980
-------- -------- -------- --------
Gross profit 6,352 875 1,273 15,659
Operating Expenses:
Selling, general and administrative 4,465 359 744 10,133
Depreciation and amortization 178 21 29 $725 1,195
Non-recurring items:
Stock Compensation 3,000
Management fees to former parent
company 1,140
-------- -------- -------- -------- --------
Income (loss) from operations 1,709 495 500 (725) 191
Other (income) expenses:
Other (30) (48) (121)
Interest expense 1,249 28 24 (428) 1,435
-------- -------- -------- -------- --------
1,249 (2) (24) (428) 1,314
-------- -------- -------- -------- --------
Income (loss) before income taxes 460 497 524 (297) (1,123)
Provision (credit) for income taxes - 201 - 317 834
-------- -------- -------- -------- --------
Net income (loss) $460 $296 $524 $(614) (1,957)
======== ======== ======== ========
Dividends on preferred stock (148)(7)
--------
Income available for common stock $(2,105)
========
Loss per share from operations $(0.22)
========
Weighted average shares outstanding 9,741 (6)
========
See notes to unaudited pro forma financial statements
COMFORCE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995(2)
COMFORCE COMFORCE
Corporation* Telecom* Williams* RRA*** FORCE FIVE*
------------ -------- --------- ------ -----------
Revenues $2,387 $9,007 $4,178 $52,011 $7,067
Cost of revenues 1,818 6,765 3,022 47,830 5,287
-------- -------- -------- -------- --------
Gross profit 569 2,242 1,156 4,181 1,780
Operating expenses:
Selling, general and administrative 765 1,017 449 2,877 1,373
Depreciation and amortization 58 142 1 115 19
Non-recurring expenses:
Stock compensation 3,425 (4)
Management fees to former parent
company 1,140 (5)
-------- -------- -------- -------- --------
Income (loss) from operations (3,679) (57) 706 1,189 388
Other (income) expenses:
Other 33 (7) (42) (36)
Interest 585 175 48
-------- -------- -------- -------- --------
618 (7) - 133 12
-------- -------- -------- -------- --------
Income (loss) before income taxes (4,297) (50) 706 1,056 376
Provision (credit) for income taxes 35 15 354 - 120
-------- -------- -------- -------- --------
Net income (loss) $(4,332) $(65) $352 $1,056 $256
======== ======== ======== ========
Dividends on preferred stock 0
Income available for common stock $(4,332)
--------
Loss per share $(0.95)
========
Weighted average shares outstanding 4,596
========
Pro Forma Pro
RHO** AZATAR**** Continental* Adjustments(3) Forma
------------ ---------- ------------ -------------- ----------
Revenues $83,631 $7,071 $9,850 $175,202
Cost of revenues 74,978 5,578 8,125 153,493
-------- -------- -------- --------
Gross profit 8,653 1,493 1,635 21,709
Operating expenses:
Selling, general and administrative 6,283 571 1,126 14,461
Depreciation and amortization 227 28 39 989 1,618
Non-recurring expenses:
Stock compensation 3,425
Management fees to former parent
company 1,140
-------- -------- -------- -------- --------
Income (loss) from operations 2,143 894 470 (989) 1,065
Other (income) expenses:
Other (44) (80) (176)
Interest 1,643 40 60 179 2,730
-------- -------- -------- -------- --------
1,643 (4) (20) 179 2,554
-------- -------- -------- -------- --------
Income (loss) before income taxes 500 898 490 (1,168) (1,489)
Provision (credit) for income taxes - 363 - (54) 833
-------- -------- -------- -------- --------
Net income (loss) $500 $535 $490 $(1,114) (2,322)
======== ======== ======== ========
Dividends on preferred stock (197)(7)
--------
Income available for common stock (2,529)
========
Loss per share $(0.26)
========
Weighted average shares outstanding 9,876 (6)
========
* The financial statements of these companies have been audited
for the periods referenced in footnote 2 by Coopers & Lybrand
L.L.P., which financial statements are included in this
Prospectus.
** The financial statements of this company for the year ended
December 31, 1995 have been audited by Arthur Andersen L.L.P.,
which financial statements are included in this Prospectus.
*** The financial statements of this company for the year ended
December 31, 1995 have been audited by Alexander & Devoley,
P.C., which financial statements are included in this
Prospectus.
**** The financial statements of this company for the year ended
November 30, 1995 have been audited by Coopers & Lybrand L.L.P.,
which financial statements are included in this Prospectus.
See notes to unaudited pro forma financial statements
COMFORCE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994(2)
COMFORCE COMFORCE
Corporation* Telecom* Williams RRA*** FORCE FIVE
------------ -------- --------- ------ ----------
Revenues $8,245 $2,930 $38,559 $3,234
Cost of revenues 6,417 2,107 35,601 2,485
-------- -------- -------- --------
Gross profit 1,828 823 2,958 749
Operating expenses:
Selling, general and administrative 966 959 582 2,156 625
Depreciation and amortization 175 15 133 5
Non-recurring charges:
Management fees to former parent
company 803 (4)
-------- -------- -------- -------- --------
(966) (109) 226 669 119
Income (loss) from operations
Other (income) expense (9) (25)
Interest expense 1,316 26 168 16
-------- -------- -------- -------- --------
1,316 (9) 26 143 16
-------- -------- -------- -------- --------
Income (loss) before income taxes (2,282) (100) 200 526 103
Provision (credit) for income taxes 15 78 - 48
-------- -------- -------- -------- --------
Net income (loss) (2,282) $(115) $122 $526 $55
======== ======== ======== ========
Dividends on preferred stock -
Dividends on common stock equivalents -
--------
$(2,282)
========
Income (loss) per share operations $(0.72)
========
Weighted average shares outstanding 3,195
========
Pro Forma Pro
RHO** AZATAR Continental Adjustments(3) Forma
------------ -------- ----------- -------------- ----------
Revenues $76,170 $4,923 $8,386 $142,447
Cost of revenues 69,157 3,982 7,181 126,930
-------- -------- -------- --------
Gross profit 7,013 941 1,205 15,517
Operating expenses:
Selling, general and administrative 5,066 423 1,347 12,124
Depreciation and amortization 200 24 74 967 1,593
Non-recurring charges:
Management fees to former parent
company 803
-------- -------- -------- -------- --------
1,747 494 (216) (967) 997
Income (loss) from operations
Other (income) expense (20) (74) (128)
Interest expense 1,435 39 3 460 3,463
-------- -------- -------- -------- --------
1,435 19 (71) 460 3,335
-------- -------- -------- -------- --------
Income (loss) before income taxes 312 475 (145) 1,427 (2,338)
Provision (credit) for income taxes - 242 - (383) -
-------- -------- -------- -------- --------
Net income (loss) $312 $233 $(145) $(1,044) $(2,338)
======== ======== ======== ========
Dividends on preferred stock (197) (7)
Dividends on common stock equivalents -
--------
$(2,535)
========
Income (loss) per share operations $ (0.26)
========
Weighted average shares outstanding 9,615 (6)
========
* The financial statements of these companies for the year ended
December 31, 1994 have been audited by Coopers & Lybrand L.L.P.,
which financial statements are included in this Prospectus.
** The financial statements of this company for the year ended
December 31, 1994 have been audited by Benson & McLaughlin,
which financial statements are included in this Prospectus.
*** The financial statements of this company for the year ended
December 31, 1995, have been audited by Alexander & Devoley,
P.C., which financial statements are included in this
Prospectus.
See notes to unaudited pro forma financial statements
COMFORCE Corporation
Notes to Unaudited Pro Forma Financial Statements
(1) The pro forma adjustments of the unaudited pro forma balance sheet consist
of:
(A) Record acquisition by AZATAR, Continental, and Rhotech and related
entries and the elimination of AZATAR, Continental and Rhotech assets and
liabilities not purchased or assumed. (B) Record proceeds from the debt
financing of 15,000,000, proceeds from the sale of 3,250 Shares of preferred
stock Series F, proceeds from the sale of 460,000 shares of common stock and
related payment right, and proceeds from the exercise of warrants amounting to
$7,142,000 less payments for the purchase of AZATAR, Continental, and Rhotech of
$20,255,000, and less cash not included as purchased assets of $1,215,000. (C)
Record the settlement of obligations to be settled by the issuance of common
stock. (D) Record the conversion of 8,871 shares of Series E preferred stock to
887,100 shares of common stock. (E) To record the net change on common stock
outstanding. (F) Record the purchase price of AZATAR, Continental and RHO over
the net assets acquired over intangibles, primarliy goodwill. (G) to record the
transaction described in (A) through (D) above as follows: (i) proceeds from the
sale of Series F Preferred, sale of 460,000 shares of common stock, and the
issuance of 111,111 warrants, (ii) shares issued in connection with the
acquisition of AZATAR and Continental with values of $4,120,000 and $575,000,
respectively, (iii) value of shares issued to settle obligations to be settled
by common stock of $541,000 (iv) less par value of common or preferred stock
sold or issued upon conversion of Preferred Stock, or issued in settlement of
obligations equal to $27,000.
(2) The unaudited pro forma statements of operations include the statements of
operations for the companies listed for the periods prior to their
acquisition by COMFORCE. The unaudited pro forma statement of operations
for the period ended September 30, 1996 presents the financial statements
of COMFORCE, AZATAR, Continental and RHO for their respective 1996 nine
month periods and the results of operations for companies acquired during
the nine month period ended September 30, 1996 as follows: Williams
Communications Services, Inc. (Williams) (January 1 through March 3, 1996),
RRA, Inc. (RRA) (January 1 through May 10, 1996) and Force Five, Inc.,
(Force five) (January 1 through July 31, 1996). The financial statements
for the year ended December 31, 1995 includes the annual 1995 results of
operations of each entity, except for COMFORCE Telecom, Inc. which reflects
results of operations for the period January 1 through September 30, 1995
prior to its acquisition on October 16, 1995. The financial statements for
all companies for the nine month period ended September 30, 1995 and
year ended December 31, 1994 present the nine and twelve month results of
operations of the respective companies. All periods presented exclude the
revenues and expenses related to the jewelry business of COMFORCE which was
discontinued in September 1995. The pro forma results of operations are
presented as if these companies were acquired on January 1, 1994 and do not
purport to be an indication of the results of operation had these
acquisitions been made as of that date or of results which may occur in the
future.
(3) Pro forma adjustments include the following:
Nine months ended Year ended
September 30, December 31,
----------------- -----------------
1996 1995 1995 1994
(in thousands)
Non-recurring officer compensation 601 --
Additional amortization of intangibles (a) (558) (725) (989) (967)
(Increase) decrease in interest expense (b) (443) 428 (179) (460)
(Increase) decrease in provision for income taxes (c) (364) (317) (54) 383
---- ----- ----- ----
Total pro forma adjustments $(764) $(614) $(1,114) $(1,044)
(a) Amortization of intangibles assumes all of the acquisitions and proposed
acquisitions occurred on January 1, 1994. The table below reflects the
amortization of intangibles with lives ranging from 5 to 40 years:
Nine months ended Year ended
September 30, December 31,
----------------- --------------
1996 1995 1995 1994
---- ---- ---- ----
(in thousands)
Pro forma amortization
Telecom $ 182 $ 182 $ 243 $ 243
Williams 39 39 52 52
RRA 123 123 164 164
Force Five 39 39 52 52
Continental 94 94 125 125
AZATAR 97 97 129 129
RHO 277 277 370 370
Less: historical amortization (293) (126) (146) (168)
------ ----- ------ ------
Pro forma adjustment $ 558 $ 725 $ 989 $ 967
====== ===== ====== ======
(b) Interest expense relates to the elimination of interest expense on notes
and other liabilities assumed by ARTRA totaling $410,000 for September
and December 1995, the elimination of interest expense on debt due to
RHO shareholders which was not assumed, interest expense on the
$15,000,000 debt financing for RHO at an interest rate of 8%, interest
expense on the line of credit used to purchase Williams and Force Five
(assuming all $3,350,000 was outstanding for 1994 and 1995 at an interest
rate of 8.5%) and interest expense for 1996 on the line of credit used to
purchase Williams and Force Five (assuming that $3,350,000 was
outstanding from January 1, 1996 to March 3, 1996 and $1,450,000 was
outstanding from March 3, 1996 to July 31, 1996). The interest expense
eliminated in 1995 was for interest and notes directly related to The
Lori Corporation activities and was incurred in 1996.
(c) The proforma adjustment for income taxes reflects the tax effect of the
proforma adjustment (excluding non-deductible amortization), the tax
effect of S Corporation earnings treated as C Corporation earnings and
the tax benefit of losses by other entities within the pro forma combined
group.
(4) 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 staffing business.
(5) Represent a non-recurring management fee paid by Telecom to its former
parent company prior to its acquisition by the Company.
(6) Pro forma weighted average shares outstanding are calculated as follows:
Nine months ended Year ended
September 30, December 31,
-------------- -------------
1996 1995 1995 1994
---- ---- ---- ----
(In thousands of shares)
Historical weighted average shares outstanding 12,900 3,321 4,596 3,195
Shares issued as compensation * 3,091 2,464 3,091
Shares issued-Telecom acquisition * 2,562 2,049 2,562
Shares issued-Force Five acquisition * 27 27 27
Shares issued-AZATAR acquisition 243 243 243 243
Shares issued-Continental acquisition 37 37 37 37
Common shares sold to fund Continental acquisition (a) 460 460 460 460
Common stock equivalents Series E preferred * ** ** **
Common stock equivalents on Series D and F Preferred Stock ** ** ** **
Warrants issued in connection with the Continental acquisition 111 ** ** **
Warrants issued in connection with the Telecom acquisition * ** ** **
Shares issued to certain shareholders * ** ** **
Contingent shares:
AZATAR (b) 84 ** ** **
RHO (c) 232 ** ** **
------ ------ ------ ------
TOTAL PRO FORMA SHARES 14,067 9,741 9,876 9,615
====== ====== ====== ======
* Included in historical weighted average shares outstanding.
** Excluded as the effect would be anti-dilutive.
(a) In December 1996, the Company sold 460,000 shares of its Common Stock,
together with a related payment right, for $3.5 million. This payment
right requires the Company to make a payment to the investors equal to
the amount, if any, by which $10.00 per share exceeds the average
closing bid price for the five trading days prior to a specified date
(not later than May 1, 1997).
(b) AZATAR's contingent purchase price of $1,200,000 is payable in stock at
a rate of $400,000 per year for a three year period, if certain earnings
criteria are met. The stock price is based on the average stock price
for the last ten days in each year such shares are earned. The per share
price at December 31, 1996 of $14.25 has been utilized to calculate
contingent shares for pro forma purposes. Such shares actually earned
may differ from these calculations.
(c) RHO's contingent purchase price of up to $3,300,000 is payable in stock
if certain earnings criteria are being met. The conversion price to
calculate shares to be issued is based upon the price of the Company's
common stock at the closing of the acquisition. The per share price at
December 31, 1996 of $14.25 has been utilized to calculate contingent
shares for pro forma purposes. Such shares actually earned and the price
per share may differ from this calculation.
(7) The following summarizes the pro forma dividends on Preferred Stock
Nine Months ended Year Ended
September 30, December 31,
1996 1995 1995 1994
(In thousands) (In thousands)
Series D Preferred Stock 175 * * *
Series E Preferred Stock 26 26 35 35
Series F Preferred Stock (a) 122 122 162 162
---- ---- ---- ----
323 148 197 197
==== ==== ==== ====
(a) Certain discounts upon conversion of Series F Preferred Stock aggregating
approximately $665,000 will be recorded as an additional dividend attributable
to holders of Preferred Stock in the fourth quarter of 1996.
* Series D not deemed issued in prior periods as proceeds were utilized in
1996 for working capital requirements.
SIGNATURE
---------
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 hereunto duly authorized.
COMFORCE Corporation
--------------------
(Registrant)
By /s/ Andrew Reiben
------------------------------------------
Andrew Reiben, Chief Accounting Officer
Dated: February 3, 1997
COMFORCE Corporation
2001 Marcus Avenue
Lake Success, NY 11042
February 3, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 8-K/A, Amendment No. 2 to Form 8-K dated
November 19, 1996.
Very truly yours,
COMFORCE Corporation
/s/ Andrew Reiben
- -------------------------------
Andrew Reiben
Chief Accounting Officer
Enclosures
1