<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 27, 1998
DATA PROCESSING RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
California 0-27612 95-3931443
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) file number) Identification No.)
4400 MacArthur Boulevard, Suite 600
Newport Beach, CA 92660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 553-1102
Not Applicable
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The audited financial statements of S3G, Inc. ("S3G"), prepared in
accordance with Regulation S-X, consisting of the balance sheets as
of December 31, 1997 and 1996 and the related statements of income,
shareholder's equity and cash flows for each of the twelve months in
the periods ended December 31, 1997 and 1996 together with the
corresponding Report of Independent Public Accountants filed with
this report are listed in the Index to Financial Statements on page
F-1 of this report.
(b) Unaudited Pro Forma Financial Information.
The unaudited pro forma financial statements for the consolidated
companies filed with this report are listed in the Index to
Financial Statements on page F-1 of this report.
(c) Exhibits.
The following exhibits are filed herewith:
Exhibit No. Document
----------- --------
<TABLE>
<CAPTION>
<C> <S>
2.1 Agreement of Purchase and Sale of Assets dated January
27, 1998, by and among Data Processing Resources
Corporation, S3G, Inc. and Michael G. McCarthy.*
2.2 Registration Rights Agreement dated January 27, 1998,
by and between Data Processing Resources Corporation
and S3G, Inc.*
10.1 Credit Agreement dated as of September 25, 1997 between
Data Processing Resources Corporation and Wells Fargo
Bank, National Association, as Administrative Agent.
[X]
13.1 Annual Report on Form 10-K for the fiscal year ended
July 31, 1997, as filed with the Securities and
Exchange Commission on October 29, 1997. [XX]
99.1 Text of Press Release dated January 28, 1998.*
</TABLE>
_______________
* Exhibits previously filed on February 11, 1998 with Registrant's Current
Report on Form 8-K dated January 27, 1998 incorporated herein by reference under
Exhibit Number indicated.
[X] Filed with the Securities and Exchange Commission on October 29, 1997 as an
exhibit to DPRC's Annual Report on Form 10-K for the fiscal year ended July 31,
1997 (File No. 0-27612) and incorporated by reference herein.
[XX] Filed with the Securities and Exchange Commission on October 29, 1997 (file
no. 0-27612) and incorporated by reference herein.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATA PROCESSING RESOURCES CORPORATION
Date: March 5, 1998 By: /s/ Michael A. Piraino
------------------- ----------------------------
Michael A. Piraino, Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Unaudited Pro Forma Consolidated Financial Statements of Registrant
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Unaudited Pro forma Consolidated Balance Sheet as of October 31, 1997 F-2
Unaudited Pro Forma Consolidated Statements of Income for the Three Months ended
October 31, 1997 and for the Year ended July 31, 1997 F-3 TO F-4
Notes to Unaudited Pro Forma Consolidated Financial Statements F-5 TO F-6
Historical Financial Statements of S3G, Inc.
- --------------------------------------------
Report of Independent Public Accountants F-7
Balance Sheets as of December 31, 1997 and 1996 F-8 TO F-9
Statements of Income for each of the twelve months in the period ended
December 31, 1997 and 1996 F-10
Statements of Shareholder's Equity for each of the twelve months in the period ended
December 31, 1997 and 1996 F-11
Statements of Cash Flows for each of the twelve months in the period ended
December 31, 1997 and 1996 F-12
Notes to Historical Financial Statements F-13 to F-18
</TABLE>
F-1
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of October 31,1997
<TABLE>
<CAPTION>
DPRC S3G
As of As of
October 31, December 31, Pro Forma
1997 1997 Adjustments Pro Forma
------------ ------------ ------------- ------------
ASSETS (Note 2)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 15,781,000 $ 623,000 $ (440,000) b
25,500,000 a
(28,250,000) a 13,214,000
Accounts receivable, net 25,943,000 2,792,000 (50,000) b 28,685,000
Receivables from affiliates -
Prepaid expenses and other current -
assets
Deferred tax asset -
Prepaid expenses and other current 1,128,000 38,000 1,166,000
assets
------------ ------------ ------------- ------------
Total current assets 42,852,000 3,453,000 (3,240,000) 17,565,000
Property, net 1,734,000 568,000 2,302,000
Other assets 344,000 4,000 348,000
Intangible assets, net 68,046,000 29,961,000 a 98,007,000
------------ ------------ ------------- ------------
$112,976,000 $ 4,025,000 $ 26,721,000 $118,222,000
============ ============ ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued $ 7,756,000 $ 874,000 $ 330,000 b $ 8,960,000
liabilities
Income taxes payable 1,717,000 184,000 (184,000) b 1,717,000
Deferred income taxes 55,000 55,000
Line of credit 740,000 (740,000) b -
25,500,000 a 25,500,000
------------ ------------ ------------- ------------
Total current liabilities 9,528,000 1,798,000 24,906,000 36,232,000
Other long-term liabilities 81,000 53,000 134,000
Shareholders' equity:
Preferred stock
Common stock 91,212,000 1,000 (1,000) b
3,989,000 a 95,201,000
Additional paid-in-capital 2,642,000 133,000 (133,000) b 2,642,000
Retained earnings 9,513,000 2,040,000 (2,040,000) b 9,513,000
------------ ------------ ------------- ------------
Total shareholders' equity 103,367,000 2,174,000 1,815,000 107,356,000
------------ ------------ ------------- ------------
$112,976,000 $ 4,025,000 $ 26,721,000 $118,222,000
============ ============ ============= ============
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
F-2
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended October 31, 1997
<TABLE>
<CAPTION>
DPRC S3G
Three Months Three Months
Ended Ended
October 31, December 31, Pro Forma
1997 1997 Adjustments Pro Forma
------------- ------------- ----------- -----------
(Note 2)
<S> <C> <C> <C> <C>
Revenues $45,094,000 $3,558,000 $ - $48,652,000
Cost of professional services 32,690,000 1,441,000 34,131,000
----------- ---------- ----------- -----------
Gross margin 12,404,000 2,117,000 - 14,521,000
Selling, general and administrative expenses 8,027,000 779,000 318,000 c 9,124,000
----------- ---------- ----------- -----------
Operating income 4,377,000 1,338,000 (318,000) 5,397,000
Interest (expense) income, net 127,000 (446,000) d (319,000)
----------- ---------- ----------- -----------
Income before provision for income taxes 4,504,000 1,338,000 (764,000) 5,078,000
Provision for income taxes 1,982,000 63,000 248,000 e 2,230,000
----------- ---------- ---------- -----------
Net income $ 2,522,000 $1,595,000 $(1,087,000) $ 2,848,000
=========== ========== =========== ===========
Net income per share $ 0.22 $ 0.24
=========== ===========
Weighted average common shares used in
the calculation of historical net income
per share (Note 3) 11,457,000 205,000 11,662,000
=========== =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
F-3
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended July 31, 1997
<TABLE>
<CAPTION>
DPRC S3G
Year Ended Twelve months Ended Pro Forma
July 31, 1997 September 30, 1997 Adjustments Pro Forma
------------- ------------------- ----------- ------------
(Note 2)
<S> <C> <C> <C> <C>
Revenues $115,022,000 $9,200,000 $ - $124,222,000
Cost of professional services 85,979,000 3,900,000 89,879,000
------------ ---------- ----------- ------------
Gross margin 29,043,000 5,300,000 - 34,343,000
Selling, general and administrative expenses 18,654,000 2,213,000 1,271,000 c 22,138,000
------------ ---------- ----------- ------------
Operating income 10,389,000 3,087,000 (1,271,000) 12,205,000
Interest (expense) income, net 869,000 (19,000) (1,786,000) d $ (936,000)
------------ ---------- ----------- ------------
Income before provision for income taxes 11,258,000 3,068,000 (3,057,000) 11,269,000
Provision for income taxes 4,542,000 138,000 (133,000) e 4,547,000
------------ ---------- ----------- ------------
Net income $ 6,716,000 $2,930,000 $(2,924,000) $ 6,722,000
============ ========== =========== ============
Net income per share $ 0.71 $0.70
============ ============
Weighted average common shares used in
the calculation of historical net income
per share (Note 3) 9,460,000 205,000 9,665,000
============ =========== ============
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
F-4
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 1997 AND THE THREE MONTHS ENDED OCTOBER 31, 1997
1. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On January 27, 1998, Data Processing Resources Corporation ("DPRC") acquired
substantially all of the assets and assumed certain liabilities of S3G, Inc., a
Texas Corporation ("S3G"). The acquisition was achieved pursuant to an
Agreement of Purchase and Sale of Assets dated January 27, 1998 ("Asset Purchase
Agreement"), by and among DPRC, S3G and the sole shareholder of S3G, Michael G.
McCarthy ("McCarthy"). Under the terms of the Asset Purchase Agreement, the
purchase price was $32,239,000, Consisting of $28,250,000 in cash and 204,552
shares of DPRC common stock, valued at $3,989,000 (computed using a value of
DPRC common stock of $4,985,000, less an adjustment of $996,000 to reflect the
impact of restrictions on disposition of the stock). In addition, S3G has the
Right to receive certain additional consideration contingent upon S3G's adjusted
earnings before interest and taxes through December 31, 1998. The purchase
price, including the additional consideration, is based on a multiple of
adjusted earnings before interest and taxes. Under the Asset Purchase
Agreement, S3G has certain registration rights with respect to the 204,552
shares of DPRC common stock it received in the acquisition and any additional
shares of DPRC common stock which it might receive as additional consideration.
The unaudited pro forma consolidated balance sheet and statements of income
give effect on a purchase accounting basis to the acquisition of S3G. The
unaudited pro forma consolidated balance sheet as of October 31, 1997 has been
prepared by consolidating the balance sheet of DPRC as of October 31, 1997 with
the balance sheet of S3G as of December 31, 1997. The unaudited pro forma
consolidated statement of income for the three months ended October 31, 1997 has
been prepared by consolidating the statement of income of DPRC for the three
months ended October 31, 1997 with the statement of income of S3G for the three
months ended December 31, 1997. The unaudited pro forma consolidated statement
of income for the fiscal year ended July 31, 1997 has been prepared by
consolidating the statement of income of DPRC for the fiscal year ended July 31,
1997 with the statement of income of S3G for the twelve months ended September
30, 1997.
The unaudited pro forma consolidated balance sheet as of October 31, 1997
assumes that the acquisition occurred on October 31, 1997. The unaudited pro
forma consolidated statements of income for the three months ended October 31,
1997 and for the fiscal year ended July 31, 1997 assume that the acquisition
occurred on August 1, 1996. The unaudited pro forma consolidated balance sheet
and statements of income do not purport to represent the results of operations
or financial position of DPRC had the transaction and events assumed therein
occurred on the dates specified, nor are they necessarily indicative of the
results of operations that may be achieved in the future. The unaudited pro
forma 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 Statements of Financial Accounting Standards No.
38, "Accounting for Preacquisition Contingencies of Purchased Enterprises".
F-5
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
For the Year ended July 31, 1997 and the Three Months ended October 31, 1997
The unaudited pro forma consolidated financial statements are based upon
certain assumptions and adjustments described in the notes to the unaudited pro
forma consolidated financial statements. The unaudited pro forma consolidated
financial statements should be read in conjunction with the historical financial
statements, and related notes, of DPRC contained in DPRC's quarterly report on
Form 10-Q for the quarter ended October 31, 1997 and in DPRC's Annual Report on
Form 10-K for the year ended July 31, 1997.
2. UNAUDITED PRO FORMA ADJUSTMENTS
The following items describe the unaudited pro forma adjustments made to
reflect the acquisition of S3G:
a) To record the allocation of the purchase price and other purchase
accounting adjustments as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 28,250,000
Common Stock of DPRC 3,989,000
------------
Total Purchase Price 32,239,000
Net assets acquired (2,658,000)
Adjustments to conform accounting policies 230,000
Acquisition costs related to S3G 150,000
------------
Excess of purchase price over net assets acquired $ 29,961,000
============
</TABLE>
The excess of purchase price over net assets acquired was allocated to
intangible assets in the consolidated balance sheet. Of the $28,250,000 in
cash consideration, $25,500,000 was borrowed by DPRC utilizing a line of
credit with a bank syndicate
b) To eliminate assets and liabilities not purchased in the acquisition of
S3G.
c) To record amortization related to goodwill and non-compete covenants
acquired with the purchase of S3G which are amortized based on the straight
line method over twenty-five years and three years, respectively.
d) To record the reduction in interest income and increase in interest
expense due to the loss of the use of cash and borrowings used in the
acquisition of S3G.
e) To record the tax effect of the pro forma adjustments and a tax
provision related to the business of S3G.
3. UNAUDITED PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
Unaudited pro forma weighted average shares outstanding assumes as
outstanding the 204,552 new shares issued by DPRC required to consummate the
acquisition of S3G.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
S3G, Inc.:
We have audited the accompanying balance sheets of S3G, Inc. (the Company) as of
December 31, 1997 and 1996, and the related statements of income, shareholder's
equity and cash flows for the twelve-month periods 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, such financial statements present fairly, in all material
respects, the financial position of S3G, Inc. at December 31, 1997 and 1996, and
the results of its operations and its cash flows for the twelve-month periods
then ended in conformity with generally accepted accounting principles.
January 30, 1998
F-7
<PAGE>
S3G, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
________________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 623,000 $ 343,000
Accounts receivable, net 2,792,000 1,320,000
Prepaid expenses and other current assets 38,000 26,000
---------- ----------
Total current assets 3,453,000 1,689,000
PROPERTY (Note 2):
Furniture and fixtures 159,000 90,000
Computers and equipment 550,000 301,000
Automobiles 101,000 69,000
Leasehold improvements 57,000 17,000
---------- ----------
867,000 477,000
Less accumulated depreciation and amortization 299,000 143,000
---------- ----------
Property, net 568,000 334,000
Other long-term assets (Note 2) 4,000 -
---------- ----------
$4,025,000 $2,023,000
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
S3G, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996 (Continued)
________________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 72,000 $ 81,000
Accrued liabilities (Note 3) 781,000 269,000
Income taxes payable (Notes 2 and 8) 184,000 16,000
Line of credit (Note 4) 740,000 162,000
Current portion of long-term debt (Note 4) 21,000 15,000
---------- ----------
Total current liabilities 1,798,000 543,000
LONG-TERM DEBT (Note 4) 53,000 84,000
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDER'S EQUITY:
Common stock, $.01 par value; 100,000 shares
authorized, issued and outstanding 1,000 1,000
Paid-in capital in excess of par 133,000 133,000
Retained earnings 2,040,000 1,262,000
---------- ----------
Total shareholder's equity 2,174,000 1,396,000
---------- ----------
$4,025,000 $2,023,000
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
S3G, INC.
STATEMENTS OF INCOME
FOR THE TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
________________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
REVENUES (Notes 2 and 6) $10,963,000 $4,635,000
COST OF PROFESSIONAL SERVICES 4,709,000 2,015,000
----------- ----------
GROSS MARGIN 6,254,000 2,620,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Notes 5 and 7) 2,522,000 1,223,000
----------- ----------
INCOME BEFORE INTEREST EXPENSE 3,732,000 1,397,000
INTEREST EXPENSE (Note 4) 13,000 8,000
----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,719,000 1,389,000
PROVISION FOR STATE FRANCHISE TAXES
(Notes 2 and 8) 168,000 63,000
----------- ----------
NET INCOME $ 3,551,000 $1,326,000
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
S3G, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
________________________________________________________________________________
<TABLE>
<CAPTION>
Common stock
---------------- Paid-in Retained
Shares Amount capital earnings Total
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996 100,000 $1,000 $133,000 $ 224,000 $ 358,000
Net income 1,326,000 1,326,000
Distribution to shareholder (288,000) (288,000)
------- ------ -------- ---------- -----------
BALANCE, December 31, 1996 100,000 1,000 133,000 1,262,000 1,396,000
Net income 3,551,000 3,551,000
Distribution to shareholder (2,773,000) (2,773,000)
------- ------ -------- ---------- -----------
BALANCE, December 31, 1997 100,000 $1,000 $133,000 $2,040,000 $ 2,174,000
======= ====== ======== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
S3G, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
________________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,551,000 $1,326,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 157,000 89,000
Loss on disposal of property 7,000
Deferred income taxes 47,000
Changes in operating assets and liabilities:
Accounts receivable (1,472,000) (997,000)
Prepaid expenses and other current and
long-term assets (16,000) (26,000)
Accounts payable (9,000) 70,000
Accrued liabilities 512,000 192,000
Income taxes payable 168,000 16,000
----------- ----------
Net cash provided by operating activities 2,891,000 724,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property (358,000) (310,000)
Proceeds from disposition of property 2,000
----------- ----------
Net cash used in investing activities (356,000) (310,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit 578,000 113,000
Payments on automobile notes payable (18,000) (12,000)
Repayment of note payable to shareholder (42,000) (20,000)
Distribution to shareholder (2,773,000) (288,000)
----------- ----------
Net cash used in financing activities (2,255,000) (207,000)
----------- ----------
NET INCREASE IN CASH 280,000 207,000
CASH, beginning of year 343,000 136,000
----------- ----------
CASH, end of year $ 623,000 $ 343,000
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
S3G, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (Continued)
________________________________________________________________________________
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
SUPPLEMENTAL INFORMATION - Cash paid for:
Interest $13,000 $8,000
======= ======
Income taxes $ - $ -
======= ======
</TABLE>
SUPPLEMENTAL INFORMATION - Noncash transactions:
During the twelve-month period ended 1997, the Company acquired an automobile
and entered into a note payable for $35,000.
During the twelve-month period ended 1996, the Company acquired five automobiles
and entered into notes payable aggregating $69,000.
See accompanying notes to financial statements.
F-13
<PAGE>
S3G, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996
________________________________________________________________________________
1. GENERAL
Business - S3G, Inc. (the Company) was incorporated in the State of Texas on
July 13, 1994 as Spectrum Software Services Group, Inc. (SSSGI). Effective
September 8, 1997, the articles of incorporation were amended and the name
of SSSGI was changed to S3G, Inc. The Company operates a software
consulting business providing its clients with planning, customizing,
implementing and support services with respect to software information
systems with applications in financial, human resources and materials
management.
Fiscal Year End - The Company has a fiscal year end of September 30. The
accompanying financial statements have been prepared as of December 31, 1997
and 1996 and the twelve-month periods then ended.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property - The cost of furniture and fixtures, equipment, automobiles and
improvements is depreciated using the double declining balance method based
on the estimated useful lives of the related assets. Useful lives range
from five to seven years for furniture, fixtures, automobiles and equipment.
Leasehold improvements are amortized over the lesser of seven years or the
life of the lease.
Other Long-Term Assets - Long-term assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Revenue Recognition - The Company recognizes revenue as services are
performed.
Income Taxes - The Company has elected to be taxed as an S corporation under
the provisions of the federal tax code. Under federal laws, taxes based on
income of S corporations are payable by the corporation's shareholder.
Accordingly, no provision for current federal income taxes has been provided
in the accompanying financial statements for the twelve-month periods ended
December 31, 1997 and 1996.
The Company provides for state franchise 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 tax law or rates.
F-14
<PAGE>
S3G, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (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.
Fair Value of Financial Instruments - Management believes that the carrying
value of receivables and payables approximate fair value because of the
short maturity of these financial instruments. Management also believes
that the carrying value of the line of credit and long-term debt
approximates its fair value as the yield is consistent with the yields
obtained from financial instruments with similar risk attributes.
Recent Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is effective beginning in 1998. The
Company does not anticipate the adoption of this new standard will have a
material impact on its financial position or results of operations.
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accrued salaries, bonuses and related benefits $724,000 $253,000
Other accrued expenses 57,000 16,000
-------- --------
$781,000 $269,000
======== ========
</TABLE>
4. DEBT
The Company has a revolving line of credit with a financial institution.
The revolving line of credit provides borrowings up to $1,500,000 and
expires on July 15, 1998. As of December 31, 1997 and 1996, there were
$740,000 and $162,000 outstanding under the revolving line of credit,
respectively. Outstanding principal balances under the revolving line of
credit bear interest at the prime rate (8.50% at December 31, 1997).
Borrowings are secured by substantially all assets of the Company and are
personally guaranteed by the stockholder of the Company. The agreement
requires, among other things, that the Company maintain various financial
covenants with which the Company was in compliance as of December 31, 1997.
F-15
<PAGE>
S3G, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
________________________________________________________________________________
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Automobile notes payable (five at December 31, 1996
and six at December 31, 1997) with various interest
rates and terms $ 74,000 $ 57,000
Note payable to shareholder 42,000
-------- --------
74,000 99,000
Less current portion (21,000) (15,000)
-------- --------
$ 53,000 $ 84,000
======== ========
</TABLE>
Repayment terms under the various automobile notes payable are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 $ 28,000
1999 25,000
2000 21,000
2001 13,000
2002 9,000
--------
96,000
Less amounts representing interest (22,000)
--------
$ 74,000
========
</TABLE>
F-16
<PAGE>
S3G, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
________________________________________________________________________________
5. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases its office facilities and certain
office equipment under lease agreements classified as operating leases.
Future minimum lease payments under such noncancelable operating leases are
summarized as follows at December 31, 1997:
<TABLE>
<CAPTION>
Twelve months ending December 31:
<S> <C>
1998 $ 83,000
1999 100,000
2000 106,000
2001 113,000
2002 115,000
Thereafter 90,000
--------
Total future minimum lease payments $607,000
========
</TABLE>
Rent expense amounted to $85,000 and $51,000 for the twelve-month periods
ended December 31, 1997 and 1996, respectively, and has been included in
selling, general and administrative expenses in the accompanying statements
of income.
Software Support Commitment - The Company has entered into an agreement with
a software developer, whereby the Company and the software developer have
agreed to software licensing, training support, and other provisions that
will govern their business relationship. The agreement with the software
developer is renewed on a yearly basis and does not require a monetary
commitment by either party.
6. CONCENTRATIONS OF CREDIT RISK
The Company's revenues are generated from credit sales to customers located
throughout the United States. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company's ten largest customers represented 79% of total revenues in fiscal
1997, and as a result, the Company has a large proportion of its receivables
outstanding with these customers. Accounts receivable from the Company's
ten largest customers totaled $2,113,000 as of December 31, 1997.
In each of fiscal 1997 and 1996, the Company had revenues from a major
customer, not necessarily the same customer in each period, of approximately
$2,594,000 and $2,361,000, respectively. Given the significant amount of
revenues derived from these customers, the loss of any such customer or the
uncollectibility of related receivables could have a material adverse effect
on the Company's financial condition and results of operations.
F-17
<PAGE>
S3G, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWELVE-MONTH PERIODS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
________________________________________________________________________________
7. EMPLOYEE BENEFIT PLANS
The Company has a retirement savings plan (the Plan) which qualifies under
Section 401(k) of the Internal Revenue Code (IRC). Eligible employees may
contribute up to 15% of their annual compensation, as defined by the Plan.
The Company, at the discretion of management, may match 2% of the employees'
contributions, up to 8%. Matching contributions for the twelve-month
periods ended December 31, 1997 and 1996 were $48,000 and $18,000,
respectively.
8. STATE FRANCHISE TAX
The state franchise tax provision consists of the following for the twelve-
month periods ended December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current $168,000 $16,000
Deferred 47,000
-------- -------
$168,000 $63,000
======== =======
</TABLE>
The Company's deferred franchise taxes as of December 31, 1997 are not
significant to the financial statements as a whole. The state franchise tax
provision for the twelve-month periods ended December 31, 1996 includes the
realization of a $47,000 deferred franchise tax asset, representing business
operating loss carryforwards available to the Company as of January 1, 1996.
9. SUBSEQUENT EVENT
On January 27, 1998, the Company sold substantially all of its assets, net
of certain liabilities, to Data Processing Resources Corporation (DPRC).
The Company received consideration in the form of DPRC unregistered common
stock valued at approximately $4,000,000 and approximately $28,200,000 in
cash. Additional consideration is contingent and will be determined based
on predetermined formulas on various dates through March 1, 1999.
F-18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<S> <C>
2.1 Agreement of Purchase and Sale of Assets dated january 27,
1998, by and among Data Processing Resources Corporation,
S3G, Inc. and Michael G. McCarthy. *
2.2 Registration Rights Agreement dated January 27, 1998, by and
between Data Processing Resources Corporation and S3G, Inc.*
10.1 Credit Agreement dated as of September 25, 1997 between Data
Processing Resources Corporation and Wells Fargo Bank,
National Association, as Administrative Agent. [X]
13.1 Annual Report on Form 10-K for the fiscal year ended July 31,
1997, as filed with the Securities and Exchange Commission
on October 29, 1997. [XX]
99.1 Text of Press Release dated January 28, 1998.*
</TABLE>
_________________
* Exhibits previously filed on February 11, 1998 with Registrant's Current
Report on Form 8-K dated January 27, 1998 incorporated herein by reference
under Exhibit Number indicated.
[X] Filed with the Securities and Exchange Commission on October 29, 1997 as an
exhibit to DPRC's Annual Report on Form 10-K for the fiscal year ended July 31,
1997 (File No. 0-27612) and incorporated by reference herein.
[XX] Filed with the Securities and Exchange Commission on October 29, 1997 (File
No. 0-27612) and incorporated by reference herein.
