<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1997
REGISTRATION NO. 333-18719
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DATA PROCESSING RESOURCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
CALIFORNIA 7379 95-3931443
(STTE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
4400 MACARTHUR BOULEVARD, SUITE 600
NEWPORT BEACH, CALIFORNIA 92660
(714) 553-1102
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL A. PIRAINO
CHIEF FINANCIAL OFFICER
DATA PROCESSING RESOURCES CORPORATION
4400 MACARTHUR BOULEVARD, SUITE 600
NEWPORT BEACH, CALIFORNIA 92660
(714) 553-1102
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
JAMES W. LOSS, ESQ. MARY ELLEN KANOFF, ESQ.
RIORDAN & MCKINZIE LATHAM & WATKINS
695 TOWN CENTER DRIVE, SUITE 1500 633 W. FIFTH STREET, SUITE 4000
COSTA MESA, CALIFORNIA 92626 LOS ANGELES, CALIFORNIA 90071
(714) 433-2626 (213) 485-1234
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 6, 1997
2,200,000 SHARES
[LOGO of DPRC]
DATA PROCESSING RESOURCES CORPORATION
COMMON STOCK
Of the 2,200,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by the Company and 200,000 shares are being sold by the Selling
Shareholder. The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholder. See "Principal and Selling Shareholders."
The Common Stock is traded on the Nasdaq National Market under the symbol
"DPRC." The last sale price of the Common Stock on January 6, 1997, as reported
on the Nasdaq National Market, was $18.31 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds to
Price Underwriting Proceeds to Selling
to Public Discount (1) Company (2) Shareholder
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total (3)...................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company, estimated at
$450,000.
(3) The Company and the Selling Shareholder have granted to the Underwriters a
30-day option to purchase up to 280,000 and 50,000 additional shares of
Common Stock, respectively, solely to cover over-allotments, if any. If the
Underwriters exercise this option in full, the Price to Public will total
$ , the Underwriting Discount will total $ , the Proceeds to
Company will total $ and the Proceeds to Selling Shareholder will
total $ . See "Principal and Selling Shareholders" and
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about ,
1997.
Montgomery Securities
Robert W. Baird & Co.
Incorporated
Lehman Brothers
, 1997
<PAGE>
[Graphics]
In connection with the offering, the underwriters may over-allot or effect
transactions which stabilize or maintain the market price of the common stock
of the Company at a level above that which might otherwise prevail in the open
market. Such transactions may be effected on the nasdaq national market, in
the over-the-counter market or otherwise. Such stabilizing, if commenced, may
be discontinued at any time.
In connection with the offering, the underwriters and certain selling group
members or their respective affiliates may engage in passive market making
transactions in the common stock on the nasdaq national market in accordance
with rule 10b-6A under the Securities Exchange Act of 1934. See
"Underwriting."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus, including "Risk Factors" and the
Financial Statements and Notes thereto. Except as otherwise noted, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option.
THE COMPANY
Data Processing Resources Corporation ("DPRC" or the "Company") provides
information technology ("IT") staffing services to a diverse group of corporate
clients. By drawing from its carefully screened database of approximately
40,000 highly qualified technical consultants, the Company offers staffing
solutions to meet its clients' enterprise-wide systems applications development
needs. The Company's technical consultants have expertise on multiple hardware
platforms utilizing a wide variety of software applications and provide
services covering all aspects of the systems applications development
lifecycle, including planning, design, building and programming,
implementation, maintenance and ongoing management. The Company also provides
other value-added services in rapidly growing areas such as client/server
architecture, wide area and local area networks ("WANs" and "LANs"), help desk
support, intranet and internetworking. For the 11 months ended November 30,
1996, the Company placed approximately 1,300 technical consultants on projects
for approximately 230 clients, including Mitsubishi Motor Sales of America,
Nissan Motor Corporation USA, The Walt Disney Company and U.S. West. Since
December 1995, the Company has expanded beyond its three California offices and
currently has ten offices in eight states. Of the seven new offices, three were
internally developed and four were acquired by the Company in three recent
acquisitions.
IT staffing services is one of the fastest growing segments of the
supplemental staffing industry. According to the July 30, 1996 Staffing
Industry Report, revenues from technical/computer temporary staffing are
estimated to have grown from $5.7 billion in 1993 to an estimated $9.2 billion
in 1995. An important factor in this growth has been a fundamental shift by
businesses from closed, proprietary systems to open systems incorporating a
range of different IT systems. This trend has accelerated the pace of
technological change in information systems and increased the need for
specialized IT professionals to assist in the integration of a variety of
hardware platforms and software applications. Another factor contributing to
the growth has been the increasing demand to integrate data, voice and video in
new information systems. In addition, the trend by businesses to reduce
corporate workforces through outsourcing has increased the demand for outside
IT services. The IT staffing services industry is highly fragmented and
competitive with a large number of small businesses, many of which operate in a
single geographic market. This fragmentation, combined with changing client
demands and increased competitive pressures, has resulted in a trend towards
industry consolidation.
The Company serves as an extension of its clients' IT operations by providing
technical consultants to meet their IT staffing needs. The Company's business
strategy encompasses a number of key elements which management believes are
necessary to ensure high quality standards and to achieve consistently strong
financial performance. The primary element of this strategy is to recruit and
retain qualified technical consultants with a wide range of skills. Second, the
Company emphasizes and maintains a relationship-oriented consultative approach
designed to create long-term partnerships with its clients. Third, the Company
focuses on enhancing margins by improving operating efficiencies and offering a
product mix which emphasizes higher value-added services. Finally, the Company
seeks to meet its clients' supplemental IT staffing needs by offering
responsive, timely and comprehensive technical staffing solutions for all
aspects of the systems applications development lifecycle.
The Company's goal is to emerge as a leading staffing company providing
comprehensive IT solutions. To achieve this goal, the Company has adopted a
growth strategy to broaden the geographic scope of its operations, recruit and
retain qualified technical consultants, diversify its client base, expand the
services it offers and
3
<PAGE>
strengthen its strategic relationships with other professional service
organizations. The Company is expanding its geographic scope through both
internal development and acquisitions and is developing a network of branch
offices clustered around regional hub offices. The Company has selected Newport
Beach, Dallas, Denver and Seattle to serve as its regional hubs for the
California, Texas, Rocky Mountain and Pacific Northwest regions, respectively.
A future office in Chicago or Minneapolis is planned to serve as a regional hub
for the North Central region. Although the Company's growth strategy has
previously focused on the Western United States, the Company is beginning to
consider acquisition opportunities nationwide.
The Company also recognizes the need to recruit and retain new qualified
technical consultants. As a result, the Company has recently improved the
benefits it offers to its technical consultants and has begun to utilize
salaried technical consultants, who remain on the Company's payroll even when
not on assignment. In addition, the Company intends to continue to add new
clients through expanded marketing programs, including a greater focus on
middle market companies, and has begun to offer a number of new value-added
services, including Year 2000 and internetworking services. Finally, the
Company is developing strategic relationships with a number of professional
service providers such as national accounting firms, consulting firms,
facilities management companies and other outsourcing providers.
The Company was incorporated in 1984 as a California corporation, and its
principal executive offices are located at 4400 MacArthur Boulevard, Suite 600,
Newport Beach, California 92660. The Company's telephone number is (714) 553-
1102.
RECENT ACQUISITIONS
Since the completion of the Company's initial public offering in March 1996
(the "IPO"), the Company has acquired the following three IT staffing services
businesses (collectively, the "Acquisitions"):
. In January 1997, the Company acquired LEARDATA Info-Services, Inc.
("Leardata"), a Dallas-based IT staffing company with approximately 130
technical consultants, for $21.4 million in cash and stock (the "Leardata
Acquisition"). Leardata generated revenues in approximately 30 states
during the nine months ended September 30, 1996. Leardata had revenues of
approximately $4.3 million for the three months ended September 30, 1996.
. In November 1996, the Company acquired Professional Software Consultants,
Inc. ("PSCI"), a Phoenix-based IT staffing company with approximately 130
technical consultants, for $4.9 million in cash and an earnout payment to
be made based on PSCI's financial performance for the two months ending
December 31, 1996 (the "PSCI Acquisition"). PSCI had revenues of
approximately $2.7 million for the three months ended September 30, 1996.
. In July 1996, the Company acquired the Applications, Design and
Development division ("AD&D") of ADD Consulting, Inc. for $11.7 million
in cash and stock (the "AD&D Acquisition"), adding branches in Omaha and
Kansas City, as well as approximately 170 technical consultants. AD&D had
revenues of approximately $13.9 million for the 12 months ended July 31,
1996.
Through the Acquisitions, the Company has significantly expanded its
geographic scope and positioned itself as a leading provider of IT staffing
services. The Acquisitions also have diversified and broadened the Company's
customer base. The Company continually reviews potential acquisitions and is
currently in various stages of investigating and negotiating with several
acquisition candidates, but has not entered into a definitive purchase
agreement with any acquisition candidate.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 2,000,000 shares
Common Stock offered by the Selling Shareholder... 200,000 shares
Common Stock to be outstanding after the Offering. 9,802,547 shares (1)
Use of proceeds................................... To repay outstanding indebtedness, for
future acquisitions, the opening of
new offices, working capital and other
general corporate purposes. See "Use
of Proceeds."
Nasdaq National Market symbol..................... DPRC
</TABLE>
- --------
(1) Excludes 1,227,800 shares of Common Stock reserved for issuance under the
Company's 1994 Stock Option Plan, of which options to purchase 811,720
shares were outstanding as of November 30, 1996, and 250,000 shares of
Common Stock reserved for issuance under the Company's Employee Stock
Purchase Plan. See "Management -- 1994 Stock Option Plan" and " -- Employee
Stock Purchase Plan."
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months
Ended October
Fiscal Year Ended July 31, 31,
------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 (1) 1996
------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $20,621 $23,163 $34,165 $49,558 $58,145 $13,954 $20,134
Cost of professional
services................ 17,927 19,397 28,047 40,082 45,918 11,035 15,434
------- ------- ------- ------- ------- ------- -------
Gross margin............ 2,694 3,766 6,118 9,476 12,227 2,919 4,700
Selling, general and
administrative expenses
(2).................... 2,530 3,648 5,581 5,769 6,719 1,491 2,853
------- ------- ------- ------- ------- ------- -------
Operating income........ 164 118 537 3,707 5,508 1,428 1,847
Interest (expense)
income, net............. (128) (113) (401) (764) (162) (159) 202
------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 36 5 136 2,943 5,346 1,269 2,049
Provision for income
taxes................... 11 4 56 1,205 2,096 516 801
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 25 $ 1 $ 80 $ 1,738 $ 3,250 $ 753 $ 1,248
======= ======= ======= ======= ======= ======= =======
Net income per share.... $ 0.54 $ 0.15 $ 0.16
======= ======= =======
Weighted average common
and common equivalent
shares (3)............. 6,039 4,926 7,864
</TABLE>
<TABLE>
<S> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA (4):
Revenues................................................ $93,467 $27,125
Gross margin............................................ 22,352 6,656
Operating income........................................ 8,265 2,496
Net income (5).......................................... 3,798 1,413
Net income per share (5)................................ $ 0.59 $ 0.17
======= =======
Weighted average common and common equivalent shares (3)
(5).................................................... 6,488 8,174
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996
----------------------------------
Pro Forma As
Actual Pro Forma (6) Adjusted (7)
------- ------------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $22,945 $12,609 $37,448
Working capital.............................. 28,105 20,896 45,735
Total assets................................. 44,895 60,128 84,967
Total debt (8)............................... -- 9,500 --
Shareholders' equity......................... 40,155 44,198 78,537
</TABLE>
6
<PAGE>
- --------
(1) The AD&D Acquisition was completed on July 1, 1996. Consequently, the
Statement of Income Data for the three months ended October 31, 1996 (which
includes the acquired operations for the entire period) are not directly
comparable to the Statement of Income Data for the three months ended
October 31, 1995. See "Pro Forma Combined Condensed Financial Information."
(2) Selling, general and administrative expenses for fiscal 1992, 1993 and 1994
include management fees of $765,000, $820,000 and $586,000, respectively,
which were paid to a management company controlled by one of the founders
of the Company. This management fee was terminated in February 1994 upon
the redemption of such founder's ownership interest in the Company.
Selling, general and administrative expenses for fiscal 1992, 1993, 1994
and 1995 also include compensation paid to Ms. Weaver of $815,000,
$975,000, $1.7 million and $921,000, respectively. Effective March 1995,
Ms. Weaver's annual compensation was significantly reduced. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management -- Compensation."
(3) Weighted average common and common equivalent shares gives effect to the
assumed exercise of all outstanding stock options using the treasury
method. See Note 2 of Notes to Financial Statements of the Company included
elsewhere in this Prospectus.
(4) The Pro Forma Statement of Income Data for fiscal 1996 gives effect to the
AD&D Acquisition, the PSCI Acquisition and the Leardata Acquisition as if
such transactions had occurred on August 1, 1995. The Pro Forma Statement
of Income Data for the three months ended October 31, 1996 gives pro forma
effect to the PSCI Acquisition and the Leardata Acquisition as if such
transactions had occurred on August 1, 1995. The Pro Forma Statement of
Income Data does not assume the repayment of the debt. See note 8 below.
See "Pro Forma Combined Condensed Financial Information."
(5) Assuming the issuance of 519,000 shares of Common Stock by the Company
which would be necessary to generate gross proceeds sufficient to repay the
pro forma outstanding debt of $9.5 million and the elimination of all
interest expense, net of tax, associated therewith, supplemental net income
and supplemental net income per share for the fiscal year ended July 31,
1996 and the three months ended October 31, 1996 would be $4.2 million and
$0.60 and $1.5 million and $0.17, respectively.
(6) The Pro Forma Balance Sheet Data as of October 31, 1996 gives effect to the
PSCI Acquisition and the Leardata Acquisition as if such transactions had
occurred on October 31, 1996. See "Pro Forma Combined Condensed Financial
Information."
(7) The Pro Forma As Adjusted Balance Sheet Data as of October 31, 1996 further
adjusts the Pro Forma Balance Sheet Data to give effect to the sale by the
Company of 2,000,000 shares of Common Stock offered hereby at an estimated
offering price of $18.31 per share of Common Stock and the application of
the estimated net proceeds therefrom. See "Use of Proceeds,"
"Capitalization" and "Pro Forma Combined Condensed Financial Information."
(8) Pro Forma Balance Sheet Data as of October 31, 1996 reflects $9.5 million
of borrowings under the Company's existing credit facility which was used
to pay a portion of the cash purchase price for the Leardata Acquisition
and which will be repaid with a portion of the proceeds of the Offering.
7
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as
the other information set forth in this Prospectus.
This Prospectus, including the information set forth below, contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, and are intended to be covered by the safe harbors created
thereby. Forward-looking statements include statements regarding the Company's
growth strategy and its ability to implement this strategy, the trends in the
markets served by the Company and the Company's ability to meet its liquidity
requirements. Prospective purchasers are cautioned that all forward-looking
statements are subject to risks and uncertainties, including, without
limitation, the risks outlined in this section.
DEPENDENCE ON AVAILABILITY, RECRUITMENT AND MANAGEMENT OF TECHNICAL
CONSULTANTS
The Company is dependent upon its ability to attract and manage technical
consultants who possess the skills and experience necessary to meet the IT
staffing requirements of the Company's clients. To keep pace with rapidly
evolving information technologies and changing client needs, the Company must
continually evaluate and upgrade its database of available qualified technical
consultants. Competition for individuals with proven technical skills is
intense. The Company competes for such individuals with other providers of IT
staffing services, providers of outsourcing services, temporary personnel
agencies, systems integrators, computer systems consultants and clients and
potential clients. Factors influencing such competition include compensation,
benefits, growth opportunities and pre-existing relationships with other
employers, particularly IT staffing companies. As the Company expands into new
geographical areas, it may experience difficulty attracting qualified
technical consultants who have a prior relationship or familiarity with more
established IT staffing companies in such areas. As a result, there can be no
assurance that the Company will be able to recruit the technical consultants
necessary to execute its growth strategy and a failure to do so could have a
material adverse effect on the Company's results of operations and financial
condition. Furthermore, although the Company has historically paid its
technical consultants only when they are on assignment, AD&D, PSCI and
Leardata have a substantial number of salaried technical consultants who are
paid whether or not they are on assignment. Such technical consultants must be
carefully monitored and managed to minimize the time they are not on
assignment. A failure to manage non-chargeable time of salaried technical
consultants could have a material adverse effect on the Company's results of
operations and financial condition.
ACQUISITION RISKS
A primary component of DPRC's growth strategy is the acquisition of IT
staffing companies to complement and expand the Company's existing business,
principally in new geographic markets. The successful implementation of this
strategy is dependent on the Company's ability to identify suitable
acquisition candidates, acquire such companies on suitable terms and integrate
their operations with those of the Company. Although the Company has completed
three acquisitions, there can be no assurance that the Company will be able to
acquire other companies on suitable terms. Moreover, other staffing companies
are actively competing for acquisition candidates, which has resulted in an
increase in the price of acquisition candidates. Acquisitions may also involve
a number of special risks, including: (i) adverse effects on the Company's
reported operating results, including increased goodwill amortization related
to acquired companies and interest expense related to debt incurred to affect
acquisitions; (ii) diversion of management attention; (iii) risks associated
with unanticipated problems, liabilities or contingencies resulting from
acquisitions and entries into new geographic markets; (iv) difficulties
related to the integration of acquired businesses, some of which may have
different cultures, operating strategies, margins or business risks; and (v)
increased general and administrative expenses incidental to the Company's
expansion into new geographic markets. For example, the Company is evaluating
an acquisition candidate that actively recruits technical consultants from
outside the United States. The acquisition of such a company could entail
additional risks, including risks related to regulatory compliance, possible
8
<PAGE>
changes in immigration law and the maintenance of new recruiting relationships
or affiliations. The occurrence of some or all of the events described in
these risks could have a material adverse effect on the Company's operations
and financial performance.
The Company intends, when possible, to use its Common Stock to pay all or a
portion of the purchase price for future acquisitions. In the event that the
Company's Common Stock does not maintain sufficient value or potential
acquisition candidates are unwilling to accept the Company's Common Stock as
consideration for the sale of their businesses, the Company may be required to
utilize more of its cash resources, if available, in order to continue its
acquisition program. If the Company does not have sufficient cash resources,
its growth could be limited unless it is able to obtain additional capital
through debt or equity financings. There can be no assurance that such capital
will be available on acceptable terms. If the Company is unable to obtain
sufficient financing, it may be unable to implement its growth strategy fully.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources," "Business -- Growth
Strategy" and "-- Competition."
DEVELOPMENT OF NEW BRANCHES
The Company's growth strategy involves the internal development of new
branches as well as the acquisition of existing businesses. The successful
development of new branches is dependent on a number of factors, many of which
are beyond the Company's control, including the Company's ability to: (i)
hire, integrate and retain qualified managers in existing markets as well as
markets in which the Company has no prior operating experience; (ii) apply its
management practices to a significantly larger and geographically dispersed
organization; (iii) initiate and develop new client relationships; (iv) hire,
integrate and retain qualified technical consultants; and (v) identify
suitable locations for new branches. There can be no assurance that the
Company will be able to implement successfully any of the above components of
its strategy. See "Business -- Growth Strategy" and "Management."
RISKS ASSOCIATED WITH YEAR 2000 CONVERSION EFFORTS
According to industry sources, as the year 2000 approaches, 60% to 90% of
all date sensitive computer applications will fail because they are unable to
process dates properly beyond December 31, 1999. This will require businesses
to devote substantial resources to converting their information systems over
the next three years. This conversion process is time and labor intensive and
will, in many cases, be outsourced to specialists. The Company anticipates
that the competition for technical consultants will increase substantially as
companies begin to hire technical consultants to perform services to implement
Year 2000 conversions. Such increased competition could materially and
adversely affect the Company's ability to attract and retain qualified
technical consultants in the future. The Company also anticipates that many of
its clients and prospective clients will devote substantial resources to Year
2000 conversion efforts. Although the Company has recently begun to offer Year
2000 services to assist clients in their conversion efforts, clients may
postpone other information systems projects pending completion of their Year
2000 conversions. This could adversely affect the demand for more traditional
services. In addition, competitors offering Year 2000 services may be able to
obtain other assignments from clients previously served exclusively by the
Company or may provide solutions which give them an advantage in competing for
new clients.
DEPENDENCE ON CERTAIN CLIENTS; INDUSTRY AND GEOGRAPHIC CONCENTRATION
On a historical basis the Company's ten largest clients accounted for 60.3%
of its revenues in fiscal 1996, with Nissan Motor Corporation USA accounting
for 10.2% of its revenues. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." A significant decrease in
demand by, or the loss of, a large client could have a substantial adverse
effect on the Company's revenues and results of operations. Furthermore,
revenues from any one client often vary materially from period to period.
Although the Company strives to build long-term relationships with its
clients, it does not generally have long-term contractual arrangements with
them, and services are usually provided on an assignment-by-assignment basis.
In addition, the Company's contracts are normally cancelable by the client at
any time without penalty.
9
<PAGE>
The Company's business is dependent in part on the economic strength of its
clients. While the Company serves a large number of clients in a range of
industry groups, approximately 41.5% of the Company's revenues in fiscal 1996
were derived from six foreign automobile and motorcycle manufacturers with
operations in Southern California. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Regulatory changes which
adversely affect this industry group could have an adverse effect on the
Company's revenues and profitability. Similarly, a substantial deterioration
in general economic conditions in Southern California could adversely affect
the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the efforts and
abilities of Mary Ellen Weaver, Chairman of the Board and Chief Executive
Officer, and David M. Connell, President and Chief Operating Officer. The loss
of either of these individuals could have an adverse effect on the Company's
operations, including the Company's ability to establish and maintain client
relationships. See "Management."
COMPETITION
The IT staffing industry is highly competitive. The Company competes for
both clients and qualified technical consultants with a variety of companies,
including other IT staffing companies, national and regional accounting and
management consulting firms and independent contractors. Several traditional
staffing companies, which have historically emphasized the placement of
clerical and other less highly skilled personnel on short-term assignments,
have begun to provide services competitive with those provided by the Company.
The Company also competes for technical consultants with the IT staffs of its
clients and potential clients. In addition, the Company competes with other
staffing companies for acquisition candidates.
Several of the Company's competitors are substantially larger than the
Company and have greater financial and other resources. Several of such
competitors have also been in business much longer than the Company and have
significantly greater name recognition throughout the United States, including
the geographic areas in which the Company operates and into which it intends
to expand. Accordingly, such companies are often able to meet a broader range
of a client's temporary personnel needs, serve a broader geographic range than
the Company, and compete more effectively for national accounts. There can be
no assurance that the Company will be able to compete successfully with its
existing and future competitors. See "Business -- Competition."
EMPLOYMENT LIABILITY RISKS
Providers of staffing services employ and place people in the workplaces of
other businesses. Risks inherent in such activity include possible claims of
errors and omissions, misuse of client proprietary information,
misappropriation of funds, discrimination and harassment, theft of client
property, other criminal activity or torts and other claims. While the Company
has not historically experienced any material claims of these types, there can
be no assurance that the Company will not experience such claims in the
future.
CONTROL OF THE COMPANY
After the Offering, Ms. Weaver will control the vote of approximately 24.8%
of the outstanding shares of Common Stock (23.7% if the over-allotment option
is exercised in full) and Riordan, Lewis & Haden ("RLH"), a private investment
firm which made an investment in the Company prior to the IPO, will control
the vote of 16.9% of the outstanding shares of Common Stock (16.4% if the
over-allotment option is exercised in full). While not controlling a majority
of the outstanding shares, Ms. Weaver and RLH will be the two largest
shareholders of the Company and will have significant influence with respect
to the election of directors and other issues submitted to the Company's
shareholders. Such concentration of ownership could also have the effect of
making it more difficult for a third party to acquire control of the Company
and may discourage third parties from attempting to do so. See "Principal and
Selling Shareholders" and "Description of Capital Stock."
10
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock and the ability of the Company to raise
equity capital. The Company can make no prediction as to the effect, if any,
that sales of shares of its Common Stock, or the availability of shares for
future sale, will have on the market price of the Common Stock prevailing from
time to time or on the Company's ability to sell equity securities or equity-
related securities at times and prices that it deems appropriate. See "Shares
Eligible for Future Sale."
ABILITY TO ISSUE PREFERRED STOCK WITHOUT FURTHER SHAREHOLDER APPROVAL
The Company's Articles of Incorporation permit the Board of Directors to
establish the rights, preferences, privileges and restrictions of, and to
issue, shares of Preferred Stock without any further vote or action by the
Company's shareholders. The issuance of Preferred Stock could adversely affect
the holders of Common Stock and could have the effect of delaying, deferring
or preventing a change in control of the Company. The Company has no present
plans to issue any shares of Preferred Stock. See "Description of Capital
Stock."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has fluctuated over a broad range since
the completion of the IPO in March 1996. Numerous factors, including
announcements of fluctuations in the Company's or its competitors' operating
results and market conditions for IT staffing or computer services industry
stocks in general, could have a significant impact on the future price of the
Common Stock. In addition, the stock market in recent years has experienced
significant price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies. These broad
fluctuations may adversely affect the market price of the Common Stock. See
"Price Range of Common Stock."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby (assuming an offering price of
$18.31 per share), after deducting the underwriting discount and estimated
offering expenses, are estimated to be $34.3 million ($39.2 million if the
Underwriters' over-allotment option is exercised in full). Approximately $9.5
million of the net proceeds will be used to repay in full the outstanding
borrowings under the Company's existing credit facility, which were used to
pay a portion of the cash purchase price of the Leardata Acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company intends to use the
remaining net proceeds (approximately $24.8 million) for future acquisitions,
the opening of new offices, working capital and other general corporate
purposes. See "Business -- Growth Strategy." Pending such uses, the net
proceeds will be invested in short-term, investment grade, interest-bearing
securities.
The Company continually reviews and evaluates acquisition candidates to
complement and expand its existing business, and is at various stages of
evaluation and discussion with a number of such candidates. The Company has
not entered into a definitive purchase agreement with respect to any
acquisition candidate, and no portion of the net proceeds has been allocated
to specific acquisitions; however, it is possible that a substantial portion
of the net proceeds will be used for one or more of such acquisitions.
The net proceeds to be received by the Selling Shareholder from the sale of
the 200,000 shares of Common Stock offered hereby, after deducting the
underwriting discount, will be $3.5 million ($4.3 million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Shareholder.
PRICE RANGE OF COMMON STOCK
The Company completed the IPO in March 1996 at a price per share of $14.00.
The Common Stock is traded on the Nasdaq National Market under the symbol
"DPRC." The following table sets forth the reported high and low sales prices
of the Common Stock for the quarters indicated as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
FISCAL YEAR 1996
Third Quarter (from March 6, 1996)........................ $28 1/4 $18 3/8
Fourth Quarter............................................ 29 1/2 16
FISCAL YEAR 1997
First Quarter............................................. $24 7/8 $16
Second Quarter (through January 6, 1997).................. 22 15 1/2
</TABLE>
The closing price of the Common Stock on January 6, 1997 was $18.31 per
share. As of January 3, 1997, there were approximately 36 holders of record of
the Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be at the discretion of the Board of Directors of the
Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect to the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
12
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the historical capitalization of the
Company as of October 31, 1996; (ii) the pro forma combined capitalization of
the Company as of October 31, 1996 giving effect to the PSCI Acquisition and
the Leardata Acquisition as if such transactions had occurred on October 31,
1996; and (iii) the pro forma combined capitalization of the Company as
further adjusted to reflect the sale by the Company of 2,000,000 shares of
Common Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Pro Forma Combined Condensed Financial
Information."
<TABLE>
<CAPTION>
October 31, 1996
--------------------------------
Pro Forma
As
Actual Pro Forma Adjusted
------- -------------- ---------
(In thousands)
<S> <C> <C> <C>
Total debt (1)................................ $ -- $ 9,500 $ --
Shareholders' equity:
Preferred stock: 2,000,000 shares autho-
rized; no shares issued and outstanding as
of October 31, 1996, actual, pro forma and
pro forma as adjusted...................... -- -- --
Common stock: 20,000,000 shares authorized;
7,492,321 shares issued and outstanding as
of October 31, 1996; 7,802,547 shares
issued and outstanding, pro forma; and
9,802,547 shares issued and outstanding,
pro forma as adjusted (2).................. 36,996 41,039 75,378
Additional paid-in capital.................. 1,636 1,636 1,636
Retained earnings........................... 1,523 1,523 1,523
------- ------- -------
Total shareholders' equity.................. 40,155 44,198 78,537
------- ------- -------
Total capitalization...................... $40,155 $53,698 $78,537
======= ======= =======
</TABLE>
- --------
(1) Pro forma total debt as of October 31, 1996 reflects $9.5 million of
borrowings under the Company's existing credit facility which was used to
pay a portion of the cash purchase price for the Leardata Acquisition and
which will be repaid with a portion of the proceeds of the Offering.
(2) Actual, pro forma and pro forma as adjusted shares outstanding as of
October 31, 1996 exclude shares of Common Stock issuable upon exercise of
options outstanding under the Company's 1994 Stock Option Plan. As of
November 30, 1996, there were 811,720 shares of Common Stock issuable upon
exercise of outstanding options under the Company's 1994 Stock Option Plan
with a weighted average exercise price of $10.30 per share.
13
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected historical financial data set forth below as of and for the
fiscal years ended July 31, 1992, 1993, 1994, 1995 and 1996 have been derived
from the audited financial statements of the Company. The selected historical
financial data as of October 31, 1996 and for the three months ended October
31, 1995 and 1996 have been derived from the unaudited financial statements of
the Company, which include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the results of operations for the periods presented. The
results of operations for the three months ended October 31, 1996 are not
necessarily indicative of results that may be expected for the Company's
fiscal year ending July 31, 1997. The pro forma balance sheet data as of
October 31, 1996 gives effect to the PSCI Acquisition and the Leardata
Acquisition as if such transactions had occurred on October 31, 1996. The pro
forma as adjusted balance sheet further adjusts the pro forma balance sheet to
give effect to the sale by the Company of 2,000,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
The following information should be read in conjunction with the Financial
Statements and Notes thereto, "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended July 31, Ended October 31,
------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 (1) 1996
------- ------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $20,621 $23,163 $34,165 $49,558 $58,145 $13,954 $20,134
Cost of professional
services................ 17,927 19,397 28,047 40,082 45,918 11,035 15,434
------- ------- ------- ------- ------- ------- -------
Gross margin............ 2,694 3,766 6,118 9,476 12,227 2,919 4,700
Selling, general and
administrative expenses
(2).................... 2,530 3,648 5,581 5,769 6,719 1,491 2,853
------- ------- ------- ------- ------- ------- -------
Operating income........ 164 118 537 3,707 5,508 1,428 1,847
Interest (expense)
income, net............. (128) (113) (401) (764) (162) (159) 202
------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 36 5 136 2,943 5,346 1,269 2,049
Provision for income
taxes................... 11 4 56 1,205 2,096 516 801
------- ------- ------- ------- ------- ------- -------
Net income (3).......... $ 25 $ 1 $ 80 $ 1,738 $ 3,250 $ 753 $ 1,248
======= ======= ======= ======= ======= ======= =======
Net income per share
(3)..................... $ 0.54 $ 0.15 $ 0.16
======= ======= =======
Weighted average common
and common equivalent
shares (4)............. 6,039 4,926 7,864
</TABLE>
<TABLE>
<CAPTION>
July 31, October 31, 1996
------------------------------------- ---------------------------------
Pro Forma
As
1992 1993 1994 1995 1996 Actual Pro Forma (5) Adjusted (6)
------ ------ ------ ------ ------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 1 $ 27 $ 25 $ 248 $21,855 $22,945 $12,609 $37,448
Working capital......... 664 817 267 1,833 26,901 28,105 20,896 45,735
Total assets............ 2,851 3,487 5,638 7,623 44,029 44,895 60,128 84,967
Total debt (7) ......... 600 750 6,185 4,305 -- -- 9,500 --
Series A Convertible
Preferred Stock (8).... -- -- -- 1,485 -- -- -- --
Shareholders' equity
(deficit) (8)(9)....... 216 217 (4,524) (2,878) 40,036 40,155 44,198 78,537
</TABLE>
14
<PAGE>
- --------
(1) The AD&D Acquisition was completed on July 1, 1996. Consequently, the
Statement of Income Data for the three months ended October 31, 1996
(which includes the acquired operations for the entire period) are not
directly comparable to the Statement of Income Data for the three months
ended October 31, 1995. See "Pro Forma Combined Condensed Financial
Information."
(2) Selling, general and administrative expenses for fiscal 1992, 1993 and
1994 include management fees of $765,000, $820,000 and $586,000,
respectively, which were paid to a management company controlled by one of
the founders of the Company. This management fee was terminated in
February 1994 upon the redemption of such founder's ownership interest in
the Company. Selling, general and administrative expenses for fiscal 1992,
1993, 1994 and 1995 also include compensation paid to Ms. Weaver of
$815,000, $975,000, $1.7 million and $921,000, respectively. Effective
March 1995, Ms. Weaver's annual compensation was significantly reduced.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Management -- Compensation."
(3) Assuming the issuance of 519,000 shares of Common Stock by the Company
which would be necessary to generate gross proceeds sufficient to repay
the pro forma outstanding debt of $9.5 million and the elimination of all
interest expense, net of tax, associated therewith, supplemental net
income and supplemental net income per share for the fiscal year ended
July 31, 1996 and the three months ended October 31, 1996 would be $4.2
million and $0.60 and $1.5 million and $0.17, respectively.
(4) Weighted average common and common equivalent shares gives effect to the
assumed exercise of all outstanding stock options using the treasury
method. See Note 2 of Notes to Financial Statements of the Company
included elsewhere in this Prospectus.
(5) The Pro Forma Balance Sheet Data as of October 31, 1996 gives effect to
the PSCI Acquisition and the Leardata Acquisition as if such transactions
had occurred on October 31, 1996. See "Pro Forma Combined Condensed
Financial Information."
(6) The Pro Forma As Adjusted Balance Sheet Data as of October 31, 1996
further adjusts the Pro Forma Balance Sheet Data to give effect to the
sale by the Company of 2,000,000 shares of Common Stock offered hereby at
an estimated offering price of $18.31 per share of Common Stock and the
application of the estimated net proceeds therefrom. See "Use of
Proceeds," "Capitalization" and "Pro Forma Combined Condensed Financial
Information."
(7) Does not include working capital borrowings under the Company's prior
revolving credit facility, which were $1.4 million, $1.7 million, $2.4
million and $836,000 at July 31, 1992, 1993, 1994 and 1995, respectively.
Pro Forma Balance Sheet Data as of October 31, 1996 reflects $9.5 million
of borrowings under the Company's existing credit facility which was used
to pay a portion of the cash purchase price for the Leardata Acquisition
and which will be repaid with a portion of the proceeds of the Offering.
(8) The outstanding shares of Series A Convertible Preferred Stock were
subject to mandatory redemption by the Company at any time after March
2005 upon the request of the holders of a majority of such shares then
outstanding. Consequently, such shares were not included in actual
shareholders' equity (deficit) at July 31, 1995. Such shares automatically
converted into 592,000 shares of Common Stock immediately prior to the
consummation of the IPO.
(9) The Company recorded a charge to retained earnings of $4.8 million in
February 1994 in connection with the redemption of all shares of Common
Stock not owned by Ms. Weaver.
15
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited pro forma combined condensed statement of income for the
fiscal year ended July 31, 1996 gives effect on a purchase accounting basis to
the Acquisitions as if they had occurred on August 1, 1995 and has been
prepared by combining the statement of income of DPRC for the fiscal year
ended July 31, 1996 with the statement of income of ADD Consulting, Inc. for
the 11 months ended June 30, 1996 (the day prior to the consummation of the
AD&D Acquisition), the statements of income of PSCI and Leardata for the 12
months ended June 30, 1996.
The unaudited pro forma combined condensed statement of income for the three
months ended October 31, 1996 gives effect on a purchase accounting basis to
the PSCI Acquisition and the Leardata Acquisition as if such transactions had
occurred on August 1, 1995 and has been prepared by combining the Company's
statement of income for the three months ended October 31, 1996 with the
statements of income for PSCI and Leardata for the three months ended
September 30, 1996.
The unaudited pro forma combined condensed balance sheet as of October 31,
1996 has been prepared to give pro forma effect to the PSCI Acquisition and
the Leardata Acquisition as if such transactions had occurred on October 31,
1996 and has been prepared by combining the Company's balance sheet as of
October 31, 1996 with the balance sheets of PSCI and Leardata as of September
30, 1996 and giving effect to the preliminary purchase price allocation.
The pro forma combined condensed adjustments are based on management's
preliminary assumptions regarding purchase accounting adjustments. The actual
allocation of the purchase price will be adjusted to the extent that actual
amounts differ from management's estimates in accordance with Statement of
Financial Accounting Standards (SFAS) No. 38, Accounting for Preacquisition
Contingencies of Purchased Enterprises.
Certain data and notes normally included in financial statements in
accordance with generally accepted accounting principles have been condensed
or omitted. The unaudited pro forma statements of income are not necessarily
indicative of the results which would have occurred if the Acquisitions had
been consummated as of such dates, nor do they purport to represent the
results of operations of the Company for any future period. The pro forma
combined condensed financial information should be read in conjunction with
the Notes thereto and with the Financial Statements and Notes thereto for the
Company, ADD Consulting, Inc. (including its predecessor, AD&D Acquisition,
Inc.) and Leardata included elsewhere in this Prospectus and the information
set forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
16
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended July 31, 1996
----------------------------------------------------------
Pro Forma Pro Forma
DPRC AD&D PSCI Leardata Adjustments Combined
------- ------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $58,145 $12,515 $8,012 $15,164 $ (369)(a) $93,467
Cost of professional
services............... 45,918 8,950 6,220 10,327 (300)(a) 71,115
------- ------- ------ ------- ------- -------
Gross margin............ 12,227 3,565 1,792 4,837 (69) 22,352
Selling, general and
administrative
expenses............... 6,719 3,103 1,407 2,843 15 (b) 14,087
------- ------- ------ ------- ------- -------
Operating income........ 5,508 462 385 1,994 (84) 8,265
Interest (expense)
income, net............ (162) (37) (73) 70 (1,303)(c) (1,505)
------- ------- ------ ------- ------- -------
Income before provision
for income taxes....... 5,346 425 312 2,064 (1,387) 6,760
Provision for income
taxes.................. 2,096 -- -- 711 155 (d) 2,962
------- ------- ------ ------- ------- -------
Net income.............. $ 3,250 $ 425 $ 312 $ 1,353 $(1,542) $ 3,798
======= ======= ====== ======= ======= =======
Net income per share.... $ 0.54 $ 0.59
======= =======
Weighted average common
and common equivalent
shares ................ 6,039 449 (e) 6,488
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended October 31, 1996
-----------------------------------------------
Pro Forma Pro Forma
DPRC PSCI Leardata Adjustments Combined
------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues....................... $20,134 $2,735 $4,256 $ -- $27,125
Cost of professional services.. 15,434 2,117 2,918 -- 20,469
------- ------ ------ ----- -------
Gross margin................... 4,700 618 1,338 -- 6,656
Selling, general and
administrative expenses....... 2,853 402 796 109 (b) 4,160
------- ------ ------ ----- -------
Operating income............... 1,847 216 542 (109) 2,496
Interest (expense) income, net. 202 (16) 20 (253)(c) (47)
------- ------ ------ ----- -------
Income before provision for
income taxes.................. 2,049 200 562 (362) 2,449
Provision for income taxes..... 801 -- 191 44 (d) 1,036
------- ------ ------ ----- -------
Net income..................... $ 1,248 $ 200 $ 371 $(406) $ 1,413
======= ====== ====== ===== =======
Net income per share........... $ 0.16 $ 0.17
======= =======
Weighted average common and
common
equivalent shares............. 7,864 310 (e) 8,174
</TABLE>
See Accompanying Notes to Pro Forma Combined Condensed Statements of Income.
17
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
October 31, 1996
-----------------------------------------------
Pro
Pro Forma Forma
DPRC PSCI Leardata Adjustments Combined
------- ------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $22,945 $ -- $2,286 $(12,622)(f) $12,609
Accounts receivable, net..... 9,232 1,910 2,773 (70)(g) 13,845
Other current assets......... 668 23 161 -- 852
------- ------ ------ -------- -------
Total current assets.......... 32,845 1,933 5,220 (12,692) 27,306
Property, net................. 765 29 221 -- 1,015
Other assets.................. 196 7 -- -- 203
Intangible assets............. 11,089 -- -- 20,515 (h) 31,604
------- ------ ------ -------- -------
$44,895 $1,969 $5,441 $ 7,823 $60,128
======= ====== ====== ======== =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Total current liabilities..... $ 4,740 $ 509 $ 314 $ 847 (i) $ 6,410
Deferred taxes................ -- -- 20 -- 20
Long-term debt................ -- 639 -- (639)(j) 9,500
9,500 (f)
Shareholders' equity:
Preferred stock.............. -- -- 387 (387)(k) --
Common stock................. 36,996 16 3 4,024 (k) 41,039
Additional paid-in capital... 1,636 -- 173 (173)(k) 1,636
Due from shareholders........ -- -- (107) 107 (f) --
Retained earnings............ 1,523 805 4,651 (5,456)(k) 1,523
------- ------ ------ -------- -------
Total shareholders' equity.. 40,155 821 5,107 (1,885) 44,198
------- ------ ------ -------- -------
$44,895 $1,969 $5,441 $ 7,823 $60,128
======= ====== ====== ======== =======
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
18
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JULY 31, 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
(UNAUDITED)
(a) The pro forma adjustment represents the elimination of certain revenues
and expenses of the Denver branch office of PSCI which was closed prior to
acquisition.
(b) The pro forma adjustment is comprised of the following adjustments to
selling, general and administrative expenses:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
JULY 31, 1996 ENDED OCTOBER 31, 1996
----------------- ----------------------
<S> <C> <C>
AD&D:
Expenses associated with
development stage business not
acquired........................... $(696,000) $ --
Compensation in excess of
employment agreements ............. (138,000) --
Amortization expense of acquired
goodwill........................... 495,000 --
PSCI:
Elimination of certain expenses of
the Denver
branch office of PSCI which was
closed prior to acquisition....... (135,000) --
Amortization expense of acquired
goodwill........................... 148,000 37,000
Leardata:
Compensation in excess of
employment agreements............. (333,000) (97,000)
Amortization expense of acquired
goodwill.......................... 674,000 169,000
--------- --------
$ 15,000 $109,000
========= ========
</TABLE>
(c) The pro forma adjustment relates to reduced interest income or additional
interest expense associated with the use of cash or additional borrowings
for the purchase of each of the Acquisitions.
(d) The pro forma adjustment represents the additional income tax expense
associated with the Acquisitions and the corresponding pro forma
adjustments.
(e) The pro forma adjustment for the fiscal year ended July 31, 1996
represents the issuance of 310,226 shares of Common Stock in the Leardata
Acquisition and 139,444 of the 152,121 shares of Common Stock issued in
the AD&D Acquisition (reflecting the weighted average number of shares
outstanding for such period). The pro forma adjustment for the three
months ended October 31, 1996 represents the issuance of 310,226 shares of
Common Stock in the Leardata Acquisition.
(f) The pro forma adjustment is comprised of various adjustments to cash and
cash equivalents as follows:
<TABLE>
<S> <C>
Cash paid for the PSCI Acquisition............................ $ (4,900,000)
Cash paid for the Leardata Acquisition........................ (17,329,000)
Cash proceeds borrowed under the Credit Agreement in
conjunction with the consummation of the Leardata
Acquisition.................................................. 9,500,000
Repayment of Leardata stockholder notes....................... 107,000
------------
$(12,622,000)
============
</TABLE>
(g) The pro forma adjustment is to conform accounting policies for the
allowance for doubtful accounts.
(h) The pro forma adjustment represents the allocation of the excess of the
purchase price over net assets acquired of $3.7 million for the PSCI
Acquisition and $17.9 million for the Leardata Acquisition to goodwill.
(i) The pro forma adjustment consists of the following adjustments to current
liabilities:
<TABLE>
<S> <C>
Accruals for estimated acquisition costs associated with the PSCI
Acquisition and the Leardata Acquisition.......................... $700,000
Adjustments to conform accounting policies......................... 147,000
--------
$847,000
========
</TABLE>
(j) The pro forma adjustment is comprised of $639,000 of debt not assumed in
the PSCI Acquisition.
(k) The pro forma adjustment includes the estimated value of the stock issued
in the Leardata Acquisition of $4.0 million and the elimination of the
equity accounts of PSCI and Leardata.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Early in fiscal 1994, the Company began to implement a growth strategy which
has had a significant impact on the Company's financial condition and results
of operations. As part of this strategy, the Company hired a new President and
Chief Operating Officer and added other personnel to strengthen the Company's
financial, marketing and operating infrastructure. In addition, the Company
opened new branch offices in Denver and Seattle. These strategic initiatives
contributed to an increase in the Company's revenues from $23.2 million in
fiscal 1993 to $58.1 million in fiscal 1996.
In July 1996, the Company completed its first acquisition by acquiring AD&D,
with branches in Omaha and Kansas City. In September 1996, the Company opened
an office in Des Moines completing a planned expansion by AD&D. Additionally,
in November 1996, the Company acquired an office in Phoenix through its
acquisition of PSCI and, in January 1997, the Company acquired an office in
Dallas through its acquisition of Leardata. The Company now has ten offices in
eight states. The Leardata Acquisition has enhanced the Company's geographical
presence by adding 130 technical consultants in approximately 30 states.
Although Leardata is headquartered in Dallas, approximately 71% of its revenue
is generated from services performed in states other than Texas.
Since the Company began to implement its growth strategy, it has also taken
a number of steps to increase revenue growth, improve margins and enhance
overall financial performance. The Company has expanded its service offerings
to include networking and communications, help desk support, intranet and
internetworking and similar services which, while generally requiring lesser
skilled technical consultants, often provide higher gross margins. The
Company's strategy of geographic expansion is designed to improve operating
results by increasing revenues without a proportional increase in general and
administrative expenses and by permitting the Company to enter markets which
may be less competitive than the markets currently served by the Company.
Substantially all of the Company's revenues are based on the hourly billings
of its technical consultants and are recognized as services are provided. The
average billing rate as of October 31, 1996 was approximately $54 per hour.
Billing rates vary from market to market and are determined according to the
skill level of the technical consultant assigned to the client. Although the
Company has historically paid its technical consultants only when they were
actually on assignment with a client, a significant number of the consultants
added through the Acquisitions are salaried employees who are paid whether or
not they are on assignment. Typically, the gross margins associated with such
salaried consultants are higher than for consultants who are paid only when
they are on assignment.
Although the Company serves a large number of clients in a broad range of
industry groups, approximately 41.5% of the Company's revenues in fiscal 1996
were derived from six foreign automobile and motorcycle manufacturers with
operations in Southern California, with one such client representing 10.2% of
revenues and another representing 8.8% of revenues. On an unaudited pro forma
basis, giving effect to the Acquisitions as if they had occurred on August 1,
1995, approximately 25.0% of the Company's pro forma revenues in fiscal 1996
would have been derived from these six manufacturers, the largest of which
would have represented 6.2% of revenues. Approximately 60.3% of the Company's
fiscal 1996 revenues were derived from its ten largest clients (37.6% giving
pro forma effect to the Acquisitions). A significant increase or decrease in
demand by a large client could have a substantial effect on the Company's
revenues, and revenues from any one client can vary materially from period to
period.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table presents certain unaudited quarterly financial
information for each of the Company's last nine fiscal quarters. In the
opinion of the Company's management, this quarterly information has been
prepared on the same basis as the audited financial statements appearing
elsewhere in this Prospectus and
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the unaudited quarterly results set forth herein.
The Company's quarterly results have in the past been subject to fluctuations,
and thus, the operating results for any quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
Fiscal 1995 Fiscal 1996
-------------------------------- -------------------------------- Fiscal 1997
10/31/94 1/31/95 4/30/95 7/31/95 10/31/95 1/31/96 4/30/96 7/31/96 10/31/96
-------- ------- ------- ------- -------- ------- ------- ------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME
DATA:
Revenues.................... $11,113 $11,360 $12,780 $14,305 $13,954 $13,246 $14,815 $16,130 $20,134
Cost of professional
services................... 9,081 9,025 10,338 11,638 11,035 10,433 11,780 12,670 15,434
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin................ 2,032 2,335 2,442 2,667 2,919 2,813 3,035 3,460 4,700
Selling, general and
administrative
expenses (1)............... 1,291 1,403 1,434 1,641 1,491 1,744 1,606 1,878 2,853
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income............ 741 932 1,008 1,026 1,428 1,069 1,429 1,582 1,847
Net income ................. $ 317 $ 429 $ 478 $ 514 $ 753 $ 542 $ 823 $ 1,132 $ 1,248
</TABLE>
- --------
(1) Selling, general and administrative expenses for the fiscal quarters ended
October 31, 1994, January 31, 1995, April 30, 1995 and July 31, 1995
include compensation for Ms. Weaver of $314,000, $213,000, $248,000 and
$146,000, respectively. Effective March 1995, Ms. Weaver's compensation
was significantly reduced. See "Management -- Compensation."
Demand for the Company's services is generally lower in the quarter ending
January 31 due to reduced activity during the holiday season and a lower
number of working days for those clients that curtail operations between
Christmas and New Years Day. The Company anticipates that its business will
continue to be subject to such seasonal variations.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's statement of income for the indicated periods:
<TABLE>
<CAPTION>
Three
Months
Fiscal Year Ended Ended
July 31, October 31,
------------------- ------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME DATA:
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of professional services............... 82.1 80.9 79.0 79.1 76.7
----- ----- ----- ----- -----
Gross margin................................ 17.9 19.1 21.0 20.9 23.3
Selling, general and administrative expenses
(1)........................................ 16.3 11.6 11.5 10.7 14.2
----- ----- ----- ----- -----
Operating income ........................... 1.6 7.5 9.5 10.2 9.2
Net income ................................. 0.2 3.5 5.6 5.4 6.2
</TABLE>
- --------
(1) Selling, general and administrative expenses for fiscal 1994 and part of
fiscal 1995 include compensation for Ms. Weaver of $1.7 million (5.0% of
revenues) and $921,000 (1.9% of revenues), respectively. Effective March
31, 1995, Ms. Weaver's compensation was significantly reduced. See
"Management -- Compensation."
21
<PAGE>
THREE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1995
Revenues. Revenues increased $6.2 million, or 44.3%, to $20.1 million for
the three months ended October 31, 1996 as compared to $14.0 million for the
three months ended October 31, 1995. This increase resulted primarily from the
contribution of revenues from AD&D (acquired in July 1996), the Denver branch
(opened in November 1995) and the Seattle branch (opened in June 1996), and
from the Company's existing clients due to: (i) new IT projects; (ii)
increased demand in the networking and communications market; and (iii) a
broadening of the services being provided. These increases were partially
offset by the performance of the San Francisco branch which contributed
$518,000 to revenues for the three months ended October 31, 1996, down from
$697,000 in the comparable period in the prior year.
Gross Margin. Gross margin increased $1.8 million, to $4.7 million, for the
three months ended October 31, 1996, as compared to $2.9 million for the three
months ended October 31, 1995. As a percentage of revenues, gross margin
increased to 23.3%, as compared to 20.9% for the same period in the prior
year. This gross margin percentage improvement reflects higher gross margins
from AD&D due to its higher mix of salaried consultants, the opening of the
branch offices in Denver, Seattle and Des Moines which are generating higher
gross margins than those in the core market, the gross margin improvement
program in existing markets and a change in service mix, with an increased
component of higher gross margin client/server and networking and
communications services in the three months ended October 31, 1996 than in the
prior year period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $1.4 million, to $2.9 million,
for the three months ended October 31, 1996, as compared to $1.5 million for
the three months ended October 31, 1995. Selling, general and administrative
expenses also increased as a percentage of revenues to 14.2% for the three
months ended October 31, 1996, as compared to 10.7% for the prior year period.
This increase primarily resulted from investment in additional management
personnel and corporate infrastructure required to support planned Company
growth and, to a lesser extent, resulted from occupancy costs and higher
recruiting and sales personnel expenses related to three branch openings and
amortization of intangible assets related to the AD&D Acquisition.
Operating Income. Operating income increased $419,000, or 29.3%, to $1.8
million for the three months ended October 31, 1996 from $1.4 million for the
same period in fiscal 1996. As a percentage of revenues, however, operating
income decreased to 9.2% for the three months ended October 31, 1996 as
compared to 10.2% for the three months ended October 31, 1995 reflecting the
increase in selling, general and administrative expenses as a percentage of
revenues, offset, in part, by the gross margin improvement.
Interest (Expense) Income, Net. The Company had interest income of $202,000
for the three months ended October 31, 1996 as compared to interest expense of
$159,000 for the three months ended October 31, 1995 as a result of the
repayment of the Company's interest bearing debt in March 1996 with a portion
of the proceeds of the IPO and the investment of the remaining proceeds in
interest bearing securities.
FISCAL YEAR ENDED JULY 31, 1996 COMPARED TO FISCAL YEAR ENDED JULY 31, 1995
Revenues. Revenues increased $8.6 million, or 17.3%, to $58.1 million for
fiscal 1996 as compared to $49.6 million for fiscal 1995. This increase
resulted primarily from billings to new clients both in existing locations as
well as the new locations in Denver and Seattle, and from increased billings
to the Company's existing clients due to: (i) new IT projects; (ii) increased
demand in the networking and communications market; (iii) a broadening of the
services being provided; and (iv) increased demand for the most highly skilled
consultants who are billed at higher hourly rates. To a lesser extent, the
increase also resulted from one month of revenue from AD&D. These increases
were offset, in part, by the performance of the San Francisco branch which
contributed $2.2 million to revenues in fiscal 1996, down from $3.6 million in
fiscal 1995.
22
<PAGE>
Gross Margin. Gross margin increased $2.8 million, to $12.2 million, for
fiscal 1996 as compared to $9.5 million for fiscal 1995. As a percentage of
revenues, gross margin increased for fiscal 1996 to 21.0% as compared to 19.1%
for the prior year. This improvement reflects the modest price increases which
the Company has been able to implement and a change in business mix, with an
increased component of higher margin client/server and networking and
communications services in fiscal 1996.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $1.0 million, or 16.5%, to
$6.7 million for fiscal 1996, as compared to $5.8 million for fiscal 1995. As
a percentage of revenues, selling, general and administrative expenses
decreased to 11.5% for fiscal 1996 as compared to 11.6% for fiscal 1995. This
decrease as a percentage of revenues primarily resulted from lower founder's
and executive incentive compensation offset by several factors, including: (i)
higher commissions as a percentage of revenues reflecting the higher
commission rates paid for higher margin billings; (ii) investment in
additional management personnel and corporate infrastructure required to
support planned Company growth; and (iii) costs associated with the opening of
new branch locations in Seattle and Denver.
Operating Income. Operating income increased $1.8 million, or 48.6%, to $5.5
million for fiscal 1996 from $3.7 million for fiscal 1995. As a percentage of
revenues, operating income increased to 9.5% for fiscal 1996 as compared to
7.5% for fiscal 1995. This increase as a percentage of revenues reflects the
improvement in gross margin as a percentage of revenues, lower compensation to
Ms. Weaver as a result of the change in her compensation arrangements
effective in March 1995 and lower executive incentive compensation.
Interest (Expense) Income, Net. Net interest expense decreased to $162,000
for fiscal 1996 from $764,000 for fiscal 1995 due to: (i) lower borrowing
costs following the refinancing transactions in March 1995; (ii) the repayment
of all interest bearing debt with a portion of the proceeds of the IPO in
March 1996; and (iii) interest income in fiscal 1996 from the investment of
the remaining proceeds of the IPO in interest bearing securities. These
decreases in interest expense and the inclusion of interest income were
offset, in part, by a write-off of $140,000 of deferred financing fees related
to the repayment of the Company's bank debt in connection with the IPO.
FISCAL YEAR ENDED JULY 31, 1995 COMPARED TO FISCAL YEAR ENDED JULY 31, 1994
Revenues. Revenues increased $15.4 million, or 45.1%, to $49.6 million for
fiscal 1995 as compared to $34.2 million for fiscal 1994. Approximately half
of such increase was attributable to higher billings to the Company's ten
largest customers, with $3.7 million, or 23.9%, of such increase coming from
increased billings to a single client. Higher demand was also experienced from
several smaller clients. In addition, the San Francisco branch, in its second
full year of operations, contributed approximately $3.6 million to revenues in
fiscal 1995 as compared to approximately $1.1 million in fiscal 1994. Other
factors which contributed to the increase in revenues were price increases and
increased demand for the most highly skilled consultants who are billed at
higher hourly rates.
Gross Margin. Gross margin increased $3.4 million, to $9.5 million, for
fiscal 1995 as compared to $6.1 million for fiscal 1994. As a percentage of
revenues, gross margin increased for fiscal 1995 to 19.1% as compared to 17.9%
for fiscal 1994. This improvement reflects price increases and improved
contract administration as well as an improved business mix in fiscal 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $200,000, or 3.4%, to $5.8 million for
fiscal 1995 as compared to $5.6 million for fiscal 1994. As a percentage of
revenues, selling, general and administrative expenses decreased to 11.6% for
fiscal 1995 as compared to 16.3% for fiscal 1994. This decrease resulted from
lower compensation paid to Ms. Weaver in fiscal 1995, the elimination of the
management fee paid to a shareholder whose interest was repurchased in
February 1994, and a reduction in expense for outside professional services
due in part to the hiring of a full-time President in September 1994. In
addition, legal and accounting expenses were unusually high in fiscal 1994 due
to the costs incurred in the February 1994 stock repurchase. These increases
were partially offset by higher staff bonuses in fiscal 1995 and an increase
in administrative and temporary personnel needed in fiscal 1995 to support the
growth in revenues.
23
<PAGE>
Operating Income. Operating income increased approximately $3.2 million to
$3.7 million for fiscal 1995 as compared to $537,000 for fiscal 1994. As a
percentage of revenues, operating income increased to 7.5% for fiscal 1995 as
compared to 1.6% for fiscal 1994. This increase primarily reflects the
improvement in selling, general and administrative expenses as a percentage of
revenues and, to a lesser extent, the improvement in gross margin as a
percentage of revenues.
Interest (Expense) Income, Net. Interest expense increased to $764,000 for
fiscal 1995 as compared to $401,000 for fiscal 1994 due to increased
borrowings incurred in connection with the February 1994 repurchase of certain
shares of Common Stock.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, which becomes effective for fiscal years beginning after December
14, 1995. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company will adopt this statement in
fiscal 1997 as required, and its adoption is not expected to have a
significant effect on reported earnings, financial condition or cash flows.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, which requires adoption of the
disclosure provisions no later than years beginning after December 15, 1995
and adoption of the recognition and measurement provisions for nonemployee
transactions no later than after December 15, 1995. The new standard defines a
fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period which is usually the vesting period. Pursuant to the new
accounting standard, companies are encouraged, but are not required, to adopt
the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per share as if
the company had applied the new method of accounting. The Company has
determined that it will not change to the fair value method and will continue
to use Accounting Principle Board Opinion No. 25 for measurement and
recognition of employee stock-based transactions.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and net working capital totaled $22.9 million and
$28.1 million, respectively, as of October 31, 1996. The primary sources of
cash generated from operations in the three months ended October 31, 1996 were
net income and an increase in income taxes payable, offset by an increase in
accounts receivable, prepaid expenses and other assets.
In October 1996, the Company obtained a two-year credit facility with Wells
Fargo Bank (the "Credit Agreement") which provides a revolving line of credit
in the principal amount of $10.0 million and a facility for acquisitions in
the principal amount of $10.0 million. Borrowings under the revolving line of
credit bear interest at LIBOR plus 1.0% or prime, at the Company's option.
Borrowings under the acquisition facility bear interest at LIBOR plus 1.25% or
prime, at the Company's option and amortize over a five year term. Both
facilities are secured by accounts receivable and equipment. Additional
pricing options and alternatives are available depending on certain financial
conditions. The Credit Agreement contains various covenants, including the
maintenance of defined financial ratios such as liquidity and tangible net
worth. As of November 30, 1996, the Company had no outstanding borrowings
under the Credit Agreement and was in compliance with such covenants.
24
<PAGE>
In November 1996, the Company acquired all of the outstanding common stock
of PSCI for $4.9 million in an all cash transaction plus an earn-out based on
PSCI's performance for the two months ended December 31, 1996. In January
1997, the Company acquired all of the outstanding capital stock of Leardata
for approximately $17.4 million in cash and $4.0 million in Common Stock. The
Company borrowed $9.5 million under the Credit Agreement to pay a portion of
the cash purchase price of such acquisition. The $9.5 million will be repaid
with a portion of the proceeds of the Offering.
The Company anticipates that its primary uses of working capital in future
periods will be for acquisitions, the internal development of new branches and
the funding of increases in accounts receivable. Although the Company seeks to
use its Common Stock to make acquisitions to the extent possible, a
substantial portion of the purchase price for AD&D and Leardata, and all of
the purchase price for PSCI, was paid in cash. Future acquisition candidates
may also require that all or a significant portion of the purchase price be
paid in cash. The Company's ability to grow through acquisitions is dependent
on the availability of suitable acquisition candidates and the terms on which
such candidates may be acquired, which may be adversely affected by
competition for such acquisitions. The Company cannot predict to what extent
new branches will be added through acquisitions as compared to internal
development.
The Company anticipates that the opening of new branches will require an
investment of approximately $150,000 to $200,000 per branch to acquire
equipment and supplies and to fund operating losses for the initial nine- to
12-month period of operations which management believes will generally be
required for a new branch to achieve profitability. The Company expenses the
costs of opening a new branch as incurred, except for the cost of equipment
and other capital assets, which are capitalized. Generally, expenditures for
such capital assets for a new branch will be less than $50,000. There can be
no assurance that future branches will achieve profitability within a nine- to
12-month period after opening. The Company anticipates making additional
capital expenditures in connection with the development of new branch
facilities in future periods and the improvement of its network and operating
system infrastructure and management reporting system.
The Company believes that the proceeds from the Offering, together with the
existing cash and cash equivalents, cash flow from operations and available
borrowings under the Credit Agreement, will be sufficient to meet the
Company's presently anticipated working capital needs for at least the next 12
months, although the Company is evaluating various potential acquisitions
which could require all or a substantial portion of the net proceeds from the
Offering and could be completed within the next 12 months. To the extent the
Company uses all of its cash resources for acquisitions, the Company may be
required to obtain additional funds, if available, through additional
borrowings or equity financings. There can be no assurance that such capital
will be available on acceptable terms. If the Company is unable to obtain
sufficient financing, it may be unable to implement its growth strategy fully.
25
<PAGE>
BUSINESS
GENERAL
DPRC is a provider of IT staffing services to a diverse group of corporate
clients. By drawing from its carefully screened database of approximately
40,000 highly qualified technical consultants, the Company offers staffing
solutions to meet its clients' enterprise-wide systems applications
development needs. The Company's technical consultants have expertise on
multiple hardware platforms utilizing a wide variety of software applications
and can provide services covering all aspects of the systems applications
development lifecycle, including planning, design, building and programming,
implementation, maintenance and ongoing management. The Company also provides
other value-added services in rapidly growing areas such as client/server
architecture, WANs and LANs, help desk support, intranet and internetworking.
For the 11 months ended November 30, 1996, the Company placed approximately
1,300 technical consultants on projects for approximately 230 clients. The
Company currently serves its clients through the following ten offices in
eight states: Newport Beach, Woodland Hills and San Francisco, California;
Denver, Colorado; Seattle, Washington; Omaha, Nebraska; Kansas City, Kansas;
Des Moines, Iowa; Phoenix, Arizona; and Dallas, Texas.
INDUSTRY OVERVIEW
Over the years, businesses have become increasingly dependent on the use of
IT to manage operations more efficiently and remain competitive. Important
internal functions, ranging from financial reporting to production and
inventory management, have become automated through the use of applications
software. In addition, as information systems have become less expensive, more
powerful and easier to use, the number and level of employees who use and
depend upon these systems have significantly increased.
Due to the rapid development of technology and the shift from closed,
proprietary systems to open systems, many companies' computer systems
incorporate a variety of hardware and software components which may span a
number of technology generations. For example, a company may operate
concurrently on mainframe, midrange and client/server hardware platforms
running a variety of operating systems and relational databases. Systems
applications development has become much more important in this environment as
IT departments strive to integrate a company's information processing
capabilities into a single system while providing for ever-changing
functionality. In addition, in order to facilitate internal and external
communications, there is a greater need for IT personnel with specific
expertise in the rapidly evolving local and wide area networking and
communications technologies. The rapid increase in the integration of data,
voice and video has further accelerated the need for new information solutions
which require specialized technical skills.
The substantial increase in the use of sophisticated information
technologies has occurred at the same time that economic factors have led to
reductions in corporate workforces and a return by businesses to a focus on
their core competencies. Faced with the challenge of implementing and
operating more complex information systems without enlarging their corporate
staffs, businesses are increasingly using IT staffing companies to supplement
their IT operations. Utilizing outside IT technical consultants: (i) allows a
company's management to focus on core business operations; (ii) affords
greater staffing flexibility in IT departments; (iii) increases a company's
ability to adapt to and keep pace with rapidly changing and increasingly
complex technologies; (iv) provides access to specialized technical skills on
a project-by-project basis; (v) better matches staffing levels to current
needs; (vi) converts fixed labor costs into variable costs; and (vii) reduces
the cost of recruiting, training and terminating employees as evolving
technologies require new programming skill sets. These factors have caused IT
services to be one of the fastest growing segments of the supplemental
staffing industry. According to July 30, 1996 Staffing Industry Report,
revenues from technical/computer temporary staffing are estimated to have
grown from $5.7 billion in 1993 to an estimated $9.2 billion in 1995.
While large, the IT staffing services industry is also highly fragmented
with a large number of small businesses, many of which operate in a single
geographic market. This fragmentation, combined with changing client demands
and competitive pressures, has resulted in a recent trend towards industry
consolidation. Faced
26
<PAGE>
with a desire to minimize the number of vendors, clients have begun to demand
the services of large IT staffing companies capable of covering a broad
geographic area and offering a full range of IT services. This has been
particularly important in fulfilling the needs of large regional and national
accounts. Within this more competitive environment, smaller companies may have
difficulties competing due to limited service offerings, geographic
concentration and a lack of sufficient working capital and management
resources. As a result, many smaller companies have been acquired in recent
years, and the Company believes that smaller staffing companies are becoming
increasingly receptive to acquisition proposals by larger firms.
BUSINESS STRATEGY
DPRC is dedicated to providing staffing solutions to meet its clients'
systems applications development and other specialized technical needs. The
Company's business strategy encompasses the following key elements, which
management believes are necessary to ensure high quality standards and to
achieve consistently strong financial performance:
Recruit and Retain Qualified Technical Consultants. A key element of the
Company's success is its ability to recruit and retain qualified technical
consultants. Management believes that it has been successful in doing so by:
(i) offering its technical consultants competitive wages and ensuring that
they are paid accurately and on time; (ii) offering its technical consultants
an opportunity to purchase a comprehensive employee benefits package; and
(iii) effectively and consistently communicating with its technical
consultants. The Company attracts new consultants in its established markets
primarily through referrals from other technical consultants. Management
believes that this reflects a high level of satisfaction of its technical
consultants and results in a turnover rate for technical consultants that is
lower than that of its competition, thus permitting the Company to have lower
recruiting and related administrative costs than its competitors.
Emphasize a Relationship-Oriented Approach. The Company serves as an
extension of its clients' internal information systems operations and as a
long-term partner to fulfill their IT staffing requirements. As a result, the
Company emphasizes a relationship-oriented approach to business, rather than
the transaction- or assignment-oriented approach used by many of its
competitors. This emphasis begins with the Company's Chief Executive Officer
and Senior Vice President, Sales and Marketing, who spend the majority of
their time meeting with key clients, working with the Company's account
managers and communicating with the Company's technical consultants. To
develop close client relationships, the Company's regional managers and
account managers regularly meet with both existing and prospective clients to
help design solutions for and identify the resources needed to execute their
IT strategies. The Company's account managers also maintain close
communications with their clients during each project and on an ongoing basis
after its completion. The Company believes that this relationship-oriented
approach results in greater client satisfaction and reduced business
development expense.
Focus on Improving Margins. The Company constantly seeks opportunities to
enhance its profit margins by offering services for which higher margins can
be obtained and by reducing costs. For example, in recent years the Company
has begun to provide value-added technology practices, such as client/server
architecture, WANs and LANs, help desk support, intranet and internetworking.
In addition, the Company has identified, targeted and expanded to geographic
markets which provide relatively greater profitability than the highly
competitive California market. The Company also actively seeks acquisition
candidates with gross margins that are at least comparable to the Company's
margins. Finally, the Company focuses on enhancing operating efficiencies and
has made a substantial investment in upgrading its automated support systems
in order to improve the efficiency of its accounting, recruiting and marketing
operations.
Provide Comprehensive Solutions. The Company offers responsive, timely and
comprehensive IT staffing solutions for all aspects of the systems
applications development lifecycle and for other specialized technical needs.
The Company believes that this ability to provide staffing for the full range
of such services provides an important competitive advantage. By drawing on
its database of approximately 40,000 highly qualified technical consultants,
the Company provides a wide range of services, including planning, design,
building and
27
<PAGE>
programming, implementation, maintenance and ongoing management. The Company
also works to ensure that its technical consultants have the expertise and
skills needed to keep pace with rapidly evolving information technologies. As
an example of this effort, the Company has co-sponsored a training program
with one of its clients to train both the client's employees and the Company's
technical consultants in the implementation of and support for a sophisticated
new software application program.
Maintain Service-Oriented Corporate Culture. The Company believes that its
service-oriented corporate culture has played an integral part in its success.
Consequently, maintaining this culture is of the highest priority to
management. Central to the Company's philosophy is the recognition that its
success is dependent on providing the highest level of service to both its
clients and its technical consultants. This approach begins with the selective
recruitment of corporate level personnel who exhibit a high degree of
integrity and enthusiasm and who embrace the Company's commitment to service.
This deeply ingrained culture filters down to the Company's technical
consultants through a rigorous screening and recruiting process. The Company's
controlled expansion program is designed to enable it to replicate this
culture and preserve the quality of its service in its new markets.
GROWTH STRATEGY
DPRC's growth strategy is to expand the geographic scope of the Company's
business through internal development and acquisitions and to continue to
develop its existing markets by: (i) adding new clients in the geographic
markets it currently serves; (ii) increasing the range of services it provides
to its existing clients; (iii) attracting and retaining qualified technical
consultants; and (iv) pursuing strategic relationships with non-competing
professional service organizations. Through this growth strategy, the Company
seeks to emerge as a leading IT staffing company.
Geographic Expansion. In 1993, the Company began a geographic expansion
program in California by opening offices in San Francisco and Woodland Hills.
In late 1995, the Company opened its Denver office to serve the Rocky Mountain
region, and in June 1996, the Company opened its Pacific Northwest hub office
in Seattle. In July 1996, the Company acquired AD&D's branch offices in Omaha
and Kansas City which, together with the recently opened office in Des Moines,
constitute the Company's first offices in the North Central region. In
November 1996, the Company acquired Phoenix-based PSCI, and, in January 1997,
the Company acquired Dallas-based Leardata which has a network of technical
consultants which generated revenues in approximately 30 states during the
nine months ended September 30, 1996. The Company believes that its geographic
expansion will enhance its ability to market its services to regional and
national clients, many of which are seeking to work with a limited number of
vendors capable of servicing multiple locations. New geographic markets also
may be less competitive and may present greater opportunities for higher
margins than the Company's core markets in California. In addition, the
Company believes that, through geographic expansion, it will be better able to
establish valuable strategic partnerships with national accounting and
consulting firms and large facility management and data center outsourcing
companies.
The Company believes that it can best expand the geographic scope of its
business through a series of branch offices clustered in networks around
regional hub offices. Strong hub offices will enable the Company to control
its growth, oversee regional operations without significant additional
overhead in each office, centralize administrative functions and ensure that
each office preserves the Company's service-oriented culture. The Newport
Beach office, which also serves as the Company's corporate headquarters, is
the hub for the Company's branches in Woodland Hills and San Francisco; the
Denver hub office serves the Rocky Mountain region; the Seattle hub office
serves the Pacific Northwest region; and the Dallas office serves as the hub
office for the Texas region. A future office in Chicago or Minneapolis is
planned to serve as the regional hub for the North Central region. The Company
believes that these strategically located cities will enable it to expand its
presence quickly and efficiently.
In order to maintain quality control and ensure that the Company's
relationship-oriented approach to client service is adopted by all new
offices, the Company has developed and intends to continue to develop most of
its
28
<PAGE>
new hub offices internally, rather than by acquisition. In selecting locations
for its hub offices, the Company seeks cities with strong and growing
economies, large populations of skilled technical professionals and heavy
concentrations of corporations with sophisticated IT needs. Once the hub
office has demonstrated its ability to meet the Company's quality standards,
branch offices will be added around the hub through acquisitions or by
internal development. Branches typically will be in smaller cities with
significant numbers of middle market companies, healthy economies and
potentially less competitive environments. Although the Company is still in
the preliminary stages of analyzing potential branch office locations, the
Company believes that cities such as Sacramento, San Jose and San Diego will
be suitable candidates for additional branch locations in California; Colorado
Springs and Salt Lake City would be candidates in the Rocky Mountain region;
Boise, Portland and Spokane in the Pacific Northwest region; Chicago, St.
Louis and Minneapolis in the North Central region; and San Antonio, Houston
and Austin in the Texas region.
As part of its growth strategy, the Company continually reviews and
evaluates potential acquisition candidates and believes that there are
significant acquisition opportunities throughout the United States. In
evaluating potential acquisition candidates, the Company seeks profitable IT
staffing companies with a proven management team, a core group of highly
qualified technical consultants, a reputation for quality and an established
client base. The Company also evaluates the cultural fit of an acquisition
candidate as well as the candidate's historical growth rates and financial
results. The Company believes that it is attractive as an acquiror of IT
staffing companies due to: (i) its ability to provide an acquired company with
expanded services and a broader geographic base; (ii) the potential for
certain economies of scale and operating efficiencies; (iii) its financial
strength and visibility as a public company; and (iv) its decentralized
management strategy.
Growth in Existing Markets. In addition to expanding the geographic scope of
its business, the Company is constantly seeking to add new clients in the
geographic markets it currently serves and to increase the range of services
it provides to its existing clients. The addition of new clients in existing
markets enables the Company to utilize more profitably its administrative and
corporate infrastructure. New clients, particularly in new industries, also
permit the Company to diversify its client base and thus reduce its exposure
to fluctuations in industry business cycles. For example, the Company's client
base, which includes clients in both existing and new locations, increased
from approximately 60 clients in fiscal 1992 to approximately 80 clients in
fiscal 1993, approximately 110 clients in fiscal 1994, approximately 150
clients in fiscal 1995 and approximately 210 clients in fiscal 1996. In
addition, the Company continues to add new value-added services as it has done
with client/server architecture, WANs and LANs, help desk support, intranet
and internetworking.
In addition to expanding the geographic scope of its business and adding new
clients and services, the Company's growth strategy is dependent upon the
Company's ability to attract and retain qualified technical consultants in
those markets in which the Company has an established presence as well as less
established markets. Competition for qualified technical consultants has been
and is expected to continue to be intense. The Company's resource managers are
responsible for recruiting and establishing long-term relationships with the
Company's technical consultants. In recognition of the important role which
the resource manager plays in attracting qualified consultants, the Company
has increased the number of its resource managers from eight on January 31,
1996 to 29 on November 30, 1996 through acquisitions, new hirings and
promotions. The Company has also developed and is in the process of
implementing an integrated information system which provides all of its
offices with on-line access to information on existing and prospective
technical consultants.
Finally, the Company also believes that there are significant growth
opportunities in pursuing strategic relationships with non-competing
professional services organizations, particularly national accounting firms,
consulting firms, facility management companies and data center outsourcing
companies. Although it has not historically had such strategic relationships,
the Company is currently serving as a partner through subcontractor
relationships with several such companies and is exploring several other such
opportunities.
CLIENTS
The Company focuses its sales, service and support efforts primarily on
Fortune 500 and other large and mid-sized companies in various industries with
sophisticated IT needs. Although the Company does not have
29
<PAGE>
exclusive arrangements with any clients, it enjoys service arrangements with a
number of companies which qualify DPRC as one of a limited number of approved
service providers.
During fiscal 1996, the Company served approximately 210 clients. The
Company's ten largest clients in fiscal 1996 accounted for 60.3% of the
Company's revenues, with Nissan Motor Corporation accounting for 10.2% of
total revenues. On a pro forma basis, giving effect to the Acquisitions as if
they had occurred at the beginning of fiscal 1996, the Company's ten largest
customers would have represented 37.6% of pro forma revenues in fiscal 1996.
Although the Company's largest clients represent a significant percentage of
its revenues, several of these larger clients have several independent
assignments ongoing at any one time which are administered by separate
subsidiaries or divisions. Technical services are provided to all clients
under contractual arrangements of varying lengths, which are subject to
extension, negotiation or cancellation at any time. Such contracts may include
a confidentiality agreement. In addition, all technical hourly and salaried
consultants are required to sign confidentiality agreements with the Company.
The Company's technical consultants provide services ranging from specific,
minor tasks of short duration to large, complex and integrated assignments
which require a number of technical consultants to be on assignment for
several years. Client systems applications development projects tend to be
long-term in nature, typically lasting nine to 12 months. The Company's other
value-added services are typically of shorter duration, generally lasting
three to six months.
The following table sets forth a list of selected clients during calendar
1996:
<TABLE>
<CAPTION>
AUTOMOBILE MANUFACTURERS ENTERTAINMENT & LEISURE
<S> <C>
American Honda Motor Company Capitol Records
Mazda Motor of America MCA, Inc.
Mitsubishi Motor Sales of
America Princess Cruise Lines
Nissan Motor Corporation USA The Walt Disney Company
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL SERVICES HEALTHCARE OTHER
<S> <C> <C>
The Capital
Group Apria Healthcare Group Electronic Data Systems Corp.
Coldwell Banker FHP International/Pacificare U.S. West
Wells Fargo
Bank Health Net Yamaha Motor Corporation
</TABLE>
The Company believes the primary competitive factors in attracting and
retaining clients are the ability to provide comprehensive staffing solutions
for all aspects of a client's IT needs, develop a strategic partnering
relationship, understand the specific requirements of a given project and
provide carefully screened technical consultants with the appropriate skills
in a timely manner and at competitive prices. The Company constantly monitors
the quality of the services provided by its technical consultants and obtains
feedback from its clients as to their satisfaction with the services provided.
While each client engagement differs, the following examples illustrate the
types of business needs the Company has addressed:
. Regional Healthcare Organization. This HMO's acquisition of two new
dental plans required the integration of their information systems into
the parent company's core management information system. The Company was
requested to provide technical consultants to undertake a business
requirements analysis and conduct joint applications development sessions
which included interviewing end-users throughout ten operational areas,
evaluating findings and making recommendations to this client. The
project manager provided by the Company developed the system design,
which integrated this client's membership, claims and billing functions.
Utilizing the HMO's internal resources, the project manager also
coordinated the programming, testing and implementation of the new
system. This year-long project provided a system that allowed real-time
access to mission critical information through this client's
30
<PAGE>
headquarters and multiple field locations. Due to the success of this
project, the Company has received several additional assignments from this
client.
. Nationwide Restaurant Group. This client required additional support and
maintenance for key elements of its existing legacy systems. The Company
was engaged to provide technical consultants on a fixed-price contract to
provide 24-hour, on-call support for its sales, marketing, finance,
payroll/human resources and point of sale legacy systems. By enhancing
this client's existing mainframe software applications, the team of eight
senior programmer analysts provided by the Company was successful in
reducing the response time and the number of emergency on-call requests.
Although this was initially a one-year project, the Company continued to
provide technical consultants to provide ongoing support services to this
client on a time and materials basis following the completion of the
project.
. International Motorcycle Manufacturer. A new, complex distribution and
warehouse management system was needed to enable this client to provide
timely delivery of parts and supplies to its dealers, improve control
over inventory management practices and better communicate with its
dealer network. The Company was asked to provide technical consultants to
assist in assessing the systems which support certain elements of this
client's operations, including order processing, inventory management,
logistics, facilities utilization and forecasting. The Company provided a
ten-person team to assist in all phases of system definition, design and
implementation. Over the course of this more than three-year engagement,
the team participated in the evaluation, recommendation and subsequent
development of a new client/server based system solution. In addition,
the Company helped to coordinate joint training for both this client's
employees and its own technical consultants in an emerging enterprise-
wide software application package.
THE DPRC OPERATING AND SALES APPROACH
The Company's overall operating approach is designed to ensure the highest
level of client, employee and technical consultant satisfaction. From its
corporate headquarters in Newport Beach, California, the Company provides its
branch offices with centralized administrative, marketing, finance, training
and legal support. Management recognizes, however, that in order to motivate
its employees, to ensure that clients receive quick, responsive service and to
adapt to local market conditions, the Company has developed a decentralized,
entrepreneurial structure with strong regional management and branch managers
who operate each branch office as an autonomous profit center. Consequently,
the Company's regional managers are given significant autonomy to make most
day-to-day operating decisions over their respective hub or regions and are
responsible for: overall guidance and supervision of the region; budgeting and
forecasting for the region; strategy with regard to market and account
penetration; the hiring and training of branch managers; targeting acquisition
candidates; and promoting the DPRC culture within the region.
Under the Company's decentralized management structure, the Company's branch
managers are also given significant autonomy to make most day-to-day operating
decisions and are responsible for: overall guidance and supervision of the
office; budgeting and forecasting for the office; strategy with regard to
market and account penetration; the hiring and training of office staff; and
promoting the DPRC culture within the branch office. While a branch manager is
responsible for most of the administrative functions of running an office, the
majority of a branch manager's time is typically spent on sales and marketing.
In each branch, the Company emphasizes a team-oriented approach in order to
provide high quality customized solutions to meet its clients' information
services needs. The central role in this team-oriented approach is played by
the Company's account managers and resource managers, who work together to
ensure a successful relationship between the client and DPRC's technical
consultants.
The account manager has ultimate responsibility for staffing an assignment
on a timely basis. Upon receiving an assignment, the account manager writes up
a proposal with assignment specifications and distributes the proposal to a
resource manager who is responsible for and has relationships with the
technical consultants who have the expertise required for the assignment. The
account manager reviews the recommended candidates,
31
<PAGE>
submits the resumes of qualified technical consultants to the client and
schedules client interviews of the candidates. Typically, an assignment is
staffed within five working days. Throughout the life of a project, the
account manager monitors the Company's relationship with the client and the
technical consultants to ensure that both constituencies are satisfied with
the success of the assignment. In addition to servicing existing clients,
account managers spend a significant amount of time developing new client
relationships.
Resource managers work with the account manager to staff assignments
appropriately and are responsible for recruiting, assessing and establishing
long-term relationships with the Company's technical consultants. Resource
managers utilize a variety of methods to recruit technical consultants. In
markets where the Company has an established presence, the resource manager
typically obtains a majority of qualified candidates through referrals from
clients and other technical consultants. In less established markets, the
majority of new candidates are persons who have responded to advertisements in
local newspapers or furnished the Company a resume via the internet. Resource
managers also recruit technical consultants by attending meetings of local
technology-specific user groups and trade shows, making cold calls and
advertising in the yellow pages.
Resource managers prescreen all candidates through telephonic interviews and
conduct follow-up interviews to assess each candidate's technical and
interpersonal skills, work ethic and overall character. A minimum of three
references are obtained for each candidate and additional background checks
may be conducted. In some cases, the candidate is also given a technical exam
by one of several specialists retained by the Company to assess more
accurately the candidate's technical qualifications. If the candidate meets
the Company's standards, the candidate's profile is finalized and entered into
the Company's database as an available technical consultant. All offices have
on-line access to information contained in this database. Unlike some of its
competitors who recommend a large number of candidates, some of whom may be
inappropriate, the Company generally recommends only two or three carefully
selected candidates for each available position. Management believes that its
clients value the selective screening role played by the Company.
Management believes that one of the primary factors in the Company's success
has been its ability to attract and manage qualified technical consultants who
are compensated on either an hourly or salaried basis. The Company recently
began hiring more full-time salaried consultants in certain branches where the
local market conditions favor the hiring of full-time consultants over hourly
consultants. Full-time salaried technical consultants receive a broader range
of company-paid benefits than hourly consultants. Given the sophisticated
nature of most client assignments, the Company's policy is to utilize
technical consultants with substantial employment experience rather than
entry-level or college graduate-level consultants. For the 11 months ended
November 30, 1996, the Company placed approximately 1,300 technical
consultants with approximately 230 different clients and as of November 30,
1996, approximately 950 technical consultants were on assignment.
COMPETITION
The IT staffing industry is highly competitive. The Company competes for
both clients and qualified technical consultants with a variety of companies,
including other IT staffing companies, national and regional accounting and
management consulting firms and independent contractors. Several traditional
staffing companies, which have historically emphasized the placement of
clerical and other less highly skilled personnel on short-term assignments,
have begun to provide IT services competitive with those provided by the
Company. The Company also competes for technical consultants with the IT
staffs of its clients and potential clients. In addition, as part of the
Company's growth strategy, the Company competes with other staffing companies
for suitable acquisition candidates.
Several of the Company's competitors are substantially larger than the
Company and have greater financial and other resources. Several of such
competitors have also been in business much longer than the Company and have
significantly greater name recognition throughout the United States, including
the geographic areas in which the Company operates and into which it intends
to expand. Because companies are often able to meet a broader range of a
client's temporary personnel needs and serve a broader geographic range than
the Company, they are better able to compete for national accounts.
32
<PAGE>
The Company believes that the primary competitive factors in obtaining and
retaining clients are the ability to provide comprehensive staffing solutions
for all aspects of a client's IT needs, develop a strategic partnering
relationship, understand the specific requirements of a given project and
provide carefully screened technical consultants with the appropriate skills
in a timely manner and at competitive prices. The primary competitive factors
in attracting and retaining qualified candidates for technical consultant
positions are the ability to offer competitive wages, pay such wages in a
consistent and timely manner and provide a consistent flow of high quality and
varied assignments. While the Company believes that it can compete favorably
with its existing and future competitors, there can be no assurance that the
Company will be successful in doing so.
EMPLOYEES
As of November 30, 1996, approximately 950 technical consultants
(approximately 660 hourly and 290 salaried) were working on full-time
assignments for the Company's clients of which approximately 70 were
independent contractors. After giving effect to the Leardata Acquisition, the
Company's corporate and branch staffs consist of 107 full-time employees and 7
part-time employees. The Company is not a party to any collective bargaining
agreements and considers its relationships with its employees to be good.
Approximately 90.9% of the technical consultants placed by the Company
during fiscal 1996 were treated as employees of the Company for federal and
state tax purposes. For such employees, the Company pays Social Security Taxes
(FICA), federal and state unemployment taxes, workers' compensation insurance
premiums, certain employees benefits and other employee costs. The remainder
of the technical consultants were treated as independent contractors for
federal and state tax purposes.
FACILITIES
The Company's principal executive offices are currently located in Newport
Beach, California and occupy approximately 11,900 square feet of office space
pursuant to a lease that expire in January 2000. The Company's branch offices
range in size from 1,400 square feet to 9,200 square feet and are subject to
leases which expire at various times from January 1997 through September 2001.
LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of its business. As of the date of this Prospectus, there are
no material legal proceedings pending against the Company.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- -----------------------------------------------------------
<S> <C> <C>
Mary Ellen Weaver....... 45 Chairman of the Board, Chief Executive Officer and Director
David M. Connell........ 52 President, Chief Operating Officer and Director
Michael A. Piraino...... 43 Senior Vice President and Chief Financial Officer
Richard E. Earley....... 51 Senior Vice President, Sales and Marketing
Phoebe Stenton.......... 54 Vice President, Corporate Services
J. Christopher Lewis
(1)(2).................. 40 Director
Li-San Hwang (1)........ 61 Director
JoAnn W. Wagner (2)..... 57 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Mary Ellen Weaver has served as Chairman of the Board and Chief Executive
Officer of the Company since February 1994 and served as President of the
Company from May 1989 to September 1994. Ms. Weaver also served as Chief
Financial Officer of the Company from December 1989 to February 1994 and as
Vice President from 1985 to May 1989. Ms. Weaver has been a director of the
Company since September 1985. Prior to joining the Company, Ms. Weaver was
employed by XXCAL, Inc., EG&G, Inc. and Thomas Temporaries.
David M. Connell has served as President and Chief Operating Officer of the
Company since September 1994 and as director since March 1995. From October
1993 to September 1994, Mr. Connell provided consulting services to the
Company. Prior to his service with the Company, Mr. Connell was engaged by
Welsh, Carson, Anderson & Stowe, an investment fund which specializes in
acquiring information services companies and healthcare companies, to manage
the following portfolio companies: from June 1990 to July 1993, Mr. Connell
served as Chairman and Chief Executive Officer of Specialized Mortgage
Services, Inc., an information services company; from 1988 to 1990, he served
as Chairman and Chief Executive Officer of Wold Communications, Inc., which
became Keystone Communication, Inc. as a result of a merger with Bonneville
Satellite Communications, Inc.; and from 1985 to 1988, Mr. Connell served as
Chairman and Chief Executive Officer of a systems integration subsidiary of
Decision Data Computer Corporation. In each of these three prior positions,
Mr. Connell formulated and implemented merger and acquisition growth
strategies for the companies in addition to being responsible for overall
operations.
Michael A. Piraino joined the Company as Senior Vice President and Chief
Financial Officer in January 1996. Prior to joining the Company, Mr. Piraino
had served as Executive Vice President, Director and Chief Development Officer
of Urohealth Systems, Inc. from October 1994. From July 1993 to October 1994,
Mr. Piraino served as Senior Vice President and Chief Financial Officer of
Syncor International Corporation. Mr. Piraino served as Senior Vice President
and Chief Financial Officer of Total Pharmaceutical Care, Inc. from May 1989
to June 1993. Mr. Piraino began his career with a national accounting firm. He
is a certified public accountant.
Richard E. Earley joined the Company as Senior Vice President, Sales and
Marketing in March 1996. Prior to joining the Company, since February 1992,
Mr. Earley served as the General Manager of the National Business Unit of DRT
Systems International, a subsidiary of Deloitte & Touche LLP which provides
data processing consulting services. From September 1988 to January 1992, Mr.
Earley served as Chief Operating Officer for Unitech Systems, a utility
software firm.
34
<PAGE>
Phoebe Stenton joined the Company in May 1995 as Corporate Services Manager
and was promoted to Vice President, Corporate Services in December 1995. Prior
to joining DPRC, Ms. Stenton was employed as Controller of Nationwide
Construction Co. from February 1995 to May 1995. Prior to such employment,
Ms. Stenton was employed for 14 years by Mission Equity, a privately held
company engaged in property management, construction management and real
estate development. Ms. Stenton is a member of the Board of Directors of
Saddleback College Foundation.
J. Christopher Lewis was elected a director of the Company in March 1995.
Since 1982, Mr. Lewis has been a general partner of Riordan, Lewis & Haden, a
Los Angeles based partnership which invests in management buy-out and venture
capital transactions. Mr. Lewis also serves as a director of California Beach
Restaurants, Inc., Tetra Tech, Inc. and several private companies.
Li-San Hwang was elected a director of the Company in May 1995. Dr. Hwang is
currently the President, Chief Executive Officer and a director of Tetra Tech,
Inc., a publicly-traded environmental engineering consulting firm which he
joined in 1967.
JoAnn W. Wagner was elected a director of the Company in September 1995.
Since January 1994, she has been self-employed as the owner and manager of
Wagner Land and Cattle, a livestock ranching business, and as an independent
consultant. From January 1991 to December 1993, Ms. Wagner served as Vice
President of Market Development for Interim Services, Inc., a staffing
company. From April 1987 to January 1991, Ms. Wagner served as the President
of ISC Subsidiary Corporation, a staffing company, and as a director of its
parent company, Interim Systems Corporation, a publicly-traded corporation
engaged in the temporary staffing business, which was acquired by H&R Block,
Inc. in 1991. Ms. Wagner is currently a director of SOS Staffing Services,
Inc., a publicly-traded temporary staffing company.
All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. The current directors
were elected at the December 17, 1996 annual meeting of the shareholders of
the Company. Officers are appointed by the Board of Directors and serve at the
discretion of the Board.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board of Directors established the Audit Committee in
1995 to: make recommendations concerning the engagement of independent public
accountants; review with the independent public accountants the plans for and
scope of the audit, the audit procedures to be utilized and results of the
audit; approve the professional services provided by the independent public
accountants; review the independence of the independent public accountants;
and review the adequacy and effectiveness of the Company's internal accounting
controls. Mr. Lewis and Dr. Hwang are the members of the Audit Committee.
Compensation Committee. The Board of Directors established the Compensation
Committee in 1995 to determine compensation for the Company's executive
officers and to administer the Company's 1994 Stock Option Plan. Mr. Lewis and
Ms. Wagner are the members of the Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board, prior to the formation of the Compensation Committee in
late 1995, established levels of compensation for the Company's executive
officers. Ms. Weaver and Mr. Connell participated in deliberations of the
Board regarding executive compensation prior to the establishment of the
Compensation Committee. The Company's Compensation Committee, which was
established during fiscal 1996, consists of Mr. Lewis and Ms. Wagner. Neither
Mr. Lewis nor Ms. Wagner was at any time during fiscal 1995 or fiscal 1996 or
at any other time an officer or employee of the Company. There are no
compensation committee interlocks between the Company and other entities
involving the Company's executive officers and Board members who serve as
executive officers or Board members of such other entities.
35
<PAGE>
DIRECTOR COMPENSATION
Each director of the Company who is not an officer or employee of the
Company is entitled to receive $1,200 for each meeting of the Board of
Directors attended by such director. In addition, directors of the Company are
reimbursed for their reasonable out-of-pocket expenses in connection with
their travel to and attendance at the meetings of the Board of Directors. Mr.
Lewis has waived his right to receive such compensation. In lieu of receiving
such compensation, Dr. Hwang and Ms. Wagner were each granted options to
purchase 3,600 shares of Common Stock. Dr. Hwang's options were granted on
June 1, 1995 with an exercise price of $2.25 per share. Ms. Wagner's options
were granted on January 15, 1996 with an exercise price of $9.00 per share.
The options have a two-year vesting schedule, with 1,200 shares vested on the
date of grant, and 1,200 shares vesting on each successive annual anniversary
date of such grants. All such options will become immediately vested upon a
sale of substantially all of the Company's assets or the dissolution of the
Company. Such options are exercisable until May 31, 2005 for Dr. Hwang's
options and until January 14, 2006 for Ms. Wagner's options.
COMPENSATION
The following table sets forth all compensation for services rendered to the
Company in all capacities for each of the fiscal years in the two-year period
ended July 31, 1996 by the Chief Executive Officer and each person serving as
an executive officer of the Company at July 31, 1996 whose salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation Awards
----------------- ---------------------
Name and Principal Salary Securities Underlying All Other
Position Year (1) Bonus Options Compensation (2)
- ------------------------ ---- -------- -------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Mary Ellen Weaver....... 1996 $225,000 $ 27,000 -- --
Chairman of the Board 1995 743,047 189,649(3) -- --
and Chief Executive
Officer
David M. Connell........ 1996 174,000 38,920 25,000 --
President and Chief
Operating Officer 1995 147,900 228,382(3) 255,200 --
Michael A. Piraino...... 1996 80,774 12,000 80,000 --
Senior Vice President 1995 N/A N/A N/A N/A
and Chief Financial
Officer and Secretary
Richard E. Earley....... 1996 58,850 -- 80,000 --
Senior Vice President,
Sales and Marketing 1995 N/A N/A N/A N/A
</TABLE>
- --------
(1) Amounts shown include compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers.
(2) The aggregate amount of all other compensation does not exceed the lesser
of either $50,000 or 10% of the total annual salary and bonus for each
such officer.
(3) A substantial portion of these bonuses were paid in fiscal 1996.
EMPLOYMENT AGREEMENTS
Ms. Weaver has a four-year employment agreement which terminates on July 31,
1999. Under her employment agreement as in effect for fiscal 1996, Ms. Weaver
received a base salary of $225,000 and an annual incentive bonus of up to
$225,000. Effective August 1, 1996, Ms. Weaver's employment agreement was
amended to reduce her base salary to $125,000 per year. No change was made in
the provisions governing her incentive bonus. The incentive bonus is based
primarily on the achievement of certain financial objectives and,
36
<PAGE>
to a lesser extent is subject to the discretion of the Board. The Company may
terminate Ms. Weaver's employment with or without cause. In the event her
employment is terminated without cause, Ms. Weaver is entitled to receive her
base salary and certain benefits for up to 24 months and is entitled to
receive a prorated incentive bonus through the date of termination. Ms.
Weaver's employment agreement also includes certain non-competition
agreements, confidentiality agreements and indemnification agreements.
Effective November 26, 1996, Ms. Weaver was granted an option to purchase
54,000 shares of Common Stock under the Company's 1994 Stock Option Plan. The
option has an exercise price of $16.88 per share and vests over two years in
eight equal quarterly installments.
Mr. Connell also has a four-year employment agreement. His base salary is
$174,000, and he is also able to earn an incentive bonus of up to 100% of his
base salary under an incentive plan based primarily on the achievement of
specified financial objectives. In the event Mr. Connell's employment is
terminated without cause, he is entitled to receive his base salary and
certain benefits for up to 18 months and a prorated incentive bonus through
the date of termination. Effective November 26, 1996, Mr. Connell was granted
an option to purchase 28,000 shares of Common Stock under the Company's 1994
Stock Option Plan. This option has an exercise price of $16.88 per share and
vests over two years in eight equal quarterly installments.
Messrs. Piraino and Earley each have employment agreements which terminate
on December 31, 1997 and provide for a base salary of $150,000 and an
incentive plan identical to Mr. Connell's under which they are able to earn up
to 100% of their base salary. In addition, Mr. Earley will be entitled to
receive a commission based on his achievement of certain goals. In the event
of termination without cause, Messrs. Piraino and Earley are entitled to
receive their base salary and certain benefits for up to six months and a
prorated incentive bonus through the date of termination. Effective November
26, 1996, Mr. Piraino was granted an option to purchase 24,000 shares of
Common Stock under the Company's 1994 Stock Option Plan. This option has an
exercise price of $16.88 per share and vests over two years in eight equal
quarterly installments. Effective November 26, 1996, Mr. Earley was granted an
option to purchase 23,000 shares of Common Stock under the Company's 1994
Stock Option Plan at an exercise price of $16.88 per share. This option vests
over two years in eight equal quarterly installments.
STOCK OPTIONS
The following table sets forth information concerning each grant of stock
options made during fiscal 1996 to each of the Named Executive Officer.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants for Option Term (1)
--------------------------------------------- -------------------
Number of Percent of
Shares Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted Period Per Share Date 5% 10%
----------------------- ---------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mary Ellen Weaver....... -- -- -- -- -- --
David M. Connell (2).... 25,000 6.3% $ 9.00 1/14/06 $141,501 $ 358,592
Michael A. Piraino (3).. 80,000 20.2 9.00 1/14/06 452,804 1,147,495
Richard E. Earley (3)... 80,000 20.2 14.00 3/04/06 704,362 1,784,992
</TABLE>
- --------
(1) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years). It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option.
37
<PAGE>
(2) The options granted to Mr. Connell are subject to vesting over a four-year
period. Of his options, 25% will become exercisable on January 15, 1997
and the remaining 75% vest in equal quarterly installments thereafter over
the three years ending January 15, 2000. Mr. Connell's options become
immediately exercisable upon the sale of substantially all of the
Company's assets, a merger or consolidation in which the Company is not
the consolidated or surviving corporation or any acquisition of 35% or
more of the outstanding shares of Common Stock by any person.
(3) Messrs. Piraino's and Earley's options become immediately exercisable upon
the sale of substantially all of the Company's assets, a merger or
consolidation in which the Company is not the consolidated or surviving
corporation or any acquisition of 35% or more of the outstanding shares of
Common Stock by any person.
The following table sets forth the number and value as of July 31, 1996 of
shares underlying unexercised options held by each of the Named Executive
Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options as of July 31, In-the-Money Options as
1996 of July 31, 1996 (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mary Ellen Weaver........ -- -- -- --
David M. Connell (2)..... 132,550 136,650 $2,212,260 $2,088,439
Michael A. Piraino....... -- 80,000 -- 720,000
Richard E. Earley........ -- 80,000 -- 320,000
</TABLE>
- --------
(1) Based on the fair market value (the closing price for the Company's Common
Stock as reported on the Nasdaq National Market as of July 31, 1996 ($18
per share)), less the exercise price payable upon exercise of such
options.
(2) 244,200 of the 269,200 options granted to Mr. Connell are subject to
vesting over a three and one-half year period. Of such options, 25% became
exercisable on March 1, 1995 and the remaining 75% vest in equal quarterly
installments thereafter over the three years ending March 1, 1998. The
remaining 25,000 options granted to Mr. Connell vest and became
exercisable as set forth in the Fiscal Year-End Option Values Table. All
Mr. Connell's options become immediately exercisable upon sale of
substantially all of the Company's assets, a merger or consolidation in
which the Company is not the consolidated or surviving corporation or any
acquisition of 35% or more of the outstanding shares of Common Stock by
any person.
1994 STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "1994 Plan") permits option grants
to employees, directors, officers and consultants of the Company in order to
further the growth, development and financial success of the Company. The 1994
Plan provides for the grant of incentive stock options and non-statutory stock
options. The Company has reserved 1,227,800 shares of Common Stock for
issuance upon the exercise of options granted under the 1994 Plan. The 1994
Plan is administered by the Compensation Committee of the Board of the
Company. The Compensation Committee has discretion to determine which eligible
individuals are to receive option grants, the number of shares subject to each
such grant, the status of any granted option as either an incentive stock
option or a non-statutory option, and the vesting schedule to be in effect for
the option grant. The maximum term of options granted under the 1994 Plan is
ten years, subject to earlier termination following an optionee's cessation of
service with the Company. Options granted under the 1994 Plan are non-
transferable and generally expire 30 days after the termination of an
optionee's service to the Company. If a holder of an option is permanently
disabled or dies during his or her service to the Company, such option
generally may be exercised up to one year (90 days for death) following such
disability or death. Subject to certain restrictions, the Board may amend or
modify the 1994 Plan at any time. The 1994 Plan will terminate on December 31,
2004, unless sooner terminated by the Board.
38
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
On October 1, 1996, the Company adopted an Employee Stock Purchase Plan
("ESP Plan"). The ESP Plan allows employees of the Company to purchase Common
Stock without having to pay any commissions on the purchases. The maximum
amount that any employee can contribute to the ESP Plan per quarter is $6,250,
and the total number of shares which are reserved by the Company for purchase
under the ESP Plan is 250,000.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws require the Company to indemnify its directors and
officers to the fullest extent permitted by California law against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
any such person is or was a director or officer of the Company. The Company is
also required to advance to such director or officer expenses incurred in
defending any such proceeding, to the maximum extent permitted by such law.
The Company's Bylaws also provide that the Board, in its discretion, may
provide for indemnification or advance of expenses to other agents of the
Company. The Company is also authorized under its Articles of Incorporation
and Bylaws to enter into indemnification contracts with its directors,
officers, employees and agents, and indemnification agreements were entered
into with all of the Company's officers and directors prior to the completion
of the IPO, which closed on March 11, 1996. The Company has purchased
liability insurance covering its directors and officers.
In addition, the Company's Articles of Incorporation provide that the
liability of the Company's directors for monetary damages will be eliminated
to the fullest extent permissible under California law. This provision in the
Articles of Incorporation does not eliminate a director's duty of care to the
Company, and in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief would remain available under
California law. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
To the extent the Board or the shareholders of the Company may in the future
wish to limit or repeal the ability of the Company to provide indemnification
as set forth in the Company's Articles of Incorporation or Bylaws, such repeal
or limitation may not be effective as to directors and officers who are
parties to the indemnification agreements, because their rights to full
protection would be contractually assured by the indemnification agreements.
It is anticipated that similar contracts may be entered into, from time to
time, with future directors of the Company.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
CERTAIN TRANSACTIONS
In March 1995, RLH, through a partnership of which it is the general
partner, purchased 1,480 shares of the Company's Series A Convertible
Preferred Stock for aggregate consideration of $1.6 million. This partnership
concurrently purchased 1,066,000 shares of Common Stock from Ms. Weaver for
aggregate consideration of $2.4 million. The shares of Series A Convertible
Preferred Stock held by RLH were automatically converted into 592,000 shares
of Common Stock immediately prior to the consummation of the IPO. Following
the consummation of these transactions, Mr. Lewis became a director of the
Company. Mr. Lewis is a general partner of RLH. The partnership managed by RLH
can require the Company to register the shares of Common Stock purchased from
Ms. Weaver and the shares of Common Stock issuable upon conversion of the
shares of Series A Convertible Preferred Stock for resale at any time after
March 11, 1997. Dr. Hwang, also a director, is a limited partner of the
investment partnership managed by RLH which owns shares of Common Stock.
39
<PAGE>
In connection with the March 1995 financing transactions, Ms. Weaver and the
partnership managed by RLH entered into certain agreements with respect to the
election of directors, future sales of capital stock by the Company and sales
of stock by Ms. Weaver and such partnership. All such agreements were
terminated upon the completion of the IPO.
The Company used the proceeds from the sale of the Series A Convertible
Preferred Stock and from borrowings under a five-year credit agreement (the
"Former Credit Agreement") to: (i) repay $2.3 million outstanding under the
Company's then existing credit facility, which represented all of the
Company's obligations thereunder; (ii) pay all unpaid principal and interest
in the amount of $4.4 million under a promissory note which was personally
guaranteed by Ms. Weaver; and (iii) repay outstanding indebtedness owed to
Ms. Weaver in the amount of $1.4 million.
In February 1994, the Company repurchased all of the shares of outstanding
Common Stock not owned by Ms. Weaver. The purchase price of approximately $4.8
million was paid by means of a promissory note which was personally guaranteed
by Ms. Weaver. The Company also repaid the remaining balance of $275,000 of a
promissory note held by such other shareholder. In connection with this
transaction, such other shareholder, his wife and an affiliated company
entered into a five-year non-competition agreement with DPRC.
In fiscal 1994, one of the Company's larger clients desired to outsource its
entire information systems department through an employee leasing arrangement
which would not adversely affect the employment package for the personnel
staffing such department. Because DPRC does not provide such employee leasing
services and was unable to provide a comparable employment package to
consultants working for this company, a separate company, Information
Technology Resources, Inc. ("ITR"), was formed by Ms. Weaver and certain other
persons, including certain former employees of the client, with Ms. Weaver
owning 75.6% of the outstanding capital stock. As a result of this
arrangement, the Company provides certain management services to ITR to
support its operations, for which the Company receives a management fee.
Management fees received by DPRC were $482,000, $934,000, $1.1 million,
$263,000 and $300,000 for fiscal 1994, 1995 and 1996 and the three months
ended October 31, 1995 and 1996, respectively. The management fees paid to
DPRC have historically represented in excess of 90% of ITR's profit before
such management fees. As part of the services provided to ITR, the Company
from time to time makes advances to ITR to assist it with its working capital
needs. These advances, which historically have ranged in amounts outstanding
at any time up to $520,000, are provided on a short-term, unsecured basis, do
not bear interest and had a balance of $0, $240,000, $0, $0 and $0 as of July
31, 1994, 1995 and 1996 and October 31, 1995 and 1996, respectively. ITR also
contracts with DPRC for technical consultants to meet its staffing needs.
Revenues from the billings of technical consultants to ITR were $1.0 million,
$3.7 million, $5.0 million, $1.4 million and $1.0 million for fiscal 1994,
1995 and 1996 and the three months ended October 31, 1995 and 1996,
respectively. The Company also had trade accounts receivable for technical
consultants due from ITR of $162,000, $397,000, $133,000, $735,000 and
$458,000 as of July 31, 1994, 1995 and 1996 and October 31, 1995 and 1996,
respectively. Management believes that the terms of DPRC's relationship with
ITR, taken as a whole, are no less favorable to DPRC than could be obtained in
a transaction with an unrelated third party and that the management services
arrangement with ITR is at least as profitable to the Company as if the
Company were to provide services to ITR's client directly. Receivables from
affiliates includes a receivable from ITR related to these management
services, which amounted to $79,000, $104,000, $52,000 and $89,000 as of July
31, 1995 and 1996 and October 31, 1995 and 1996, respectively.
In March 1995, Ms. Weaver and RLH pledged all of the outstanding shares of
capital stock of the Company to the senior lender as security for the
Company's obligations under its senior credit facility. Such pledge was
terminated on August 30, 1996 when the Former Credit Agreement was terminated.
40
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 1, 1996 (assuming the
Leardata Acquisition had been completed as of that date) and as adjusted to
reflect the sale by the Company and the Selling Shareholder of the shares of
Common Stock being offered hereby by: (i) each person (or group or affiliated
persons) who is known by the Company to own beneficially more than 5% of the
Company's Common Stock; (ii) each of the Company's directors; (iii) the
Company's Chief Executive Officer and each of the other Named Executive
Officers; and (iv) the Company's directors and executive officers as a group.
Except as indicated in the footnotes to this table, the persons named in the
table, based on information provided by such persons, have sole voting and
sole investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
Beneficial
Beneficial Ownership Number Ownership
Prior to the of Shares After the
Offering to be Sold Offering (1)
-------------------- in the --------------------
Shares Percentage Offering Shares Percentage
--------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mary Ellen Weaver (2)..... 2,635,000 33.8% 200,000 2,435,000 24.8%
David M. Connell (2)(3)... 170,700 2.1 -- 170,700 1.7
Michael A. Piraino (2)(4). 21,000 * -- 21,000 *
Richard E. Earley (2)..... -- * -- -- *
Riordan, Lewis & Haden (5)
300 South Grand Avenue,
29th Floor
Los Angeles, CA 90071.... 1,658,000 21.2 -- 1,658,000 16.9
J. Christopher Lewis (5)
c/o Riordan, Lewis &
Haden
300 South Grand Avenue,
29th Floor
Los Angeles, CA 90071.... 1,658,000 21.2 -- 1,658,000 16.9
Li-San Hwang (3)(6)
c/o Tetra Tech, Inc.
630 N. Rosemead Blvd.
Pasadena, CA 91107....... 2,400 * -- 2,400 *
JoAnn W. Wagner (7)
2529 Weld County Road,
No. 21
Lupton, CO 80621......... 4,900 * -- 4,900 *
All directors and
executive officers as a
group
(7 persons).............. 4,492,000 56.2% 200,000 4,292,000 42.9%
</TABLE>
- --------
*Less than 1%.
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) The address of such persons is c/o Data Processing Resources Corporation,
4400 MacArthur Blvd., Suite 600, Newport Beach, CA 92660.
(3) Represents shares issuable upon exercise of options which are exercisable
as of, or will become exercisable within 60 days of December 1, 1996.
(4) Includes 20,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of December
1, 1996.
(5) Shares are owned by RLH DPRC Partners, L.P., a partnership managed by RLH.
Mr. Lewis, a director of the Company, and Patrick C. Haden may be deemed
to share voting and investment power with respect to all such shares as
the sole general partners of RLH. No other person has voting power or
investment power with respect to such shares. Messrs. Lewis and Haden do
not own any shares directly.
(6) Dr. Hwang is a limited partner of the partnership managed by RLH which
owns shares of the Company but Dr. Hwang has no voting or investment power
with respect to the shares of the Company owned by such partnership.
(7) Includes 2,400 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of December
1, 1996.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Common Stock and the
Preferred Stock of the Company does not purport to be complete and is subject
to, and qualified in its entirety by, the Articles of Incorporation and Bylaws
of the Company that are included as exhibits to the Registration Statement of
which this Prospectus forms a part and the provisions of applicable law.
COMMON STOCK
The Company has 20,000,000 authorized shares of Common Stock, of which
7,492,321 shares were outstanding as of January 6, 1997. The holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the shareholders. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of the Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and preferences
applicable to the holders of any then outstanding Preferred Stock. Holders of
Common Stock have no preemptive rights and no right to convert their Common
Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
the Offering will be, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to the terms of any
series of Preferred Stock which the Company may issue in the future.
PREFERRED STOCK
The Company has 2,000,000 authorized shares of Preferred Stock. No shares of
Preferred Stock are outstanding. The Board has the authority without any
further action by the Company's shareholders to issue any or all of the
authorized shares of Preferred Stock in one or more series and to establish
the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. The issuance of
Preferred Stock could adversely affect the holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of
the Company. The Company has no present plans to issue any shares of Preferred
Stock. See "Risk Factors -- Ability to Issue Preferred Stock Without Further
Shareholder Approval."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is U.S.
Stock Transfer Corporation.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have an aggregate of
9,802,547 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option, or of options outstanding under the
Company's stock option plan or of warrants). Of these shares, the 2,200,000
shares sold in the Offering will be freely tradeable without restriction under
the Securities Act, unless purchased by "affiliates" of the Company, as that
term is defined in Rule 144 of the Securities Act.
The holders of 4,296,500 shares, including all executive officers and
directors, the Selling Shareholder and RLH, have agreed not to offer, sell or
otherwise dispose of any of their shares of Common Stock for a period of 90
days from the date of this Prospectus without the prior written consent of
Montgomery Securities. See "Underwriting."
Following the expiration of the 90-day period, the 2,435,000 shares held by
Ms. Weaver and the 1,658,000 shares held by RLH may be sold pursuant to Rule
144. In addition, subject to the 90-day lock-up agreement described above, RLH
has certain "demand" registration rights, pursuant to which RLH can require
the Company, at any time after March 11, 1997, but not on more than two
occasions, to use its best efforts to register at least a majority of RLH's
then outstanding registrable securities under the Securities Act of 1933. RLH
also has certain "piggy-back" registration rights to include the shares owned
by it in certain other registered offerings of securities by the Company or
other shareholders of the Company. Beginning July 1997, ADD Consulting, Inc.
has similar demand and "piggy-back" registration rights with respect to the
152,121 shares of Common Stock issued to it in the AD&D Acquisition, and such
shares will become eligible for resale under Rule 144 on July 1, 1998.
The Company recently issued 310,226 shares of Common Stock to the
stockholders of Leardata in connection with the Leardata Acquisition and
granted certain "piggy-back" registration rights commencing July 1, 1997 in
connection therewith. In addition, the Company has agreed to file a "shelf"
registration statement covering resales of such shares by October 1, 1997 and
to keep such registration effective, subject to certain limitations, for up to
one year or until such shares have been sold. Such shares will become eligible
for resale under Rule 144 on January 7, 1999. To the extent the Company issues
additional shares of Common Stock in other acquisitions, such shares will
become eligible for future sale at various times, either under Rule 144 or in
registered sales pursuant to the exercise of registration rights.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least two years, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of: (i) 1% of the then outstanding shares of the Company's
Common Stock (approximately 98,025 shares immediately after the Offering); or
(ii) the average weekly trading volume in the over-the-counter market during
the four calendar weeks immediately preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale,
notice and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned restricted securities for at
least three years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above. The Securities and Exchange
Commission has published a notice of rulemaking that, if adopted, as proposed,
would shorten the two-year holding periods under Rule 144 to one year and
would shorten the three-year holding period under Rule 144(k) to two years.
The Company cannot predict whether such amendments will be adopted.
The Company has registered under the Securities Act of 1933 1,227,800 shares
of Common Stock reserved for issuance under the 1994 Plan and an additional
250,000 shares of Common Stock reserved for issuance under the ESP Plan. As of
November 30, 1996, options covering an aggregate of 811,720 shares of Common
Stock had been granted under the 1994 Plan.
43
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement"), by and among the Company, the Selling Shareholder
and the Underwriters, to purchase from the Company and the Selling Shareholder
the number of shares of Common Stock indicated below opposite their respective
names, at the public offering price less the underwriting discount set forth
on the cover page of this Prospectus. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters are committed to purchase all of the
shares of Common Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Montgomery Securities..............................................
Robert W. Baird & Co. Incorporated.................................
Lehman Brothers Inc................................................
---------
Total............................................................ 2,200,000
=========
</TABLE>
The Underwriters have advised the Company and the Selling Shareholder that
they propose initially to offer the Common Stock to the public on the terms
set forth on the cover page of this Prospectus. The Underwriters may allow
selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the Offering, the public
offering price and other selling terms may be changed by the Underwriters. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
The Company and the Selling Shareholder have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 280,000 and 50,000 additional
shares of Common Stock, respectively, to cover over-allotments, if any, at the
same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such over-allotment
option, the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholder will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company, the Selling Shareholder and the Company's officers and
directors who are also shareholders of the Company and who, immediately
following the Offering (assuming no exercise of the Underwriters' over-
allotment option) collectively will beneficially own an aggregate of 4,096,500
shares of Common Stock, have agreed that for a period of 90 days after the
effective date of the Offering they will not, without the prior written
consent of Montgomery Securities, directly or indirectly offer for sale, sell,
solicit an offer to sell, contract or grant an option to sell, pledge,
transfer, establish an open put equivalent position or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock. The Company has also agreed not to issue, offer, sell, grant options to
purchase or otherwise dispose of any of the Company's equity securities or any
other securities convertible into or exchangeable with its Common Stock for a
period of 90 days after the effective date of the Offering without the prior
written consent of Montgomery Securities, subject to limited exceptions
including any shares of Common Stock issued to selling parties in connection
with acquisitions and grants and exercises of stock options. In evaluating any
request for a waiver of the 90 day lock-up period, the Underwriters would
consider, in accordance with their customary practice, all relevant facts and
circumstances at the time of the request, including, without limitation, the
recent trading market for the Common Stock, the size of the request and, with
respect to a request by the Company to issue additional equity securities, the
purpose of such an issuance. See "Shares Eligible for Future Sale."
44
<PAGE>
In connection with the Offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock
immediately prior to the commencement of sales in the Offering, in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934 (the "Exchange
Act"). Passive market making consists of, among other things, displaying bids
on the Nasdaq National Market limited by the bid prices of independent market
makers and purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading
volume in the Common Stock during a specified prior period and all possible
market-making activity must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced may be
discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
Common Stock offered hereby will be passed upon for the Company by Riordan &
McKinzie, a Professional Law Corporation, Orange County, California. Certain
attorneys of Riordan & McKinzie, a Professional Law Corporation, are limited
partners in a partnership managed by RLH, which holds 1,658,000 shares of
Common Stock. Such attorneys, in the aggregate, hold approximately 11.9% of
the limited partnership interests in such partnership. In addition, certain
attorneys of Riordan & McKinzie, a Professional Law Corporation, in the
aggregate, held, as of December 18, 1996, 2,000 shares of Common Stock
purchased in the public market. Certain legal matters in connection with the
issuance of the Common Stock will be passed upon for the Underwriters by
Latham & Watkins, Los Angeles, California.
EXPERTS
The financial statements of the Company as of July 31, 1995 and 1996 and for
each of the three years in the period ended July 31, 1996 included in this
Prospectus and the financial statement schedule included elsewhere in the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and elsewhere in the
Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in auditing and accounting.
The financial statements of ADD Consulting, Inc. as of and for the years
ended December 31, 1994 and 1995, included herein have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said report.
The financial statements of AD&D Acquisition, Inc. as of and for the ten
months ended December 31, 1993, included herein have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said report.
The financial statements of Leardata Info-Services, Inc. as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in auditing and accounting.
45
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities of the Commission located at Room 1024, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
following regional offices: 13th Floor, Seven World Trade Center, New York,
New York 10048; and at Suite 1400, Northwest Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661. Such reports and other information concerning
the Company are also available for inspection at the offices of the Nasdaq
National Market, 1735 K Street, N.W., Washington, D.C. 20006. In addition, the
Commission maintains an Internet site at http://www.sec.gov that contains
reports, proxy and information regarding registrants, including the Company,
that file electronically with the Commission.
Additional information regarding the Company and the shares offered hereby
is contained in the Registration Statement on Form S-1 and the exhibits
thereto filed with the Commission under the Securities Act. For further
information pertaining to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits thereto,
which may be inspected without charge at, and copies thereof may be obtained
at prescribed rates from, the office of the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DATA PROCESSING RESOURCES CORPORATION
Independent Auditors' Report............................................. F-2
Balance Sheets as of July 31, 1995 and 1996 and as of October 31, 1996
(unaudited)............................................................. F-3
Statements of Income for the Fiscal Years Ended July 31, 1994, 1995 and
1996
and for the Three Months Ended October 31, 1995 and 1996 (unaudited).... F-4
Statements of Shareholders' Equity for the Fiscal Years Ended July 31,
1994,
1995 and 1996 and for the Three Months Ended October 31, 1996
(unaudited)............................................................. F-5
Statements of Cash Flows for the Fiscal Years Ended July 31, 1994, 1995
and 1996
and for the Three Months Ended October 31, 1995 and 1996 (unaudited).... F-6
Notes to Financial Statements............................................ F-7
ADD CONSULTING, INC.
Report of Independent Public Accountants................................. F-14
Balance Sheets as of December 31, 1994 and 1995.......................... F-15
Statements of Income for the Years Ended December 31, 1994 and 1995...... F-16
Statements of Shareholders' Equity for the Years Ended December 31, 1994
and 1995................................................................ F-17
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995.. F-18
Notes to Financial Statements............................................ F-19
AD&D ACQUISITION, INC.
Report of Independent Public Accountants................................. F-22
Balance Sheet as of December 31, 1993.................................... F-23
Statement of Operations for the Ten Months Ended December 31, 1993....... F-24
Statement of Cash Flows for the Ten Months Ended December 31, 1993....... F-25
Notes to Financial Statements............................................ F-26
LEARDATA INFO-SERVICES, INC.
Independent Auditors' Report............................................. F-28
Balance Sheets as of December 31, 1994 and 1995 ......................... F-29
Statements of Income for the Years Ended December 31, 1993, 1994 and 1995
........................................................................ F-30
Statements of Stockholders' Equity for the Years Ended December 31, 1993,
1994 and 1995........................................................... F-31
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 ................................................................... F-32
Notes to Financial Statements............................................ F-33
Condensed Balance Sheet as of September 30, 1996 (unaudited)............. F-37
Condensed Statements of Income for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-38
Condensed Statements of Cash Flows for the Nine Months Ended September
30, 1995 and 1996 (unaudited)........................................... F-39
Condensed Notes to Financial Statements (unaudited)...................... F-40
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Data Processing Resources
Corporation:
We have audited the accompanying balance sheets of Data Processing Resources
Corporation as of July 31, 1995 and 1996, and the related statements of
income, shareholders' equity and cash flows for each of the three years ended
in the period July 31, 1996. Our audits also included the financial statement
schedule listed in the accompanying index at Item 16. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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, such financial statements present fairly, in all material
respects, the financial position of Data Processing Resources Corporation at
July 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended July 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
September 19, 1996
(October 25, 1996 as to Note 12)
F-2
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
------------------------ OCTOBER 31,
1995 1996 1996
----------- ----------- -----------
ASSETS
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 248,000 $21,855,000 $22,945,000
Accounts receivable (net of allowance
for doubtful accounts of $63,000 as
of July 31, 1995; $129,000 as of July
31, 1996; and $168,000 as of October
31, 1996)............................ 6,256,000 8,436,000 9,232,000
Receivables from affiliates........... 343,000 128,000 113,000
Prepaid expenses and other current
assets............................... 86,000 259,000 339,000
Deferred tax asset.................... 263,000 216,000 216,000
----------- ----------- -----------
Total current assets................ 7,196,000 30,894,000 32,845,000
Property:
Furniture and fixtures................ 120,000 209,000 221,000
Equipment............................. 333,000 896,000 966,000
Leasehold improvements................ -- 26,000 31,000
----------- ----------- -----------
453,000 1,131,000 1,218,000
Less accumulated depreciation......... (225,000) (392,000) (453,000)
----------- ----------- -----------
Property, net....................... 228,000 739,000 765,000
Other assets............................ 199,000 69,000 196,000
Intangible assets, net.................. -- 12,327,000 11,089,000
----------- ----------- -----------
$ 7,623,000 $44,029,000 $44,895,000
=========== =========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued
liabilities.......................... $ 2,464,000 $ 3,690,000 $ 3,861,000
Income taxes payable.................. 1,411,000 303,000 879,000
Line of credit........................ 836,000 -- --
Current portion of long-term debt..... 652,000 -- --
----------- ----------- -----------
Total current liabilities........... 5,363,000 3,993,000 4,740,000
Long-term debt.......................... 3,653,000 -- --
Mandatorily redeemable stock:
Series A Preferred Stock--no par
value; 1,480 shares authorized; 1,480
shares issued and outstanding as of
July 31, 1995 (liquidation
preferences of $1,676,000 as of July
31, 1995)............................ 1,485,000 -- --
Shareholders' equity (deficit):
Preferred stock; 2,000,000 shares
authorized; no shares issued and
outstanding.......................... -- -- --
Common stock; 20,000,000 shares
authorized; 4,000,000, 7,492,321 and
7,492,321 shares issued and
outstanding as of July 31, 1995, July
31, 1996, and October 31, 1996,
respectively......................... 2,000 38,125,000 36,996,000
Additional paid-in capital............ -- 1,636,000 1,636,000
Retained earnings (deficit)........... (2,880,000) 275,000 1,523,000
----------- ----------- -----------
Total shareholders' equity
(deficit).......................... (2,878,000) 40,036,000 40,155,000
----------- ----------- -----------
$ 7,623,000 $44,029,000 $44,895,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JULY 31, OCTOBER 31,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $34,165,000 $49,558,000 $58,145,000 $13,954,000 $20,134,000
Cost of professional
services............... 28,047,000 40,082,000 45,918,000 11,035,000 15,434,000
----------- ----------- ----------- ----------- -----------
Gross margin........... 6,118,000 9,476,000 12,227,000 2,919,000 4,700,000
Selling, general and
administrative
expenses............... 5,581,000 5,769,000 6,719,000 1,491,000 2,853,000
----------- ----------- ----------- ----------- -----------
Operating income........ 537,000 3,707,000 5,508,000 1,428,000 1,847,000
Interest (expense)
income, net............ (401,000) (764,000) (162,000) (159,000) 202,000
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes....... 136,000 2,943,000 5,346,000 1,269,000 2,049,000
Provision for income
taxes.................. 56,000 1,205,000 2,096,000 516,000 801,000
----------- ----------- ----------- ----------- -----------
Net income.............. $ 80,000 $ 1,738,000 $ 3,250,000 $ 753,000 $ 1,248,000
=========== =========== =========== =========== ===========
Net income per share.... $ 0.54 $ 0.15 $ 0.16
=========== =========== ===========
Weighted average common
and common equivalent
shares outstanding..... 6,039,000 4,926,000 7,864,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
----------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1993. 8,000,000 $ 3,000 $ -- $ 214,000 $ 217,000
Net income............. -- -- -- 80,000 80,000
Repurchase of common
shares................ (4,000,000) (1,000) -- (4,820,000) (4,821,000)
---------- ----------- ---------- ----------- -----------
Balance, July 31, 1994.. 4,000,000 2,000 -- (4,526,000) (4,524,000)
Net income............. -- -- -- 1,738,000 1,738,000
Accretion to redemption
value on
preferred shares...... -- -- -- (92,000) (92,000)
---------- ----------- ---------- ----------- -----------
Balance, July 31, 1995.. 4,000,000 2,000 -- (2,880,000) (2,878,000)
Net income............. 3,250,000 3,250,000
Exercise of stock
options............... 22,200 29,000 -- -- 29,000
Accretion to redemption
value on
preferred shares...... -- -- -- (95,000) (95,000)
Conversion of preferred
shares into
common shares
concurrent with
initial public
offering.............. 592,000 -- 1,580,000 -- 1,580,000
Issuance of common
shares in initial
public offering, net.. 2,726,000 34,329,000 -- -- 34,329,000
Issuance of common
shares in acquisition. 152,121 3,765,000 -- -- 3,765,000
Tax benefit related to
exercise of stock
options............... -- -- 56,000 -- 56,000
---------- ----------- ---------- ----------- -----------
Balance, July 31, 1996.. 7,492,321 38,125,000 1,636,000 275,000 40,036,000
Net income ............ -- -- -- 1,248,000 1,248,000
Adjustment to value of
common shares issued
in ADD Acquisition -- (1,129,000) -- -- (1,129,000)
---------- ----------- ---------- ----------- -----------
Balance, October 31,
1996 (unaudited)....... 7,492,321 $36,996,000 $1,636,000 $ 1,523,000 $40,155,000
========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JULY 31, OCTOBER 31,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 80,000 $ 1,738,000 $ 3,250,000 $ 753,000 $ 1,248,000
Adjustments to
reconcile net income
to net cash provided
by (used in)
operating activities:
Depreciation and
amortization......... 72,000 83,000 208,000 23,000 170,000
Deferred income
taxes................ -- (263,000) 47,000 20,000 --
Changes in operating
assets and
liabilities, net of
the effect of
acquisition:
Accounts receivable.. (1,773,000) (1,264,000) (759,000) (50,000) (796,000)
Receivables from
affiliates.......... 1,000 (294,000) 215,000 157,000 15,000
Prepaid expenses and
other assets........ (6,000) (132,000) (138,000) 15,000 (207,000)
Accounts payable and
accrued liabilities. 770,000 903,000 16,000 856,000 171,000
Income taxes payable. 52,000 1,359,000 (1,052,000) (779,000) 576,000
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities......... (804,000) 2,130,000 1,787,000 995,000 1,177,000
Cash flows from
investing activities:
Cash paid for
acquisition........... -- -- (8,785,000) -- --
Purchase of property... (191,000) (142,000) (612,000) (92,000) (87,000)
Decrease (increase) in
restricted investment. (250,000) 250,000 -- -- --
----------- ----------- ----------- ---------- -----------
Net cash (used in)
provided by
investing
activities......... (441,000) 108,000 (9,397,000) (92,000) (87,000)
Cash flows from
financing activities:
Proceeds from initial
public offering of
common stock, net..... -- -- 34,329,000 -- --
Proceeds from the
exercise of stock
options............... -- -- 29,000 --
Proceeds from line of
credit................ 635,000 836,000 -- --
Repayment of line of
credit................ -- (2,370,000) (836,000) (837,000) --
(Repayment of) proceeds
from notes payable to
shareholder........... 975,000 (1,350,000) -- -- --
Proceeds from notes
payable--other........ 83,000 4,250,000 -- -- --
Proceeds from issuance
of preferred stock,
net................... -- 1,393,000 -- -- --
Repayment of notes
payable to former
shareholders.......... (443,000) (4,753,000) -- -- --
Repayment of notes
payable--other........ (7,000) (21,000) (4,305,000) (66,000) --
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) financing
activities......... 1,243,000 (2,015,000) 29,217,000 (903,000) --
----------- ----------- ----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (2,000) 223,000 21,607,000 -- 1,090,000
Cash and cash
equivalents, beginning
of period.............. 27,000 25,000 248,000 248,000 21,855,000
----------- ----------- ----------- ---------- -----------
Cash and cash
equivalents, end of
period................. $ 25,000 $ 248,000 $21,855,000 $ 248,000 $22,945,000
=========== =========== =========== ========== ===========
Supplemental
information--Cash paid
for:
Interest............... $ 402,000 $ 725,000 $ 424,000 $ 140,000 $ 4,000
=========== =========== =========== ========== ===========
Income taxes........... $ 4,000 $ 108,000 $ 3,102,000 $1,275,000 $ 225,000
=========== =========== =========== ========== ===========
Supplemental schedule of
noncash financing and
investing activities:
Repurchase of common
stock................. $ 4,822,000 -- --
Issuance of notes
payable to former
shareholders.......... $ 4,822,000 -- --
Conversion of preferred
stock to common stock. -- $ 1,580,000 --
Tax benefit of stock
options exercised..... -- $ 56,000 --
Detail of business
acquired in purchase
transactions:
Fair value of assets
acquired.............. -- $ 1,512,000 --
Common stock issued in
acquisition........... -- $ 3,765,000 --
Adjustment to the
value of common stock
issued in
acquisition........... -- -- $ 1,129,000
Liabilities assumed ... -- $ 1,210,000 --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
1. GENERAL
Business--Data Processing Resources Corporation (the "Company"), which was
incorporated in California on August 15, 1984, is a leading specialty staffing
company providing information technology services to a diverse group of
corporate clients.
Interim Financial Data--The interim financial data as of October 31, 1996
and for the three months ended October 31, 1995 and 1996 is unaudited. The
information reflects all adjustments, consisting only of normal recurring
entries, that, in the opinion of management, are necessary to present fairly
the financial position and results of operations of the Company for the
periods indicated. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the full fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents--The Company considers all highly-liquid
investments with an original maturity of three months or less to be cash
equivalents.
Property--The cost of furniture, fixtures and equipment is depreciated using
accelerated methods based on the estimated useful lives of the related assets,
generally five to seven years. Leasehold improvements are amortized over the
lesser of five years or the life of the lease.
Intangible Assets--Intangible assets include goodwill, which represents the
excess of cost over fair value of net assets acquired and is amortized using
the straight-line method over 25 years.
Revenue Recognition--The Company recognizes revenue as services are
performed.
Fair Value of Financial Instruments--Management believes the carrying
amounts of cash and cash equivalents, accounts receivable and accounts payable
approximate fair value due to the short maturity of these financial
instruments.
Income Taxes--The Company provides for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109. SFAS No. 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, the Company generally considers all
expected future events other than enactments of changes in the tax law or
rates.
Net Income Per Share--Historical net income per share for the years ended
July 31, 1994 and 1995 are not presented because they are not indicative of
the ongoing entity.
Net income per share has been computed by dividing net income by the
weighted average number of shares of common and common equivalent shares
outstanding during the period. Weighted average common and common equivalent
shares included common shares, stock options using the treasury stock method
and the assumed conversion of all outstanding shares of preferred stock into
shares of common stock. Redeemable preferred stock (Note 6) has been treated
as common share equivalents in calculating net income per share.
Reclassifications--Certain items in the prior period financial statements
may have been reclassified to conform to the current period presentation.
F-7
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and related disclosures at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from these estimates.
Recent Accounting Pronouncements--In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, which becomes
effective for fiscal years beginning after December 14, 1995. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt this statement in fiscal 1997 as required,
and its adoption is not expected to have a significant effect on earnings,
financial condition or cash flows.
In October 1995, FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires adoption of the disclosure provisions no later
than years beginning after December 15, 1995 and adoption of the recognition
and measurement provisions for nonemployee transactions no later than after
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period which is usually the vesting
period. Pursuant to the new accounting standard, companies are encouraged, but
are not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, but would be required to disclose in
a note to the financial statements pro forma net income and, if presented,
earnings per share as if the company had applied the new method of accounting.
The Company has determined that it will not change to the fair value method
and will continue to use Accounting Principles Board Opinion No. 25 for
measurement and recognition of employee stock-based transactions.
3. ACQUISITIONS
On July 1, 1996, the Company acquired the information technology staffing
business, including two branch facilities and substantially all of the related
assets, of the Applications Design and Development, division of ADD
Consulting, Inc. ("ADD"), an Omaha-based company. The aggregate purchase price
of the acquisition was $12,850,000, consisting of $8,785,000 in cash, 152,121
shares of restricted Company common stock initially valued at $3,765,000 and a
deferred payment of $300,000. During the three months ended October 31, 1996,
the Company recorded an adjustment to the value of common stock issued in the
transaction of $1,129,000 to reflect securities law restrictions on disposal
of the stock. This acquisition was accounted for as a purchase. The excess of
cost over fair value of net assets acquired was allocated to goodwill, which
is amortized using the straight-line method over 25 years. The allocation of
the purchase price and other purchase accounting adjustments are as follows:
<TABLE>
<S> <C>
Total purchase price, net of discount........................... $11,721,000
Net assets acquired............................................. (801,000)
Adjustments to conform accounting policies...................... 199,000
Acquisition costs related to ADD................................ 120,000
-----------
Excess of purchase price over net assets acquired............... $11,239,000
===========
</TABLE>
F-8
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
3. ACQUISITIONS (CONTINUED)
Unaudited pro forma combined results of operations for the periods indicated
are as follows had the acquisition occurred as of the beginning of the
respective periods:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
JULY 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenues............................................ $59,975,000 $70,660,000
Pro forma net income................................ $ 2,065,000 $ 3,534,000
Pro forma net income per share...................... $ 0.41 $ 0.57
Weighted average shares outstanding................. 5,078,000 6,171,000
</TABLE>
Pro forma adjustments have been applied to reflect the purchase, which
includes the elimination of expenses that are not expected to have a
continuing impact on the Company, such as certain redundant personnel costs,
owner's compensation in excess of employment agreement and cost of line of
business not acquired, and the addition of amortization related to the
intangible assets acquired.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JULY 31,
--------------------- OCTOBER 31,
1995 1996 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable.......................... $ 255,000 $ 949,000 $ 741,000
Accrued salaries, bonuses and related
benefits................................. 1,917,000 2,379,000 2,752,000
Commissions payable....................... 292,000 362,000 368,000
---------- ---------- ----------
$2,464,000 $3,690,000 $3,861,000
========== ========== ==========
</TABLE>
5. DEBT
Effective March 1995, the Company obtained a revolving line of credit and
term loan with a financial institution (the Credit Agreement). The revolving
line of credit, which permitted borrowing up to the lesser of $5,000,000 or
8.5% of eligible accounts receivable, and the term loan, which permitted
indebtedness up to $4,250,000, were collateralized by substantially all of the
assets of the Company. The outstanding principal balances of the revolving
line of credit and term loan bore interest at the prime rate plus 1.0% and
2.5%, respectively, and was scheduled to expire on March 1, 2000. The Company
has obtained a new revolving line of credit and acquisition facility (the New
Credit Agreement) effective October 25, 1996 (Note 12). All outstanding
borrowings under the Credit Agreement were repaid with the proceeds from the
initial public offering (Note 6).
F-9
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
5. DEBT (CONTINUED)
Long-term debt consisted of the following at July 31, 1995:
<TABLE>
<S> <C>
Term loan due to financial institution, bearing interest at
bank's prime rate plus 2.5%, principal and interest payable
in monthly installments approximating $101,000, based on a
set amortization schedule beginning October 1, 1995 through
March 1, 2000. Such loan was paid with proceeds from the
initial public offering...................................... $4,250,000
Equipment term loan with bank, interest payable monthly at
bank's prime rate plus 2%, principal payable in monthly
installments of $1,729 through March 15, 1998. Such loan was
repaid in December 1995...................................... 55,000
----------
4,305,000
Less current portion.......................................... (652,000)
----------
Total long-term debt........................................ $3,653,000
==========
</TABLE>
6. SHAREHOLDERS' EQUITY
Initial Public Offering--In March 1996, the Company completed an initial
public offering (the "Offering") of 2,726,000 shares of its common stock at an
offering price of $14.00 per share for net proceeds of $34.3 million.
Stock Split--On January 8, 1996, the Company amended its Articles of
Incorporation to increase the number of authorized shares of common stock from
8,000,000 to 20,000,000, authorize 2,001,480 shares of preferred stock (of
which 1,480 were designated Series A Convertible Preferred Stock) and effect a
400-for-one stock split of its common stock. All shares and per share amounts
included in the accompanying financial statements and footnotes have been
restated to reflect the stock split.
Preferred Stock--In March 1995, the Company issued 1,480 shares of Series A
Preferred Stock for $1,601,000, less costs of $208,000 associated with the
issuance. The Series A Preferred Stock had a liquidation preference of $1,082
per share, plus 8.0% interest per annum, compounded annually applied to such
an amount from the date of original issuance, less any dividends previously
paid. The stock was redeemable at an amount equal to the sum of $2,850 per
share, plus any declared and unpaid dividends, and was payable in twelve equal
quarterly installments. Holders of Series A Preferred Stock were entitled to
receive noncumulative cash dividends at an annual rate of $87 per share,
payable in preference and priority to any dividend on common stock when and as
declared by the Board of Directors. For the year ended July 31, 1996, no
dividends were declared.
The Company had 2,001,480 authorized shares of preferred stock, of which
1,480 shares had been designated Series A Convertible Preferred Stock as of
July 31, 1995. Immediately prior to the consummation of the Offering, the
outstanding shares of Series A Convertible Preferred Stock automatically
converted into an aggregate of 592,000 shares of common stock. The shares of
Series A Convertible Preferred Stock were canceled upon said conversion and
ceased to be authorized.
Dividends--The Company's Credit Agreement prohibited the payment of
dividends without the prior written consent of the lender.
F-10
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
7. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Stock Option Plan--In 1994, the Company adopted the 1994 Stock Plan (the
Stock Plan) under which incentive and non-statutory stock options to acquire
shares of the Company's common stock may be granted to officers, employees and
consultants of the Company. The Stock Plan is administered by the Board of
Directors and permits the issuance of options for up to 1,250,000 shares of the
Company's common stock. Incentive stock options must be issued at an exercise
price not less than the fair market value of the underlying shares on the date
of grant. Options granted under the Stock Plan are exercisable over a period of
time, not to exceed ten years, and are subject to other terms and conditions
specified in the individual employee option agreement. Of these options 136,000
were exercisable as of July 31, 1996. A summary of employee stock options is as
follows:
<TABLE>
<CAPTION>
NUMBER
OF OPTION PRICE
SHARES PER SHARE
------- -------------
<S> <C> <C>
Outstanding at August 1, 1994......................... -- --
Granted............................................. 284,400 $1.31-$2.25
-------
Outstanding at July 31, 1995.......................... 284,400 $1.31-$2.25
Granted............................................. 395,220 $2.25-$27.25
Exercised........................................... (22,200) $1.31
Canceled............................................ (40,200) $2.25-$27.25
-------
Outstanding at July 31, 1996.......................... 617,220 $1.31-$27.25
Granted............................................. 169,500 $17.75-$22.00
-------
Outstanding at October 31, 1996 (unaudited)........... 786,720 $1.31-$27.25
=======
</TABLE>
Retirement Savings Plan--The Company has a retirement savings plan (the Plan)
which qualifies under Section 401(k) of the Internal Revenue Code. Eligible
employees may contribute up to 20% of their annual compensation, as defined by
the Plan. Company contributions are fully discretionary, and no Company
contributions have been made to the Plan during the year.
8. INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
------------------------------
1994 1995 1996
------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.................................... $40,000 $1,153,000 $1,563,000
State...................................... 16,000 315,000 475,000
------- ---------- ----------
56,000 1,468,000 2,038,000
Deferred:
Federal.................................... -- (227,000) 32,000
State...................................... -- (36,000) 26,000
------- ---------- ----------
-- (263,000) 58,000
------- ---------- ----------
Provision for income taxes................... $56,000 $1,205,000 $2,096,000
======= ========== ==========
</TABLE>
F-11
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
8. INCOME TAXES (CONTINUED)
A reconciliation of the Company's effective tax rate compared to the
statutory federal tax rate is as follows at July 31:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED JULY 31,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory federal rate..................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit........................ 7.7 6.3 6.2
Meals and entertainment.................................... 3.5 0.7 0.2
Tax exempt interest........................................ -- -- (2.3)
Other...................................................... 3.0 -- 1.1
Benefit of graduated rates................................. (6.9) -- --
---- ---- ----
Total.................................................... 41.3% 41.0% 39.2%
==== ==== ====
</TABLE>
The Company provides deferred income taxes for temporary differences between
assets and liabilities recognized for financial reporting and income tax
purposes. The income effects of these temporary differences representing
significant portions of deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
JULY 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
State income taxes........................................ $ 95,000 $158,000
Bonus accrual............................................. 129,000 --
Bad debt reserve.......................................... 27,000 42,000
Vacation accrual.......................................... 12,000 16,000
-------- --------
Total deferred tax asset.................................. $263,000 $216,000
======== ========
</TABLE>
During fiscal 1994, there were no significant temporary differences.
During fiscal 1996, the Company was under examination by the Internal Revenue
Service for the years ended July 31, 1992, 1993 and 1994. In October 1996, the
Internal Revenue Service proposed an assessment of $770,000, plus interest,
based on a disallowance of the deduction of management fees paid to a prior
owner in such years. In the opinion of management, settlements or adjustments
that may result from this proposed assessment will not have a material adverse
effect on the Company's financial condition or results of operations.
The Company has estimated its interim effective tax rates based on estimated
annual effective tax rates.
9. COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities, certain equipment and vehicles
under lease agreements classified as operating leases. Future minimum lease
payments under such noncancelable operating leases are summarized as follows at
July 31, 1996:
<TABLE>
<S> <C>
Year ending July 31:
1997............................................................. $343,000
1998............................................................. 269,000
1999............................................................. 252,000
2000............................................................. 107,000
2001............................................................. 22,000
Thereafter....................................................... --
--------
Total future minimum lease payments............................... $993,000
========
</TABLE>
F-12
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense amounted to $149,000, $170,000, $227,000 and $51,000 and
$90,000 for the years ended July 31, 1994, 1995, 1996 and the three months
ended October 31, 1995 and 1996, respectively, and has been included in
selling, general and administrative expenses in the accompanying statements of
income.
10. RELATED PARTY TRANSACTIONS
In fiscal 1994, one of the Company's larger clients desired to outsource its
entire information systems department through an employee leasing arrangement.
Because the Company does not provide such employee leasing services and was
unable to provide a comparable employment benefit package to consultants
working for this company, Information Technology Resources, Inc. ("ITR") was
formed by the founder of the Company and certain other persons, including
certain former employee's of ITR's client, with the founder owning
approximately 75.6% of the outstanding capital stock. As a result of this
arrangement, the Company provides certain management services to ITR to
support its operations, for which the Company receives a management fee
pursuant to a management services agreement. Management fees earned by the
Company were $482,000, $934,000, $1,084,000, $263,000 and $300,000 for the
years ended July 31, 1994, 1995 and 1996 and the three months ended October
31, 1995 and 1996, respectively. ITR also contracts with the Company for
technical consultants to meet its staffing needs. The Company recorded
revenues of $1,028,000, $3,678,000, $4,974,000, $1,393,000 and $1,023,000 for
the years ended July 31, 1994, 1995, 1996 and the three months ended October
31, 1995 and 1996, respectively from billing of ITR technical consultants.
Receivables from affiliates includes a receivable from ITR related to these
management services and amounted to $79,000 and $104,000 as of July 31, 1995
and 1996, respectively, and $89,000 as of October 31, 1996. The Company has
trade accounts receivable for technical consultants due from ITR of $397,000
and $133,000 as of July 31, 1995 and 1996, respectively, and $458,000 as of
October 31, 1996. The Company from time to time has made advances to ITR to
assist it with its working capital needs. These advances are provided on a
short-term, unsecured basis, do not bear interest and had a balance
outstanding as of July 31, 1995 of $240,000.
11. CONCENTRATIONS OF CREDIT RISK
The Company's revenues are generated from credit sales to customers
primarily located in Southern California. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential credit lines
and generally does not require collateral. The Company maintains reserves for
potential credit losses, and such losses have been within management's
expectations. The Company's ten largest customers represented 60.3% of total
revenues in fiscal 1996, and as a result, the Company has a large proportion
of its receivables outstanding with these customers. Accounts receivable to
the Company's ten largest customers was $3,205,000 as of July 31, 1996.
In each of fiscal 1994, 1995, 1996 and the three months ended October 31,
1995, the Company had sales to a major customer, not necessarily the same
customer in each period, of approximately $3,529,000, $6,072,000, $5,794,000
and $1,667,000, respectively. There was no major customer for the three months
ended October 31, 1996. Given the significant amount of revenues derived from
these customers, the loss of any such customer or the uncollectability of
related receivables could have a material adverse effect on the Company's
financial condition and results of operations.
12. SUBSEQUENT EVENT
On October 25, 1996, the Company obtained a two-year, $20,000,000 credit
agreement with a bank. The credit consists of a revolving line of credit in
the principal amount of $10,000,000, which bears interest at the prime rate or
LIBOR plus 1.0%, and a revolving loan in the principal amount of $10,000,000,
which bears interest at the prime rate or LIBOR plus 1.25%. Both facilities
are secured by accounts receivable and equipment. Additional pricing options
and alternatives are available depending on certain financial conditions. The
credit agreement contains various covenants, including the maintenance of
defined financial ratios such as liquidity and tangible net worth. There are
currently no borrowings outstanding.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ADD Consulting, Inc.:
We have audited the accompanying balance sheets of ADD Consulting, Inc. (a
Nebraska corporation) as of December 31, 1994 and 1995, and the related
statements of income, shareholders' equity and cash flows for the years then
ended. 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 ADD Consulting, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
February 1, 1996
F-14
<PAGE>
ADD CONSULTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
ASSETS ---------- ----------
Current Assets
<S> <C> <C>
Cash....................................................... $ 1,796 $ 102,293
Trade receivables--
Billed, net of allowance for doubtful accounts of $12,000
in 1994 and $18,000 in 1995.............................. 736,957 984,535
Unbilled.................................................. 122,801 278,519
Shareholder/employee receivable (Note 7)................... 18,550 101,875
Other current assets....................................... 13,272 28,283
---------- ----------
Total current assets.................................... 893,376 1,495,505
---------- ----------
Property and Equipment (Note 2)
Computer equipment and software............................ 71,726 124,231
Office furniture and equipment............................. 29,191 87,646
---------- ----------
100,917 211,877
Less--Accumulated depreciation............................. (12,262) (29,680)
---------- ----------
Net property and equipment.............................. 88,655 182,197
---------- ----------
Goodwill, net of accumulated amortization of $64,495 in 1994
and $129,295 in 1995 (Note 5).............................. 902,929 838,129
---------- ----------
Total assets.......................................... $1,884,960 $2,515,831
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Line of credit (Note 4).................................... $ 155,000 $ 310,000
Current maturities of note payable (Note 6)................ 423,168 153,407
Accounts payable........................................... 206,864 183,322
Dividend distributions payable (Note 2).................... 187,000 337,290
Compensation expense....................................... 143,124 212,541
Accrued vacation........................................... 56,592 86,657
Accrued payroll taxes...................................... 42,071 116,170
Other accrued expenses..................................... 16,373 27,005
---------- ----------
Total current liabilities............................... 1,230,192 1,426,392
---------- ----------
Note Payable, net of current maturities (Note 6)............ 79,891 --
---------- ----------
Total liabilities....................................... 1,310,083 1,426,392
---------- ----------
Commitments (Note 8)
Shareholders' Equity (Notes 3, 5, 9 and 10):
Class A Common Stock, voting, $.10 par value, 50,000 shares
authorized, 1,000 shares issued and outstanding........... 100 100
Class B Common Stock, nonvoting, $.10 par value, 50,000
shares authorized, 1,200 shares issued and 1,195 shares
outstanding............................................... 120 120
Additional paid-in capital................................. 219,880 219,880
Retained earnings.......................................... 354,777 870,646
Less--Treasury stock, 5 shares in 1995, at cost............ -- (1,307)
---------- ----------
Total shareholders' equity.............................. 574,877 1,089,439
---------- ----------
Total liabilities and shareholders' equity.............. $1,884,960 $2,515,831
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-15
<PAGE>
ADD CONSULTING, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1995
---------- -----------
<S> <C> <C>
Revenues................................................ $7,938,005 $11,899,096
Professional salaries and related personnel costs....... 5,476,272 8,338,533
---------- -----------
Gross margin........................................... 2,461,733 3,560,563
Selling, general and administrative expenses............ 1,654,700 2,441,730
Research and development (Note 2)....................... -- 66,739
Amortization of goodwill................................ 64,495 64,800
---------- -----------
Income from operations................................. 742,538 987,294
Interest expense........................................ 60,661 50,769
Interest income......................................... -- 1,280
---------- -----------
Net income.............................................. $ 681,877 $ 937,805
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE>
ADD CONSULTING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
------- ------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1994................... $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 1,000
shares of Class A
Common Stock for
contribution of trade
receivables ($200 per
share)................ 100 -- 199,900 -- -- 200,000
Stock dividend of 1,000
shares of Class B
Common Stock.......... -- 100 -- (100) -- --
Sale of 200 shares of
Class B Common Stock
for cash ($100 per
share)................ -- 20 19,980 -- -- 20,000
Dividends paid and
accrued............... -- -- -- (327,000) -- (327,000)
Net income............. -- -- -- 681,877 -- 681,877
------ ----- -------- --------- ------- ----------
Balance, December 31,
1994................... 100 120 219,880 354,777 -- 574,877
Purchase of 5 shares of
Class B Common Stock.. -- -- -- -- (1,307) (1,307)
Dividends paid and
accrued............... -- -- -- (421,936) -- (421,936)
Net income............. -- -- -- 937,805 -- 937,805
------ ----- -------- --------- ------- ----------
Balance, December 31,
1995................... $ 100 $ 120 $219,880 $ 870,646 $(1,307) $1,089,439
====== ===== ======== ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
ADD CONSULTING , INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 681,877 $ 937,805
Adjustments to reconcile net income to net cash
provided by operating
activities--
Depreciation and amortization........................ 76,757 82,218
Changes in assets and liabilities--
Trade receivables, net.............................. (170,673) (403,296)
Other current assets................................ 6,240 (98,336)
Accounts payable and accrued expenses............... (162,922) 160,671
--------- ---------
Net cash provided by operating activities.......... 431,279 679,062
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment..................... (35,917) (110,960)
Acquisition of business, net of cash acquired (Note 5). 68,375 --
--------- ---------
Net cash provided by (used in) investing
activities........................................ 32,458 (110,960)
--------- ---------
Cash flows from financing activities:
Payments on note payable............................... (396,941) (649,652)
Issuance of note payable............................... -- 300,000
Net borrowings under the line of credit................ 55,000 155,000
Sale of common stock................................... 20,000 --
Distributions to shareholders.......................... (140,000) (271,646)
Purchase of Class B Common Stock....................... -- (1,307)
--------- ---------
Net cash used in financing activities.............. (461,941) (467,605)
--------- ---------
Net increase in cash............................... 1,796 100,497
Cash, beginning of period............................... -- 1,796
--------- ---------
Cash, end of period..................................... $ 1,796 $ 102,293
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............... $ 60,661 $ 49,380
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In connection with the acquisition described in Note 5, the majority
shareholder contributed $200,000 of trade receivables as consideration
for 1,000 shares of Class A Common Stock.
In connection with the acquisition described in Note 5, the Company issued a
note payable for $900,000 for substantially all of the assets of the
Company.
As of December 31, 1994 and 1995, the Company had accrued dividend
distributions payable of $187,000 and $337,290, respectively.
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
ADD CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
1. GENERAL
ADD Consulting, Inc. (the Company) was formed on October 22, 1993, for the
purpose of acquiring substantially all of the assets, liabilities and
operations of AD&D Acquisition, Inc. The Company did not have substantive
operations prior to the acquisition of AD&D Acquisition, Inc. on January 1,
1994 (Note 5). The Company does business as Applications Design and
Development.
The Company provides experienced and skilled professionals on a contract
basis to serve the needs of the information and data processing community. As
the Company serves a wide range of customers in various industries, there is
no concentration of credit risk within a particular industry. Two major
customers of the Company accounted for approximately 29 percent and 28 percent
of revenues for the years ended December 31, 1994 and 1995, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized as services are performed based on units of time
incurred on behalf of clients.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repair and
maintenance are charged to expense as incurred. Depreciation and amortization
are computed using the straight-line method for financial statement purposes.
Accelerated methods are used for income tax purposes. The estimated useful
lives used in computing depreciation and amortization for financial statement
purposes are as follows:
<TABLE>
<S> <C>
Computer equipment and software................................... 7 years
Office furniture and equipment.................................... 7 years
</TABLE>
Income Taxes
The Company has elected for federal income tax reporting to include its
taxable income or loss with that of its shareholders (an S corporation
election). The Company files its tax returns on a cash-basis, whereas the
accompanying financial statements are presented on an accrual basis in
accordance with generally accepted accounting principles. The Company intends
to pay dividends to shareholders in lieu of tax payments.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of internal software development costs incurred prior to the
achievement of technological feasibility. The Company capitalizes internal
software development costs after the software products in development reach
technological feasibility. There were no software development costs
capitalized during 1994 and 1995.
Use of Estimates in Preparation of Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-19
<PAGE>
ADD CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
3. AUTHORIZED SHARES
During 1994, the Company amended its certificate of incorporation and
authorized 50,000 shares of $.10 par Class A Common Stock (voting) and 50,000
shares of $.10 par Class B Common Stock (nonvoting). Previous to the
amendment, the Company had one class of $1 par common stock authorized. As of
the amendment date, the previously outstanding 100 shares of common stock were
replaced with 1,000 shares of $.10 par Class A Common Stock. All shares and
per share amounts have been retroactively adjusted to reflect this amendment,
as applicable.
4. LINE OF CREDIT
The Company has a line-of-credit agreement with a bank that allows for
borrowings, up to $1,000,000 at 1 1/2 percent above the prime rate (10 percent
at December 31, 1995). The weighted average interest rates for this line-of-
credit during 1994 and 1995 were 9.1 percent and 10.2 percent, respectively.
There was $155,000 and $310,000 outstanding against this line at December 31,
1994 and 1995, respectively. The line of credit expires on June 19, 1996, and
is renewable on an annual basis. The line of credit is secured by the
Company's business assets and an assignment of a life insurance policy on the
Company's majority shareholder and is guaranteed by the majority shareholder
of the Company. Interest expense on the line of credit for the years ended
December 31, 1994 and 1995, was $9,003 and $25,033, respectively.
The available amounts on the line of credit are reduced by the amount of
note payable (see Note 6) and a letter of credit in the amount of $25,000. The
Company must comply with certain covenants including maintenance of a certain
debt to pre-tax earnings ratio. The Company was in compliance with these
covenants at December 31, 1995.
5. ACQUISITIONS
On January 1, 1994, the Company acquired substantially all of the assets and
operations of AD&D Acquisition, Inc. for a $900,000 note payable to the former
owner (Note 6) and assumption of liabilities of approximately $728,000.
The acquisition was recorded using the purchase method of accounting and,
accordingly, the cost in excess of the fair value of the net tangible assets
acquired of approximately $967,400 was allocated primarily to goodwill.
Goodwill is being amortized over a period of 15 years. During the years ended
December 31, 1994 and 1995, amortization expense of $64,495 and $64,800,
respectively, was recorded and is included in the accompanying statements of
income.
The Company's majority shareholder previously held a minority interest in
AD&D Acquisition, Inc. AD&D Acquisition, Inc. distributed accounts receivable
with a fair value of $200,000 to the Company's majority shareholder to redeem
the minority interest prior to the Company's acquisition of AD&D Acquisition,
Inc. ADD Consulting, Inc.'s majority shareholder contributed the $200,000 of
trade receivables to the Company for 1,000 shares (Note 3) of Class A Common
Stock ($200 per share).
6. NOTE PAYABLE
In connection with the acquisition as described in Note 5, the Company
issued a promissory note to the former owner. The principal balance on this
note was paid in full as of December 31, 1995.
During 1995, the Company issued a note payable to the bank which bears
interest at 1 1/2 percent above the prime rate (10 percent at December 31,
1995). The note is due in monthly installments of $26,470 through June 1996.
The note is secured by the Company's business assets and a life insurance
policy on the Company's majority shareholder.
F-20
<PAGE>
ADD CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
7. RELATED-PARTY TRANSACTIONS
During the years ended December 31, 1994 and 1995, the Company provided
consulting services to a company affiliated with the Company's majority
shareholder. These services were billed at cost and approximated $14,000 and
$15,000 during 1994 and 1995, respectively. In addition, during 1995, the
Company purchased travel services of approximately $57,000 from a travel
agency owned by an officer of the Company.
As of December 31, 1994 and 1995, the Company had shareholder/employee
receivables as follows:
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
Note receivable from majority shareholder, 8 percent
interest, due March 31, 1996.......................... $ -- $ 65,997
Shareholder/employee advances.......................... 18,550 35,878
------- --------
$18,550 $101,875
======= ========
</TABLE>
8. LEASE AGREEMENTS
The Company leases office facilities and office furniture and equipment
under operating leases. Total rent expense under operating leases was $60,715
and $90,772 during the years ended December 31, 1994 and 1995, respectively.
Future minimum lease payments under these agreements for the years ending
December 31 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996............................................................. $144,403
1997............................................................. 76,149
1998............................................................. 45,202
--------
$265,754
========
</TABLE>
9. STOCK RESTRICTION AGREEMENT
The Company's shareholders have a stock repurchase agreement which restricts
the transfer of the Company's stock upon the sale by or death of the minority
shareholders. Under the agreement, the Company and majority shareholder have
the right to acquire shares of the Company's stock in the event of a pending
sale by the minority shareholders to any persons other than authorized
transferees, as defined.
10. STOCK OPTION PLAN
During 1994, the Company issued options to purchase 200 shares of the
Company's Class B Common Stock for $100 per share. All options were exercised
in 1994 for total proceeds of $20,000. All option shares were granted at an
exercise price equal to the estimated fair market value of the shares at the
date of the grant.
11. 401(K) RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan for all eligible employees.
Participants may contribute up to 20 percent of their eligible wages. The
Company matches the contributions at their discretion. During the years ended
December 31, 1994 and 1995, the Company did not make any matching
contributions.
12. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
The Company sold substantially all of its business operations and related
assets to Data Processing Resources Corporation on July 1, 1996. The
accompanying financial statements do not reflect any adjustments with respect
to this transaction.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AD&D Acquisition, Inc.:
We have audited the accompanying balance sheet of AD&D Acquisition, Inc. (an
Illinois corporation) as of December 31, 1993, and the related statements of
operations and cash flows for the ten months then ended. 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 opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AD&D Acquisition, Inc. as
of December 31, 1993, and the results of its operations and its cash flows for
the ten months then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
May 16, 1994
F-22
<PAGE>
AD&D ACQUISITION, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
ASSETS
<S> <C>
Current assets:
Cash............................................................ $ 68,376
Receivables--client, including $100,964 billed subsequent to
December 31, 1993, less allowance of $16,076 for doubtful
accounts (Note 1).............................................. 682,153
Due from shareholder............................................ 23,096
Prepaid expenses and deposits................................... 11,262
---------
Total current assets.......................................... 784,887
---------
Property and equipment (Note 1):
Computer equipment and software................................. 48,507
Office furniture and equipment.................................. 15,973
---------
64,480
Less-Accumulated depreciation and amortization.................. 27,572
---------
Net property and equipment.................................... 36,908
---------
Noncompete agreement and other assets, net (Note 3)............... 6,693
---------
$ 828,488
=========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current liabilities:
Line of credit (Note 2)......................................... $ 100,000
Accounts payable................................................ 32,343
Due to affiliates (Note 4)...................................... 3,574
Compensation expense............................................ 175,797
Accrued vacation................................................ 43,675
Accrued payroll taxes........................................... 50,478
Other accrued expenses.......................................... 49,829
---------
Total current liabilities..................................... 455,696
---------
Shareholders' equity (Note 6):
Common stock, no par value, 1,000,000 shares authorized, 1,000
shares outstanding............................................. 1,000
---------
Accumulated earnings--
Balance, beginning of period.................................. 149,052
Net income for the period..................................... 341,730
Shareholders' distributions................................... (118,990)
---------
Balance, end of period.......................................... 371,792
---------
Total shareholders' equity.................................. 372,792
---------
$ 828,488
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-23
<PAGE>
AD&D ACQUISITION, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS ENDED
DECEMBER 31, 1993
-----------------
<S> <C>
Revenues..................................................... $4,482,462
Professional salaries and related personnel costs............ 3,099,064
----------
Gross margin................................................ 1,383,398
Selling, general and administrative expenses................. 906,825
Amortization of noncompete agreement......................... 120,880
Interest expense............................................. 13,963
----------
Net income for the period.................................... $ 341,730
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE>
AD&D ACQUISITION, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS ENDED
DECEMBER 31,
1993
----------------
<S> <C>
Cash flows from operating activities:
Net income for the period.................................... $ 341,730
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization............................... 126,167
Changes in assets and liabilities--
Increase in client receivables............................. (246,579)
Increase in prepaid expenses and deposits.................. (2,274)
Increase in due from shareholder........................... (12,681)
Increase in accounts payable and accrued expenses.......... 109,048
Decrease in due to affiliate............................... (3,528)
---------
Net cash provided by operating activities................. 311,883
---------
Cash flows from investing activities--purchase of property and
equipment.................................................... (9,177)
---------
Cash flows from financing activities:
Payments on notes payable to affiliates...................... (221,000)
Net borrowings under the line of credit...................... (100,000)
Distributions paid to shareholders........................... (118,990)
---------
Net cash used in financing activities..................... (439,990)
---------
Net decrease in cash...................................... (137,284)
Cash, beginning of period..................................... 205,660
---------
Cash, end of period........................................... $ 68,376
=========
Supplemental disclosure of cash payments made for:
Interest.................................................... $ 13,517
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
AD&D ACQUISITION, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1993
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
AD&D Acquisition, Inc. (the Company) provides experienced and skilled
professionals on a contract basis to serve the needs of the information and
data processing community. As the Company serves a wide range of customers in
various industries, there is no concentration of credit risk within a
particular industry or with any particular customer.
The following is a summary of significant accounting policies:
Revenue Recognition
Revenue is recognized currently as services are performed based on units of
time incurred on behalf of clients.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repair and
maintenance are charged to expense as incurred. Depreciation and amortization
are computed using the straight-line method for financial statement purposes.
Accelerated methods are used for income tax purposes. The estimated useful
lives used in computing depreciation and amortization for financial statements
purposes are as follows:
<TABLE>
<CAPTION>
ASSET
ASSET DESCRIPTION LIFE
----------------- ---------
<S> <C>
Computer equipment and software................................. 7 years
Office furniture and equipment.................................. 7 years
</TABLE>
Income Taxes
The Company has elected for federal income tax reporting to include its
taxable income or loss with that of its shareholders (an S Corporation
election). There are no significant differences between book and tax reporting
for income and expense items. The Company pays dividends to shareholders each
year in amounts adequate to satisfy the tax liability for their shares of the
Company's taxable income.
2. LINE OF CREDIT
The Company has a line-of-credit agreement with a bank that allows for
borrowings, up to $200,000, at the bank's base regional lending rate, 7.0
percent at December 31, 1993. The weighted average interest rate for this line
of credit during 1993 was approximately 7 percent. There was $100,000
outstanding against this line at December 31, 1993. The line of credit is
secured by substantially all assets of the Company and is guaranteed by the
majority shareholder of the Company.
3. NONCOMPETE AGREEMENT AND OTHER ASSETS
The Company has a noncompete agreement with the minority shareholder of the
Company and employment agreements with specific employees. The noncompete
agreement had a term of one year following the termination of employment of
the minority shareholder. Effective January 1, 1994, the assets of the Company
were sold (see Note 8) and the noncompete agreement cancelled. As a result,
$111,000 of additional amortization expense was recorded in the accompanying
financial statements to reduce the asset related to the noncompete agreement
to zero.
F-26
<PAGE>
AD&D ACQUISITION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE TEN MONTHS ENDED DECEMBER 31, 1993
The remaining other asset balance includes employment agreements entered
into with the former employees of Applications Design and Development, a
business acquired during March, 1990. The asset is being amortized on a pro
rata basis as each of the original employees terminates employment with the
Company.
4. RELATED-PARTY TRANSACTIONS
The amount included in the balance sheet caption "due to affiliates"
represents payables and accrued interest to an affiliated company and majority
shareholder. The affiliated company provided accounting services support to
the Company in the ten months ended December 31, 1993, for which it charged
fees of $30,000.
As of the beginning of the period, notes payable consisted of $221,000 of
due-on-demand promissory notes to an affiliated entity. The notes carried
interest rates from 10% to 11%, and the interest was payable annually. The
notes were paid in full during the period ended December 31, 1993.
5. LEASE AGREEMENTS
The Company leases the office facilities for its corporate headquarters
under an operating lease agreement on a month-to-month basis. The Company also
leases office furniture and equipment under noncancelable operating leases.
Total rent expense under operating leases was approximately $31,000 in the
period ended December 31, 1993.
6. STOCK RESTRICTION AGREEMENT
The Company's shareholders have a stock repurchase agreement which provides
for the transfer of the Company's stock upon the sale by or death of the
minority shareholder. Under the agreement, the Company and majority
shareholder have the right of first refusal to acquire shares of the Company's
stock in the event of a pending sale by the minority shareholder to any
persons other than authorized transferees, as defined. If the Company and
majority shareholder do not exercise their option to purchase these shares,
then the shares may be sold to a third party at a price not more favorable
than that at which the shares were first offered to the Company and the
majority shareholder. In addition, upon the death of the minority shareholder,
the Company and majority shareholder are required to purchase all the shares
of the deceased shareholder.
7. SUBSEQUENT EVENT
Effective January 1, 1994, the net assets of the Company were sold for
$900,000 to a company owned by the minority shareholder. The assets sold
excluded $200,000 of accounts receivable used to redeem the minority
shareholder's interest in the Company. The Company received consideration in
the form of a note receivable for $900,000 payable in 24 monthly installments
of $40,295, including interest at 7.0%. The payments began on March 1, 1994,
and continue through February 1, 1996.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Leardata Info-Services, Inc.
Dallas, Texas
We have audited the accompanying balance sheets of Leardata Info-Services,
Inc. (the Company) as of December 31, 1994 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. 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, such financial statements present fairly, in all material
respects, the financial position of Leardata Info-Services, Inc. at December
31, 1994 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
March 11, 1996
F-28
<PAGE>
LEARDATA INFO-SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $1,193,582 $1,855,221
Accounts receivable ......................... 1,825,330 2,203,230
Prepaid expenses and other current assets.... 41,925 24,504
Income tax receivable........................ -- 90,815
---------- ----------
Total current assets....................... 3,060,837 4,173,770
Property:
Furniture and fixtures....................... 248,816 249,392
Equipment.................................... 364,886 274,509
---------- ----------
613,702 523,901
Less accumulated depreciation................ (404,970) (436,889)
---------- ----------
Property, net.............................. 208,732 87,012
---------- ----------
$3,269,569 $4,260,782
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..... $ 194,465 $ 145,987
Income taxes payable......................... -- 29,600
---------- ----------
Total current liabilities.................. 194,465 175,587
Deferred income taxes (Note 2)................. 36,000 20,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value; 5,000,000
shares authorized, 3,864,480 shares issued
and outstanding (liquidation value is equal
to par value, plus accumulated undistributed
dividends, none of which have been
declared)................................... 386,448 386,448
Common stock, $.01 par value; 1,000,000
shares authorized, 300,574 shares issued and
outstanding in 1995 (none in 1994).......... -- 3,006
Additional paid-in capital................... 146,392 173,444
Due from stockholders (Note 6)............... -- (115,058)
Retained earnings............................ 2,506,264 3,617,355
---------- ----------
Total stockholders' equity................. 3,039,104 4,065,195
---------- ----------
$3,269,569 $4,260,782
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
LEARDATA INFO-SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Revenues.................................... $7,778,566 $11,198,789 $13,953,621
Cost of professional services............... 5,100,973 7,352,010 9,354,747
---------- ----------- -----------
Gross margin............................... 2,677,593 3,846,779 4,598,874
Selling, general and administrative
expenses................................... 1,990,842 2,440,049 2,879,801
---------- ----------- -----------
Operating income............................ 686,751 1,406,730 1,719,073
Interest and other income................... 55,400 23,815 62,018
---------- ----------- -----------
Income before provision for income taxes.... 742,151 1,430,545 1,781,091
Provision for income taxes (Note 2)......... 278,000 520,000 670,000
---------- ----------- -----------
Net income.................................. $ 464,151 $ 910,545 $ 1,111,091
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
LEARDATA INFO-SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ -------------- PAID-IN RETAINED DUE FROM
SHARE AMOUNT SHARE AMOUNT CAPITAL EARNINGS STOCKHOLDER TOTAL
--------- -------- ------- ------ -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1993................... 3,864,480 $386,448 -- $ -- $146,392 $1,131,568 $ -- $1,664,408
Net income............. 464,151 464,151
--------- -------- ------- ------ -------- ---------- --------- ----------
Balance, December 31,
1993................... 3,864,480 386,448 -- -- 146,392 1,595,719 -- 2,128,559
Net income............. 910,545 910,545
--------- -------- ------- ------ -------- ---------- --------- ----------
Balance, December 31,
1994................... 3,864,480 386,448 -- -- 146,392 2,506,264 -- 3,039,104
Loan to stockholder.... -- -- -- -- -- -- (85,000) (85,000)
Net income............. -- -- -- -- -- 1,111,091 -- 1,111,091
Exercise of stock
options............... -- -- 300,574 3,006 27,052 -- (30,058) --
--------- -------- ------- ------ -------- ---------- --------- ----------
Balance, December 31,
1995................... 3,864,480 $386,448 300,574 $3,006 $173,444 $3,617,355 $(115,058) $4,065,195
========= ======== ======= ====== ======== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements
F-31
<PAGE>
LEARDATA INFO-SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 464,151 $ 910,545 $1,111,091
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities--
Depreciation expense...................... 51,841 82,015 210,263
Deferred income taxes..................... -- 36,000 (16,000)
Changes in operating assets and
liabilities--
Accounts receivable...................... (807,841) (438,190) (377,900)
Prepaid expenses and other current
assets.................................. (7,210) (8,703) (73,394)
Accounts payable and accrued
liabilities............................. (53,169) (51,488) (48,477)
Income taxes payable..................... -- -- 29,600
--------- ---------- ----------
Net cash provided by (used in) operating
activities............................. (352,228) 530,179 835,183
Cash flows from investing activities:
Purchase of furniture, fixtures and
equipment.................................. (49,758) (122,418) (88,544)
--------- ---------- ----------
Cash flows from financing activities:
Due from stockholder........................ -- -- (85,000)
--------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents................................. (401,986) 407,761 661,639
Cash and cash equivalents, beginning of
year........................................ 1,187,807 785,821 1,193,582
--------- ---------- ----------
Cash and cash equivalents, end of year....... $ 785,821 $1,193,582 $1,855,221
========= ========== ==========
Supplemental information--cash paid for
income taxes................................ $ 278,000 $ 435,500 $ 691,000
========= ========== ==========
</TABLE>
SUPPLEMENTAL NONCASH FINANCING ACTIVITY:
During the year ended December 31, 1995, stockholders of the Company
exercised stock options and collectively received 300,574 shares of common
stock in exchange for notes from such stockholders.
See accompanying notes to financial statements.
F-32
<PAGE>
LEARDATA INFO-SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Organization--Leardata Info-Services, Inc. provides contract
programming and data processing consulting services to a diverse group of
business enterprises.
Cash and Cash Equivalents--The Company considers all highly-liquid
investments with an original maturity of three months or less to be cash
equivalents.
Depreciation--Depreciation of furniture, fixtures and equipment is computed
using the straight-line method over an estimated useful life of five years.
Revenue Recognition--The Company provides programming and consulting
services based upon contracts of variable duration which are cancelable based
on 15-day written notice. Revenues are recognized as billable time is incurred
and are billed within the same period. Contract labor costs are also
recognized as time is incurred and are accrued within the same period.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions regarding the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements--In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, which becomes
effective for fiscal years beginning after December 14, 1995. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt this statement in fiscal 1997 as required,
and its adoption is not expected to have a significant effect on earnings,
financial condition or cash flows.
In October 1995, Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which requires adoption of the
disclosure provisions no later than years beginning after December 15, 1995
and adoption of the recognition and measurement provisions for nonemployee
transactions no later than after December 15, 1995. The new standard defines a
fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period which is usually the vesting period. Pursuant to the new
accounting standard, companies are encouraged, but are not required, to adopt
the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per share as if
the company had applied the new method of accounting. The Company has
determined that it will not change to the fair value method and will continue
to use Accounting Principle Board Opinion No. 25 for measurement and
recognition for employee stock-based transactions.
Reclassifications--Certain items in a prior period financial statements may
have been reclassified to conform to the current period presentation.
F-33
<PAGE>
LEARDATA INFO-SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
2. INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................ $250,000 $427,000 $605,000
State.......................................... 28,000 52,600 81,000
-------- -------- --------
278,000 479,600 686,000
Deferred:
Federal........................................ -- 36,000 (14,100)
State.......................................... -- 4,400 (1,900)
-------- -------- --------
-- 40,400 (16,000)
-------- -------- --------
Provision for income taxes....................... $278,000 $520,000 $670,000
======== ======== ========
</TABLE>
A reconciliation of the Company's effective tax rate compared to the
statutory federal tax rate is as follows at December 31:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory federal rate..................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit........................ 3.8% 4.0 4.4%
Meals and entertainment.................................... 0.4 0.7 0.4
Other--Non Taxable Dividends............................... (1.4) (1.0) (2.5)
Other...................................................... .7 (1.3) 1.3
---- ---- ----
37.5% 36.4% 37.6%
==== ==== ====
</TABLE>
Deferred income taxes are provided for temporary differences between
financial statement carrying amounts and the taxable basis of assets and
liabilities using tax rates currently in effect. Deferred income taxes relate
primarily to temporary differences between the financial statement carrying
amount and the taxable basis of furniture, fixtures and equipment. The income
effects of these temporary differences representing portions of deferred tax
assets and deferred tax liabilities are as follows at December 31:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Total deferred tax asset--employee benefits............. $ 14,000 $ 11,000
Total deferred tax liability--furniture, fixtures and
equipment.............................................. (50,000) (31,000)
-------- --------
Net..................................................... $(36,000) $(20,000)
======== ========
</TABLE>
3. STOCKHOLDERS' EQUITY
The preferred stock ranks senior to the common stock with respect to the
payment of dividends, voting rights and distributions in liquidation. The
preferred stock's liquidation value is equal to par value plus any
undistributed dividends, none of which have been declared at December 31,
1995. Additionally, preferred stock is convertible to common stock on a one-
to-one basis. Preferred stock dividends are payable when declared by the Board
of Directors.
F-34
<PAGE>
LEARDATA INFO-SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
The Company has adopted an incentive stock option plan, pursuant to which
500,000 shares of common stock have been reserved for issuance upon the
exercise of the options. Options totaling 343,513 shares have been granted to
key employees of the Company. The outstanding common stock options are
exercisable through January 2, 1996, at an exercise price of $0.38 per common
share.
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at January 1, 1993......................... 343,513 $0.10-$0.38
-------
Outstanding at December 31, 1993....................... 343,513 $0.10-$0.38
-------
Outstanding at December 31, 1994....................... 343,513 $0.10-$0.38
Exercised.............................................. 300,574 $0.10
-------
Outstanding at December 31, 1995....................... 42,939 $0.38
=======
</TABLE>
4. EMPLOYEE BENEFIT PLANS
The Company established a 401(k) Savings Plan and Trust which is a defined
contribution plan covering eligible employees upon hiring. Participants may
make tax-deferred 401(k) contributions. The Company may make a discretionary
matching contribution of up to 25% of the participants' deferred contribution,
but in no case may the Company's contribution exceed 6% of the participants'
compensation. All participants' deferred contributions are 100% vested. All
other contributions vest according to years of employment. The vesting
percentages are as follows:
<TABLE>
<S> <C>
Less than 2 years.................................................... 0%
2 years but less than 3 years........................................ 20%
3 years but less than 4 years........................................ 40%
4 years but less than 5 years........................................ 60%
5 years but less than 6 years........................................ 80%
6 years or more...................................................... 100%
</TABLE>
Participants' deferred contributions are limited to 15% of the participants'
compensation, not to exceed federal limits of $9,240 in 1995. The Company's
matching contribution was $18,661, $30,788 and $23,550 representing 25% of the
participants' deferred contribution for the years ended December 31, 1993,
1994 and 1995, respectively.
5. COMMITMENTS AND CONTINGENCIES
The Company leases office space under an operating lease ending October 31,
1999. The total minimum future rental payments under the lease are as follows:
<TABLE>
<S> <C>
1996............................................................. $122,046
1997............................................................. 122,046
1998............................................................. 122,046
1999............................................................. 101,705
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
$145,672, $138,560 and $122,898, respectively.
F-35
<PAGE>
LEARDATA INFO-SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
6. RELATED PARTY TRANSACTION
In May 1995, the Company entered into a loan agreement with the Chief
Executive Officer of the Company for $85,000. The loan bears interest at the
prime rate (8.5% at December 31, 1995) and is payable upon any of the
following events: (i) sale of the Company, (ii) initial public offering, (iii)
recapitalization, or (iv) repurchase of shares.
In the event that none of the above occurs within a three-year period, the
loan and accrued interest (compounded annually) will be due and payable on May
10, 1998. Interest income on the loan for the year ended December 31, 1995 was
$4,672.
The remaining $30,058 included in due from stockholders relates to two
salary advances used for exercising the incentive stock options described in
Note 3. These advances bear no interest and are repayable monthly by salary
reductions beginning in January 1996 and terminating on November 15, 1997.
7. CONCENTRATIONS OF CREDIT RISK
The Company's revenues are generated from credit sales to customers in
approximately 30 states. The Company performs ongoing credit evaluations of
its customers and maintains reserves for potential credit lines and generally
does not require collateral. The Company's ten largest customers represented
53% of total revenues in fiscal 1995, and as a result, the Company has a large
proportion of its receivables outstanding with these customers. Accounts
receivable to the Company's ten largest customers was $1,390,443 as of
December 31, 1995.
F-36
<PAGE>
LEARDATA INFO-SERVICES, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Current assets:
Cash and cash equivalents....................................... $2,285,918
Accounts receivable ............................................ 2,772,701
Prepaid expenses and other current assets....................... 70,754
Income tax receivable........................................... 90,815
----------
Total current assets........................................... 5,220,188
Property:
Furniture and fixtures.......................................... 251,048
Equipment....................................................... 440,737
----------
691,785
Less accumulated depreciation .................................. (471,089)
----------
Property, net.................................................. 220,696
----------
$5,440,884
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................ $ 282,454
Income taxes payable............................................ 31,346
----------
Total current liabilities...................................... 313,800
Deferred income taxes ........................................... 20,470
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value; 5,000,000 shares authorized;
3,864,480 shares issued and outstanding (liquidation value is
equal to par value, plus accumulated undistributed dividends,
some of which have been declared).............................. 386,448
Common stock, $.01 par value; 1,000,000 shares authorized;
300,574 shares issued and outstanding.......................... 3,006
Additional paid-in capital...................................... 173,444
Retained earnings............................................... 4,650,772
Due from stockholders .......................................... (107,056)
----------
Total stockholders' equity..................................... 5,106,614
----------
$5,440,884
==========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-37
<PAGE>
LEARDATA INFO-SERVICES, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenues............................................... $10,205,676 $12,019,414
Cost of professional services.......................... 6,828,384 8,267,216
----------- -----------
Gross margin........................................... 3,377,292 3,752,198
Selling, general and administrative expenses........... 2,019,289 2,245,806
----------- -----------
Operating income....................................... 1,358,003 1,506,392
Interest and other income.............................. 43,093 57,771
----------- -----------
Income before provision for income taxes............... 1,401,096 1,564,163
Provision for income taxes ............................ 476,372 530,746
----------- -----------
Net income............................................. $ 924,724 $ 1,033,417
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-38
<PAGE>
LEARDATA INFO-SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 924,724 $1,033,417
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation expense............................... 43,200 34,200
Deferred income taxes.............................. (36,000) 470
Changes in operating assets and liabilities:
Accounts receivable................................ (499,780) (569,471)
Prepaid expenses and other current assets.......... 8,449 (46,250)
Accounts payable and accrued liabilities........... 66,133 161,685
Income taxes payable............................... (99,017) (23,472)
Unearned income.................................... 8,600 --
---------- ----------
Net cash provided by operating activities........ 416,309 590,579
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment......... (78,287) (167,884)
---------- ----------
Cash flows from financing activities:
Due from stockholders................................. (85,000) 8,002
---------- ----------
Net increase (decrease) in cash........................ 253,022 430,697
Cash and cash equivalents, beginning of period......... 1,193,582 1,855,221
---------- ----------
Cash and cash equivalents, end of period............... $1,446,604 $2,285,918
========== ==========
Supplemental information--
Cash paid for income taxes............................ $ 511,000 $ 503,110
========== ==========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-39
<PAGE>
LEARDATA INFO-SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Leardata Info-
Services, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for a complete set of financial statements. In
the opinion of management, all adjustments considered necessary, consisting
only of normal recurring adjustments are included for fair presentation.
Operating results for the nine months ended September 30, 1995 and 1996, are
not necessarily indicative of results that may be expected for the full year.
The unaudited condensed financial statements for the nine months ended
September 30, 1995 and 1996 should be read in conjunction with the audited
financial statements of the Company for the years ended December 31, 1994 and
1995.
NOTE 2. SUBSEQUENT EVENT
The Company has signed a Stock Purchase Agreement to sell the Company. There
can be no assurance that the sale will be consummated.
F-40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company, or that information
contained herein is correct as of any time, subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 8
Use of Proceeds............................................................ 12
Price Range of Common Stock................................................ 12
Dividend Policy............................................................ 12
Capitalization............................................................. 13
Selected Financial Data.................................................... 14
Pro Forma Combined Condensed Financial Information......................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 20
Business................................................................... 26
Management................................................................. 34
Certain Transactions....................................................... 39
Principal and Selling Shareholders......................................... 41
Description of Capital Stock............................................... 42
Shares Eligible for Future Sale............................................ 43
Underwriting............................................................... 44
Legal Matters.............................................................. 45
Experts.................................................................... 45
Available Information...................................................... 46
Index to Financial Statements.............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,200,000 SHARES
[LOGO OF DPRC]
DATA PROCESSING
RESOURCES CORPORATION
COMMON STOCK
-----------------
PROSPECTUS
-----------------
Montgomery Securities
Robert W. Baird & Co.
Incorporated
Lehman Brothers
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Securities and
Exchange Commission and the filing fee for the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
SEC registration fee............................................... $ 13,992
NASD filing fee.................................................... 5,117
Nasdaq National Market listing fee................................. 17,500
Blue Sky fees and expenses......................................... 5,000
Printing and engraving expenses.................................... 115,000
Legal fees and expenses............................................ 175,000
Accounting fees and expenses....................................... 100,000
Transfer agent and registrar fees.................................. 5,000
Miscellaneous...................................................... 13,391
--------
Total.......................................................... $450,000
========
</TABLE>
- --------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California Corporations Code provides for the indemnification of
directors, officers, employees and agents of the Corporation under certain
circumstances set forth in Section 317 thereof. Section 317 permits a
corporation to indemnify its agents, typically directors and officers, for
expenses incurred or settlements or judgments paid in connection with certain
legal proceedings. Only those legal proceedings arising out of such persons'
actions as agents of the corporation may be grounds for indemnification.
Whether or not indemnification may be paid in a particular case depends upon
whether the agent wins, loses or settles the suit and upon whether a third
party or the corporation itself is the plaintiff. The section provides for
mandatory indemnification, no matter who the plaintiff is, when an agent is
successful on the merits of a suit. In all other cases, indemnification is
permissive.
If the agent loses or settles a suit brought by a third party, he or she may
be indemnified for expenses incurred and settlements or judgments paid. Such
indemnification may be authorized upon finding that the agent acted in good
faith and in a manner he or she reasonably believed to be in the best
interests of the corporation.
If the agent loses or settles a suit brought by or on behalf of the
corporation, his or her rights to indemnification are more limited. If he or
she is adjudged to be liable to the corporation, the court in which such
proceeding was held must determine whether it would be fair and reasonable to
indemnify him or her for expenses which such court shall determine. If the
agent settles such a suit with court approval, he or she may be indemnified
for expenses incurred upon a finding that the agent acted in good faith and in
a manner he or she reasonably believed to be in the best interests of the
corporation and, in addition, that he or she acted with the care, including
reasonable inquiry, of an ordinarily prudent person.
The indemnification discussed above may be authorized by a majority vote of
the disinterested directors or shareholders (the person to be indemnified is
excluded from voting his or her shares) or the court in which the proceeding
was brought. The Company's Board of Directors makes all decisions regarding
the indemnification of its officers and directors on a case-by-case basis.
II-1
<PAGE>
Any provision in the Company's Articles of Incorporation or Bylaws or
contained in a shareholder or director resolution that indemnifies its
officers or directors must be consistent with Section 317. Moreover, such a
provision may prohibit permissive, but not mandatory, indemnification as
described above. Last, a corporation has the power to purchase indemnity
insurance for its agents even if it would not have the power to indemnify
them.
The Company's Articles of Incorporation authorize the Board of Directors to
provide indemnification of its agents through bylaw provisions or
indemnification agreements, or both, in excess of the indemnification
otherwise permitted by Section 317, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
The Company's Bylaws require the Company to indemnify each of its directors
and officers, to the maximum extent permitted by the California Corporations
Code, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any such person is or was a director or officer of the
Company. The Company is also required to advance to such director or officer
expenses incurred in defending any such proceeding, to the maximum extent
permitted by such law. The Company's Bylaws also provide that the Board of
Directors, in its discretion, may provide for indemnification of or advance of
expenses to other agents of the Company.
The Company has entered into agreements with each of its directors and
officers pursuant to which the Company has agreed to indemnify such director
or officer from claims, liabilities, damages, expenses, losses, costs,
penalties or amounts paid in settlement incurred by such director or officer
in or arising out of his or her capacity as a director, officer, employee
and/or agent of the Company or any other corporation of which he or she is a
director or officer at the request of the Company to the maximum extent
permitted by applicable law. In addition, such director or officer is entitled
to an advance of expenses to the maximum extent authorized or permitted by
law.
Reference is made to the Form of Underwriting Agreement (to be attached as
Exhibit 1.1 to this Registration Statement) which provides for indemnification
by the Underwriters of the directors and officers of the Company signing the
Registration Statement and certain controlling persons of the Company against
certain liabilities, including those arising under the Securities Act of 1933.
The Company carries directors' and officers' liability insurance covering
its directors and officers.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that,
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 2, 1995, Registrant sold an aggregate of 1,480 shares of Series A
Convertible Preferred Stock in a private placement to a single investment
partnership. The purchase price of $1,601,360 was paid in cash. Such sale was
exempt from the registration requirements of the Securities Act of 1933 by
virtue of Section 4(2) thereof.
During the period from September 1, 1994 through November 30, 1996, the
Company granted stock options to employees and directors covering an aggregate
of 833,920 shares of Common Stock. No consideration was paid for such options.
Such grants were exempt from the registration requirement of the Securities
Act of 1933 as not involving the sale of a security. In connection with the
IPO, Mr. Connell exercised his options covering 11,000 shares of Common Stock.
The issuance of such shares was exempt from the registration requirements of
the Securities Act of 1933 by virtue of Rule 701 promulgated thereunder.
II-2
<PAGE>
In connection with the Company's acquisition of AD&D, the Company issued
152,121 shares of Common Stock to ADD Consulting, Inc. The issuance of such
shares was exempt from the registration requirements of the Securities Act of
1993 by virtue of Section 4(2) thereunder.
In connection with the Company's acquisition of Leardata, the Company issued
310,226 shares of Common Stock to Leardata. The issuance of such shares was
exempt from the registration requirements of the Securities Act of 1993 by
virtue of Section 4(2) thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Agreement of Purchase and Sale of Assets dated July 1, 1996, by and
among Data Processing Resources Corporation, ADD Consulting, Inc. and
Gerald R. Ladd (1)
2.2 Registration Rights Agreement dated July 1, 1996, by and between Data
Processing Resources Corporation and ADD Consulting, Inc. (1)
2.3 Stock Purchase Agreement dated December 16, 1996, by and among Data
Processing Resources Corporation, Leardata Info-Services, Inc.,
General Atlantic Leardata Partners, L.P., Bruce M. Smith, Chris P.
Smith, Steve P. Donaldson, Robert M. Howe and Barbara A. Kuhler*
2.4 Form of Registration Rights Agreement to be entered into among Data
Processing Resources Corporation, Leardata Info-Services, Inc.,
General Atlantic Leardata Partners, L.P., Bruce M. Smith, Chris P.
Smith, Steve P. Donaldson, Robert M. Howe and Barbara A. Kuhler*
3.1 Restated Articles of Incorporation of the Company (2)
3.2 Restated Bylaws of the Company (2)
4.1 Investors' Rights Agreement dated as of March 2, 1995, by and among
the Company and the Holders who are signatories thereto, as amended by
Amendment No. 1 (2)
4.2 Specimen Common Stock certificate (2)
5.1 Opinion of Riordan & McKinzie, a Professional Law Corporation
10.1 Employment Agreement dated as of August 1, 1995 between the Company
and David M. Connell (2)
10.2 Employment Agreement dated as of August 1, 1995 between the Company
and Mary Ellen Weaver (2)
10.3 Employment Agreement dated as of January 5, 1996 between the Company
and Michael A. Piraino (2)
10.4 1994 Stock Option Plan, as amended (3)
10.5 Form of Stock Option Agreement (2)
10.6 Management Services Agreement dated as of December, 1993 between the
Company and IT Resources, Inc. (2)
10.7 Covenant Not to Compete dated as of February 28, 1994 by and among the
Company and Thomas A. Ballantyne, III, Candice M. Ballantyne, and
Ballantyne Computer Service, Inc. (2)
10.8 Form of Indemnification Agreement between the Company and each of its
directors and certain officers (2)
10.9 Employment Agreement dated as of March 1, 1996 between the Company and
Richard E. Earley (2)
10.10 Employee Stock Purchase Plan (3)
10.11 Credit Agreement dated as of October 25, 1996 between Data Processing
Resources Corporation and Wells Fargo Bank, National Association (4)
21.1 List of All Subsidiaries of the Company
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
23.1 Consent of Riordan & McKinzie (contained in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule for Leardata Info-Services, Inc. for the Year
Ended December 31, 1995*
27.2 Financial Data Schedule for Leardata Info-Services, Inc. for the Nine
Months Ended September 30, 1996*
</TABLE>
- --------
* Previously filed on December 24, 1996 as an exhibit to this Registration
Statement
(1) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 1, 1996, as filed with the Securities and Exchange Commission
on July 16, 1996 and, as amended, on August 27, 1996.
(2) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (No. 333-00098) as filed with the Securities and
Exchange Commission on March 5, 1996.
(3) Incorporated by reference to the Company's definitive proxy statement with
form of proxy attached as filed with the Securities and Exchange
Commission on November 20, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1996 as filed with the Securities and
Exchange Commission on October 29, 1996.
(b) Financial Statement Schedules
Schedule VIII -- Valuation and Qualifying Accounts for the Years Ended July
31, 1994, 1995 and 1996.
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or related notes.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Newport Beach, State of California, on the 6th day of January 1997.
DATA PROCESSING RESOURCES CORPORATION
By:
/s/ Mary Ellen Weaver
------------------------------------
Mary Ellen Weaver
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Mary Ellen Weaver Chairman of the Board, Chief January 6, 1997
____________________________________ Executive Officer and
Mary Ellen Weaver Director (Principal
Executive Officer)
* President, Chief Operating January 6, 1997
____________________________________ Officer and Director
David M. Connell
* Senior Vice President and January 6, 1997
____________________________________ Chief Financial Officer
Michael A. Piraino (Principal Financial Officer
and Principal Accounting
Officer)
* Director January 6, 1997
____________________________________
J. Christopher Lewis
* Director January 6, 1997
____________________________________
Li-San Hwang
* Director January 6, 1997
____________________________________
JoAnn W. Wagner
</TABLE>
*By:
/s/ Mary Ellen Weaver
----------------------------
Mary Ellen Weaver
Attorney-in-Fact
II-5
<PAGE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<TABLE>
<CAPTION>
ADDITIONS
BALANCE ---------------------------- BALANCE
AT BEGINNING CHARGES TO AT END OF
OF PERIOD BAD DEBT EXPENSE RECOVERIES ALLOWANCE PERIOD
------------ ----------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31:
1994 (1).............. $ -- $ -- $ -- $ -- $ --
1995.................. $ -- $ 97,500 $ -- $34,489 $ 63,011
1996.................. $63,011 $105,000 $ -- $39,477 $128,534
</TABLE>
- --------
(1)No allowance for the period indicated.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
2.1 Agreement of Purchase and Sale of Assets dated July 1,
1996, by and among Data Processing Resources
Corporation, ADD Consulting, Inc. and Gerald R. Ladd
(1)
2.2 Registration Rights Agreement dated July 1, 1996, by
and between Data Processing Resources Corporation and
ADD Consulting, Inc. (1)
2.3 Stock Purchase Agreement dated December 16, 1996, by
and among Data Processing Resources Corporation,
Leardata Info-Services, Inc., General Atlantic Leardata
Partners, L.P., Bruce M. Smith, Chris P. Smith, Steve
P. Donaldson, Robert M. Howe and Barbara A. Kuhler*
2.4 Form of Registration Rights Agreement to be entered
into among Data Processing Resources Corporation,
Leardata Info-Services, Inc., General Atlantic Leardata
Partners, L.P., Bruce M. Smith, Chris P. Smith, Steve
P. Donaldson, Robert M. Howe and Barbara A. Kuhler*
3.1 Restated Articles of Incorporation of the Company (2)
3.2 Restated Bylaws of the Company (2)
4.1 Investors' Rights Agreement dated as of March 2, 1995,
by and among the Company and the Holders who are
signatories thereto, as amended by Amendment No. 1 (2)
4.2 Specimen Common Stock certificate (2)
5.1 Opinion of Riordan & McKinzie, a Professional Law
Corporation
10.1 Employment Agreement dated as of August 1, 1995 between
the Company and David M. Connell (2)
10.2 Employment Agreement dated as of August 1, 1995 between
the Company and Mary Ellen Weaver (2)
10.3 Employment Agreement dated as of January 5, 1996
between the Company and Michael A. Piraino (2)
10.4 1994 Stock Option Plan, as amended (3)
10.5 Form of Stock Option Agreement (2)
10.6 Management Services Agreement dated as of December,
1993 between the Company and IT Resources, Inc. (2)
10.7 Covenant Not to Compete dated as of February 28, 1994
by and among the Company and Thomas A. Ballantyne, III,
Candice M. Ballantyne, and Ballantyne Computer Service,
Inc. (2)
10.8 Form of Indemnification Agreement between the Company
and each of its directors and certain officers (2)
10.9 Employment Agreement dated as of March 1, 1996 between
the Company and Richard E. Earley (2)
10.10 Employee Stock Purchase Plan (3)
10.11 Credit Agreement dated as of October 25, 1996 between
Data Processing Resources Corporation and Wells Fargo
Bank, National Association (4)
21.1 List of All Subsidiaries of the Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
23.1 Consent of Riordan & McKinzie (contained in Exhibit
5.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule for Leardata Info-Services,
Inc. for the Year Ended December 31, 1995*
27.2 Financial Data Schedule for Leardata Info-Services,
Inc. for the Nine Months Ended September 30, 1996*
</TABLE>
- --------
* Previously filed on December 24, 1996 as an exhibit to this Registration
Statement.
(1) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 1, 1996, as filed with the Securities and Exchange Commission
on July 16, 1996 and, as amended, on August 27, 1996.
(2) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (No. 333-00098) as filed with the Securities and
Exchange Commission on March 5, 1996.
(3) Incorporated by reference to the Company's definitive proxy statement with
form of proxy attached as filed with the Securities and Exchange
Commission on November 20, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1996 as filed with the Securities and
Exchange Commission on October 29, 1996.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF RIORDAN & MCKINZIE]
January 6, 1997
4-157-013
Data Processing Resources Corporation
4400 MacArthur Boulevard, Suite 600
Newport Beach, California 92660
Ladies and Gentlemen:
We have acted as counsel to Data Processing Resources Corporation, a
California corporation (the "Company"), in connection with the registration
under the Securities Act of 1933, as amended (the "1933 Act"), of the sale in an
underwritten public offering of up to 2,280,000 authorized but unissued shares
of the Common Stock (the "Common Stock") (which includes 280,000 shares of
Common Stock issuable upon exercise of the underwriters' over-allotment option),
of the Company (the "Company Shares"), and up to 250,000 shares of Common Stock
issued to a selling shareholder (which includes 50,000 shares of Common Stock to
be sold by such selling shareholder upon the exercise of the underwriters' over-
allotment option) (the "Outstanding Shares"). This opinion is delivered to you
in accordance with the requirements of Item 601(b)(5) of Regulation S-K under
the 1933 Act in connection with the Registration Statement on Form S-1 (the
"Registration Statement") for the aforementioned sale, filed with the Securities
and Exchange Commission (the "Commission") under the 1933 Act (Registration No.
333-18719).
In rendering the opinion set forth herein, we have made such
investigations of fact and law, and examined such documents and instruments, or
copies thereof established to our satisfaction to be true and correct copies
thereof, as we have deemed necessary under the circumstances.
Based upon the foregoing and such other examination of law and fact as
we have deemed necessary, and in reliance thereon, we are of the opinion that,
subject to such proceedings as are now contemplated being duly taken and
completed by you prior to the issuance of the Company Shares, the issuance of an
appropriate order by the Commission
<PAGE>
[LETTERHEAD OF RIORDAN & MCKINZIE]
Data Processing Resources Corporation
January 6, 1997
Page 2
declaring the Registration Statement, as amended, effective, and the compliance
with applicable state securities and "blue sky" laws, (i) the Company Shares
have been duly authorized and will, upon sale and delivery thereof and receipt
by the Company of full payment therefor as set forth in the Underwriting
Agreement filed as Exhibit 1 to the Registration Statement, be validly issued,
fully paid and nonassessable, and (ii) the Outstanding Shares are duly
authorized, validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
In giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933 Act or the rules
and regulations of the Commission thereunder.
Very truly yours,
/s/ RIORDAN & MCKINZIE
19689.1
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
SUBSIDIARIES STATE OF ORGANIZATION PERCENTAGE OWNED
------------ --------------------- ----------------
<S> <C> <C>
LEARDATA Info-Services, Inc. Texas 100%
Professional Software Consultants, Inc. Arizona 100%
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 1 to the Registration Statement (No.
333-18719) of Data Processing Resources Corporation on Form S-1 of our report
dated September 19, 1996 (October 25, 1996 as to Note 12), appearing in the
Prospectus, which is part of this Registration Statement and to the reference
to us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Costa Mesa, California
January 6, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Amendment No. 1 to the Form S-1 Registration Statement (File No. 333-18719) of
our reports dated February 1, 1996, and May 16, 1994, included in or made a
part of this Registration Statement and to all references to our firm included
in this Registration Statement.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
January 6, 1997
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 1 to the Registration Statement (No.
333-18719) of Data Processing Resources Corporation on Form S-1 of our report
on the financial statements of Leardata Info-Services, Inc. dated March 11,
1996, appearing in the Prospectus, which is part of this Registration
Statement on Form S-1 of Data Processing Resources Corporation and to the
reference to us under the heading "Experts" in the Prospectus, which is part
of this Registration Statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
January 6, 1997
