<PAGE>
As filed with the Securities and Exchange Commission on October 18, 1996
Registration No. 33-60403
=========================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
COMFORCE CORPORATION
(FORMERLY THE LORI CORPORATION)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7361 36 - 2262248
- --------------------------------- ---- ----------------------------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S Employer Identification No.)
of incorporation or organization) Classification Code Number)
</TABLE>
____________________
COMFORCE CORPORATION
2001 MARCUS AVENUE
LAKE SUCCESS, NEW YORK 11042
(516) 352-3200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
____________________
CHRISTOPHER P. FRANCO
EXECUTIVE VICE PRESIDENT
COMFORCE CORPORATION
2001 MARCUS AVENUE
LAKE SUCCESS, NEW YORK 11042
(516) 352-3200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________________
Copy to:
DAVID G. EDWARDS, ESQUIRE
DOEPKEN KEEVICAN & WEISS PROFESSIONAL CORPORATION
37TH FLOOR, USX TOWER
600 GRANT STREET
PITTSBURGH, PENNSYLVANIA 15219-2703
(412) 355-2600 (Name, address, including zip code, and telephone number,
including area code, of agent for service)
____________________
<PAGE>
(Cover page continued)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement as
determined by market conditions and other factors.
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. X
---
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. _____
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered(1) Offering Price Per Share(2) Aggregate Offering Price(2) Registration Fee(2)
--------------------------- ------------- --------------------------- --------------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock 9,808,705 $ 2.375 $ 2,734,266 $ 942.85
$13.375 $74,182,270 $25,579.92
$16.625 $51,721,987 $17,835.16
=============================================================================================================================
</TABLE>
(1) Includes certain shares of common stock (the "Common Stock"), of COMFORCE
Corporation ("COMFORCE" or the "Company") issuable upon the exercise of the
Company's warrants to purchase Common Stock or upon the conversion of the
Company's convertible preferred stock or notes.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c), the offering price and registration fee are
computed on the basis of the average of the high and low prices of the
Company's shares of Common Stock traded on the American Stock Exchange
within five business days prior to the filing of this Registration
Statement. The per share price of $2.375 represents such average on June
16, 1995, a date within five business days prior to the filing of the
original Registration Statement under which 1,151,270 shares were included
for registration (the fee as to which ($942.85) was previously paid). The
per share price of $13.375 represents such average on May 6, 1996, a date
within five business days prior to the filing of Amendment No. 1 under which
5,546,338 shares were included for registration (the fee as to which
($25,579.92) was previously paid). The per share price of $16.625
represents such average on October 14, 1996, a date within five business
days prior to the filing of this Amendment No. 2 under which 3,111,097
shares are included for registration (the fee as to which ($17,835.16) is
paid herewith).
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER 18, 1996
PROSPECTUS
9,808,705 SHARES
COMFORCE CORPORATION
COMMON STOCK
COMFORCE Corporation, a Delaware corporation (the "Company" or
"COMFORCE") is a leading provider of staffing, consulting and outsourcing
solutions that address the high technology needs of businesses.
All of the 9,808,705 shares of common stock ("Common Stock") of the
COMFORCE Corporation (the "Company" or "COMFORCE") offered hereby are being
offered for sale, from time to time by or for the account of certain
existing security holders of the Company ("Selling Stockholders"). See
"Selling Stockholders." The Common Stock is listed on the American Stock
Exchange. The Selling Stockholders have indicated that they propose from
time to time to offer their shares, if any, for sale in regular way
brokerage transactions on the American Stock Exchange or in privately
negotiated transactions; and that sales on or through the facilities of the
American Stock Exchange will be effected at such prices as may be
obtainable and are satisfactory to the respective Selling Stockholders.
Michael Ferrentino, the President and a Director of the Company,
Christopher P. Franco, an Executive Vice President of the Company, Kevin W.
Kiernan, a Vice President of COMFORCE Global, and James L. Paterek, a
consultant to the Company, collectively are registering 3,888,084 shares
hereby. Such individuals have advised the Company that they will agree not
to sell any such shares for at least six months from the effective date of
the Registration Statement of which this Prospectus is a part.
In certain cases the Selling Stockholders, brokers executing sales orders
on their behalf and dealers purchasing shares from the Selling Stockholders
for resale, may be deemed to be "underwriters," as that term is defined in
Section 2(11) of the Securities Act of 1933, as amended (the "Securities
Act"), and any commissions received by them and any profit on the resale of
Common Stock purchased by them may be deemed underwriting commissions or
discounts under the Securities Act.
The Company will not receive any proceeds from sales of shares to which
this Prospectus relates. However, insofar as the holders of warrants to
purchase shares of the Common Stock are expected to exercise their warrants
in order to sell the underlying shares (which are registered hereby), the
Company will receive the amount of the exercise prices of any warrants so
exercised. The Company cannot predict when or if it will receive proceeds
from the exercise of warrants, or the amount of any such proceeds.
SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
On _______, 1996, the closing price of the Common Stock on the American
Stock Exchange was $___ per share. The Company will bear certain of the
expenses of this offering, estimated to be $130,000.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ____________, 1996.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain of the information contained in
this Prospectus and is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere herein.
Prospective investors should carefully consider the information set forth
under the caption "Risk Factors."
THE COMPANY
COMFORCE is a leading provider of staffing, consulting and outsourcing
solutions that address the high technology needs of businesses. The Company
provides services through a highly-skilled labor force, including computer
programmers, engineers, technicians, scientists and researchers. The
Company's customers include telecommunication equipment manufacturers,
telecommunication service providers (wireline and wireless), computer
software and hardware providers, aerospace and avionics firms, utilities
and national laboratories engaging in alternative energy source
development, environmental safety, and laser and weapons research.
COMFORCE employs over 1,100 persons, 95% of which are billable. In
addition to billable employees, the Company maintains a database of
approximately 100,000 prospective highly-skilled employees with expertise
in the technical disciplines served by the Company.
The Company serves its customers through three principal operating
divisions, Telecommunications, Technical Services and Information
Technology. The Telecommunications division serves its customers' needs in
virtually all areas of the telecommunications sector, including wireline
and wireless technology, satellite and earth station deployment, network
management and plant modernization. The Information Technology division's
programmers, systems analysts, software engineers and other computer
personnel offer expertise throughout the information technology market. In
the technical staffing market, the Technical Services division provides
diverse commercial needs for highly skilled labor, including in the
avionics and aerospace, architectural, automotive, energy and power,
pharmaceutical, marine and petrochemical fields.
The Company's objective is to increase its revenues and strengthen its
market position in the highly skilled labor segment of the technical
staffing services business. COMFORCE will seek to achieve its objective by
(i) focussing its efforts in the high technology sectors which offer a
greater demand for services, higher employee compensation levels, higher
profit margins and more stable customer and employee relationships than
lower skilled labor sectors; (ii) seeking to continue to acquire existing
businesses with profitable track records and recognized local or regional
presence, with a view toward expanding the Company's geographic service
base, diversifying its capabilities in the high technology sectors and
establishing new relationships with large corporations; (iii) offering
innovative and flexible service packages to its customers; and (iv)
seeking to continue to expand geographically in the United States and
internationally.
THE OFFERING
The Company is required under certain agreements it has entered into
with stockholders, warrantholders and noteholders to register the shares of
Common Stock held by such persons or issuable upon the exercise of warrants
or conversion of convertible Preferred Stock or notes held by them.
Existing securityholders of the Company are offering 9,808,705 shares of
Common Stock held by them or issuable to them.
2
<PAGE>
Common Stock Offered by the Selling Stockholders...... 9,808,175 shares*
Common Stock Outstanding.............................. 9,632,032 shares
Common Stock Issuable Under Warrants............................ shares
Common Stock Issuable Upon Conversion of Convertible
Preferred Stock and Notes...................................... shares
Total Common Stock.............................................. shares*
American Stock Exchange Symbol..................................... CFS
_________________
*Includes Common Stock issuable under Warrants or upon conversion of
convertible Preferred Stock and convertible notes.
See "Selling Stockholders" and "Plan of Distribution."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common
Stock offered hereby by the Selling Stockholders. However, if the holders
of warrants to purchase shares of Common Stock exercise their warrants in
order to sell the underlying shares (which are registered hereby), the
Company will receive the amount of the exercise prices of any warrants so
exercised. The Company cannot predict when or if it will receive proceeds
from the exercise of warrants, or the amount of any such proceeds. The
Company intends to use the proceeds, if any, received from the exercise of
warrants for working capital purposes. See "Plan of Distribution."
RISK FACTORS
Prospective investors should carefully review the risk factors and other
information set forth herein, including under the heading "Risk Factors"
which discusses, among other things, significant risks associated with an
investment in the Company.
3
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors relating to the Company and the Offering should be considered in
evaluating an investment in the shares of Common Stock offered hereby.
DILUTION AND DEPRESSION OF MARKET PRICE OF COMMON STOCK
During August 1996, the daily average number of shares of Common Stock
traded on the American Stock Exchange was approximately 33,000 shares. If
such trading levels continue, it may be difficult for Selling Stockholders
to effect sales of their shares on the American Stock Exchange and, the
placement of a substantially larger number of sell orders could materially
and adversely impact the market price of the Common Stock.
As of September 30, 1996, there were 9,632,032 shares of Common Stock
issued and outstanding (10,519,132 shares assuming conversion of currently
outstanding shares of Series E Preferred Stock at the specified rate of 100
shares of Common Stock for each share of Series E Preferred Stock, which
conversion will take place automatically if the Company's stockholders
approve a proposed amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares at the Annual Meeting of
Stockholders to be held on October 28, 1996), of which approximately
1,200,000 were in the public float. Assuming that all shares registered
hereby (including shares issuable upon the exercise of warrants and the
conversion into Common Stock of convertible Preferred Stock and convertible
notes) will be sold into the market, an additional 9,808,705 previously
restricted shares will enter the public float. In addition, the exercise
of warrants and the conversion into Common Stock of convertible Preferred
Stock and convertible notes at prices below the market price will result in
substantial dilution to existing stockholders.
ABSENCE OF COMBINED OPERATING HISTORY
The Company's technical staffing business has been developed principally
through the acquisition of established technical staffing business, all of
which have been acquired since October 1995. Prior to their acquisition by
the Company, each of these acquired companies operated as a separate
independent entity, and there can be no assurance that the Company will be
able to integrate the businesses acquired on an economic or operational
basis. There can be no assurance that the Company's management group will
be able to oversee the combined entity and effectively implement the
Company's strategy. The pro forma financial data of the Company set forth
in this Prospectus includes the combined operating results of these
recently acquired businesses during periods when they were not under common
control or management and as such may not be indicative of the Company's
future financial or operating results. An inability of the Company to
integrate the acquired businesses would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, if the Company is unable to effectively integrate the management
personnel needed to manage the acquired businesses, if such personnel are
unable to achieve anticipated performance levels or if the Company is
unable to implement effective controls, the Company's business, financial
condition and results of operations could be adversely affected.
RELIANCE ON ACQUISITIONS FOR COMPANY GROWTH
The ability of the Company to achieve growth through acquisitions will
depend on a number of factors, including the availability of working
capital, existing and emerging competition and the availability of
attractive acquisition opportunities. The Company has recently consummated
several acquisitions and is actively seeking acquisition opportunities.
Once integrated, acquisitions may not achieve levels of revenue,
profitability or productivity comparable to those of the Company's existing
locations or may not otherwise perform as expected. Acquisitions also
involve special risks, including risks associated with unanticipated
liabilities and contingencies, diversion of management attention and
possible adverse effects on earnings resulting from increased goodwill
amortization, increased interest costs, the issuance of additional
securities and difficulties related to the integration of the acquired
4
<PAGE>
business. There can be no assurance that the Company will be able to
successfully identify additional suitable acquisition candidates, complete
additional acquisitions or integrate acquired businesses into its
operations.
NEED FOR FINANCING
The Company anticipates that it will need debt or equity financing in
order to carry out its strategy of growth through acquisitions. As of the
date of this Prospectus, the Company has no commitment for additional
financing. Although the Company is currently in discussions with
prospective lenders and investors to provide financing, there can be no
assurance that any such financing will become available on terms favorable
to affordable by the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ABILITY TO MANAGE GROWTH
The Company's officers have had limited experience in managing companies
as large and as rapidly growing as the Company. The Company's strategy of
continuing its growth and expansion will place additional demands upon the
Company's current management and other resources and will require
additional working capital, information systems and management,
operational, and other financial resources. The continued growth of the
Company will depend on various factors, including, among others, federal
and state regulation of the telecommunications industry. Not all of such
factors are within the control of the Company. The Company's ability to
manage growth successfully will require the Company to continue to enhance
its operational, management, financial and information systems and
controls. No assurance can be given that the Company will be able to
manage its expanding operations and, if the Company's management is unable
to manage growth effectively, the Company's business, operating results and
financial condition could be materially adversely affected. Furthermore,
there can be no assurance that the growth experienced by the Company in the
past will continue.
INTANGIBLE ASSETS
The Company has substantial intangible assets representing amounts
attributable to goodwill recorded in connection with the Company's
acquisitions. Any impairment in the value of such assets could have an
adverse effect on the Company's financial condition and results of
operations. See the Company's consolidated financial statements.
EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY
Demand for staffing services is significantly affected by the general
level of economic activity in the country. Companies use temporary
staffing services to manage personnel costs and staffing needs due to
business fluctuations. When economic activity increases, temporary
employees are often added before full-time employees are hired. As
economic activity slows, many companies reduce their usage of temporary
employees before undertaking layoffs of their regular employees. During
expansions, there is intense competition among temporary services firms for
qualified temporary personnel. In addition, the Company may experience
increased competitive pricing pressures during such periods. There can be
no assurance that during such periods of increased economic activity and
higher general employment levels the Company will be able to recruit and
retain sufficient temporary personnel to meet the needs of its clients, or
that pricing pressures will not adversely affect the Company's results of
operations. Similarly, a slowdown in the economy may result in decreased
demand for temporary personnel, which may have an adverse effect on the
Company's financial condition and results of operations.
LIABILITIES FOR CLIENT AND EMPLOYEE ACTIONS
Staffing service providers are in the business of employing people and
placing them in the workplace of other businesses. An attendant risk of
such activity includes possible claims of discrimination and harassment,
employment of illegal aliens and other similar claims. The Company has
policies and guidelines in place to reduce its exposure to these risks.
However, a failure to follow these policies and guidelines may result in
negative publicity and the payment by the Company of money damages or
fines. Although the Company historically has not had any significant
5
<PAGE>
problems in this area, there can be no assurance that the Company will not
experience such problems in the future. The Company is also exposed to
liability with respect to actions taken by its employees while on
assignment, such as damages caused by employee errors, misuse of client
proprietary information or theft of client property. Although the Company
maintains insurance, due to the nature of the Company's assignments, in
particular its access to client information systems and confidential
information, and the potential liability with respect thereto, there can be
no assurance that insurance coverage will continue to be available or that
it will be adequate to cover any such liability.
INCREASES IN UNEMPLOYMENT INSURANCE PREMIUMS AND WORKERS' COMPENSATION
RATES
The Company is required to pay unemployment insurance premiums and
workers' compensation benefits for its temporary employees. Unemployment
insurance premiums are set annually by the states in which employees
perform services and could increase as a result of, among other things,
increased levels of unemployment and the lengthening periods for which
unemployment benefits are available. Workers' compensation costs have
increased as various states in which the Company conducts operations have
raised levels and liberalized allowable claims. The Company maintains
workers' compensation insurance for its employees in amounts required under
applicable state law and in the amount of $500,000 in the case of foreign
workers. The Company may incur costs related to workers' compensation
claims at rates higher than anticipated due to higher than anticipated
losses from known claims or an increase in the number or the severity of
new claims. In addition, the Company's costs could increase as the result
of any future health care reforms. Certain federal and state legislative
proposals have included provisions extending health insurance benefits to
temporary employees who do not presently receive such benefits. There can
be no assurance that the Company will be able to increase the fees charged
to its clients in a sufficient amount to cover increased costs related to
workers' compensation and unemployment insurance. Further, there can be no
assurance that the Company will be able to obtain or renew workers'
compensation insurance coverage in amounts and types desired at reasonable
premium rates.
DEPENDENCE ON AVAILABILITY OF QUALIFIED STAFFING PERSONNEL
The Company depends on its ability to attract, train and retain
personnel who possess the skills and experience necessary to meet the
staffing requirements of its clients. Competition for individuals with
proven skills in certain areas, particularly information technology and
telecommunications, is intense. The Company must continually evaluate,
train and upgrade its base of available personnel to keep pace with
clients' needs. Competition for individuals with proven technical skills
is intense. The Company competes for such individuals with other providers
of technical staffing services, systems integrators, providers of
outsourcing services, computer systems consultants, clients and temporary
personnel agencies. There can be no assurance that qualified personnel will
continue to be available to the Company in sufficient numbers and on
economic terms acceptable to the Company.
COMPETITION
The temporary services industry is highly competitive and has low
barriers to entry. Heightened competition for customers as well as for
technical personnel could adversely impact the Company's margins.
Heightened competition for customers could result in the Company being
unable to maintain its current fee scales without being able to reduce its
personnel costs. Shortages of qualified technical personnel, which
currently exist in some technical specialities and could occur in the
future, may result in the Company being unable to fulfill its customer's
needs or in the customers electing to employ technical staff directly
(rather than using the Company's services) to ensure the availability of
such personnel. Many of the Company's competitors have greater marketing,
financial and personnel resources than does the Company and could provide
new or increased competition to the Company. The Company expects that the
level of competition will remain high in the future.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on its management. The Company's success
depends upon the availability and performance of its President, Michael
Ferrentino, its Executive Vice President, Christopher P. Franco, and its
6
<PAGE>
principal consultant, James Paterek. The loss of services of any of these
key persons could have a material adverse effect upon the Company. The
Company has entered into employment agreements with Messrs. Ferrentino and
Franco, both expiring in December 1997. The Company does not maintain key
man life insurance on any of these individuals. See "Management."
CONTROL BY INSIDERS
Management of the Company controls approximately 35% of the Company's
outstanding shares of Common Stock. As a result, such persons are expected
to have the ability to decide all issues submitted to the Company's
stockholders. Such concentration of ownership could limit the price that
certain investors might be willing to pay in the future for shares of
Common Stock, and could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
Bylaws authorize the issuance of "blank check" Preferred Stock and the
establishment of advance notice requirements for director nominations and
actions to be taken at stockholder meetings. These provisions could
discourage or impede a tender offer, proxy contest or other similar
transaction involving control of the Company, which transactions might be
viewed favorably by minority stockholders. In particular, by authorizing
and issuing preferred stock with particular rights, the issuance of
Preferred Stock could have an adverse effect on holders of Common Stock by
delaying or preventing a change in control of the Company, making removal
of the present management of the Company more difficult or resulting in
restrictions upon the payment of dividends and other distributions to the
holders of Common Stock. For example, the Company could issue shares of
Preferred Stock with extraordinary voting rights or liquidation preferences
to make it more difficult for a hostile acquirer to gain control of the
Company. In addition to the anti-takeover effect of the issuance of
preferred stock, holders of preferred stock have a preferred position over
holders of common stock on liquidation, the right to a fixed or minimum
dividend before any dividend is paid (or accrued) on common stock, and the
right to approve certain extraordinary corporate matters. See "Description
of the Company's Securities."
LIMITATIONS ON PAYMENT OF DIVIDENDS
The Company anticipates that for the foreseeable future its earnings
will be retained for the operation and expansion of its business and that
it will not pay cash dividends. In addition, the Company's revolving
credit facility prohibits the payment of cash dividends without the
lender's consent. See "Dividend Policy."
POSSIBLE VOLATILITY OF STOCK PRICE
From time to time, there may be significant volatility in the market
price for the Company's Common Stock. Quarterly operating results of the
Company or of other temporary staffing companies, changes in general
conditions in the economy, the financial markets or the staffing industry,
natural disasters or other developments could cause the market price of the
Company's Common Stock to fluctuate substantially. In addition, in recent
years the stock market has experienced extreme price and volume
fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to
their operating performance.
7
<PAGE>
THE COMPANY
The predecessor of COMFORCE Telecom was formed in 1987 by Michael
Ferrentino, the President, a Director and a significant stockholder of the
Company and James Paterek, a consultant to and significant stockholder of
the Company. In June 1995, these founders and Christopher Franco, an
Executive Vice President and significant stockholder of the Company,
entered into an agreement which enabled them to utilize the Company, then a
public company with limited operations, as a vehicle to establish a
technical staffing business. The Company, which was incorporated in
Delaware in 1969, discontinued its existing operations in September 1995
and acquired COMFORCE Telecom in October 1995. The Company acquired ______
additional staffing businesses in 1996. See "Business--Acquisitions" and
"Discontinued Operations--History of Discontinued Operations."
The Company maintains its headquarters at 2001 Marcus Avenue, Lake
Success, New York 11042. The Company's telephone number is (516) 352-3200.
SELECTED PRO FORMA FINANCIAL INFORMATION
PRO FORMA FINANCIAL INFORMATION
In September 1995, the Company adopted a plan to discontinue its
existing operations and entered into an agreement to acquire all of the
capital stock of COMFORCE Global, which it acquired on October 17, 1995.
COMFORCE Global is a provider of technical staffing services, principally
in the telecommunications sector. On March 3, 1996, the Company acquired
all of the assets of Williams Communications Services, Inc. ("Williams"), a
regional provider of telecommunications and technical staffing services. On
May 10, 1996, the Company completed the acquisition of Project Staffing
Support Team, Inc. and the assets of RRA, Inc. and Datatech Technical
Services, Inc. (collectively, "RRA"). RRA is in the business of providing
contract employees to other businesses.
Due to its discontinuation of its prior business, the Company's
consolidated financial statements have been reclassified to report
separately results of operations of the discontinued business. Therefore,
a comparison of the Company's consolidated results of operations for the
year ended December 31, 1995 and the six months ended June 30, 1996 with
prior periods is not meaningful. The following tables present unaudited
pro forma results of continuing operations for: (i) the six months ended
June 30, 1996; (ii) the six months ended June 30, 1995; (iii) the year
ended December 31, 1995; and (iv) the year ended December 31, 1994, as if
the acquisitions of COMFORCE Global, Williams and RRA had been consummated
as of January 1, 1994. See "Selected Historical Financial Information" for
a presentation of historical financial information.
8
<PAGE>
COMFORCE CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Williams (A) RRA (A) Adjustments Pro Forma
----------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues $13,158 $ 654 $22,786 $36,598
Operating costs and
expenses:
Cost of Revenues 11,002 281 20,762 32,045
Other operating costs
and expenses 1,401 38 1,491 154 (B) 3,084
------ ------- ------- ------- --- -----
12,403 319 22,253 154 35,129
Operating earnings (loss) 755 335 533 (154) 1,469
------ ------- ------- ------- -----
Other Income 16 16
Interest and other non-
operating expenses (51) (36) (30) (C) (117)
------ ------- ------- --- -----
(35) (36) (30) (101)
Earnings (loss) from continuing
operations before income taxes 720 335 497 (184) 1,368
(Provision) credit for income taxes (268) (265) (199) 131 (601)
------- ------- ------- -------- -----
Income (loss) from continuing
operations $ 452 $ 70 $ 298 $ (53) $ 767
====== ======= ====== ======= ======
Income per share from continuing
operations $ .03 $ .06
======= =======
Weighted average shares of common
stock and common stock equivalents
outstanding (F) 13,819 13,819
====== ======
</TABLE>
9
<PAGE>
COMFORCE CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
(In thousands)
<TABLE>
<CAPTION>
Lori COMFORCE Pro Forma
Historical Global (A) Williams (A) RRA (A) Adjustments Pro Forma
----------- ---------- ------------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - $5,653 $ 1,678 $24,424 31,755
------ ------ ------- ------- --------
Operating costs and
expenses:
Cost of Revenues 4,183 1,227 22,618 28,028
Stock compensation (E) 3,425 3,425
Corporate
management fees (D) 625 625
Other operating costs and
expenses 227 913 131 1,348 278 (B) 2,897
------ ------ ------ ------- ------- --- ---------
227 5,721 1,358 23,966 3,703 34,975
------ ------ ------ ------- ------- ---------
Operating earnings
(loss) (227) (68) 320 458 (3,703) (3,220)
------ ------ ------ ------- ------- ---------
Other Income 26 2 3 31
Interest and other non-
operating expenses (131) (60) (80) (C) (271)
------ ------ ------ ------- ------- ---------
(105) 2 (57) (80) (240)
Earnings (loss) from continuing
operations before income taxes (332) (66) 320 401 (3,783) (3,460)
(Provision) credit for income
taxes (3) (19) (128) (160) 1,513 1,203
------ ------ ------ ------- ------- ---------
Income (loss) from continuing
operations $ (335) $ (85) $ 192 $ 241 $(2,270) $ (2,257)
------ ------ ------ ------- ------- ---------
Loss per share from continuing
operations $ (.07) $ (.23)
====== =========
Weighted average shares
outstanding (F) 3,257 9,790
======= =========
</TABLE>
Pro forma adjustments to the unaudited condensed consolidated
statement of operations:
(A) The pro forma data presented for COMFORCE Global's, Williams' and
RRA's operations is for the periods prior to their acquisitions
(i.e., in the case of COMFORCE Global, the period from
January 1, 1995 through June 30, 1995, which precedes its October
17, 1995 acquisition; in the case of Williams, the periods from
January 1, 1996 through March 2, 1996 and from January 1, 1995
through June 30, 1995, which precede its March 3, 1996; and, in
the case of RRA, the periods from January 1, 1996 through May 9,
1996 and from January 1, 1995 through June 30, 1995, which
precede its May 10, 1996).
(B) Amortization of intangibles arising from the COMFORCE Global,
Williams and RRA acquisition. The table below reflects where the
amortization of intangibles has been recorded
10
<PAGE>
<TABLE>
<CAPTION>
Six Months Six Months
June 1996 June 1995
---------- ----------
<S> <C> <C>
Historical COMFORCE $206
Historical COMFORCE Global $ 82
Williams
RRA
Pro forma Adjustment 154 278
---- ----
Adjusted Pro forma per
Financial statement $360 $360
==== ====
</TABLE>
(C) To record interest expense incurred for the purchase of Williams
for the pro forma six months ended June 30, 1995 and for the
period January 1, 1996 through March 3, 1996. Interest expense
represents interest on the line of credit assuming all
$1,900,000 was outstanding for the six months ended June 30, 1995
and for the period January 1, 1996 through March 3, 1996 at the
interest rate in effect of 8.5%.
(D) Represents a non-recurring compensation charge related to the
issuance of the 35% common stock interest in the Company to
certain individuals to manage the Company's entry into and
development of the telecommunications and computer technical
staffing business.
(E) Corporate management fees from COMFORCE Global's former parent.
The amount of these management fees may not be representative of
costs incurred by COMFORCE Global on a stand alone basis.
(F) Pro forma weighted average shares outstanding includes shares of
the Company's Common Stock issued in the private placement that
funded the COMFORCE Global transaction, including 100,000 shares
issued to ARTRA, and 150,000 shares issued to Peter Harvey, then
a Vice President of the Company, for guaranteeing the payment of
the purchase price to the seller and other guarantees associated
with the COMFORCE Global acquisition, shares issued to certain
individuals to manage the Company's entry into and development of
the telecommunications and computer technical staffing services
business, and Series D and Series E Preferred Stock issued in
conjunction with the purchase of RRA. Current management of the
Company has questioned its obligation to deliver the 150,000
shares to Peter Harvey and the 100,000 shares to ARTRA issued in
consideration of their guarantees. However, for purposes of
presenting earnings per share data, the Company is recognizing
these shares as being issued and outstanding pending resolution
of the matter.
11
<PAGE>
COMFORCE CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
COMFORCE Pro Forma
Historical (A) Global (B) Williams (B) RRA (B) Adjustments Pro Forma
-------------- ---------- ------------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 2,387 $9,568 $ 4,178 $52,011 $68,144
Operating costs and expenses:
Cost of revenues 1,818 7,178 3,022 47,830 59,848
Stock compensation (C) 3,425 3,425
Corporate management fees (F) 1,140 1,140
Other operating costs and expenses 823 1,397 450 2,992 $ 531 (D) 6,193
------- ------ ------- ------- ------- -------
6,066 9,715 3,472 50,822 531 70,606
------- ------ ------- ------- ------- -------
Operating earnings (loss) (3,679) (147) 706 1,189 (531) (2,462)
------- ------ ------- ------- ------- -------
Interest and other non-operating expenses (618) 7 (133) 248 (E) (496)
------- ------ ------- ------- ------- -------
(618) 7 --- (133) 248 (496)
------- ------ ------- ------- ------- -------
Earnings (loss) from operations before
income taxes (4,297) (140) 706 1,056 (283) (2,958)
(Provision) credit for income taxes (35) 21 (354) (422) 113 (677)
------- ------ ------- ------- ------- -------
Income (loss) from operations $(4,332) $ (119) $ 352 $ 634 $ (170) $(3,635)
======= ====== ======= ======= ======= =======
Income (loss) per share from continuing
operations $(0.95) $(0.39)
======= ======
Weighted average shares of common stock and
common stock equivalents outstanding (G) 4,596 9,309
======= ======
</TABLE>
- ------------------------------------------------------------
See the notes following the Pro Forma Statement of Operations for the Year Ended
December 31, 1994.
12
<PAGE>
COMFORCE CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
(In thousands)
<TABLE>
<CAPTION>
COMFORCE Pro Forma
Historical (A) Global (B) Williams (B) RRA (B) Adjustments Pro Forma
-------------- ---------- ------------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ $8,245 $2,692 $38,559 $49,496
Operating costs and expenses:
Cost of revenues 6,417 2,107 35,601 44,125
Corporate management fees (F) 803 803
Other operating costs and expenses 966 1,134 593 2,288 608 5,589
------- ------ ------ ------- ----- ---------
966 8,354 2,700 37,889 608 50,517
------- ------ ------ ------- ----- ---------
Operating earnings (loss) (966) (109) (8) 670 (608) (1,020)
------- ------ ------ ------- ----- ---------
Other income 25 25
Interest and other non-operating expenses (1,316) 9 (24) (168) (163) (1,662)
------- ------ ------ ------- ----- ---------
(1,316) 9 (24) (143) (163) (1,637)
------- ------ ------ ------- ----- ---------
Earnings (loss) from operations before
income taxes (2,282) (100) (32) 527 (770) (2,657)
(Provision) credit for income taxes (15) 13 (210) 308 96
------ ------ ------- ----- ---------
Income (loss) from operations $(2,282) $ (115) $ (19) $ 317 $(462) $(2,561)
======= ====== ====== ======= ===== =========
Income (loss) per share from continuing
operations $(.72) $(0.25)
======= =========
Weighted average shares of common stock and
common stock equivalents outstanding (G) 3,195 10,196
======= =========
</TABLE>
________________________________
(A) Historical data for the year ended December 31, 1995 includes COMFORCE
Global's operations since its acquisition on October 17, 1995 through
December 31, 1995 and corporate overhead costs for the entire year
ended December 31, 1995.
(B) The pro forma data presented for COMFORCE Global's, Williams' and
RRA's operations is for the periods prior to their acquisitions (i.e.,
in the case of COMFORCE Global, the period from January 1, 1994
through December 31, 1994, and January 1, 1995 through October 16,
1995, which precede its October 17, 1995 acquisition, and, in the case
of Williams and RRA, the periods from January 1, 1994 through December
31, 1994 and January 1, 1995 through December 31, 1995, which precede
the March 3, 1996 acquisition of Williams and the May 10, 1996
acquisition of RRA).
(C) Represents a non-recurring compensation charge related to the issuance
of the 35% common stock interest in the Company to certain individuals
to manage the Company's entry into and development of the
telecommunications and computer technical staffing business.
13
<PAGE>
(D) Amortization of goodwill arising out of the Global, Williams and RRA
acquisitions. The table below reflects where amortization of goodwill
has been recorded.
<TABLE>
<CAPTION>
December 1995 December 1994
------------- -------------
<S> <C> <C>
Historical COMFORCE Corp. $ 51 $---
Historical COMFORCE Global` 142 164
Williams --- ---
RRA --- ---
Proforma Adjustments 530 559
---- ----
Adjusted pro forma per financial
statements $723 $723
</TABLE>
(E) Reverse interest expense on notes and other liabilities assumed by
ARTRA totaling $410,000 net of interest expense incurred for the
purchase of Williams for the pro forma year ended December 31, 1995.
Interest expense for December 31, 1995 represents interest on the line
of credit assuming all $1,900,000 was outstanding for the year at the
interest rate in effect of 8.5%. The interest expense reversed in
1995 was for interest on notes directly related to Lori Corporation
activities and were incurred in 1995. These liabilities were not
outstanding during 1994 and, accordingly, a similar adjustment is not
required.
(F) Corporate management fees from COMFORCE Global's former parent. The
amount of these management fees may not be representative of costs
incurred by COMFORCE Global on a stand alone basis.
(G) The pro forma weighted average shares and common stock equivalents
outstanding includes shares of the Company's common stock issued and
to be issued in the private placement that funded the COMFORCE Global
transaction, shares issued for fees and costs associated with the
COMFORCE Global transaction including 100,000 shares issued to ARTRA,
150,000 shares issued to Peter Harvey for guaranteeing the COMFORCE
Global transaction, shares issued to certain individuals to manage the
Company's entry into the telecommunications and technical staffing
business, and the private placement of Series E Preferred Stock issued
in conjunction with the RRA acquisition. Current management of the
Company has questioned its obligation to deliver the 150,000 shares to
Peter Harvey and the 100,000 shares to ARTRA issued in consideration
of their guarantees. However, for purposes of presenting earnings per
share data, the Company is recognizing these shares as being issued
and outstanding pending resolution of the matter.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion supplements the information found in the
consolidated financial statements and related notes.
OVERVIEW
The Company has identified the areas of skilled contract labor and
consulting for the telecommunications, information technology and
scientific and technical business sectors as high growth, profitable market
niches that could benefit from new opportunities in current markets,
particularly in the wireless telephone and networked information systems
industries. Commencing in the fourth quarter of 1995, the Company embarked
on an aggressive program to acquire technical staffing businesses. Set
forth below is a summary of completed acquisitions. See "Business --
Acquisitions" for a description of the terms of these acquisitions.
<TABLE>
<CAPTION>
DATE OF ACQUISITION COMPANY ACQUIRED BUSINESS SECTOR SERVED
<S> <C> <C>
October 1995 COMFORCE Global, Inc. National provider of telecommunications
and
technical staffing services
March 1996 Williams Communications Services, Regional provider of telecommunications
Inc. and
technical staffing services
May 1996 RRA, Inc., Project Staffing Support National provider of supplemental
System, Inc. and Datatech Technical staffing,
Services, Inc. primarily in telecommunications and
information technology
August 1996 Force Five, Inc. National provider of information
technology
consulting
</TABLE>
The Company serves three principal sectors, telecommunications, technical
services and information technology. COMFORCE serves its customers' needs
in virtually all areas of the telecommunications sector, including the
wireline and wireless technology, satellite and earth station deployment,
network management and plant modernization. COMFORCE's programmers,
systems analysts, software engineers and other computer personnel offer
expertise throughout the information technology sector. In the technical
staffing market, COMFORCE serves diverse commercial needs in the highly
skilled labor market, including in the avionics, architectural, automotive,
pharmaceutical, marine and petrochemical fields.
RESULTS OF OPERATIONS
Due to the Company's discontinuation of its existing business in the
third quarter of 1995 and its acquisition of various technical staffing
businesses since that time, a comparison of the Company's consolidated
results of operations for the years ended December 31, 1995 and December
31, 1994, for the years ended December 31, 1994 and December 31, 1993, and
for the three and six months ended June 30, 1996 and June 30, 1995 is not
meaningful. Accordingly, a discussion of pro forma results of operations
for certain of those periods is provided.
Pro Forma Three Months ended June 30, 1996 vs. Pro Forma Three Months ended
June 30, 1995
Pro forma revenues of $17,542,000 for the three months ended June 30,
1996 were $584,000, or 3% higher than pro forma revenues for the three
months ended June 30, 1995. The increase in 1996 pro forma revenues is
attributable to the overall growth and expansion of COMFORCE Global's
telecommunications and computer staffing business as well as growth in the
operations of Williams and RRA. Pro forma cost of revenues of the three
months
15
<PAGE>
ended June 30, 1996 was 86% of pro forma revenues compared to pro forma
cost of revenues of 87% for the three months ended June 30, 1995. The
dollar increase in the 1996 pro forma cost of revenues is principally
attributable to increased sales volume. The 1996 pro forma cost of revenues
percentage decrease of 1% is primarily attributable to higher margins of
new business.
Pro forma operating expenses for the three months ended June 30, 1996
increased $60,000 as compared to pro forma operating expenses for the three
months ended June 30, 1995.
Corporate management fees of $357,000 from COMFORCE Global's former
parent, reflect an allocation of corporate overhead; however, such charges
will no longer continue as a result of COMFORCE Global's acquisition by the
Company in October 1995. In the opinion of management, the amount of these
fees are not representative of costs incurred by COMFORCE Global on a stand
alone basis.
Pro forma operating income for the three months ended June 30, 1996 was
$840,000 compared to pro forma operating income of $223,000 for the three
months ended June 30, 1995 is primarily attributable to both the increase
in sales and the related improved margin on those sales, as well as the
discontinuance of corporate management fees as noted above.
Pro forma other expense, principally interest, net of other income for
the three months ended June 30, 1996 decreased $76,000 principally due to
the discharge of indebtedness of Lori and its Jewelry Business.
Pro Forma Six Months ended June 30, 1996 vs. Pro Forma Six Months ended
June 30, 1995
Pro forma revenues of $36,598,000 for the six months ended June 30, 1996
were $4,843,000, or 15% higher than pro forma revenues for the six months
ended June 30, 1996. The increase in 1996 Pro forma revenues is
attributable to the overall growth and expansion of COMFORCE Global's
telecommunications and computer staffing business as well as the growth in
Williams and RRA. Pro forma cost of revenues for six months ended June 30,
1996 and June 30, 1995 was 88% of pro forma revenues. The 1996 dollar
increase in pro forma cost of revenues of $43,017,000 is principally
attributable to the increase in sales volume.
Pro forma operating expenses for the six months ended June 30, 1996
decreased $3,863,000 compared to pro forma operating expenses for the six
months ended June 30, 1995. The 1996 decrease in pro forma operating
expenses is principally attributable to the 1995 compensation charge of
$3,425,000 related to the issuance of a 35% interest in the Company to
certain individuals to manage the Company's entry into and development of
the telecommunications and computer technical staffing services business
and $625,000 in corporate management fees payable to the Company's former
parent as described below.
Corporate management fees paid to COMFORCE Global's former parent
reflect an allocation of corporate overhead; however, such charges will no
longer continue as a result of COMFORCE Global's acquisition by the Company
in October 1995. In the opinion of management, the amount of these fees are
not representative of costs incurred by COMFORCE Global on a stand alone
basis.
Pro forma operating income for the six months ended June 30, 1996 was
$1,469,000 as compared to pro forma operating loss of $3,220,000 for the
six months ended June 30, 1995. The improvement in 1996 is principally
attributable to the compensation charge and corporate management charge
paid to the Company's former parent, as described above, plus the increased
operating income generated by increased revenues in the pro forma 1996
period.
Pro forma other expenses, principally interest, net of other income for
the six months ended June 30, 1996 decreased $139,000 principally due to
the discharge of indebtedness of Lori and its Jewelry Business.
Pro Forma 1995 Compared to Pro Forma 1994
16
<PAGE>
Set forth below is a discussion of the Company's pro forma results of
continuing operations for the years ended December 31, 1995 and December
31, 1994. The Company's pro forma results of continuing operations for the
years ended December 31, 1995 and December 31, 1994 are presented under
"Selected Historical and Pro Forma Financial Information" as if the
acquisition of COMFORCE Global had been consummated as of January 1, 1994.
Pro forma revenues of $68,144,000 for the year ended December 31, 1995
were $18,648,000, or 37.0%, higher than pro forma revenues for the year
ended December 31, 1994. The increase in 1995 pro forma revenues is
attributable to the overall growth and expansion of COMFORCE Global's
telecommunications and computer technical staffing services business as
well as the increase in revenue from Williams and RRA. Pro forma cost of
revenues of $59,848,000 for the year ended December 31, 1995 increased
$15,723,000 as compared to pro forma cost of revenues for the year ended
December 31, 1994. Pro forma cost of revenues in the year ended December
31, 1995 was 88% of pro forma revenues compared to a pro forma cost of
revenues percentage of 89% for the year ended December 31, 1994. The 1995
pro forma cost of revenues increase is principally attributable to the
increase in sales volume as noted above. The 1995 pro forma cost of
revenues percentage decrease of 1.0% is primarily attributable to certain
consulting fees incurred in 1994.
Pro forma operating expenses for the year ended December 31, 1995
increased $4,366,000 as compared to pro forma operating expenses for the
year ended December 31, 1994. The 1995 increase in pro forma operating
expenses is principally attributable to a compensation charge of $3,425,000
related to the issuance of a 35% interest in the Company as additional
compensation for certain individuals to enter into employment or consulting
services agreements to manage the Company's entry into and development of
the telecommunications and computer technical staffing services business
and an increase in RRA operating costs for opening three new offices.
Corporate management fees paid to COMFORCE Global's former parent reflect
an allocation of corporate overhead; however, such charges will no longer
continue as a result of COMFORCE Global's acquisition by the Company in
October 1995. In the opinion of management, the amount of these fees are
not representative of costs incurred by COMFORCE Global on a stand alone
basis.
Pro forma operating loss in the year ended December 31, 1995 was
$2,462,000 as compared to pro forma operating loss of $1,020,000 in the
year ended December 31, 1994. The increased 1995 pro forma operating loss
is principally attributable to a compensation charge of $3,425,000 related
to the issuance of a 35% interest in the Company as described above,
$337,000 increases in corporate management fee as described above,
partially offset by an increased pro forma gross margin attributable to the
overall growth and expansion of COMFORCE Global's and Williams'
telecommunications and computer technical staffing services business, as
well as an increase in the RRA technical services business.
Pro forma other expense, principally interest, net for the year ended
December 31, 1995 decreased $1,166,000 as compared to the year ended
December 31, 1994. The 1995 decrease is principally due to the 1994 and
1995 discharges of indebtedness under terms of the bank loan agreements of
Lori and its fashion costume jewelry subsidiaries.
Due to the Company's tax loss carry forwards and the uncertainty of
future taxable income, no income tax benefit was recognized in connection
with the Company's 1995 and 1994 pre-tax losses from continuing operations.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company will generate cash flow from
operations which, together with proceeds from its sale of securities
earlier in 1996 and funds available under the $10 million revolving Credit
Facility entered into with Chase as of July 22, 1996 (the "Credit
Facility"), will be sufficient to fund its technical staffing business for
the remainder of 1996; however, the Company does not expect to have
sufficient liquidity or capital resources to fund its planned expansion
through acquisitions and other means. The Company intends to seek
additional debt and/ or equity financing to fund such planned expansion.
17
<PAGE>
Cash and cash equivalents increased $1,629,000 during the six months
ended June 30, 1996. Cash flows provided by financing activities of
$13,051,000 exceeded cash flows used in operating activities of $3,318,000
and cash flows used by investing activities of $8,104,000. Cash flows used
by operating activities were principally attributable to the temporary need
to fund Williams and RRA accounts receivable and their carrying costs due
to the purchase of Williams in March 1996 and RRA in May 1996. Cash flows
used in investing activities are principally related to the purchase of
Williams and RRA for a total of $7,450,000 including directly related
costs, as well as loans made to certain officers of the Company pursuant to
their employment contracts in the amount of $331,000 and the purchase of
fixed assets in the amount of $323,000. Cash flows from financing
activities were attributable to borrowings under the revolving line of
credit of $1,500,000, the exercise of warrants in the amount of $999,000,
and the issuance of Series E Preferred Stock and Series D Preferred Stock
in the amount of $4,636,000 and $6,416,000, respectively.
During the six months ended June 30, 1996, the Company eliminated its
working capital deficiency and, at June 30, 1996, had excess working
capital of $4,385,000. The increase in working capital is principally
attributable to the Company's increase in accounts receivable due to the
acquisitions of Williams and RRA, the issuance of shares of Series D and E
Preferred Stock and the reduction in the liabilities assumed by ARTRA.
On July 22, 1996, the Company and certain of its subsidiaries entered
into a $10 million Credit Facility with Chase to provide working capital
for the Company's operations. See Note 10 to the condensed consolidated
financial statements.
OTHER MATTERS
See "Discontinued Operations--History of Discontinued Operations" for a
discussion of the Company's discontinued operations.
See "Discontinued Operations--Environmental Matters" for a discussion of
the potential impact on the Company's operations of certain environmental
matters.
At December 31, 1995, the Company and its subsidiaries had Federal income
tax loss carry forwards of approximately $53,000,000 available to be
applied against future taxable income, if any, expiring principally in 1996
- 2010. Section 382 of the Internal Revenue Code of 1986 limits a
corporation's utilization of its Federal income tax loss carry forwards
when certain changes in the ownership of a corporation's Common Stock
occurs. The Company has recently issued a significant number of shares of
its Common Stock in conjunction with the COMFORCE Global acquisition and
certain related transactions. In addition, as a result of the recent change
in the Company's business, the ability to use these net operating loss
carry forwards may be eliminated. Accordingly, the Company is currently
subject to significant limitations regarding the utilization of its Federal
income tax loss carry forwards.
The Company's recently acquired technical staffing and consulting
services business is not subject to significant seasonal fluctuations.
Inflation has become a less significant factor in the economy; however,
to the extent permitted by competition, the Company generally passes
increased costs to its customers.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Impairment of Long-Lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires that long-lived assets and
certain identifiable intangibles to be 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.
Impairment is evaluated by comparing future cash flows (undiscounted and
without interest
18
<PAGE>
charges) expected to result from the use or sale of the asset and its
eventual disposition, to the carrying amount of the asset. This new
accounting principle is effective for the Company's fiscal year ending
December 31, 1996. The Company believes that adoption will not have a
material impact on its financial statements.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments to employees based on
new fair value accounting rules. Although expense recognition for employee
stock based compensation is not mandatory, the pronouncement requires
companies that choose not to adopt the new fair value accounting to
disclose the pro-forma net income and earnings per share under the new
method. This new accounting principle is effective for the Company's
fiscal year ending December 31, 1996. The Company believes that adoption
will not have a material impact on its financial statements as the Company
will not adopt the new fair value accounting, but instead comply with the
disclosure requirements.
BUSINESS
COMFORCE is a leading provider of staffing, consulting and outsourcing
solutions that address the high technology needs of businesses. The
Company provides services through a highly-skilled labor force, including
computer programmers, engineers, technicians, scientists and researchers.
The Company's customers include telecommunication equipment manufacturers,
telecommunication service providers (wireline and wireless), computer
software and hardware providers, aerospace and avionics firms, utilities
and national laboratories engaging in alternative energy source
development, environmental safety, and laser and weapons research.
COMFORCE employs over 1,100 persons, 95% of which are billable. In
addition to billable employees, the Company maintains a database of
approximately 100,000 prospective highly-skilled employees with expertise
in the technical disciplines served by the Company.
The Company serves its customers through three principal operating
divisions, Telecommunications, Technical Services and Information
Technology. The Telecommunications division serves its customers' needs in
virtually all areas of the telecommunications sector, including wireline
and wireless technology, satellite and earth station deployment, network
management and plant modernization. The Information Technology division's
programmers, systems analysts, software engineers and other computer
personnel offer expertise throughout the information technology market. In
the technical staffing market, the Technical Services division provides
diverse commercial needs for highly skilled labor, including in the
avionics and aerospace, architectural, automotive, energy and power,
pharmaceutical, marine and petrochemical fields.
MARKET OPPORTUNITIES
The Growing Market for Staffing and Outsourcing Services. The staffing
services industry has grown rapidly over the past decade as a result of
cyclical economic trends as well as changing approaches to staffing.
According to The National Association of Temporary Staffing Services
("NATSS"), the U.S. market for staffing services grew at a compound annual
rate of approximately 17.6% from approximately $20.5 billion in revenues in
1991 to approximately $39.2 billion in 1995, with revenues increasing at
annual rates of approximately 22%, 14%, 23% and 13% in 1992, 1993, 1994 and
1995, respectively. Studies show that more than 90% of all businesses use
staffing services. The use of personnel from staffing services has become
widely accepted as a valuable tool for managing personnel costs,
supplementing permanent workforces and meeting specialized or fluctuating
employment requirements. Vacations, illness, resignations, seasonal
increases in work volume, marketing promotions and month-end requirements
have historically created demand for staffing services. More recently, the
growing cost and difficulty of hiring, laying off and terminating full-time
workers has also encouraged a greater use of workers from staffing
services. In addition,
19
<PAGE>
entrants into the labor force increasingly look to such assignments as a
way to build experience, make contacts, and get valuable exposure to a
variety of work settings, and as a vehicle to gain full-time employment.
Organizations have also begun using flexible staffing to reduce
administrative overhead by strategically outsourcing operations that are
not part of their core business functions, such as recruiting, training and
benefit administration. By utilizing employees from personnel providers,
businesses are able to avoid the management and administrative costs
incurred if full-time personnel are employed. An ancillary benefit,
particularly for smaller businesses, is that use shifts certain employment
cost and risks (e.g., workers' compensation and unemployment insurance) to
the personnel provider, which can spread the costs and risks over a larger
pool of employees. Businesses are also utilizing staffing services to
selectively hire and add to their full-time staff. This provides the
customer with the opportunity to evaluate skills and proficiency prior to
making full-time employment offers. NATSS estimates that approximately 40%
of employees are offered full-time employment by customers.
Telecommunications Sector and the PCS Race. Telecommunications has
become one of the fastest growing segments of the staffing services
industry. As businesses strive for increasing globalization and grow more
dependent on advanced technology, the demand for telecommunications-related
services has increased. The Company believes that the recent enactment of
the Telecommunications Act of 1996, which deregulates substantial portions
of the telecommunications industry, is likely to foster even more dramatic
expansion.
In addition to the rapid growth in the telecommunications sector
generally, the wireless industry has experienced dramatic growth fueled by,
among other factors, Federal deregulation and the $18 billion auction of
personal communications service ("PCS") licenses early in 1996. Regional
and national PCS networks are racing to bring their PCS systems into
operation. In the face of the PCS threat, the established competitors,
analog cellular systems (which broadcast telephone calls), are searching
for cost efficiencies and technological improvements.
Prior to the Federal auction, local telephone service was typically
limited to not more than two providers, one which offered both conventional
telephone and wireless services and another which provided only wireless
services. The Telecommunications Act of 1996 permits up to four PCS
providers and two analog providers to operate within major metropolitan
areas. Bringing PCS systems into operation requires highly specialized
technical personnel. Staffing services companies such as COMFORCE with a
database of telecommunications and information technology specialists are
particularly well-suited to serving development-stage PCS companies.
Information Technology Sector and the Year 2000 Challenge. The demand
for qualified personnel is increasing significantly in computer-related
disciplines such as technical project support, software development and
documentation, systems and database management, and desktop publishing. As
a result, information technology services is one of the most rapidly
growing sectors of the staffing services industry. Industry sources
estimate that 1995 revenues from the information technology sector were
$8.9 billion, representing an increase of 25% over 1994 revenues.
Management believes that the demand for information technology services
will continue to grow, principally due to accelerating technological
advances requiring highly specialized expertise and the need for
enterprise-wide system integration of computer systems. The principal
change is the continuing movement, particularly by large corporations, from
legacy systems to computer networks using customer/server architecture.
These technological changes make it increasingly difficult and expensive
for businesses to employ full-time technicians with the leading edge
expertise needed to maintain and upgrade advanced and complex computer
systems. Companies with advanced computer systems increasingly rely on
outsourcing and staffing services to maintain and upgrade their systems and
to train full-time employees in the use of the systems.
The substantial increase in the use of sophisticated information
technologies has coincided with economic factors that have led to
reductions in corporate work forces 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 specialty staffing
services companies to augment their
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information technology operations. At the same time, an increasing number
of technical professionals are choosing to operate as consultants,
motivated by a desire for more flexible work schedules and an opportunity
to work with emerging and challenging technologies in a variety of
industries and work environments. Such consultants generally are able to
maintain compensation levels comparable to or higher than that of similarly
skilled, full-time employees. These factors have caused information
technology services to be one of the fastest growing segments of the
specialty staffing services industry.
With the approach of the Year 2000, opportunities in the information
technology sector will increase even more dramatically. Virtually from the
origins of the computer, dates have been programmed into computer
applications as six-digit fields, with the last two digits representing
the year. In many cases these fields are encrypted in basic or fundamental
applications, often in obscure or obsolete computer languages. As a
result, after December 31, 1999, many computer applications will lose the
ability to distinguish dates and will cease to function or give erroneous
results unless reprogrammed. Industry sources estimate that corporations
and government agencies will spend from $200 to $600 billion to assess and
correct this problem. Estimates indicate that up to 90% of these projected
costs will be incurred for professional services, with the balance incurred
for software tools. In 1995 only an estimated $50 million was spent
rectifying the problem. However, as 1996 draws to a close, the Year 2000
challenge is receiving increasing attention. Most companies and agencies
requiring Year 2000 conversions do not have the internal personnel
resources or expertise that will be required to address the problem and
instead will rely on the staffing industry to supply personnel, including
programmers with skills in multiple computer languages or obscure languages
that have not been used in many years.
Consolidation within the Staffing Industry. According to Staffing
Industry Report, a staffing services industry publication, the staffing
industry was estimated to have 1995 revenues of approximately $40 billion
and a compound annual growth rate of approximately 18% over the past four
years. The information technology services sector, one of the fastest
growing sectors of the staffing industry, was estimated to have 1995
revenues of approximately $9 billion, which represents a 25% increase per
year for the past two years. The Company believes that the demand for
traditional support services and information technology support services
will continue to increase due to changes in workforce lifestyles, advances
in technology and the increasing desire of many companies to shift
employee costs from a fixed to a variable expense and to outsource the
support functions of their non-core businesses.
The staffing services industry was once used predominately as a short-
term fix for peak production periods and to temporarily replace workers
absent due to illness, vacation, or abrupt termination. Since the mid-
1980's, the staffing services sector has evolved into a permanent and
significant component of the staffing plans of many corporations.
Corporate restructuring, downsizing, government regulations, advances in
technology, and the desire by many companies to shift employee costs from a
fixed to a variable expense have resulted in the use of a wide range of
staffing alternatives by businesses. In addition, the reluctance of
corporations to risk exposure to wrongful discharge has led to an increase
in companies using staffing services as a means of evaluating the
qualifications of personnel before hiring them on a full-time basis.
Furthermore, many companies are adopting strategies which focus on their
core businesses. The National Association of Temporary and Staffing
Services estimates that more than 90% of all United States businesses
utilize staffing services.
Information technology staffing services has become one of the fastest
growing sectors of the temporary staffing industry. Over the last decade,
the increased use of technology has led to a dramatic rise in demand for
technical project support, software development, and other computer-related
services. Corporations have outsourced many of these departments and/or
have utilized the employees of staffing firms in an attempt to meet the
increased demand for computer-skilled personnel.
The Company believes that the staffing industry is highly fragmented and
is currently experiencing a trend toward consolidation primarily due to the
increasing demand by large companies for centralized staffing services and
the difficulties faced by many smaller staffing companies in today's
staffing services market. The growth of national and regional accounts
resulting from the centralization of staffing decisions by national and
regional companies has
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increased the importance of staffing companies being able to offer a wide
range of services over a broad geographic area. In addition, many smaller
staffing companies are experiencing increased difficulties due to factors
such as significant working capital requirements, limited management
resources, and an increasingly competitive environment.
GROWTH STRATEGY
The Company's objective is to be the leading provider of staffing,
consulting and outsourcing services in the market for highly skilled labor.
COMFORCE will seek to achieve its objective by pursuing the following
strategy:
Focus on High Technology Markets. In the telecommunications,
information technology and other high technology sectors in which COMFORCE
competes, intensive start-up and development costs in emerging and rapidly-
expanding fields often create needs most effectively met through
outsourcing. Management believes that COMFORCE's commitment to servicing
these high technology markets will enable it to continue to grow.
Management believes that staffing in the high technology sectors offers
significant advantages over staffing in the lower skilled labor sectors,
including a greater demand for services, lower turnover rates, higher
profit margins and more stable customer and employee relationships. In the
rapidly-emerging high technology fields such as PCS network development and
information technology, the Company's employees continually develop new
marketable skills by working on projects that make use of the most advanced
technology. As a result, these "learned-on-the-job" skills continually
expand the Company's ability to service more diverse and emerging
technologies.
Acquisitions as Key Engine of Growth. A key element of the Company's
expansion strategy is to continue acquiring existing businesses with
profitable track records and recognized local or regional presence, with a
view toward expanding the Company's geographic service base, diversifying
its capabilities in the high technology sectors, strengthening its existing
expertise, and expand its database of technical talent. Management
believes that such acquisitions will enable the Company to achieve
significant economies of scale, maintain greater financial resources, thus
allowing it to secure more valuable contracts from large customers, and
provide it with leverage for negotiating contracts. Management believes
that its decentralized management philosophy and operating strategies will
make it an attractive acquiror to the owners of regional and local
technical staffing businesses.
Develop Innovative Service Offerings. In negotiating with customers,
fulfilling its existing contractual obligations and formulating proposals
or bids for new contracts, management continually seeks to develop new
service offerings that can provide its customers with maximum value and
flexibility. Management believes that offering innovative and flexible
service packages to its customers will serve as one of the principal
engines of growth. Two examples of innovative service offerings are the
Company's Homework/TM/ and Rightsourcing/TM/ programs. The new Homework/TM/
program allows the Company's highly-skilled professionals to "telecommute,"
thus eliminating geographic barriers to meeting its customers' needs.
Through its new Rightsourcing/TM/ program, the Company evaluates the
performance level of a particular department, function, or project and
recommends ways to increase cost-effectiveness and workforce efficiency
through specific staffing strategies.
Expand Geographic Presence. The Company will seek to increase revenues
and enhance earnings stability by continuing to expand geographically in
the United States and internationally. The Company services its customers
through a network of 30 branch offices located in 15 states across the
United States and its corporate headquarters located in Lake Success, New
York. Management believes that further increasing its geographic diversity
will better enable it to weather regional economic and business cycles and
provide an advantage when pursuing contracts with national accounts,
particularly for customers with diverse locations and a wide variety of
staffing needs.
ACQUISITIONS
A key component of the Company's strategy is to continue to acquire
established, profitable businesses in new markets with opportunities to
expand the Company's geographic service base and diversify and strengthen
its service mix. In addition, the Company plans to acquire complementary
companies located in current and new markets
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which can be integrated into its existing platform companies. Management
believes that acquired businesses can be integrated into the Company at low
incremental costs, enabling it to continue to spread fixed costs over a
larger revenue base.
Acquisition criteria for businesses include: desirable market location,
significant market share, new or expanded specialties that can be added to
the Company's existing lines of business, efficient operating systems and
existing management teams that will fit well with the Company's
decentralized, entrepreneurial environment. The Company generally retains
the former marketing identities of acquired companies to the extent that
such identities have value in the markets in which such companies compete
but will seek over time to consolidate all companies under the COMFORCE
name.
Since October 1995, the Company has acquired five staffing services
companies and has entered into a binding agreement to purchase all the
assets of a sixth company. Each of these companies is described briefly
below.
.COMFORCE Global, Inc. ("COMFORCE Global"): On October 17, 1995, the
Company acquired all of the capital stock of September 30, 1996. The price
paid by the Company for the COMFORCE Global stock and related
acquisition costs was approximately $6.4 million in cash and stock.
COMFORCE Global provides staffing on a contract basis to the
telecommunications sector.
.Williams Communication Services, Inc. ("Williams"): In March 1996, the
Company acquired all of the assets of Williams, a regional provider of
telecommunications and technical staffing services. The purchase price for
the assets of Williams was $2 million with a four year contingent payout
based on earnings of Williams. The value of the contingent payouts will
not exceed $2 million, for a total purchase price not to exceed $4 million.
.RRA, Inc.: In May 1996, the Company acquired all of the stock of
Project Staffing Support System, Inc. and the assets of RRA, Inc. and
Datatech Technical Services, Inc. (collectively, "RRA") for a purchase
price of $5.1 million, with a three year contingent payout based on
earnings of RRA. The value of the contingent payout will not exceed
$650,000, for a total purchase price not to exceed $5.75 million. RRA
provides specialists for supplemental staffing assignments as well as
outsourcing and vendor-on-premises programs, primarily in the electronics,
avionics, telecommunications and information technology business sectors.
.Force Five, Inc. ("Force Five"): In August 1996, the Company purchased
all of the stock of Force Five for a purchase price of $1,500,000 and
approximately 27,400 shares of the Company's Common Stock (valued at
$500,000 based on the average closing price on the American Stock Exchange
of the Company's Common Stock for the 20 trading days prior to closing),
plus contingent income payments payable over three years in an aggregate
amount not to exceed $2 million. Force Five, which is based in Dallas,
Texas, is in the business of providing information technology consulting
services to leading companies nationwide.
SERVICES
The Company provides a wide range of technical staffing and outsourcing
services. The Company's extensive databases and national presence enable it
to draw from a wealth of resources to link highly-trained
telecommunications and computer professionals with businesses that need
assistance in the skilled labor sector. The Company's services are designed
to give its customers maximum flexibility and maximum choice. COMFORCE
professionals are available for a day, for an indefinite period of time or
until a specified assignment or project is completed. The Company's
services permit businesses to increase the volume of their work without
increasing fixed overhead and personnel costs. The Company offers its
customers four staffing alternatives: Project Support, Vendor-on-Premises,
RightSourcing/TM/, and Needs Analysis. The staffing alternatives serve
different customer needs, depending on the nature and length of the
assignment, and the degree of management responsibility the customer wishes
to delegate. In addition, the Company is currently developing the new
service, Homework/TM/, to offer its customers even greater flexibility.
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Project Support
Through its Project Support program, the Company contracts with its
customers to provide staffing for specific projects requiring highly
specialized skills such as applications programming and development,
customer/server development, systems software architecture and design,
systems engineering, and systems integration. Generally, project staffing
involves the commitment of a team of employees who remain at the site until
a project is completed. However, the Company helps its customers complete
their development projects by providing both short- and long-term staffing.
It has the resources and experience to plan and manage a project from
conception through completion, as well as the ability to enter a project
midstream, assess its status, develop a plan, and successfully complete the
project.
Vendor-on-Premises
Through its Vendor-on-Premises program, the Company coordinates
temporary personnel services by establishing an on-site office to assist in
the procurement and management of the customer's temporary workforce. The
program facilitates customer use of temporary personnel and allows the
customer to outsource a portion of its personnel responsibility. The
Company designs and implements customized programs that can include
services such as specialized testing, drug screening, selection and
monitoring of secondary staffing vendors, enforcement of the customer's
quality standards, and orientation of the temporary workforce. The program
can also provide permanent, full-time placement services through
traditional staff selection and recruiting services.
RightSourcing/TM/
Through the RightSourcingTM/ program, the Company evaluates the
performance level of a particular department, function, or project and
recommends ways to increase cost-effectiveness and workforce efficiency
through specific staffing strategies. The Company then tailors a program to
meet specific staffing needs and established performance standards. Through
the use of RightSourcing/TM/ software, the customer can access information
and data regarding the cost, management, and productivity of temporary,
contract, and permanent personnel. The RightSourcing/TM/ program also
enables the customer to transfer its current and future workers to the
Company payroll and benefits program.
Needs Analysis
Through its Needs Analysis service, the Company evaluates the specific
objectives and requirements of a project or function and identifies needed
staff positions and responsibilities. This is accomplished by the
development of a work breakdown structure and other needs analysis
techniques that define tasks, outputs, and interdependencies; establish
task durations and milestones; and identify elements critical to the
successful implementation of the function or completion of the project.
The resulting staffing plan defines an organizational structure, identifies
specific staff positions, numbers, responsibilities, and qualifications;
defines the start and end date of each position; and indicates the
employment category for each position (permanent full-time, temporary
short-term, or contract). The staffing requirements can then be matched to
the Company's database of more than 100,000 available professionals.
New Development
Homework/TM/. The Company's Homework/TM/ program allows highly-skilled
professionals to telecommute from their homes, eliminating geographic
barriers to providing the most qualified staff for specific customer
requirements. The program also provides increased flexibility by allowing
part-time staff to assist more than one customer over any given time period
and by reducing overhead costs to the customer.
CUSTOMERS
The significant customers of the Company vary from time to time and the
Company is not dependent upon any single customer. During the calendar
year ended December 31, 1995, sales to Harris Corporation and Motorola
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accounted for approximately 12% and 23%, respectively, of the revenues of
the Company (from its technical staffing business) and of COMFORCE Global
(for the period prior to its acquisition by the Company). In addition,
other major customers that accounted for less than 10% of the business the
Company (and COMFORCE Global prior to its acquisition by the Company)
during such period included Alcatel Network Systems, Hughes Network
Systems, Inc., Ericsson Radio Systems, Inc., AT&T, Bell Atlantic and Sprint
International.
SALES AND MARKETING
The Company services its customers through a network of 30 branch offices
located in 15 states across the United States and its corporate
headquarters located in Lake Success, New York. The Company has developed
a sales and marketing strategy to expand its business within its customers'
organizations, solidify customer relationships and develop new customers.
The strategy focuses on both national and local accounts and is implemented
principally through its branch locations.
Local accounts are targeted by account managers at the branch offices
permitting the Company to capitalize on the local expertise and established
relationships of its branch office employees. Such accounts are solicited
through personal sales presentations, telephone marketing, direct mail
solicitation, referrals from customers, and advertising in a variety of
local and national media including the Yellow Pages, magazines, newspapers,
trade publications and through the Company's home page on the World Wide
Web (www.comforce.com). The Company also sponsors public relations
activities designed to enhance public recognition of the Company and its
services. Local employees are encouraged to be active in civic
organizations and industry trade groups to facilitate the development of
new customer relationships.
The Company's international and national sales and marketing effort is
and will continue to be coordinated by management at the corporate level,
which enables the Company to develop a consistent, focused strategy to
pursue national and international account opportunities. This strategy
allows the Company to capitalize on the desire of national and
international customers to work with a limited number of preferred vendors
for their staffing requirements. As larger customers consolidate their
purchasing of temporary services, management believes that the Company's
ability to provide a full range of services to national accounts will be a
competitive advantage.
In certain markets, the Company intends to cross-sell professional
services. The Company has established long-term relationships with many of
its customers. The Company believes that the access and goodwill these
customer relationships offer provide it with significant advantages in
marketing additional services to such customers.
In order to maximize its marketing effectiveness, the Company provides
motivational training to its employees to empower the employees and instill
in them a proactive, solution-based approach to problem solving. In
addition, the Company offers additional compensation, in the form of cash
and stock options, to its employees as incentive to maximize their sales
efforts.
RECRUITING OF BILLABLE EMPLOYEES
The Company's success is dependent upon its ability to effectively and
efficiently match skilled technical personnel with specific customer
assignments. As a result of continuous recruiting efforts, the Company
maintains an extensive national resume database of qualified placement
candidates that is linked to all 30 of the Company's satellite offices.
The Company regularly updates the database to reflect changes in technical
personnel skill levels and availability. Upon receipt of assignment
specifications, the Company searches the database to identify suitable
technical personnel. Once technical skills are matched to the
specifications, the Company considers other selection criteria such as
interpersonal skills, availability and geographic preferences to obtain the
"right fit" of personnel to assignment. The Company's resume database,
which may be accessed by appropriate personnel throughout the Company, can
be searched by a number of different criteria, including specific skills or
qualifications.
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To identify qualified personnel for inclusion in its resume database, the
Company solicits referrals from its existing personnel and customers and
places advertisements in local newspapers, trade magazines and on the
Company's home page on the World Wide Web (www.comforce.com). As
competition for the limited number of qualified technical personnel with
certain "niche" skills intensifies, the Company intends to enhance its
recruiting practices to attract technical personnel in areas of high
demand.
The Company believes it has a competitive advantage in attracting and
retaining technical personnel because of the opportunity it provides for
leading edge assignments which offer the employee the opportunity to obtain
additional experience that can enhance the employee's skills and overall
marketability. In addition, the Company provides its billable employees
the opportunity to participate in a stock option purchase plan of the
Company. The Company believes this plan distinguishes the Company from all
its competitors.
The Company also offers flexible schedules, paid holidays and better-
than-competitive wages to attract and retain qualified technical personnel.
In addition, the Company offers its billable employees a wide range of
choices for custom designing a benefit package specific to each employee's
needs and an opportunity for immediate participation in the Company's
enhanced 401(k) savings plan. The Company is responsible for and pays the
employer's share of Social Security taxes (FICA), federal and state
unemployment taxes, workers' compensation insurance and other similar
costs.
PAYROLL/BILLING/ACCOUNTING
The Company believes that its management information systems are
instrumental to the success of its operations. The Company considers its
management information ("MIS") systems to be among the most technologically
advanced in the industry. Its invoice customization and electronic billing
features enable the Company to expedite its billing and collection
functions and to meet payroll in a more timely and efficient manner. The
Company's MIS systems also retain coded information regarding employment
candidates' qualifications and skills, providing the Company with a
competitive advantage in matching such skills and qualifications with
customer needs.
The Company seeks to increase its profitability by adding offices and
employees without proportionately increasing overhead expenses. The
Company believes that its MIS systems are well suited to facilitate that
goal in that the administrative functions of the acquired businesses can be
integrated into those of the Company at low incremental costs, allowing the
Company to spread its fixed costs over a larger revenue base. This
capability will be enhanced when the Company completes the consolidation of
all its accounting and payroll operations to its offices in Arizona.
COMPETITION
The specialty staffing services industry is very competitive and
fragmented. There are relatively limited barriers to entry and new
competitors frequently enter the market. The Company's competitors may
vary depending on geographic region and the nature of the service(s) being
provided. The Company faces substantial competition from both larger firms
possessing substantially greater financial, technical and marketing
resources than the Company and smaller, regional firms with a strong
presence in their respective local markets. The local firms are typically
operator-owned, and each market generally has one or more significant
competitors. The Company believes that as it grows and expands
geographically, it may compete with additional national, regional and local
service providers.
Management believes that the availability and quality of candidates, the
level of service, the effective monitoring of job performance, scope of
geographic service and the price of service are the principal elements of
competition. The availability of quality technical staffing personnel is
an especially important facet of competition. In order to attract staffing
candidates, the Company places emphasis upon its ability to provide
permanent placement opportunities, competitive compensation, quality and
varied assignments, and scheduling flexibility. The Company believes its
ability to compete also depends in part on a number of competitive factors
outside its control, including
26
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the ability of its competitors to hire, retain and motivate skilled
technical and management personnel and the extent of its competitors'
responsiveness to customer needs. Additionally, in certain markets the
Company has experienced significant pricing pressure from some of its
competitors. Although the Company believes it competes favorably with
respect to these factors, it expects competition to increase, and there can
be no assurance that the Company will remain competitive.
EMPLOYEES
COMFORCE employs over 1,100 persons, 95% of which are billable to
customers. The Company maintains a database of 100,000 prospective highly-
skilled employees with expertise in the technical disciplines served by the
Company. Billable employees are employed by the Company on an as-needed
basis dependent on customer demand and are paid only for time they actually
work. Non-billable administrative personnel provide management, sales and
marketing and other services in support of the Company's staffing services.
For its non-billable employees, the Company offers a package of benefits
which it believes to be competitive, including vacation and holiday pay, a
401(k) plan to which it makes certain contributions and a Section 125
cafeteria plan. All of such employees are covered by workers compensation
and general liability insurance. The Company is responsible for and pays
the employer's share of Social Security taxes (FICA), federal and state
unemployment taxes, workers' compensation insurance and other costs
relating to its billable employees. The Company offers health insurance
benefits to its billable employees at their cost through a national trade
association to which the Company belongs.
All of the Company's billable employees are required to attend Company-
sponsored seminars introducing such employees to the Company's "Lifeline"
philosophy. Lifeline is the Company's internal motivational program
designed to instill in its employees a proactive, solution-based approach
to problem solving.
INTELLECTUAL PROPERTY
The Company does not own any patents, trademarks or copyrighted
information protected by registration with any federal or state filing
office, nor is the Company's business presently dependent on any such
information.
The Company is the exclusive licensee for sale and use in the states of
Arizona and New Mexico of a proprietary software package known as "Manager
of Auxiliary Personnel" or "MAPS". MAPS is licensed to the Company by
Leafstone(R) Information Technology until 1997. MAPS, among other things,
permits the user to interface with vendors (including the Company) of
staffing services, place additional personnel, track existing and
anticipated future labor needs and compile data for financial reporting and
forecasting purposes.
REGULATIONS
Staffing services firms are generally subject to one or more of the
following types of government regulation: (i) registration of the
employer/employees; (ii) registration, licensing, record keeping and
recording requirements; and (iii) substantive limitations on its
operations. Staffing services are the legal employers of their workers.
Therefore, the Company is governed by laws regulating the employer/employee
relationship, such as tax withholding or reporting, social security or
retirement, antidiscrimination and workers' compensation.
HEADQUARTERS AND REGIONAL OFFICES
The Company and COMFORCE Global maintain their headquarters in a 2,500
square foot facility in Lake Success, New York under a lease which expires
in 2000. COMFORCE Global also maintains offices in New York, Washington
D.C., Texas, Georgia and Florida in leased facilities ranging in size from
750 to 2,000 square feet, and has plans to open offices in Illinois and
California over the next 12 months. COMFORCE Technical Services maintains
offices in Arizona, New Mexico, California, Connecticut, Washington,
Missouri and South Carolina in
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leased facilities ranging in size of from 1,000 to 5,000 square feet. Force
Five maintains a leased office in Texas. The Company believes that its
facilities are adequate for its present and reasonably anticipated future
business requirements, except to the extent of future acquisitions of
existing businesses. In the case of such acquisitions, the Company expects
to assume the leases of businesses acquired or, to the extent possible,
consolidate such operations with existing offices.
LEGAL PROCEEDINGS
The Company is involved in a proceeding described above under
"Discontinued Operations--Environmental Matters."
The Company is a party to routine contract and employment-related
litigation matters in the ordinary course of its business. No such pending
matters, individually or in the aggregate, if adversely determined, are
believed by management to be material to the business, results of
operations or financial condition of the Company. The Company maintains
general liability insurance, property insurance, automobile insurance,
employee benefit liability insurance, owner's and contractor's protective
insurance and exporter's foreign operations insurance with coverage of $1
million on a per claim basis and $2 million aggregate (with $3 million
umbrella coverage). The Company insures against workers' compensation in
amounts required under applicable state law and in the amount of $500,000
in the case of foreign workers. The Company also maintains fidelity
insurance in the amount of $25,000 per claim and directors' and officers'
liability insurance in the amount of $2 million. The Company is presently
soliciting quotations to obtain errors and omissions coverage.
MARKET PRICE OF THE COMPANY'S COMMON STOCK
The Company's Common Stock, $.01 par value, is traded on the American
Stock Exchange ("AMEX"). The high and low sales prices for the Company's
Common Stock, as reported by the AMEX during the past two years, were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First Quarter $10-3/8 $6 $3-7/8 $1-15/16 $6 $5
Second Quarter 34-1/8 9-3/8 3-1/2 2 7-1/8 3-1/8
Third Quarter 28-1/2 15-1/2 4-3/4 1-9/16 8-1/8 5-1/4
Fourth Quarter 9-1/4 3-1/4 6-3/8 1-7/8
As of September 30, 1996, there were approximately 5,600 shareholders of
record.
</TABLE>
DIVIDEND POLICY
Following the Offering, the Company anticipates that it will not pay
dividends on the Common Stock for the foreseeable future and that it will
retain its earnings to finance future growth. The declaration and payment
of dividends by the Company are subject to the discretion of its Board of
Directors and compliance with applicable law. Any determination as to the
payment of dividends in the future will depend upon, among other things,
general business
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conditions, the effect of such payment on the Company's financial condition
and other factors the Company's Board of Directors may in the future
consider to be relevant. Under the $10,000,000 Credit Facility with The
Chase Manhattan Bank dated as of July 22, 1996 (the "Credit Facility"), the
Company is prohibited from paying dividends on its Common Stock and its
Preferred Stock except to the extent required to pay dividends on the
Company's Series D Senior Convertible Preferred Stock that was issued and
outstanding as of the date of the Credit Facility. No dividends have been
declared or paid on the Common Stock during 1995 or 1996.
DESCRIPTION OF THE COMPANY'S SECURITIES
GENERAL
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock having a par value of $.01 per share and 1,000,000 shares
of Preferred Stock, par value $0.01 per share, which may be issued in one
or more series with such rights and preferences as determined by the Board
of Directors. As of the date of this Prospectus, the Company had issued
and outstanding capital stock consisting of 9,632,032 shares of Common
Stock, 7,002 shares of Series D Preferred Stock and 8,871 shares of Series
E Preferred Stock. In addition, as of the date of this Prospectus, there
were options and warrants to purchase an additional 3,649,099 shares of
Common Stock issued and outstanding and 137,500 shares of Common Stock
issuable upon the conversion of outstanding convertible notes.
The Company has asked its stockholders to approve, at the Company's 1996
Annual Meeting of Stockholders scheduled to be held October 28, 1996, an
amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of capital stock from 10,000,000 shares to
100,000,000 shares of Common Stock and from 1,000,000 shares to 10,000,000
shares of preferred stock ("Preferred Stock"). Upon approval of this
amendment to the Company's Certificate of Incorporation and consummation of
the Offering, and after giving effect to the Series E Conversion, there
will be 10,519,132 shares of Common Stock outstanding and 7,002 shares of
Preferred Stock outstanding.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference
to the Company's Certificate of Incorporation and Bylaws, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share of
record on all matters to be voted upon by stockholders. At a meeting of
stockholders at which a quorum is present, a majority of the votes cast
decides all questions, unless the matter is one upon which a different vote
is required by express provision of law or the Company's Certificate of
Incorporation or Bylaws. Cumulative voting is permitted with respect to
the election of directors. However, the Company has asked its stockholders
to approve, at the Company's 1996 Annual Meeting of Stockholders scheduled
to be held October 28, 1996, an amendment to the Company's Certificate of
Incorporation to eliminate cumulative voting.
The holders of Common Stock have no preemptive rights and have no rights
to convert their Common Stock into any other securities. Subject to the
rights of holders of Preferred Stock, if any shares of Preferred Stock are
then outstanding, in the event of a liquidation, dissolution or winding up
of the Company, holders of Common Stock are entitled to participate
equally, share for share, in all assets remaining after payment of
liabilities.
The holders of Common Stock are entitled to receive ratably such
dividends as the Board of Directors may declare out of funds legally
available therefor, when and if so declared. The payment by the Company of
dividends, if any, rests within the discretion of its Board of Directors
and will depend upon the Company's results of operations,
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<PAGE>
financial condition and capital expenditure plans, as well as other factors
considered relevant by the Board of Directors. See "Dividend Policy."
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the Board of
Directors to issue shares of Preferred Stock in one or more series and to
establish such relative voting, dividend, redemption, liquidation,
conversion and other powers, preferences, rights, qualifications,
limitations and restrictions as the Board of Directors may determine
without further approval of the Stockholders of the Company.
On April 26, 1996, the Board authorized the issuance of up to 10,000
shares of a new series of Preferred Stock, par value $0.01 per share,
designated the Series E Convertible Preferred Stock ("Series E Preferred
Stock"). As of September 30, 1996, there were 8,871 shares of Series E
Preferred Stock outstanding. Each share of Series E Preferred Stock will
be automatically converted into 100 shares of Common Stock on the date the
Company's Certificate of Incorporation is amended to increase the number of
authorized shares of Common Stock so that the Corporation has a sufficient
number of authorized and unissued shares of Common Stock to effect the
conversion, and any accrued and unpaid dividends have been paid in full.
The Company's stockholders are expected to approve such an amendment at the
Company's 1996 Annual Meeting of Stockholders scheduled to be held October
28, 1996. Holders of shares of Series E Preferred Stock are entitled to
dividends equal to those declared on the Common Stock, or, if no dividends
are declared on the Common Stock, nominal cumulative dividends. Except as
otherwise provided by law, holders of Series E Preferred Stock are entitled
to vote, on the basis of 100 votes per share, together with the holders of
the Common Stock, as one class on all matters submitted to a vote of
stockholders.
On May 6, 1996, the Board authorized the issuance of up to 15,000 shares
of a new series of Preferred Stock, par value $0.01 per share, designated
the Series D Senior Convertible Preferred Stock ("Series D Preferred
Stock"). The holder of each share of Series D Preferred Stock will have
the right to convert such share into 83.33 fully paid and nonassessable
shares of Common Stock at $12 per share at any time subsequent to the date
the Company's Certificate of Incorporation is amended so that the
Corporation has a sufficient number of authorized and unissued shares of
Common Stock to effect the conversion. If at any time after the first
anniversary of the date of first issuance of the Series D Stock, the Common
Stock of the Company has a closing sale price of at least $20 per share for
a period of twenty consecutive trading days, the Company may convert all
shares of the Series D Preferred Stock then outstanding into shares of
Common Stock at $12 per share, without prior notice to the Stockholder.
All shares of Series D outstanding on the fifth anniversary of the date of
first issuance of the Series D Stock will automatically be converted into
shares of Common Stock based on the conversion price of $12 per share.
Holders of shares of Series D Preferred Stock are entitled to cumulative
dividends of 6% per annum, payable quarterly in cash on the first day of
February, May, August and November in each year. For the purposes of
conversion, to the extent that the Company does not pay any accrued and
unpaid dividends within fifteen days of the conversion with respect to
those shares, such amount shall be added to the conversion value for those
shares. Except as otherwise provided by law, the holders of Series D
Preferred Stock will not be entitled to vote. As of September 30, 1996,
there were 7,002 shares of Series D Preferred Stock outstanding.
Except for the Series D and Series E Preferred Stock, there are no other
series or classes of Preferred Stock currently authorized. All of the
shares of all other series or classes of Preferred Stock previously
authorized by the Company's Board to date have been repurchased by the
Company or converted to Common Stock and are not subject to reissue.
The issuance of any additional series of Preferred Stock, and the
relative powers, preferences, rights, qualifications, limitations and
restrictions of such series, if and when established, will depend upon,
among other things, the future capital needs of the Company, the then-
existing market conditions and other factors that, in the judgment of the
Board of Directors, might warrant the issuance of Preferred Stock. The
issuance of additional series of Preferred Stock by the Board of Directors
could, among other things, adversely affect the voting power of the holders
of Common Stock and, under certain circumstances, make it more difficult
for a person or group to gain
30
<PAGE>
control of the Company. At the date of this Prospectus, there are no plans,
agreements or understandings relative to the issuance of any shares of
Preferred Stock.
WARRANTS TO PURCHASE COMMON STOCK
As of the date of this Prospectus, there were warrants to purchase an
aggregate of 1,123,749 shares of Common Stock issued and outstanding at
exercise prices ranging from $2.00 to $9.00 per share. All warrants expire
by June 1, 2001.
CONVERTIBLE NOTES
As of the date of this Prospectus, 137,500 shares of Common Stock were
issuable upon conversion of outstanding notes in an aggregate amount of
$275,000 at a price per share of $2.00.
DELAWARE LAW
Certain provisions of the General Corporation Law of the State of
Delaware, summarized in the following paragraphs, may be considered to have
an anti-takeover effect and may delay, deter or prevent a tender offer,
proxy contest or other takeover attempt that a stockholder might consider
to be in such stockholder's best interest, including such an attempt as
might result in payment of a premium over the market price for shares held
by stockholders.
The Company, a Delaware corporation, is subject to the provisions of the
General Corporation Law of the State of Delaware, including Section 203
thereof. In general, Section 203 prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested stockholder"
for a period of three years after the date of the transaction in which such
person became an interested stockholder unless (i) prior to such date, the
Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon becoming an interested stockholder the
stockholder then owned at least 85% of the voting stock, as defined in
Section 203; or (iii) subsequent to such date, the business combination is
approved by both the Board of Directors and by at least 66-2/3 of the
corporation's outstanding voting stock, excluding shares owned by the
interested stockholder. For these purposes, the term "business combination"
includes mergers, asset sales and other similar transactions with an
"interested stockholder." An "interested stockholder" is a person who,
together with affiliates and associates, owns (or, within the prior three
years, did own) 15% or more of the corporation's voting stock. Although
Section 203 permits a corporation to elect not to be governed by its
provisions, the Company to date has not made this election.
Section 203 excludes from the definition of "interested stockholder" any
stockholder of the Company that owned over 15% of the Company's stock on
December 23, 1987, so long as such holder continues to own over 15% of the
Company. Accordingly, ARTRA is not subject to the restrictions of Section
203.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services.
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<PAGE>
MANAGEMENT
Set forth below is information concerning each director and executive
officer of the Company.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Michael Ferrentino 33 President and Director
Christopher P. Franco 37 Executive Vice President and
Secretary
Dr. Glen Miller 59 Director
Keith Goldberg 33 Director
Richard Barber 36 Director
Paul J. Grillo 44 Vice President - Finance and Chief
Financial Officer
Andrew Reiben 31 Chief Accounting Officer and
Director
of Finance
</TABLE>
MICHAEL FERRENTINO has served as the President and Director of the
Company since December 1995. Mr. Ferrentino was a founder of COMFORCE
Global (telecommunications and computer staffing), and he served as
COMFORCE Global's Executive Vice President from 1987 to 1995. From 1984
through 1987, he worked for Dunn & Bradstreet as a Senior Auditor. Mr.
Ferrentino received a B.S. Degree in Accounting from St. John's University.
CHRISTOPHER P. FRANCO has served as the Executive Vice President and
Secretary of the Company since December 1995. From November 1993 to
September 1995, Mr. Franco served as Vice President and General Counsel of
Spectrum Information Technologies, Inc. (wireless transmissions,
telecommunications and franchiser of computer stores). From 1985 to 1993,
Mr. Franco practiced law, principally in the field of corporate securities,
with the law firms of Fulbright & Jaworski (Houston), Cummings & Lockwood
(Hartford) and Kelley Drye & Warren (New York). Mr. Franco received his
B.S.B.A. in business administration from Georgetown University and his J.D.
from Southern Methodist University School of Law.
DR. GLEN MILLER has served as a Director since December 1995. Vice
President - Business Development of TeleData International, a
telecommunications service company. From 1990 to 1994, Dr. Miller was
responsible for strategic planning for the Harris Corporation. From 1984
to 1990, he was responsible for the direction and arrangement of business
activities in various markets nationwide for GTE Telecom, a
telecommunications company. Dr. Miller is a retired Colonel, U.S. Air
Force, and earned a Ph.D. from Columbia Pacific University.
KEITH GOLDBERG has served as a Director since December 1995. Partner at
J. Walter Thompson Advertising. Previously, he worked for BBDO Advertising
as an Associate Creative Director from 1994 to 1995. From 1989 through
1994, he served as a Vice President at Young & Rubicam. Mr. Goldberg is
the recipient of several advertising industry awards. He received a B.A.
Degree in Communications from St. John's University.
RICHARD BARBER has served as a Director since December 1995. Partner at
L.H. Friskoff & Company, a certified public accounting firm. Mr. Barber is
a member of the American Institute of Certified Public Accountants, the New
York State Society of Certified Public Accountants and served as a
committee member of the New York State Real Estate Accounting Committee.
Mr. Barber received a B.A. Degree from Sheffield Polytechnic in the United
Kingdom.
32
<PAGE>
PAUL J. GRILLO has served as Vice President - Finance and Chief Financial
Officer of the Company since July 1996. From July 1991 to July 1996, Mr.
Grillo provided business planning and acquisition advisory services to a
number of industries including telecommunications, contract services,
manufacturing, publishing and real estate management. From April 1980 to
June 1991, Mr. Grillo served as Senior Vice President - Finance, Treasurer
and Chief Financial Officer of Butler Service Group, Inc., an international
contract technical services company. Mr. Grillo received his MBA in
corporate finance and BA in business administration from Rutgers
University. Mr. Grillo is a certified public accountant.
ANDREW REIBEN has served as Chief Accounting Officer and Director of
Finance of the Company since February 1996. From June 1993 to February
1996, Mr. Reiben served as Controller of Daystar Robinson, a C.H. Robinson
company (New York). From September 1987 to June 1993, Mr. Reiben was a
Senior Accountant with the accounting firm of Coopers & Lybrand L.L.P. (New
York). Mr. Reiben is a certified public accountant.
Directors are elected annually and hold office until the next annual
meeting of the stockholders or until his successor shall have been duly
elected and qualified. Executive officers are appointed by the Board of
Directors and serve at the pleasure of the Board. There are no family
relationships among the executive officers and/or directors, nor are there
any arrangements or understandings between any officer and another person
pursuant to which he was appointed to office except as may be hereinafter
described.
COMMITTEES
The Board of Directors has three standing committees, the Audit
Committee, the Compensation Committee and the Stock Option Committee. The
Audit Committee has responsibility for reviewing matters with respect to
the accounting, auditing and financial reporting practices and procedures
of the Company. Dr. Miller and Mr. Barber are members of this Committee.
The Compensation Committee has responsibility for reviewing executive
salaries, administering the bonus and incentive compensation of the
Company, and approving the salaries and other benefits of the executive
officers of the Company. Mr. Ferrentino and Mr. Goldberg are members of
the Compensation Committee. The Stock Option Committee has responsibility
for administering the Company's Long-Term Investment Plan. Mr. Goldberg
and Dr. Miller are members of the Stock Option Committee.
DIRECTORS' COMPENSATION
Directors' fees of $1,000 per quarter were earned in 1995 by each non-
employee director of the Company. The former Chairman, John Harvey, earned
a fee of $2,000 per month in 1995. Commencing January 1, 1996, non-
employee directors will receive fees of $1,000 per quarter. In addition,
the Company has proposed adopting certain amendments to the Long-Term Stock
Incentive Plan, which, if adopted, will entitle each non-employee director
serving as a director on the date the 1996 annual meeting is held and
annually thereafter on the date any such non-employee director is elected
or re-elected by the stockholders, to receive options to purchase 10,000
shares of the Company's common stock, unless the plan is subsequently
amended as permitted therein.
EXECUTIVE OFFICER COMPENSATION
The following table shows all compensation paid by the Company and its
subsidiaries for the fiscal years ended December 31, 1995, 1994 and 1993,
to each person who has served as the chief executive officer of the Company
at any time during any such year and the Company's most highly compensated
executive officers other than the chief executive officer whose income
exceeded $100,000 (the "Named Executive Officers"). No other executive
officers of the Company received compensation in excess of $100,000 in
1995.
33
<PAGE>
SUMMARY COMPENSATION TABLE
NAME AND POSITION YEAR ANNUAL COMPENSATION LONG TERM COMPENSATION
- ----------------- ---- ------------------- ---- -----------------
SALARY BONUS AWARDS
------
($) ($) OPTIONS/SAR'S
(#)
- --------------------------------------------------------------------------------
Related to Current
Operations:
Michael Ferrentino, 1995 $ 79,703 $174,879/(2)/ -
President 1994 - - -
1993 - - -
Christopher P. Franco 1995 28,846 174,879/(2)/
Executive Vice 1994 - - -
President and Secretary 1993 - - -
Related to Discontinued
Operations:
Austin A. Iodice, 1995 260,000 - -
formerly Vice Chairman, 1994 260,000 - -
Chief Executive Officer 1993 260,000 - 370,419/(1)/
and President
- -------------------------------------
/(1)/ See the notes under "Principal Stockholders" for a description of
the options granted to Mr. Iodice.
/(2)/ This amount represents the value of shares of Common Stock of the
Company issued to Messrs. Ferrentino and Franco for agreeing to direct the
Company's entry into the technical staffing business. The amount was
calculated at $.22 per share and was based upon an appraisal received by
the Company. This was the value used for tax-computing purposes. However,
for financial reporting purposes, these shares are valued at $.93 per
share. Management valued the Company based on its discussions with market
makers and other advisors, taking into account (i) that the business then
conducted by the Company, which was discontinued at the end of the second
quarter of 1995, had a negligible value, and (ii) the value of the Company
was principally related to the potential effect that a purchase of COMFORCE
Global, if successfully concluded, would have market value of the Company's
Common Stock. Management believes this value of $.93 per share to be a
fair and appropriate value based upon the Company's financial condition as
of the date the Company became obligated to issue these shares.
OPTION VALUES. The following table sets forth information concerning the
aggregate number and values of options held by Named Executives as of
December 31, 1995. None of the Named Executives hold stock appreciation
rights ("SARs") and none of the Named Executives exercised any options in
1995.
34
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS FISCAL YEAR END ($)
AT FISCAL YEAR
END (#)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) (#) UNEXERCISABLE/(1)/ UNEXERCISABLE/(1)/
- -----------------------------------------------------------------------------------------------------------------
Current Management:
<S> <C> <C> <C> <C>
Michael Ferrentino 0 0 0/0 0/0
Christopher P. Franco 0 0 0/0 0/0
Former Management
(Discontinued Operations):
Austin A. Iodice 0 0 0/370,419 0/$3,009,654
</TABLE>
/(1)/ The option shown for Mr. Iodice was exercisable as of December 31,
1995 at an exercise price of $1.125 per share. The Company maintains that
this option has terminated. Mr. Iodice maintains that this option
continues to be exercisable. The value shown is based on the market price
of $9.25 per share of the Company's Common Stock as of the close of trading
on December 31, 1995, less the exercise price of $1.125 per share.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements in December 1995 with
Michael Ferrentino, the President of the Company, and Christopher P.
Franco, the Executive Vice President and Secretary of the Company. Each
agreement is for a term of two years and is terminable by the Company only
for "just cause." "Just cause" includes the employee's consistent failure
to follow written policies or directions, wrongful conduct which has or is
expected to have a material adverse effect on the Company, material
violations of the employment agreement and disruption of a harmonious work
environment, except that, following a change in control of the Company, the
term "just cause" is generally limited in application to criminal acts.
Under these agreements, each of Messrs. Ferrentino and Franco are entitled
to compensation of $150,000 annually plus such bonuses as are awarded by
the Board, and each are entitled to participate in the Company's normal
benefit programs. If the Company terminates either agreement, the employee
shall be entitled to receive full compensation and to continue to
participate in the Company's benefit programs for the greater of one year
or the balance of the term of the agreement, payable in full at the time of
termination. Each agreement contains customary confidentiality, non-
disclosure and employee non-solicitation provisions. See also "Certain
Transactions" for a description of the consulting agreement and management
agreement entered into by the Company with a company controlled by James L.
Paterek.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The 1995 compensation of Michael Ferrentino, the President of the
Company, and Christopher P. Franco, the Executive Vice President and
Secretary of the Company, was fixed pursuant to employment agreements
negotiated with Peter R. Harvey, formerly a Vice President of the Company.
The decisions concerning the 1995 compensation
35
<PAGE>
of all of the executive officers of the Company involved in the Company's
discontinued operations were made by Austin A. Iodice, the Vice Chairman,
President and Chief Executive Officer of the Company until his resignation
in December 1995, except with respect to Mr. Iodice (whose compensation was
fixed pursuant to a management agreement approved by the Board of Directors
in 1992). Although the Company had a Committee on Compensation and Options,
this Committee did not meet in 1995. There are no interlocking
relationships, as defined in the regulations of the Securities and Exchange
Commission, involving any of these individuals.
CERTAIN TRANSACTIONS
On June 29, 1995, the Company entered into a letter agreement with
Michael Ferrentino, the President and a Director of the Company,
Christopher P. Franco, an Executive Vice President of the Company, and
James L. Paterek, a beneficial owner of more than 10% of the Company's
Common Stock, subsequently amended as of October 6, 1995 (as amended, the
"Letter Agreement"), pursuant to which Messrs. Ferrentino and Franco agreed
to serve as employees of, and Mr. Paterek agreed to serve as a business
consultant to, the Company to enable the Company to enter into the
telecommunications and computer staffing business. In addition, as
consideration for agreeing to direct the Company's entry into the technical
staffing business, the Company agreed to (i) issue to Messrs. Ferrentino,
Franco and Paterek and one other individual who agreed to serve as a Vice
President of COMFORCE Global, Kevin W. Kiernan (collectively, the
"Designated Individuals"), such number of shares of Common Stock equal to
35% of the Company's then issued and outstanding Common Stock together with
additional shares issued and warrants or options to purchase additional
shares granted between October 6, 1995 and December 1, 1995; (ii) sell or
otherwise dispose of all or substantially all of the Company's interest in
the businesses it then operated; (iii) nominate four individuals selected
by the Designated Individuals to serve on the Company's Board of Directors;
(iv) enter into two-year employment agreements with Messrs. Ferrentino and
Franco and a three-year business consulting agreement with Mr. Paterek; and
(v) reserve for issuance to the Designated Individuals and other employees
of the Company options or warrants to purchase 10% of the Company's then
issued and outstanding Common Stock together with additional shares issued
and warrants or options to purchase additional shares granted between
October 6, 1995 and December 1, 1995.
On October 6, 1995, 3,091,302 shares of the Company's Common Stock in the
aggregate were issued to the Designated Individuals and 796,782 additional
shares are to be issued under the anti-dilution provisions of the Letter
Agreement, all as follows:
Shares Issued Shares to be Issued Total Shares
Michael Ferrentino 794,907 204,887 999,794
Christopher P. Franco 794,907 204,887 999,794
James L. Paterek 1,324,844 341,478 1,666,322
Kevin W. Kiernan 176,644 45,530 222,174
--------- ------- ---------
Total 3,091,302 796,782 3,888,084
The Company has made a loan of $345,000 in the aggregate to the
Designated Individuals to cover their tax liabilities resulting from these
transactions. The obligations are evidenced by notes which bear interest at
the rate of 6% per annum and mature on December 10, 1997.
See "Management--Employment Agreements" for a description of the
employment agreements entered into between the Company and each of Messrs
Ferrentino and Franco, which description is incorporated herein by
reference.
36
<PAGE>
In October 1995, the Company entered into a consulting agreement with
Tarek Corporation ("Tarek"), which is a corporation wholly-owned by Mr.
Paterek. Mr. Paterek, age 34, was a founder of COMFORCE Global and served
as its President from 1985 to September 1995. Tarek has agreed to engage
Mr. Paterek to perform the services required under the agreement. Under
the terms of the agreement, Tarek has agreed to devote at least 50 hours
per month performing services for the Company. The agreement is for a term
of three years and is terminable by the Company only for "good cause."
"Good cause" includes Paterek's fraud, misappropriation of Company assets,
or the commission of a felony during the term of the agreement which is
directly related to the Company and causes it material harm. Tarek has the
right to terminate the agreement upon 30 days notice or immediately in the
event of a change in control. Under this agreement, the consultant is
entitled to compensation of $157,000 annually plus reimbursement for
expenses incurred in performing its duties under the agreement. In
addition, Mr. Paterek is entitled to participate in the Company's normal
benefit programs. If the Company terminates the agreement without good
cause, Tarek shall be entitled to receive full compensation for the balance
of the term of the agreement. The agreement requires Tarek to enter into
an agreement with Mr. Paterek under which he agrees not to compete with the
Company during the term of the agreement and not to disclose confidential
information.
Yield Industries, Inc., a corporation wholly-owned by Messrs. Paterek and
Ferrentino earned a delivery fee of $500,000 in connection with the
Company's acquisition of COMFORCE Global, $250,000 of which was paid in
1995, the balance of which was paid in January 1996. Yield Industries,
Inc. was not affiliated with COMFORCE Global.
See "Discontinued Operations" for a description of certain transactions
involving the Company prior to its entry into the technical staffing
business and persons who have ceased to be involved in the Company's on-
going operations.
DISCONTINUED OPERATIONS
HISTORY OF DISCONTINUED OPERATIONS
The Company was incorporated in Delaware in 1969. From 1985 until
September 1995, the Company, under the name The Lori Corporation, was
engaged in the business of designing and distributing fashion jewelry (the
"Jewelry Business"). Prior thereto, under the names APECO Corporation and
American Photocopy Equipment Company, the Company engaged in various
business activities, including the manufacture of photocopy machines. Due
to continuing losses in the Jewelry Business and the erosion of the markets
for its products, in September 1995, the Company adopted a plan to
discontinue the Jewelry Business and determined to seek to enter into
another line of business. In June 1995, the Company contracted with
current management to direct its entry into the technical staffing
business. On October 17, 1995, the Company acquired all of the capital
stock of Spectrum Global Services, Inc. (formerly d/b/a YIELD Global and,
subsequently renamed COMFORCE Global, Inc.) ("COMFORCE Global"). In
addition, in connection with its new business direction, the Company
changed its name to COMFORCE Corporation. At the time of the acquisition,
COMFORCE Global was one of several wholly-owned subsidiaries of Spectrum
Information Technologies, Inc., a Delaware corporation ("Spectrum"), which
had a Chapter 11 petition pending. The sale of COMFORCE Global, which was
not a party to the Chapter 11 proceeding, was approved by the bankruptcy
court in which Spectrum's bankruptcy was pending. Originally founded in
1987, Spectrum had acquired COMFORCE Global in 1993.
In conjunction with the COMFORCE Global acquisition, the Company and
ARTRA entered into an Assumption Agreement as of October 17, 1995 (the
"Assumption Agreement"). Under the Assumption Agreement, ARTRA agreed to
pay and discharge substantially all of the then existing liabilities and
obligations of the Company, including indebtedness, corporate guarantees,
accounts payable and environmental liabilities. ARTRA also agreed
to assume responsibility for all liabilities of the Jewelry Business from
and after October 17, 1995, and is entitled to receive the net proceeds, if
any, from the sale thereof. On April 12, 1996, ARTRA sold the business and
certain of the assets of the Company's Lawrence Jewelry Company subsidiary
("Lawrence") for a selling price of $252,000 plus
37
<PAGE>
certain proceeds subsequently realized from the sale of existing inventory,
which proceeds were applied to pay creditors of Lawrence or deposited in an
escrow account to be applied for such purpose. ARTRA has advised the
Company that none of the proceeds from the sale would remain following the
payment of such creditors.
ENVIRONMENTAL MATTERS
Prior to its entry into the Jewelry Business in 1985, the Company
operated in excess of 20 manufacturing facilities for the production of,
inter alia, photocopy machines, photographic chemical and paper coating.
These operations were sold or discontinued in the late 1970s and early
1980s. Certain of these facilities may have used and/or generated
hazardous materials and may have disposed of the hazardous substances,
particularly before the enactment of laws governing the safe disposal of
hazardous substances, at an indeterminable number of sites. Although the
controlling stockholders and current management had no involvement in such
prior manufacturing operations, the Company could be held to be responsible
for clean-up costs if any hazardous substances were deposited at these
manufacturing sites, or at off-site waste disposal locations, under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), or under other Federal or state environmental laws now or
hereafter enacted. However, except for the Gary, Indiana site described
below, the Company has not been notified by the Federal Environmental
Protection Agency (the "EPA") that it is a potentially responsible party
for, nor is the Company aware of having disposed of hazardous substances
at, any site.
In December 1994, the Company was notified by the EPA that it is a
potentially responsible party under CERCLA for the disposal of hazardous
substances at a site in Gary, Indiana. The alleged disposal occurred in
the mid-1970s at a time when the Company conducted operations as APECO
Corporation (see "Discontinued Operations--History of the Company"). In
this connection, in December 1994, the Company was named as one of
approximately 80 defendants in a case brought in the United States District
Court for the Northern District of Indiana by a group of 14 potentially
responsible parties who agreed in a consent order entered into with the EPA
to clean-up this site. The plaintiffs have estimated the cost of cleaning
up this site to be $45 million, and have offered to settle the case with
the Company for $991,445. This amount represents the plaintiffs' estimate
of the Company's pro rata share of the clean-up costs. The Company
declined to accept this settlement proposal, which was subsequently
withdrawn.
The plaintiffs have produced only limited testamentary evidence, and no
documentary evidence, linking the Company to this site, and the Company has
neither discovered any records which indicate, nor located any current or
former employees who have advised, that the Company deposited hazardous
substances at the site. Based on the foregoing, management of the Company
does not believe that it is probable that the Company will have any
liability for the costs of the clean-up of this site. The Company intends
to vigorously defend itself in this case.
Under the terms of the Assumption Agreement, ARTRA has agreed to pay and
discharge substantially all of the Company's pre-existing liabilities and
obligations, including environmental liabilities at any sites at which the
Company allegedly operated facilities or disposed of hazardous substances,
whether or not the Company is currently identified as a potentially
responsible party therefor. Consequently, the Company is entitled to
indemnification from ARTRA for any environmental liabilities associated
with the Gary, Indiana site. No assurance can, however, be given that
ARTRA will be financially capable of satisfying its obligations under the
Assumption Agreement.
TRANSACTIONS WITH ARTRA
ARTRA owns approximately 17.9% of the Company's currently issued and
outstanding Common Stock. ARTRA first acquired an interest in the Company
in August 1982. As of October 6, 1995 (immediately prior to the issuance
of stock to the Designated Individuals), ARTRA held an approximately 63%
interest in the Company, and held 9,701 shares of Series C Preferred Stock
(representing all of the then issued and outstanding Preferred Stock
of the Company). In order to facilitate the COMFORCE Global acquisition,
ARTRA agreed to exchange all of the Series C Preferred Stock of the Company
then held by it (9,701 shares) for 100,000 shares of the Company's Common
Stock. The liquidation value of the Series C Preferred Stock was $19.5
million in the aggregate as of the effective date of the exchange, December
15, 1995. The closing price of the Company's Common Stock on the
38
<PAGE>
American Stock Exchange on October 17, 1995, the date of the closing of the
COMFORCE Global acquisition, was $4.50. Based on this price, the shares
awarded to ARTRA had a value of $450,000.
The Company made advances to ARTRA of $399,000 in 1995 and $54,000 in
1996. In the first quarter of 1996, ARTRA repaid these advances. In
August 1994, ARTRA entered into a $1,850,000 short-term loan agreement with
a non-affiliated corporation, the proceeds of which were advanced to the
Company and used to fund amounts due the Company's bank. The loan, due
June 30, 1995, was collateralized by 100,000 shares of the Company's common
stock. In August 1995, these shares were transferred to the lender in
consideration of extending the loan, and the carrying value of these
100,000 shares ($700,000) was transferred to ARTRA as reduction of amounts
then due to ARTRA by the Company. In 1995, ARTRA provided certain
financial, accounting and administrative services for the Company's
corporate entity. During 1995, the fees for these services amounted to
$91,000.
TRANSACTIONS WITH FORMER MANAGEMENT
The purchase price paid by the Company for the COMFORCE Global stock was
approximately $6.4 million, net of cash acquired, consisting of cash of
approximately $5.6 million and 500,000 shares of the Company's Common Stock
issued as consideration for various fees and guarantees associated with the
transaction. The 500,000 shares issued by the Company included 150,000
shares issued to Peter R. Harvey, then a Vice President and director of the
Company, for guaranteeing certain of the Company's obligations, including
guaranteeing to Spectrum that the COMFORCE Global acquisition would be
completed. The dollar amount of Mr. Harvey's obligation was equal to the
$6.4 million purchase price of COMFORCE Global. The closing price of the
Company's Common Stock on the American Stock Exchange on October 17, 1995,
the date of the closing of the COMFORCE Global acquisition, was $4.50.
Based on this price, the shares awarded to Mr. Harvey had a value of
$675,000. Current management of the Company has questioned its obligation
to issue the 150,000 shares to Peter R. Harvey in consideration of his
guarantees. However, for purposes of presenting earnings per share data,
the Company is recognizing these shares as being issued and outstanding
pending resolution of the disagreement between the parties.
Peter R. Harvey served the Company as its Director from 1982 to December
1995 and Vice President from July 1995 to December 1995. He has also
served as the President, Chief Operating Officer and as a Director of ARTRA
since 1968.
In April 1993, the Company entered into a management agreement with
Nitsua, Ltd. ("Nitsua"), a corporation wholly-owned by Austin A. Iodice,
then the Vice Chairman, President and Chief Executive Officer of the
Company. This management agreement was approved and accepted by the
Company's New Dimensions, Rosecraft and Lawrence subsidiaries (the "Jewelry
Subsidiaries"). Pursuant to the terms of this agreement, Mr. Iodice had
all of the responsibilities of a chief executive officer of the Company and
the Jewelry Subsidiaries (subject to the supervision of the boards of
directors of the Company and the Jewelry Subsidiaries). This agreement,
which was scheduled to terminate on March 31, 1996, was earlier terminated
upon Mr. Iodice's resignation as an officer and director of the Company in
December 1995. As compensation for its services under the agreement,
Nitsua received (i) a management fee of $260,000 per annum, (ii)
reimbursement of all documented expenses reasonably incurred by Nitsua in
connection with the performance of its duties, and (iii) options to
purchase 370,419 shares of the Company's Common Stock at an exercise price
of $1.125 per share.
Austin A. Iodice served the Company as its Director from 1990 to December
1995, and as its Vice Chairman, President and Chief Executive Officer from
1992 to December 1995.
The Company did not have sufficient funds available to repay indebtedness
of $750,000 payable to a bank lender on March 31, 1995. Accordingly, on
March 31, 1995, Alex Verde, a director of the Company, entered into an
assignment agreement with the bank lender to purchase this indebtedness for
$750,000, and advanced an additional $100,000 to the Company. In this
connection, Mr. Verde and the Company also entered into an agreement
whereby he reduced this indebtedness to $850,000 in consideration of the
Company's issuance to him of 150,000 shares of its Common Stock valued at
$337,500 ($2.25 per share) based upon the closing price of the shares on
the American Stock
39
<PAGE>
Exchange on March 30, 1995. This loan, which was originally due July 31,
1995 (subsequently extended to September 15, 1995), was repaid in February
1996 by ARTRA, which had assumed the obligation to repay the loan under the
terms of the Assumption Agreement. As compensation for agreeing to extend
the maturity date of the loan, Mr. Verde received 50,000 shares of the
Common Stock on August 2, 1995 with a market price of $103,125 ($2.0625 per
share) based upon the closing price of the shares on the American Stock
Exchange on the date issued.
Alexander Verde served as Director from 1990 to December 1995.
PRINCIPAL STOCKHOLDERS
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares and percentage of
Common Stock beneficially owned as of September 30, 1996 by (i) the only
stockholders known by management of COMFORCE to own 5% or more of
COMFORCE's Common Stock, (ii) each director and executive officer of
COMFORCE, (iii) Austin A. Iodice, formerly Vice Chairman, Chief Executive
Officer and President of the Company, and (iv) all directors, executive
officers and other key employees of COMFORCE as a group. Unless stated
otherwise, each person so named exercises sole voting and investment power
as to the shares of Common Stock so indicated. As of such date, there were
9,632,032 shares of Common Stock issued and outstanding (10,519,132 shares
assuming conversion of currently outstanding shares of Series E Preferred
Stock, as described in Note 1 to the table below).
40
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED/(1)/ BENEFICIALLY OWNED/(1)/
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Management:
Michael Ferrentino/(2)/ 2,221,762 20.2%
2001 Marcus Avenue
Lake Success, New York 11042
Christopher P. Franco/(3)/ 999,794 9.3%
2001 Marcus Avenue
Lake Success, New York 11042
Andrew Reiben -- --
Paul Grillo -- --
Dr. Glen Miller -- --
Richard Barber -- --
Keith Goldberg -- --
Directors and officers as a group
((7) persons)/(4)/ 2,221,762 20.2%
Other Significant Stockholders:
James L. Paterek/(5)/ 1,666,322 15.3%
86 South Drive
Plandome, New York 11030
ARTRA GROUP Incorporated 1,880,000 17.9%
500 Central Avenue/(6)(7)/
Northfield, Illinois 60093
Cypress Partners L.P./(8)/ 730,000 6.9%
P.O. Box 71289
Atlantic Richfield Plaza Station
Los Angeles, California 90071
Dobbins Partners, L.P./(9)/ 714,215 6.6%
2651 North Harwood
Suite 500
Dallas, Texas 75201
Marc Werner/(10)/ 1,201,765 11.1%
1359 Virginia Trail
Youngstown, OH 44505
Former Management (Discontinued Jewelry Business):
Austin A. Iodice/(11)/ -- --
</TABLE>
_______________________
41
<PAGE>
/(1)/ For purposes of this table, shares are considered
"beneficially owned" if the person directly or indirectly has the sole or
shared power to vote or direct the voting of the securities or the sole or
shared power to dispose of or direct the disposition of the securities. A
person is also considered to beneficially own shares that such person has
the right to acquire within 60 days, and options exercisable within such
period are referred to herein as "currently exercisable." For purposes of
calculating the percentage ownership of shares, the Company's Series E
Preferred Stock is deemed to have been converted into Common Stock (at the
specified rate of 100 shares of Common Stock for each share of Series E
Preferred Stock) since the Series E Preferred Stock it is voted on a
combined basis with the Common Stock and not on a class basis. The Series
E Preferred Stock will be automatically converted to Common Stock if the
stockholders approve the proposed amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares. As of September
30, 1996, 8,871 shares of Series E Preferred Stock were outstanding and,
accordingly, 887,100 additional shares of Common Stock are deemed to be
outstanding (10,519,132 shares in the aggregate).
/(2)/ The shares beneficially owned by Mr. Ferrentino, the
President and a Director of the Company, include (i) 794,907 shares
currently held of record by him, (ii) 204,887 additional shares to be
issued to him under the anti-dilution provisions of the Letter Agreement,
(iii) 794,907 shares held of record by Christopher P. Franco which are
subject to a voting agreement among him, Mr. Ferrentino, and Kevin W.
Kiernan, a Vice President of COMFORCE Global, under which Mr. Ferrentino
has voting power (the "Voting Agreement"), (iv) 204,887 additional shares
to be issued to Mr. Franco under the anti-dilution provisions of the Letter
Agreement which will also be subject to the Voting Agreement, (v) 176,644
shares held of record by Mr. Kiernan which are subject to the Voting
Agreement and (vi) 45,530 additional shares to be issued to Mr. Kiernan
under the anti-dilution provisions of the Letter Agreement which will also
be subject to the Voting Agreement. His ownership percentage has been
calculated as if the shares to be issued to them under the anti-dilution
provisions of the Letter Agreement as described above were options which
are currently exercisable.
/(3)/ The shares beneficially owned by Mr. Franco, the Executive
Vice President of the Company, include (i) 794,907 shares currently held of
record by him which are subject to the Voting Agreement and (ii) 204,887
additional shares to be issued to him under the anti-dilution provisions of
the Letter Agreement which will also be subject to the Voting Agreement.
His ownership percentage has been calculated as if the shares to be issued
to him under the anti-dilution provisions of the Letter Agreement were
options which are currently exercisable.
/(4)/ The shares shown to be beneficially owned by the directors
and officers as a group include (i) 1,589,814 shares held of record by
them, (ii) 409,774 shares to be issued to them under the anti-dilution
provisions of the Letter Agreement, (iii) 176,644 shares held of record by
Mr. Kiernan (under which Mr. Ferrentino, President of the Company, has
voting power) and (iv) 45,530 additional shares to be issued to Mr. Kiernan
under the anti-dilution provisions of the Letter Agreement which will also
be subject to the Voting Agreement. The ownership percentage has been
calculated as if the shares to be issued to him under the anti-dilution
provisions of the Letter Agreement were options which are currently
exercisable.
/(5)/ The shares beneficially owned by Mr. Paterek, a consultant
to the Company, include 1,324,844 shares currently held of record by him
and 341,478 additional shares to be issued to him under the anti-dilution
provisions of the Letter Agreement. His ownership percentage has been
calculated as if the shares to be issued under the anti-dilution provisions
of the Letter Agreement were options which are currently exercisable.
/(6)/ John Harvey and Peter R. Harvey, each of whom formerly
served as an officer and director of the Company, control the management
and operations of ARTRA, which owns 17.9% of the Company's common stock.
Insofar as they are deemed beneficial owners of the Company's shares owned
of record by ARTRA, Peter R. Harvey owns 2,074,833 shares (19.6%) of the
Company's Common Stock and John Harvey owns 1,955,333 shares (18.5%) of the
Company's Common Stock. Each such person maintains a business address at
500 Central Avenue, Northfield, Illinois 60093.
/(7)/ ARTRA, through a wholly-owned subsidiary, Fill-Mor
Holding, Inc. ("Fill-Mor"), a Delaware corporation (hereinafter all
holdings of Fill-Mor are referred to as ARTRA's), presently owns 1,880,000
shares of record (17.9% of the outstanding Common Stock of COMFORCE). ARTRA
agreed in the Letter Agreement to direct
42
<PAGE>
Fill-Mor to vote in favor of current management's nominees for the
Board of Directors. Additionally, ARTRA directed Fill-Mor to execute a
limited proxy to current management of the Company providing that ARTRA
and/or Fill-Mor shall vote its shares in all manners in favor of the
conditions of the Letter Agreement.
/(8)/ The shares beneficially owned by Cypress Partners L.P.
consist of 620,000 shares issuable upon conversion of 6,200 shares of
Series E Preferred Stock held by it and 110,000 shares issuable upon
conversion of 1,100 shares of Series E Preferred Stock held by Cypress
International Partners Limited, an affiliate of Cypress Partners L.P.
/(9)/ The shares beneficially owned by Dobbins Partners L.P.
consist of 489,215 shares held of record by Dobbins and 225,000 shares
issuable upon the exercise of a warrant held by it.
/(10)/ The shares beneficially owned by Marc Werner consist of
(i) 100,000 shares held of record by him, (ii) 816,765 shares held of
record by Manufacturers Indemnity and Insurance Company of America, 5775
Flat Iron Parkway, No. 205, Boulder, Colorado 80301 ("MIICA"), a
corporation controlled by him, and (iii) 285,000 shares issuable upon the
exercise of a warrant held by MIICA.
/(11)/ Not included in the table is an option to purchase
370,419 shares of the Company's Common Stock at an exercise price of $1.125
per share which was originally granted to a company wholly-owned by Mr.
Iodice in 1993. The Company maintains that this option terminated in 1996.
Mr. Iodice maintains that this option continues to be exercisable. If the
option were deemed to continue in effect, Mr. Iodice would beneficially own
3.5% of the Company's Common Stock. Mr. Iodice was the Chief Executive
Officer of the Company when the Company was engaged in its discontinued
Jewelry Business.
43
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the shares
of Common Stock held by, or issuable upon the exercise of warrants or the
conversion of Preferred Stock of the Company, to the persons offering
shares pursuant to this Prospectus ("Selling Stockholders"). In cases
where the Selling Stockholder serves or has served within the past three
years as an officer, director or employee of the Company or any of its
subsidiaries, this relationship is noted. Because the Selling Stockholders
may offer all or some part of the Common Stock that they hold pursuant to
the offering contemplated by this Prospectus, and because this offering is
not being underwritten (on a firm commitment or any other basis), no
estimate can be given as to the amount of Common Stock that will be held by
Selling Stockholders upon termination of this offering.
Michael Ferrentino, the President and a Director of the Company,
Christopher P. Franco, an Executive Vice President of the Company, Kevin W.
Kiernan, a Vice President of COMFORCE Global, and James L. Paterek, a
consultant to the Company, collectively are registering 3,888,084 shares
hereby. Such individuals have advised the Company that they will agree not
to sell any such shares for at least six months from the effective date of
the Registration Statement of which this Prospectus is a part.
<TABLE>
<CAPTION>
NUMBER OF SHARES SHARES OFFERED
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED HEREBY
<S> <C> <C>
Arabella S.A. (1) 25,000 25,000
Argosy Securities Group, Ltd. (2) 16,250 16,250
ASG Partners (1) 105,000 105,000
Robert Barker (1) 75,000 75,000
William Belzberg (1) 25,000 25,000
Ann W. Bensen (3) 10,000 10,000
Reed Berkey (4) (26) 11,250 11,250
Belmad Enterprises, L.P., an Illinois limited partnership (1) 82,500 82,500
Boeckman Investments (5) 55,882 55,882
Salvatore Bova (3) 5,000 5,000
John Bramsen (4)(26) 35,000 35,000
Elliott Broidy (6)(27) 30,000 30,000
Kenneth Buchanan (4)(26) 17,500 17,500
Luke Buse & Brent D. Richardson JTWROS (3) 40,000 40,000
Robert A. Calabrese (7) 5,000 5,000
</TABLE>
44
<PAGE>
<TABLE>
<S> <C> <C>
Calloway, an Arizona Partnership (3) 15,000 15,000
Estate of Sanders H. Campbell (3) 40,000 40,000
Woodrow Chamberlain (4)(26) 46,250 46,250
Charles J. Christian (4)(26) 13,500 13,500
Howard Conant (8)(28) 220,000 220,000
Cypress Int'l Partners Ltd. (6)(27) 110,000 110,000
Cypress Partners L.P. (6)(27) 620,000 620,000
James L. Davis (3) 15,000 15,000
Delaware Charter Guarantee & Trust
Company, Cust. fbo Mark S. Howells
SEP/IRA (3) 10,000 10,000
Delaware Charter Guarantee & Trust
Company, Cust fbo Jeffrey J. Puglisi
SEP/IRA (3) 16,000 16,000
Delaware Charter Guarantee & Trust
Company, Cust. fbo Irving M.Rollingher
SEP/IRA (3) 1,500 1,500
Delta Traders (3) 60,000 60,000
David J. Doerge Trust (4)(26) 186,999 186,999
Dobbins Partners, L.P. (9) 714,215 714,215
Mark Dorian (4)(26) 45,000 45,000
Michael F. Dura (3) 5,000 5,000
Empire Metals Profit Sharing Plan (3) 5,000 5,000
Stephen N. Engberg Associates Pension Plan
and Trust (4)(26) 35,000 35,000
Michael Ferrentino (10) 999,794 999,794
Christopher P. Franco (10) 999,794 999,794
William A. Franke (3) 15,000 15,000
David Furth (6)(27) 4,000 4,000
Matthew A. Gohd (11) 59,214 59,214
Matthew A. Gohd & Frann Setzer-Gohd (6)(27) 13,400 13,400
Howard Grafman (4)(26) 22,500 22,500
Thomas Gries (4)(26) 11,250 11,250
Clark Gunderson (12)(28) 35,000 35,000
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C>
Norton Herrick (1) 10,000 10,000
Parris H. Holmes, Jr. (3) 10,000 10,000
Mark S. Howells (3) 9,000 9,000
Irvine Capital Partners (3) 20,000 20,000
Robert Jones (13)(28) 52,500 52,500
Kevin Kiernan (10) 222,174 222,174
KFT Ltd. (3) 5,000 5,000
Thomas Kigin (4)(26) 22,500 22,500
Patrick Koo (14)(28) 70,000 70,000
Michael Laundrie (15)(28) 35,000 35,000
Stephen M. Levy, FBO (16) 5,000 5,000
Levy S.D. (16)(A) 10,000 10,000
Maynard Louis (17) 10,000 10,000
Philip P. Lovell (3) 10,000 10,000
Philip P. Lovell Pension Plan (3) 15,000 15,000
C.G.E. Manolovici (6)(27) 20,000 20,000
Manufacturers Indemnity and Insurance
Company of America (18) 1,101,765 1,101,765
James McGill (4)(26) 22,500 22,500
Johanna McGill (4)(26) 22,500 22,500
MSAM Partners (19)(28) 10,000 10,000
John and Else Muehlstein (4)(26) 13,500 13,500
James L. Paterek (10) 1,666,322 1,666,322
Robert C. Pearson & Nancy L. Pearson JTWROS (3) 5,000 5,000
Porpoise Fund (20) 79,999 79,999
Porpoise Investors I, L.P.(6)(27) 26,700 26,700
Jeffrey J. Puglisi (3) 50,000 50,000
Charles Reeder (4)(26) 90,000 90,000
Julia L. Reynolds Trust #2 (4)(26) 22,500 22,500
Evan D. Ritchie Living Trust (4)(26) 22,500 22,500
Irving M. Rollingher (3) 8,500 8,500
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C>
Rubenstein Family Ltd. Partnership #1 (3) 15,000 15,000
Byron H. Rubin (3) 20,000 20,000
Gerald Rubin (3) 50,000 50,000
Jay Rubin (3) 20,000 20,000
Seymour Sacks & Star Sacks JTWROS (3) 5,000 5,000
John M. Schottenstein Revocable Trust (3) 7,500 7,500
Michael Dain Searle (4)(26) 13,500 13,500
Martha Seelbach (21)(26) 13,500 13,500
Aaron M. Shenkman & Cynthia Shenkman JTWROS (3) 20,000 20,000
Norman F. Siegel (22) 66,667 66,667
Paul Smeets (4)(26) 35,000 35,000
Lillian D. Snow (3) 10,000 10,000
Jim Sowell Construction Co., Inc. (3) 40,000 40,000
John C. Stacey, DDC, SC, Pension Plan (3) 10,000 10,000
A. E. Staley III Trust (4)(26) 45,000 45,000
Henry M. Staley Trust (4)(26) 51,300 51,300
Robert C. Staley Trust (4)(26) 22,500 22,500
STK&K Profit Sharing Plan & Trust (3) 5,000 5,000
Avery Stone Trust (4)(26) 27,000 27,000
Shephard C. Swift Trust (4)(26) 45,000 45,000
Michael Targoff (1) 18,530 18,530
Michael Targoff Family Foundation (1) 5,000 5,000
E. B. Tarson (4)(26) 45,000 45,000
Ronald Tarson (4)(26) 45,000 45,000
Steve Tarson (4)(26) 45,000 45,000
Christiane L. Turner (6)(27) 3,000 3,000
Alexander H. Verde (23) 225,000 225,000
Marc Werner(1) 100,000 100,000
Michael Werner (6)(27) 30,000 30,000
Ronald Werner (6)(27) 30,000 30,000
Westminster Capital (24)(26) 15,000 15,000
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
Whitney Holdings Incorporated (1) 75,000 75,000
Diane Wilson (25)(26) 9,450 9,450
Timothy Wright (3) 6,000 6,000
Jack Zerelli & Ray Ann Zerelli JTWROS (3) 5,000 5,000
Ray Rashkin (29) 12,500 12,500
Stanley Rashkin (29) 100,000 100,000
--------- ---------
Total 9,808,705 9,808,705
</TABLE>
- --------------------------
(1) The shares offered by the named stockholder are owned of record by
the stockholder.
(2) The shares offered by Argosy Securities Group, Ltd. are 16,250 shares
issuable to it upon its exercise of a warrant at an exercise price of $4.00
per share, which warrant expires 90 days after the date hereof.
(3) The shares offered by the named stockholder are shares issuable to
the stockholder upon conversion of Series D Preferred Stock held by the
stockholder, such Series D Preferred Stock convertible at a ratio of 83.33
shares of Common Stock for each share of convertible Series D Preferred
Stock pursuant to an offering under Regulation D in April and May 1996.
(4) Of the shares offered by the named stockholder, approximately 2/3 of
the amount listed are shares owned of record by the stockholder and
approximately 1/3 of the amount listed are shares issuable to the
stockholder upon the stockholder's exercise of a warrant at an exercise
price of $3.375, which warrant expires June 1, 2001.
(5) The shares offered by Boeckman Investments are (i) 16,667 shares
issuable to it upon its exercise of a warrant at an exercise price of
$3.375 per share, which warrant expires October 17, 2000, and (ii) 39,215
shares owned of record by it.
(6) The shares offered by the named stockholder are shares issuable to
the stockholder upon conversion of Preferred Stock held by the stockholder,
such Preferred Stock convertible at a ratio of 100 shares of Common Stock
for each share of Convertible Series E Preferred Stock.
(7) The shares offered by Robert A. Calabrese are 5,000 shares issuable
to him upon his exercise of a warrant at an exercise price of $2.50 per
share, which warrant expires March 10, 2000.
(8) The shares offered by Howard Conant are (i) 30,000 shares issuable to
him upon his exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires September 11, 2000, (ii) 50,000 shares issuable to
him upon his exercise of a warrant at an exercise price of $3.375 per
share, which warrant expires October 17, 2000, and (iii) 140,000 shares
owned of record by him.
(9) The shares offered by Dobbins Partners, L.P. are (i) 225,000 shares
issuable to it upon its exercise of a warrant at an exercise price of
$3.375 per share, which warrant expires October 17, 2000, and (ii) 489,215
shares owned of record by it.
(10) The shares offered by the named stockholder are shares owned of
record by the stockholder. The shares were issued to the named stockholder
in consideration for entering into an employment or consulting contract
with the Company to direct its entry into the technical staffing business.
Michael Ferrentino is President and a Director of the Company, Christopher
Franco is Executive Vice President, Kevin Kiernan is Vice President, and
James L. Paterek serves as a business consultant to the Company.
(11) The shares offered by Matthew Gohd are (i) 6,666 shares issuable to
him upon his exercise of a warrant at an exercise price of $3.375 per
share, which warrant expires October 17, 2000, (ii) 33,333 shares issuable
to him for payment of service and (iii) 19,215 shares owned of record by
him.
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<PAGE>
(12) The shares offered by Clark Gunderson are (i) 10,000 shares issuable
to him upon his exercise of a warrant at an exercise price of $2.00 per
share, which warrant expires August 30, 2000 and (ii) 25,000 shares to be
issued to him for conversion of a note in the amount of $50,000 at a price
per share of $2.00.
(13) The shares offered by Robert Jones are (i) 15,000 shares issuable to
him upon his exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires August 30, 2000, and (ii) 37,500 shares to be issued
to him for conversion of a note in the amount of $75,000 at a price per
share of $2.00.
(14) The shares offered by Patrick Koo are (i) 20,000 shares issuable to
him upon his exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires October 3, 2000, and (ii) 50,000 shares to be issued
to him for conversion of a note in the amount of $100,000 at a price per
share of $2.00.
(15) The shares offered by Michael Laundrie are (i) 10,000 shares
issuable to him upon his exercise of a warrant at an exercise price of
$2.00 per share, which warrant expires September 8, 2000, and (ii) 25,000
shares issuable to him for conversion of a note in the amount of $50,000 at
a price per share of $2.00.
(16) The shares offered by Stephen M. Levy are 5,000 shares issuable to
it upon its exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires September 12, 2000.
(16)(A) The shares offered by Levy S.D. are 10,000 shares usable to it
upon its exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires September 12, 2000.
(17) The shares offered by Maynard Louis are 5,000 shares issuable to him
upon his exercise of a warrant at an exercise price of $2.00 per share,
which warrant expires September 11, 2000 and 5,000 shares owned of record.
(18) The shares offered by Manufacturers Indemnity and Insurance Company
of America are (i) 285,000 shares issuable to it upon its exercise of a
supplemental warrant at an exercise price of $9.00 per share, and (ii)
816,765 shares held of record by it.
(19) The shares offered by MSAM Partners are 10,000 shares issuable to it
upon its exercise of a warrant at an exercise price of $2.062 per share,
which warrant expires July 16, 2000.
(20) The shares offered by Porpoise Fund are (i) 26,666 shares issuable
to it upon its exercise of a warrant at an exercise price of $3.375 per
share, which warrant expires October 17, 2000 and (ii) 53,333 shares owned
of record by it.
(21) The shares offered by Martha Seelbach are (i) 4,500 shares issuable
to her upon her exercise of a warrant at an exercise price of $3.375 per
share, which warrant expires June 1, 2001, and (ii) 9,000 shares owned of
record by her.
(22) The shares offered by Norman F. Siegel are (i) 50,000 shares held of
record by him and (ii) 16,667 shares issuable to him upon his exercise of a
supplemental warrant at an exercise price of $9.00 per share.
(23) The shares offered by Alexander H. Verde are (i) 200,000 shares
owned of record by him and (ii) 25,000 shares to be issued in connection
with extension of credit to the Company in 1995. Mr. Verde was a director
of the Company when it was in the jewelry business and was The Lori
Corporation.
(24) The shares offered by Westminster Capital are 15,000 shares issuable
upon the exercise of a warrant at an exercise price of $3.375 per share.
(25) The shares offered by Diane Wilson are (i) 3,150 shares issuable to
her upon her exercise of a warrant at an exercise price of $3.375 per
share, which warrant expires June 1, 2001, and (ii) 6,300 shares owned of
record by her.
(26) These shares were offered pursuant to a private placement during
October and November 1995.
(27) These shares were offered in connection with the sale of Series E
Preferred Stock pursuant to an offering under Regulation D in April and May
1996.
49
<PAGE>
(28) The warrant or convertible note, as applicable, was issued in
connection with extension of credit to the Company during the period from
July through October 1995.
(29) The shares offered by the named stockholder are shares issuable to
the stockholder upon the exercise of an option at $7.375 per share, which option
expires _____________, 2006.
PLAN OF DISTRIBUTION
The manner in which the Common Stock covered by this Prospectus is to be
distributed is set forth on the cover page hereof. Any sales effected
through securities brokers or dealers will be on an "agency" basis, unless
as a result of a privately negotiated transaction a broker or dealer enters
into an agreement with a Selling Stockholder to purchase shares for its own
account. At the date of this Prospectus, none of the Selling Stockholders
contemplate entering into such a contractual relationship with a broker or
dealer, although one or more of them may decide to do so in the future.
To comply with certain states' securities laws, if applicable, the Common
Stock will be sold in such states only through brokers or dealers. In
addition, in certain states the Common Stock may not be sold unless they
have been registered or qualify for sale in such states or an exemption
from registration or qualification is available and is complied with. From
time to time, to the extent required by the rules of the Securities and
Exchange Commission, the Company will distribute Prospectus Supplements.
The Selling Stockholders and any broker-dealers who participate in a sale
of their shares of Common Stock may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions
received by them, and proceeds of any such sales as principal, may be
deemed to be underwriting discounts and commissions under the Securities
Act.
All expenses of the registration of Common Stock offered hereby,
estimated to be approximately $130,000, will be borne by the Company. As
and when the Company is required to update this Prospectus, it may incur
additional expenses in excess of this estimated amount. Normal commission
expenses and brokerage fees, as well as any applicable transfer taxes, are
payable individually by the Selling Stockholders.
Since the Selling Stockholders will be subject to the anti-manipulation
rules promulgated under the Exchange Act, including Rule 10b-2, 10b-6 and
10b-7, in connection with transactions in the Common Stock during the
effectiveness of the Registration Statement of which this Prospectus is a
part, the Company advised the Selling Stockholders to consult competent
securities counsel prior to initiating any such transaction. The Company
will notify each Selling Stockholder of the Commission's rules and, as a
condition to agreeing to register the shares of a Selling Stockholder, will
require that such Selling Stockholder agree to comply with such rules.
The Company will not receive any proceeds from the sale of the Common
Shares offered hereby by the Selling Stockholders. However, insofar as the
holders of warrants to purchase shares of the Common Stock are expected to
exercise their warrants in order to sell the underlying shares (which are
registered hereby), the Company will receive the amount of the exercise
prices of any warrants so exercised. The Company cannot predict when or if
it will receive proceeds from the exercise of warrants, or the amount of
any such proceeds. The Company intends to use the proceeds, if any,
received from the exercise of warrants for working capital purposes.
50
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
Following is a consolidated summary of selected financial data of the
Company for each of the five years in the period ended December 31, 1995
and for the six months ended June 30, 1996. Certain selected financial
data for each of the four years in the period ended December 31, 1994 has
been reclassified to reflect the discontinuance of the Company's Jewelry
Business effective September 30, 1995. Selected financial data for the
year ended December 31, 1995 includes the operations of COMFORCE Global
from the date of its acquisition, completed on October 17, 1995.
<TABLE>
<CAPTION>
Six months
ended
June 30, Year ended December 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(thousands, except per share data)
Revenues (A) $13,158 $ 2,387 $ -- $ -- $ -- $ --
Stock compensation charge (B) -- 3,425 -- -- -- --
Earnings (Loss) from continuing 452 (4,332) (2,282) (1,456) (421) (5,129)
operations
Loss from discontinued operations -- (17,211) (16,220) (216) (34,198) (1,970)
(C)
Earnings (Loss) before 452 (21,543) (18,502) (1,672) (34,619) (7,099)
extraordinary credits
Extraordinary credits (D) -- 6,657 8,965 22,057 -- --
Net earnings (loss) 452 (14,886) (9,537) 20,385 (34,619) (7,099)
Earnings (loss) per share:
Continuing operations 0.03 (.95) (.72) (.39) (.13) (1.62)
Discontinued operations -- (3.74) (5.08) (.06) (10.86) (.63)
Earnings (Loss) before 0.03 (4.69) (5.80) (.45) (10.99) (2.25)
extraordinary
credits
Extraordinary credits -- 1.45 2.81 6.03 -- --
Net earnings (loss) 0.03 (3.24) (2.99) 5.58 (10.99) (2.25)
Total assets (E) 22,124 8,536 18,704 40,174 42,818 66,877
Long-term debt -- -- -- -- 6,105 23,548
Receivable from (payable to) -- 1,046 (289) -- (16,025) (15,981)
ARTRA(F)
Liabilities assumed by ARTRA (F) 1,794 4,240 -- -- -- --
Liabilities subject to compromise -- -- -- -- 41,500 --
Debt subsequently discharged -- -- 7,105 -- -- --
Cash dividend -- -- -- -- -- --
</TABLE>
______________________________________________________________
51
<PAGE>
(A) Revenues for the year ended December 31, 1995 represent revenues of
COMFORCE Global from the date of its acquisition, October 17, 1995.
Revenues for the six months ended June 30, 1996 represent revenues of
COMFORCE Global, revenues from Williams from the acquisition date of
March 3, 1996 through June 30, 1996 and revenues from RRA from the
acquisition date of May 10, 1996 through June 30, 1996. Selected
financial data of the Company's Jewelry Business for the nine months
ended September 30, 1995 and for each of the four years in the period
ended December 31, 1994 has been reclassified to discontinued
operations.
(B) Represents a non-recurring compensation charge related to the issuance
of the 35% common stock interest in the Company pursuant to employment
or consulting agreements with certain individuals to manage the
Company's entry into and development of the telecommunications and
computer technical staffing services business.
(C) The loss from discontinued operations for the year ended December 31,
1995 includes a charge to operations of $12,930,000 to write-off the
remaining goodwill of the Company's Jewelry Business effective June
30, 1995 and a provision of $1,600,000 for loss on disposal of the
Company's Jewelry Business. The loss from discontinued operations for
the year ended December 31, 1994 includes a charge to operations of
$10,800,000 representing a write-off of New Dimensions (a subsidiary
of the Company) goodwill. The loss from discontinued operations for
the year ended December 31, 1992 includes charges to operations of
$8,664,000 representing an impairment of goodwill at December 31, 1992
and $8,500,000 representing increased reserves for markdown allowances
and inventory valuation.
(D) The 1995 and 1994 extraordinary credits represent gains from net
discharge of indebtedness under terms of the Company's debt settlement
agreement with its bank. The 1993 extraordinary credit represents a
gain from a net discharge of indebtedness due to the reorganization of
the Company's New Dimensions subsidiary. See Note 7 to the Company's
Consolidated Financial Statements.
(E) As partial consideration for a debt settlement agreement, in December
1994 the Company's bank lender received all of the assets of Lori's
former New Dimensions subsidiary. See Note 7 to the Company's
Consolidated Financial Statements.
(F) In conjunction with the COMFORCE Global acquisition, ARTRA agreed to
assume substantially all pre-existing Lori liabilities. During 1995,
ARTRA received $399,000 of advances from the Company. Subsequent to
December 31, 1995, ARTRA repaid the above advances and made net
payments of $647,000 to reduce pre-existing Lori liabilities. Such
payments have been included in the Company's Consolidated Financial
Statements at December 31, 1995 as amounts receivable from ARTRA and
as additional paid-in capital. To the extent ARTRA makes subsequent
payments, they will be recorded as additional paid-in capital. In the
fourth quarter of 1995, ARTRA exchanged all of its shares of the
Company's Series C cumulative preferred stock for 100,000 newly issued
shares of the Company's common stock. During 1994, ARTRA made net
advances to Lori of $2,531,000. Effective December 29, 1994, ARTRA
exchanged $2,242,000 of its notes and advances for additional Lori
preferred stock. In February 1993, ARTRA transferred all of its notes
to Lori's capital account. See Notes 9 and 15 to the Company's
Consolidated Financial Statements.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Doepken, Keevican & Weiss Professional Corporation,
Pittsburgh, Pennsylvania.
52
<PAGE>
EXPERTS
The consolidated balance sheets of COMFORCE Corporation and Subsidiaries
as of December 31, 1995 and 1994, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1995, the balance sheets
of COMFORCE Global, Inc. as of September 30, 1995 and December 31, 1994 and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the nine months ended September 30, 1995 and
the year ended December 31, 1994, the balance sheet of Williams
Communication Services, Inc. as of December 31, 1995 and the related
statements of operations and retained earnings and cash flows for the year
then ended December 31, 1995, included in this Prospectus, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets of RRA Inc. and affiliates as of December
31, 1995, 1994 and 1993, and the related combined statements of income,
changes in shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1995, included in this Prospectus, have
been incorporated herein in reliance on the report of Alexander & Devoley
P.C., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form S-1,
together with all amendments and exhibits thereto (the "Registration
Statement") under the Securities Act, with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the Rules and Regulations of the Commission. Statements
made in the Prospectus as to the contents of any contract, agreement or
other document referred to are not necessarily complete; with respect to
each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall
be deemed qualified in its entirely by such reference. The Registration
Statement, including exhibits and schedules filed therewith, may be
inspected at the Commission's Public Reference Section, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may be obtained upon written request from the
Public Reference Section of the Commission at the address set forth above
upon payment of prescribed fees. The Commission also maintains a Web site
at "http://www.sec.gov" which contains reports, proxy statements and other
information regarding registrants that file electronically with the
Commission.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports,
proxy statements and other information with the Commission. Such reports,
proxy statements and other information may be inspected at the Public
Reference Section of the Commission or the Commission's regional offices at
the addresses set forth above or accessed through the Commission's Web site
identified above, and copies of such material may be obtained upon written
request from the Public Reference Section of the Commission upon payment of
prescribed fees.
The Common Stock of the Company is listed on the American Stock Exchange
and such reports, proxy material and other information are also available
for inspection at the American Stock Exchange, 86 Trinity Place, New York,
New York 10006.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
COMFORCE CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements as of December 31, 1994
and 1995 and for each of the three years
in the period ended December 31, 1995
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedules
II. Valuation and Qualifying Accounts
Condensed Consolidated Financial Statements as of June 30, 1996
and for the three and six months then ended June 30, 1995 and 1996
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Changes in Shareholders' Equity
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
COMFORCE GLOBAL, INC.
Financial Statements as of September 30, 1995 and for the
nine month period ended September 30, 1995 and
as of December 31, 1994 and
for the year ended December 31, 1994
Report of Independent Accountants
Balance Sheets
Statements of Operations and Retained Earnings (accumulated deficit)
Statements of Cash Flows
Notes to Combined Financial Statements
WILLIAMS COMMUNICATION SERVICES, INC.
Financial Statements as of December 31, 1995 and
for the year ended December 31, 1995
Report of Independent Accountants
Balance Sheet
Statement of Operations and Retained Earnings
Statement of Cash Flows
Notes to Financial Statements
RRA, INC. AND AFFILIATES
Combined Financial Statements as of December 31, 1995 and 1994
and for the years then ended
Report of Independent Accountants
Combined Balance Sheets
Combined Statements of Income
Combined Statements of Changes in Shareholders' Equity
Combined Statements of Cash Flows
Notes to Combined Financial Statements
Combined Financial Statements as of December 31, 1994 and 1993
and for the years then ended
Report of Independent Accountants
Combined Balance Sheets
Combined Statements of Income
Combined Statements of Changes in Shareholders' Equity
Combined Statements of Cash Flows
Notes to Combined Financial Statements
Schedules other than those listed are omitted as they are not applicable or
required or equivalent information has been included in the financial statements
or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
COMFORCE Corporation
We have audited the consolidated financial statements and the financial
statement schedules of COMFORCE Corporation (formerly The Lori Corporation) and
Subsidiaries as listed in the index on page F-1 of this Definitive Proxy
Statement. These financial statements and financial statement schedules are the
responsibility of COMFORCE Corporation's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
COMFORCE Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 15, 1996
F-2
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1995 1994
-------- --------
ASSETS
Current assets:
Cash and equivalents $649 $783
Restricted cash and equivalents - 550
Receivables, including $56 of amounts
due from related parties and $151 of
unbilled revenue in 1995 and
allowance for doubtful accounts
and markdowns of $1,338 in 1994 1,754 814
Inventories - 2,105
Other 61 260
Receivable from ARTRA GROUP Incorporated 1,046 -
--------- ---------
Total current assets 3,510 4,512
--------- ---------
Property and equipment
Equipment 97 1,376
Leasehold improvements - 187
--------- ---------
97 1,563
Less accumulated depreciation and amortization 7 1,119
--------- ---------
90 444
--------- ---------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization of
$51 in 1995 and $3,415 in 1994 4,801 13,140
Other 135 608
--------- ---------
4,936 13,748
--------- ---------
$8,536 $18,704
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1995 1994
-------- --------
LIABILITIES
Current liabilities:
Notes payable $500
Current maturities of long-term debt - $750
Accounts payable, including $289 due to
ARTRA GROUP Incorporated in 1994 75 3,703
Accrued expenses, including $250 due to
a related party in 1995 719 905
Income taxes 214 -
Liabilities to be assumed by
ARTRA GROUP Incorporated,
and net liabilities of
discontinued operations 3,699 -
--------- ---------
Total current liabilities 5,207 5,358
--------- ---------
Debt subsequently discharged - 7,105
--------- ---------
Noncurrent liabilities to be
assumed by ARTRA GROUP Incorporated 541 -
--------- ---------
Obligations expected to be settled by
the issuance of common stock 550 -
--------- ---------
Other noncurrent liabilities - 963
--------- ---------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value,
authorized 1,000 shares,
all series; Series C, issued 10 shares in 1994,
including accrued dividends - 19,515
Common stock, $.01 par value;
authorized 10,000 shares;
issued 9,309 shares in 1995
and 3,265 shares in 1994 92 32
Less restricted common stock (100 shares) - (700)
Additional paid-in capital 95,993 65,392
Accumulated deficit (93,847) (78,961)
--------- ---------
2,238 5,278
--------- ---------
$8,536 $18,704
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
COMFORCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
(In thousands, except per share data)
1995 1994* 1993*
--------- --------- ---------
Revenues $2,387
---------
Costs and expenses:
Cost of revenues 1,818
Stock compensation 3,425
Selling, general and administrative 823 $966 $701
--------- --------- ---------
6,066 966 701
--------- --------- ---------
Operating loss (3,679) (966) (701)
--------- --------- ---------
Other expense:
Interest expense (585) (1,316) (754)
Other expense, net (33) - (1)
--------- --------- ---------
(618) (1,316) (755)
--------- --------- ---------
Loss from continuing operations
before income taxes (4,297) (2,282) (1,456)
Provision for income taxes (35) - -
--------- --------- ---------
Loss from continuing operations (4,332) (2,282) (1,456)
Loss from discontinued operations (17,211) (16,220) (216)
--------- --------- ---------
Loss before extraordinary credits (21,543) (18,502) (1,672)
Extraordinary credits,
net discharge of indebtedness 6,657 8,965 22,057
--------- --------- ---------
Net earnings (loss) ($14,886) ($9,537) $20,385
========= ========= =========
Earnings (loss) per share:
Continuing operations ($0.95) ($0.72) ($0.39)
Discontinued operations (3.74) (5.08) (0.06)
--------- --------- ---------
Loss before extraordinary credits (4.69) (5.80) (0.45)
Extraordinary credits 1.45 2.81 6.03
--------- --------- ---------
Net earnings (loss) ($3.24) ($2.99) $5.58
========= ========= =========
Weighted average number of shares
of common stock and common
stock equivalents outstanding 4,596 3,195 3,656
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
- -----------------------------------------------
* As reclassified for discontinued operations.
F-5
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
(In thousands, except share data)
<TABLE>
<CAPTION>
Restricted Total
Preferred Stock Common Stock Common Stock Additional Shareholders'
----------------- ------------------- ---------------- Paid-in Accumulated Equity
Shares Dollars Shares Dollars Shares Dollars Capital (Deficit) (Deficit)
------- --------- ---------- ------- -------- ------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 7,459 $17,273 3,148,526 $31 $44,626 ($89,809) ($27,879)
Net earnings - - - - - 20,385 20,385
Transfer of notes payable
to ARTRA to Lori's
capital account - - - - 15,990 - 15,990
Exercise of stock
options and warrants - - 9,250 - 38 - 38
Common stock issued to
pay liabilities - - 5,532 - 32 - 32
Fractional shares purchased - - (536) - (6) - (6)
------- --------- ---------- ------- -------- ---------- -----------
Balance at December 31, 1993 7,459 17,273 3,162,772 31 60,680 (69,424) 8,560
Net loss - - - - - (9,537) (9,537)
ARTRA capital contributions - - - - 4,000 - 4,000
Lori preferred stock issued
in exchange for ARTRA
notes and advances 2,242 2,242 - - - - 2,242
Common stock issued under terms
of debt settlement agreement - - 100,000 1 699 - 700
Restricted common stock - - - 100,000 ($700) - - (700)
Exercise of stock
options and warrants - - 2,500 - - - 13 - 13
Fractional shares purchased - - (253) - - - - - -
------- --------- ---------- ------- -------- ------- -------- ---------- -----------
Balance at December 31, 1994 9,701 19,515 3,265,019 32 100,000 (700) 65,392 (78,961) 5,278
Net earnings - - - - - - - (14,886) (14,886)
Common stock issued as
consideration for
debt restructuring - - 150,000 2 - - 335 - 337
Common stock issued as
additional consideration for
short-term borrowings - - 141,176 1 - - 229 - 230
Common stock issued
to pay liabilities - - 115,098 1 - - 374 - 375
Common stock sold through
private placements - - 1,946,667 19 - - 5,820 - 5,839
Common stock issued under
compensation agreements with
individuals to manage the
Company's telecommunications
and computer technical
staffing services business - - 3,091,304 31 - - 2,844 - 2,875
Common stock issued as
additionalconsideration for
Global purchase guarantee - - 350,000 3 - - 587 - 590
Common stock issued as
compensation for
Global acquisition fees - - 150,000 2 - - 251 - 253
Common stock issued to ARTRA
in exchange for the Company's
entire preferred stock issue (9,701) (19,515) 100,000 1 - - 19,514 - -
Restricted common stock issued
as additonal consideration
for short-term borrowings - - - - (100,000) 700 - - 700
Liabilities assumed by ARTRA - - - - - - 647 - 647
Fractional shares purchased - - (66) - - - - - -
------- --------- ---------- ------- -------- ------- -------- ---------- -----------
Balance at December 31, 1995 - - 9,309,198 $92 - - $95,993 ($93,847) $2,238
======= ========= ========== ======= ======== ======= ======== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
COMFORCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($14,886) ($9,537) $20,385
Adjustments to reconcile net earnings (loss)
to cash flows from operating activities:
Extraordinary gain from net discharge of indebtedness (6,657) (8,965) (22,057)
Provision for disposal of fashion costume jewelry business 1,600 - -
Depreciation of property, plant and equipment 101 438 503
Amortization of excess of cost over net assets acquired 261 1,018 1,018
Impairment of goodwill 12,930 10,800 -
Amortization of other assets 374 648 217
Common stock compensation 3,657 - -
Changes in assets and liabilities, net of the effects of
the acquisition of COMFORCE Global and
the discontinued fashion costume jewelry business:
(Increase) decrease in receivables 857 2,117 (1,503)
Decrease in inventories 2,105 1,098 1,453
Decrease in other current and noncurrent assets 170 153 574
Decrease in payables and accrued expenses (2,127) (513) (616)
Increase (decrease) in other current and noncurrent liabilities (408) (468) (521)
--------- --------- ---------
Net cash flows used by operating activities (2,023) (3,211) (547)
--------- --------- ---------
Cash flows from investing activities:
Acquisition of COMFORCE Global, net of cash acquired (5,580) - -
Additions to property, plant and equipment (25) (32) (108)
Retail fixtures (631) (665) (951)
Payment of liabilities with restricted cash 550 (550) -
--------- --------- ---------
Net cash flows used by investing activities (5,686) (1,247) (1,059)
--------- --------- ---------
Cash flows from financing activities:
Net increase in short-term debt 2,486 (138) (12)
Proceeds from long-term borrowings - 1,241 4,863
Reduction of long-term debt (750) (444) (3,587)
Proceeds from private placement of common stock 5,839 - -
ARTRA capital contribution - 1,500 -
Notes and advances from ARTRA - 2,531 -
Other - 11 49
--------- --------- ---------
Net cash flows from financing activities 7,575 4,701 1,313
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (134) 243 (293)
Cash and equivalents, beginning of year 783 540 833
--------- --------- ---------
Cash and equivalents, end of year $649 $783 $540
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
COMFORCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid during the year for:
Interest $273 $435 $1,421
Income taxes paid (refunded), net 7 24 12
Supplemental schedule of noncash investing and financing activities:
Common stock issued as consideration for
debt restructuring and short-term loans $567 - -
Common stock issued for fees and costs
in conjunction with the acquisition of COMFORCE Global 843 - -
Issue common stock to pay liabilities 374 - -
ARTRA common stock issued to Lori's bank lender
under terms of the debt settlement agreement - $2,500 -
Transfer New Dimensions assets, net of cash of $674,
to Lori's bank lender under terms of the debt settlement agreement - 6,475 -
Lori preferred stock issued in exchange for ARTRA notes and advances - 2,242 -
Notes payable to ARTRA transferred to Lori's capital account - - $15,990
Debt refinanced - - 6,105
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of COMFORCE Corporation
("COMFORCE" or the "Company"), formerly The Lori Corporation ("Lori"), are
presented on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company currently operates in one industry segment as a provider of
telecommunications and computer technical staffing and consulting services
worldwide. As discussed in Note 4, in September 1995, the Company adopted a plan
to discontinue its Jewelry Business ("Jewelry Business") conducted by its two
wholly-owned subsidiaries Lawrence Jewelry Corporation ("Lawrence") and
Rosecraft, Inc. ("Rosecraft").
At December 31, 1994, ARTRA GROUP INCORPORATED ("ARTRA"), a public company whose
shares are traded on the New York Stock Exchange, owned, through its
wholly-owned subsidiary Fill-Mor Holding, Inc. ("Fill-Mor"), approximately 62.9%
of the common stock and all of the outstanding preferred stock of the Company.
As discussed in Note 15, at December 31, 1995, ARTRA owned approximately 25% of
the Company's common stock.
As discussed in Note 3, on September 11, 1995, Lori signed a stock purchase
agreement to participate in the acquisition of one hundred percent of the
capital stock of COMFORCE Global Inc. ("COMFORCE Global"), formerly Spectrum
Global Services, Inc. d/b/a YIELD Global, a wholly owned subsidiary of Spectrum
Information Technologies, Inc. COMFORCE Global provides telecommunications and
computer technical staffing and consulting services worldwide to Fortune 500
companies and maintains an extensive, global database of technical specialists,
with an emphasis on wireless communications capability. On October 17, 1995,
Lori completed the acquisition of one hundred percent of the capital stock of
COMFORCE Global. In connection with the re-focus of Lori's business, Lori
changed its name to COMFORCE Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. Intercompany accounts and
transactions are eliminated.
B. Cash Equivalents
Short-term investments with an initial maturity of less than ninety days are
considered cash equivalents.
As required under terms of a debt settlement agreement (see Note 7), at December
31, 1994, the Company maintained a deposit in trust of $550,000 to fund the
installment payment due December 31, 1994 for unsecured claims arising from the
May 3, 1993 reorganization of the Company's former New Dimensions Accessories,
Ltd., ("New Dimensions") subsidiary. The installment payment was made in
January, 1995.
C. Accounts Receivable and Unbilled Accounts Receivable
Accounts receivable consists of those amounts due to the Company for staffing
services rendered to various customers. Accrued revenue consists of revenues
earned and recoverable costs for which billings have not yet been presented to
the customers as of the balance sheet date.
F-9
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
D. Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to operations as incurred and expenditures for major
renovations are capitalized. Depreciation is computed on the basis of estimated
useful lives principally by the straight line method for financial statement
purposes and principally by accelerated methods for tax purposes. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the period covered by the lease.
The costs of property retired or otherwise disposed of are applied against the
related accumulated depreciation to the extent thereof, and any profit or loss
on the disposition is recognized in earnings.
E. Intangible Assets and Other Assets
The net assets of a purchased business are recorded at their fair value at the
date of acquisition. At December 31, 1995, the excess of purchase price over the
fair value of net assets acquired (goodwill) is reflected as an intangible asset
and amortized on a straight-line basis over a period of 20 years.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through forecasted future operations. Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset.
F. Revenue Recognition
Revenue for providing staffing services is recognized at the time such services
are rendered.
G. Income Taxes
Income taxes are accounted for as prescribed in Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes. Under the asset and
liability method of Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years those
temporary differences are expected to recovered or settled.
H. 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-10
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
I. Recently Issued Accounting Pronouncements
Impairment of Long-Lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", requires that long-lived assets and
certain identifiable intangibles to be 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. Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset. This new accounting principle is effective for the
Company's fiscal year ending December 31, 1996. The Company believes that
adoption will not have a material impact on its financial statements.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on new fair value
accounting rules. Although expense recognition for employee stock based
compensation is not mandatory, the pronouncement requires companies that choose
not to adopt the new fair value accounting, to disclose the pro-forma net income
and earnings per share under the new method. This new accounting principle is
effective for the Company's fiscal year ending December 31, 1996. The Company
believes that adoption will not have a material impact on its financial
statements as the Company will not adopt the new fair value accounting, but
instead comply with the disclosure requirements.
3. COMFORCE GLOBAL ACQUISITION
On September 11, 1995, Lori signed a stock purchase agreement to participate in
the acquisition of one hundred percent of the capital stock of COMFORCE Global
for consideration of approximately $6.4 million, net of cash acquired. This
consideration consisted of cash to the seller of approximately $5.1 million,
fees of approximately $700,000, including a fee of $500,000 to a related party,
and 500,000 shares of the Company's Common Stock valued at $843,000 (at a price
per share of $1.68) issued as consideration for various fees and guarantees
associated with the transaction. The 500,000 shares issued by the Company
consisted of (i) 100,000 shares issued to an unrelated party for guaranteeing
the purchase price to the seller, (ii) 100,000 shares issued to ARTRA, then the
majority stockholder of the Company, in consideration of its guaranteeing the
purchase price to the seller and agreeing to enter into the Assumption
Agreement, (iii) 150,000 issued to two unrelated parties for advisory services
in connection with the acquisition, and (iv) 150,000 shares issued to Peter R.
Harvey, then a Vice President and director of the Company, for guaranteeing the
payment of the purchase price to the seller and other guarantees to facilitate
the transaction. Current management has questioned its obligation issue the
150,000 shares to Peter Harvey and the 100,000 shares to ARTRA in consideration
of their guarantees. However, for purposes of presenting earnings per share
data, the Company is recognizing these shares as being issued and outstanding
pending resolution of the disagreement among the parties. Additionally, in
conjunction with the COMFORCE Global acquisition, ARTRA has agreed to pay and
discharge substantially all pre-existing Lori liabilities and indemnify COMFORCE
in the event any future liabilities arise concerning pre-existing environmental
matters and business related litigation.
COMFORCE Global provides telecommunications and computer technical staffing
services worldwide to Fortune 500 companies and maintains an extensive, global
database of technical specialists, with an emphasis on wireless communications
capability. The acquisition of COMFORCE Global, completed on October 17, 1995,
was accounted for by the purchase method and, accordingly, the assets and
liabilities of COMFORCE Global were included in the Company's financial
statements at their estimated fair market value at the date of acquisition and
of COMFORCE Global's operations are included in the Company's statement of
operations from the date of acquisition. The excess of purchase price over the
fair value of COMFORCE Global's net assets acquired (goodwill) of $4,852,000 is
being amortized on a straight-line basis over twenty years. In connection with
the re-focus of the Company's business, Lori changed its name to COMFORCE
Corporation.
F-11
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The acquisition of COMFORCE Global was funded principally by private placements
of approximately 1,950,000 shares of the Company's common stock at $3.00 per
share (total proceeds of approximately $5,800,000) plus detachable warrants to
purchase approximately 970,000 shares of the Company's common stock at $3.375
per share. The warrants expire five years from the date of issue.
The following unaudited pro forma condensed consolidated statements of
operations for the years ended December 31, 1995 and 1994, present the Company's
results of operations as if the acquisition of COMFORCE Global and the related
private placement of the Company's common stock had been consummated as of
January 1, 1994.
COMFORCE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
COMFORCE Pro Forma
Historical Global (A) Adjustments Pro Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,387 $ 9,568 $ 11,955
---------- ---------- ----------
Operating costs and expenses:
Stock compensation (E) 3,425 3,425
Spectrum corporate management fees (D) 1,140 1,140
Other operating costs and expenses 2,641 8,575 $ 50 (B) 11,266
---------- ---------- ------ ----------
6,066 9,715 50 14,691
---------- ---------- ------ ----------
Operating earnings (loss) (3,679) (147) (50) (2,736)
---------- ---------- ------ ----------
Interest and other non-operating expenses (618) 7 410 (C) (201)
---------- ---------- ------ ----------
(618) (7) 410 (201)
---------- ---------- ------ ----------
Earnings (loss) from continuing operations
before income taxes (4,297) (140) 360 (4,077)
(Provision) credit for income taxes (35) 21 (14)
---------- ---------- ------ ----------
Loss from continuing operations $ (4,332) $ (119) $ 360 $ (4,091)
========== ========== ====== ==========
Loss per share from continuing operations $ (.95) $ (.44)
========== ==========
Weighted average shares outstanding (F) 4,596 9,309
========== ==========
</TABLE>
F-12
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
COMFORCE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1994
(In thousands)
<TABLE>
<CAPTION>
COMFORCE Pro Forma
Historical Global (A) Adjustments Pro Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 8,245 $ 8,245
Spectrum corporate management fees (D) 803 803
Operating costs and expenses $ 966 7,551 $ 68(B) 8,585
---------- ---------- ------ ----------
Operating earnings (loss) (966) (109) (68) (1,143)
---------- ---------- ------ ----------
Interest and other non-operating expenses (1,316) 9 (1,307)
---------- ---------- ----------
(1,316) (9) (1,307)
---------- ---------- ------ ----------
Loss from continuing operations before income taxes (2,282) (100) (68) (2,450)
Provision for income taxes (15) (15)
---------- ---------- ------ ----------
Loss from continuing operations $ (2,282) $ (115) $ (68) $ (2,465)
========== ========== ====== ==========
Loss per share from continuing operations $ (.72) $ (.28)
========== ==========
Weighted average shares outstanding (F) 3,195 8,833
========== ==========
</TABLE>
Pro forma adjustments to the unaudited condensed consolidated statement of
operations:
(A) The pro forma data presented for COMFORCE Global's operations is
for the periods prior to its acquisition on October 17, 1995, or
January 1, 1995 through October 16, 1995 and January 1, 1994
through December 31, 1994, respectively.
(B) Amortization of goodwill arising from the COMFORCE Global
Acquisition. The table below reflects where amortization of
goodwill has been recorded.
1995 1994
-------- --------
Historical Lori (COMFORCE) $ 51,000 $ -
Historical COMFORCE Global 142,000 175,000
Proforma Adjustments 50,000 68,000
-------- --------
Adjusted proforma per financial
statements $243,000 $243,000
======== ========
(C) Reverse interest expense on notes and other liabilities to be
assumed by ARTRA. The interest adjustment in 1995 was for
interest on notes directly related to Lori activities and were
incurred in 1995. These liabilities were not outstanding during
1994 and, accordingly, a similar interest adjustment is not
required.
(D) Corporate management fees from COMFORCE Global's former parent,
Spectrum Information Technologies,Inc. The amount of these
management fees may not be representative of costs incurred by
COMFORCE Global on a stand alone basis.
(E) Represents a non-recurring compensation charge related to the
issuance of the 35% common stock interest in the Company to
certain individuals to manage the Company's entry into and
development of the telecommunications and computer technical
staffing business.
(F) Pro forma weighted average shares outstanding includes shares of
the Company's common stock issued in the private placement that
funded the COMFORCE Global transaction, including 100,000 shares
issued to a non-related party, and 150,000 shares issued to Peter
R. Harvey, then a Vice President of the Company, for guaranteeing
the payment of the purchase price to the seller and other
guarantees associated with the COMFORCE Global acquisition and
shares issued certain individuals to manage the Company's entry
into and development of the telecommunications and computer
technical staffing business. Current management of the Company
has questioned its obligation to issue the 150,000 shares to
Peter Harvey and the 100,000 shares to ARTRA in consideration of
their guarantees. However, for purposes of presenting earnings
per share data, the Company is recognizing these shares as being
issued and outstanding pending resolution of the disagreement
among the parties.
F-13
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. DISCONTINUED OPERATIONS
In September 1995, the Company adopted a plan to discontinue its Jewelry
Business. A provision of $1,000,000 was recorded in September 1995 and an
additional provision of $600,000 was recorded during the fourth quarter of 1995
for the estimated costs to complete the disposal of the Jewelry Business.
The Company's consolidated financial statements have been reclassified to report
separately results of operations of the discontinued Jewelry Business.
Additionally, in conjunction with the COMFORCE Global acquisition (see Note 3),
ARTRA agreed to assume sustantially all pre-existing liabilities of the Company
and its discontinued Jewelry Business and indemnify COMFORCE in the event any
future liabilities arise concerning pre-existing environmental matters and
business related litigation. Accordingly at December 31, 1995, the Company's
consolidated balance sheet has been reclassified to report separately the net
liabilities to be assumed by ARTRA, including net liabilities of the
discontinued Jewelry Business (see Note 9). The December 31, 1994 consolidated
balance has not been reclassified.
The operating results of the discontinued Jewelry Business for the nine months
ended September 30, 1995 and the years ended December 31, 1994 and 1993 (in
thousands) consists of:
1995 1994 1993
---------- ---------- ----------
Net sales $ 10,588 $ 34,431 $ 46,054
========== ========== ==========
Loss from operations before
income taxes $ (15,606) $ (16,210) $ (183)
Provision for income taxes (5) (10) (33)
---------- ---------- ----------
Loss from operations (15,611) (16,220) (216)
---------- ---------- ----------
Provision for disposal
of business (1,600) - -
Provision for income taxes - - -
---------- ---------- ----------
Loss on disposal of business (1,600) - -
---------- ---------- ----------
Loss from discontinued operations $ (17,211) $ (16,620) $ (216)
========== ========== ==========
In April 1996, ARTRA sold the business and certain assets of the Jewelry
Business. As discussed above, ARTRA agreed to assume any liabilities of the
discontinued Jewelry Business and will be entitled to the net proceeds, if any
from its disposition.
F-14
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. INVENTORIES
At December 31, 1994 inventories of the Company's discontinued Jewelry Business
(in thousands) consisted of:
Raw materials and supplies $ 115
Work in process 19
Finished goods 1,971
-------
$ 2,105
=======
Inventories were stated at the lower of cost or market, with cost determined by
the first-in, first-out (FIFO) method.
6. CONCENTRATION OF RISK
The accounts receivable of the Company's COMFORCE Global subsidiary at December
31, 1995 consist primarily of amounts due from telecommunication companies. As a
result, the collectibility of these receivables is dependent, to an extent, upon
the economic condition of the telecommunications industry. At December 31, 1995,
COMFORCE Global had 9 customers with accounts receivable balances that
aggregated 67% of the Company's total trade accounts receivable. Percentages of
total revenues from significant customers from the date of COMFORCE Global's
acquisition (October 17, 1995) through December 31, 1995 are summarized as
follows:
Customer 1 17.3%
Customer 2 12.6%
Customer 3 10.1%
The Company's COMFORCE Global subsidiary maintains cash in bank accounts which
at times may exceed federally insured limits. COMFORCE Global has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on its cash balances. Management believes it mitigates
such risk by investing its cash through major financial institutions.
7. EXTRAORDINARY GAINS RELATED TO DISCONTINUED OPERATIONS
Per terms of a debt settlement agreement, borrowings due a bank under the loan
agreements of Lori and its fashion costume jewelry subsidiaries and Fill-Mor
(approximately $25,000,000 as of December 23, 1994), plus amounts due the bank
for accrued interest and fees were reduced to $10,500,000 (of which $7,855,000
pertained to Lori's obligation to the bank and $2,645,000 pertained to
Fill-Mor's obligation to the bank). Upon the satisfaction of certain conditions
of the Amended Settlement Agreement in March 1995, as discussed below, the
balance of this indebtedness was discharged.
In conjunction with the debt settlement agreement, ARTRA entered into a
$1,850,000 short-term loan agreement with a non-affiliated corporation, the
proceeds of which were advanced to Lori and used to fund amounts due the bank as
discussed below. The loan, due June 30, 1995, with interest payable monthly at
10%, was collateralized by 100,000 shares of the
F-15
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company's common stock. The 100,000 shares of the Company's common stock,
originally issued to the bank under terms of a debt settlement agreement, were
carried in the Company's consolidated balance sheet at December 31, 1994 as
restricted common stock. In August, 1995 the loan was extended until September
15, 1995 and the lender received the above mentioned 100,000 shares of the
Company's common stock as consideration for the loan extension. The loan was
repaid by ARTRA in February, 1996.
The Company recognized an extraordinary gain of $8,965,000 ($2.81 per share) in
December 1994 as a result of the reduction of amounts due the bank under the
loan agreements of Lori and its operating subsidiaries and Fill-Mor to
$10,500,000 (of which $7,855,000 pertained to Lori's obligation to the bank and
$2,645,000 pertained to Fill-Mor's obligation to the bank) as of December 23,
1994. The 400,000 shares of ARTRA common stock issued as consideration for the
debt settlement agreement (with a fair market value of $2,500,000 based upon the
closing market price on the date of issue) were contributed by ARTRA to Lori's
capital account. The extraordinary gain was calculated (in thousands) as
follows:
Amounts due the bank under loan agreements of Lori
and its fashion costume jewelry subsidiaries $ 22,749
Less amounts due the bank at December 29, 1994 (7,855)
--------
Bank debt discharged 14,894
Accrued interest and fees discharged 3,635
Other liabilities discharged 1,985
Less consideration to the bank per terms of the
amended settlement agreement
Cash (1,900)
ARTRA common stock (400,000 shares) (2,500)
New Dimensions assets assigned to the
bank at estimated fair value (7,149)
--------
Net extraordinary gain $ 8,965
========
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to the Company of $6,657,000 ($1.45 per share) in the first
quarter of 1995. The $750,000 note payment was funded with the proceeds of a
$850,000 short-term loan from a former director of the Company. As consideration
for assisting in the debt restructuring, the former director received 150,000
shares of the Company's common stock valued at $337,500 ($2.25 per share) based
upon the Company's closing market value on March 30, 1995. The first quarter
1995 extraordinary gain was calculated (in thousands) as follows:
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries $ 7,855
Less amounts due the bank applicable to Lori (561)
--------
Bank debt discharged 7,294
Less fair market value of the Company's
common stock issued as consideration
for the debt restructuring (337)
Other fees and expenses (300)
--------
Net extraordinary gain $ 6,657
========
F-16
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The reorganization of Lori's former New Dimensions subsidiary resulted in a 1993
extraordinary gain of $22,057,000 ($6.03 per share) from a net discharge of
indebtedness calculated (in thousands) as follows:
Amount due on New Dimensions' 12.75% Senior Notes,
including accrued interest $22,822
Trade liabilities and accrued expenses 3,231
--------
Total unsecured claims 26,053
Less present value of payments
due to unsecured creditors (2,725)
Less present value of bank
restructuring loan fee (1,271)
--------
Net extraordinary gain $22,057
========
8. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt (in thousands) consists of:
December 31, December 31,
1995 1994
------ ------
Notes payable
Amount due to a former related party,
interest at the prime rate plus 1% $ 750
Accounts receivable credit facility,
discontinued operations 1,535
Other, interest principally at 15% 1,736
4,021
Less:
Liabilities to be assumed by ARTRA (1,986)
Liabilities included with
discontinued operations (1,535)
-------
$ 500
=======
Long-term debt
Amounts due a bank term under terms of
a debt settlement agreement $ 7,855
Current scheduled maturities (750)
Debt subsequently discharged (7,105)
-------
$ -
=======
In October 1995, COMFORCE Global entered into an agreement with a bank that
provides for a revolving line of credt with interest at the prime rate plus
1/2%. Borrowings, collateralized by the assets of COMFORCE Global and an
unlimited guarantee of COMFORCE, are limited to a a borrowing base, as defined
in the agreement, up to a maximum of $800,000. As of December 31, 1995, COMFORCE
Global had not yet utilized any funds available under the revolving credit loan.
The fair value of the Company's notes payable is estimated based on the quoted
market prices of the same or similar issues or on the current rates offered to
the Company for notes of the same remaining maturity.
F-17
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As discussed in Note 7, ARTRA, Fill-Mor, Lori and Lori's fashion costume jewelry
subsidiaries entered into an agreement with Lori's bank lender to settle
obligations due the bank. As partial consideration for the debt settlement
agreement the bank received a $750,000 Lori note payable due March 31, 1995.
The $750,000 note due the bank was paid and the remaining indebtedness of Lori
and Fill-Mor was discharged, resulting in an additional extraordinary gain to
Lori of $6,657,000 in 1995. The $750,000 note payment was funded with the
proceeds of a $850,000 short-term loan from a former director of the Company.
The loan provided for interest at the prime rate plus 1%. As consideration for
assisting with the debt restructuring, the former director received 150,000
shares of the Company's common stock valued at $337,500 ($2.25 per share) based
upon the closing market value on March 30, 1995. The $337,500 represented
additional compensation for debt restructuring and as such was charged against
the extraordinary gain from debt restructuring in 1995. The principal amount of
the loan was reduced $750,000 at July 31, 1995. The remaining loan principal was
not repaid on its scheduled maturity date of July 31, 1995. Per terms of the
loan agreement, the former director received an additional 50,000 of the
Company's common stock as compensation for the non-payment of the loan at its
originally scheduled maturity. The additional 50,000 shares at a value of
approximately $82,000 has been charged to interest expense in 1995. At December
31, 1995, the $750,000 note was classified in the Company's consolidated balance
sheet as liabilities to be assumed by ARTRA. The loan was paid in full in March
1996 by ARTRA pursuant to the assumption agreement as discussed in Note 9.
During the second and third quarters of 1995, Lori entered into a series of
agreements with certain unaffiliated lenders that provided for short-term loans
with interest at 15%. As additional compensation certain lenders received an
aggregate of 91,176 shares of the Company's common stock valued at approximately
$149,000 (which amount was included in interest expense in 1995) and certain
lenders received warrants to purchase an aggregate of 195,000 shares of the
Company's common stock at prices ranging from $2.00 per share to $2.50 per
share, the fair market value at the dates of grant. The warrants expire five
years from the date of issue. The proceeds from these loans were used to fund
the September $500,000 down payment on the COMFORCE Global acquisition, with the
remainder used to fund working capital requirements of the Company's
discontinued Jewelry Business. At December 31, 1995, short-term loans with an
aggregate principal balance of $1,236,000 were classified in the Company's
consolidated balance sheet as liabilities to be assumed by ARTRA.
In August, 1995 Lori obtained a credit facility for the factoring of the
accounts receivable of its discontinued Jewelry Business. The credit facility
provides for advances of 80% of receivables assigned, less allowances for
markdowns and other merchandise credits. The factoring charge, a minimum of
1.75% of the receivables assigned, increases on a sliding scale if the
receivables assigned are not collected within 45 days. Borrowings under the
credit facility are collateralized by the accounts receivable, inventory and
equipment of Lori's discontinued fashion costume jewelry subsidiaries and
guaranteed by Lori. At December 31, 1995 outstanding borrowings under this
credit facility of $1,535,000, along with other net liabilities of the
discontinued Jewelry Business, were classified in the Company's consolidated
balance sheet as liabilities to be assumed by ARTRA and net liabilities of the
discontinued Jewelry Business.
9. LIABILITIES TO BE ASSUMED BY ARTRA GROUP INCORPORATED AND NET
LIABILITIES OF DISCONTINUED OPERATIONS
In conjunction with the COMFORCE Global acquisition (see Note 3), ARTRA agreed
to assume substantially all pre-existing Lori liabilities and indemnify COMFORCE
in the event any future liabilities arise concerning pre-existing environmental
matters and business related litigation. Additionally, ARTRA agreed to assume
all of the assets and liabilities of the Company's discontinued Jewelry
Business. In April 1996, ARTRA sold the business and certain assets of the
Jewelry Business.
F-18
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 1995 liabilities to be assumed by ARTRA GROUP Incorporated and
net liabilities of the discontinued Jewelry Business (in thousands) consist of:
Current:
Liabilities to be assumed by ARTRA
Notes payable $1,986
Court ordered payments 990
Accrued expenses 349
------
3,325
Net liabilities of the discontinued
Jewelry Business 374
------
$3,699
======
Noncurrent:
Liabilities to be assumed by ARTRA
Court ordered payments $ 541
======
As noted in the table above, as of December 31, 1995, ARTRA agreed to assume
$3,866,000 of pre-existing Lori liabilities. Subsequent to December 31, 1995
ARTRA made net payments of $647,000 to reduce pre-existing Lori liabilities.
Such payments have been included in the Company's consolidated financial
statements at December 31, 1995 as amounts receivable from ARTRA and as
additional paid-in capital. To the extent ARTRA is able to make subsequent
payments, they will be recorded as additional paid-in capital. The ability of
ARTRA to satisfy these obligations is uncertain. The financial statements of
ARTRA include an explanatory paragraph indicating substantial doubt about the
ability of ARTRA to continue as a going concern. The amounts receivable from
ARTRA, exclusive of subsequent payments have not been reflected in the Company's
financial statements at December 31, 1995. No collateral has been provided in
support of these obligations.
At December 31, 1995, liabilities to be assumed by ARTRA included $1,531,000 of
court ordered payments arising from the May 3, 1993 reorganization of New
Dimensions. As of April 15, 1996, the $541,000 installment payment due December
31, 1995 has not been paid.
10. PREFERRED STOCK
The Company's Series C cumulative preferred stock, owned in its entirety by
ARTRA, accrued dividends at the rate of 13% per annum on its liquidation value.
Book value and accumulated dividendsof $7,011,000 on this stock aggregated
$19,515,000 at December 31, 1994. In the fourth quarter of 1995, ARTRA exchanged
its Series C cumulative preferred stock for 100,000 newly issued shares of the
Company's common stock. The issuance of these shares of the Company's common
stock to ARTRA is subject to ratification by the Company's shareholders.
F-19
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. STOCK OPTIONS AND WARRANTS
Long-Term Stock Investment Plan
On December 16, 1993 Lori's stockholders approved the Long-Term Stock Investment
Plan (the "1993 Plan"), effective January 1, 1993, which authorizes the grant of
options to purchase the Company's common stock to executives, key employees and
non-employee consultants and agents of the Company and its subsidiaries. The
1993 Plan authorizes the awarding of Stock Options, Incentive Stock Options and
Alternative Appreciation Rights. The 1993 Plan reserved 1,500,000 shares of the
Company's common stock for grant on or before December 31, 2002.
As of March 16, 1993, the Company's Board of Directors approved the issuance of
non-qualified options to purchase an aggregate of 555,628 shares of the
Company's common stock at an exercise price of $1.125 per share (the closing
price of Lori common stock on March 15, 1993) to a corporation controlled by the
former vice chairman , president and director of the Company and to an agent of
the Company. The options were granted in connection with management agreements
entered into with them pursuant to which they agreed to provide managerial and
supervisory services to the Company and its discontinued fashion costume jewelry
subsidiaries. Additionally, as of March 16, 1993, the Company's Board of
Directors approved the issuance of options to purchase an aggregate of 370,000
shares of the Company's common stock at an exercise price of $1.125 per share
(the closing price of the Company's common stock on March 15, 1993) to then
certain executives, key employees, agents and a director of the Company. The
options were granted under the Company's 1982 Stock Option Plan (the "1982
Plan"), subject to stockholder approval of the amendment of the 1982 Plan.
Subsequent thereto, counsel to the Company advised the Board that the 1982 Plan,
which had expired, could not be amended and extended.
Accordingly, on October 12, 1993, the Board of Directors of the Company approved
a proposed Long-Term Stock Investment Plan of the Company (the "Plan" or the
"Option Plan") which authorizes the grant of options to purchase the Company's
common stock to executives, key employees and agents of the Company and its
subsidiaries. In connection with this approval, the Board approved the issuance
under the Plan (subject to the approval and adoption of the Plan by the
stockholders) of options on the same terms as the original March 16, 1993
options which it had previously authorized under the 1982 Plan. The Plan was
approved by the stockholders at the December 16, 1993 annual meeting, effective
as of January 1, 1993.
Incentive Stock Option Plan
Options to purchase common shares of the Company have been granted to certain
officers and key employees under the 1982 Incentive Stock Option Plan ("the
plan"), which initially reserved 250,000 shares of the Company's common stock.
On December 19, 1990, the Company's stockholders approved an increase in the
number of shares available for grant under the plan to 500,000. The plan expired
in 1992. At December 31, 1995, options to purchase 4,500 shares of the Company's
common stock at $5.00 per share were outstanding. The options expire June 9,
1998.
F-20
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summary of Options
A summary of stock option transactions for the years ended December 31
is as follows:
1995 1994 1993
--------- --------- ---------
Outstanding at January 1:
Shares 959,378 1,098,544 19,416
$ 1.125 $ 1.125 $ 5.00
Prices to to to
$ 5.00 $ 12.19 $ 12.19
Options granted:
Shares - - 1,079,628
$ 1.125
Prices - - to
$ 3.125
Options exercised:
Shares - (2,500) (500)
Price - $ 5.00 $ 5.00
Options canceled:
Shares (19,250) (136,666) -
$ 3.125 $ 3.125
Prices to to -
$ 5.00 $ 12.19
Outstanding at December 31:
Shares 940,128 959,378 1,098,544
========= ======== =========
$ 1.125 $ 1.125 $ 1.125
Prices to to to
$ 5.00 $ 5.00 $ 12.19
Options exercisable at December 31 940,128 940,710 18,916
========= ======== =========
Options available for future grant
at December 31 564,372 546,372 420,372
========= ======== =========
F-21
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Warrants
At December 31, 1995, warrants were outstanding to purchase a total of 1,184,583
of the Company's common shares at prices ranging from $2.00 per share to $4.00
per share. The warrants expire five years from the date of issue at various
dates through 2000.
The acquisition of COMFORCE Global was funded principally by private placements
of approximately 1,950,000 of the Company's common shares at $3.00 per share
(total proceeds of approximately $5,800,000) plus detachable warrants to
purchase 973,333 Lori common shares at $3.375 per share. The warrants expire
five years from the date of issue.
Principally during the second and third quarters of 1995, Lori entered into a
series of agreements with certain unaffiliated investors that provided for
$1,800,000 of short-term loans that provide for interest at 15%. As additional
compensation certain lenders received an aggregate of 91,176 Lori common shares
and certain lenders received warrants to an aggregate of 195,000 shares of the
Company's common stock at prices ranging from $2.00 per share to $2.50 per
share, the fair market value at the dates of grant. The warrants expire five
years from the date of issue.
On November 23, 1988, Lori issued warrants to purchase 25,000 of its common
shares, at $4.00 per share, to an investment banker as additional compensation
for certain financial and advisory services. During 1993, the warrant holder
exercised warrants to purchase 8,750 shares of the Company's common stock. At
December 31, 1995, warrants to purchase 16,250 shares of the Company's common
stock at $4.00 per share remained outstanding.
12. COMMITMENTS AND CONTINGENCIES
The Company's COMFORCE Global subsidiary leases certain office space and
equipment used in its telecommunications and computer technical staffing
services business. At December 31, 1995, future minimum lease payments under
operating leases that have an initial or remaining noncancellable term of more
than one year (in thousands) are:
Year
1996 $ 62
1997 64
1998 65
1999 63
2000 38
-------
$ 292
=======
Rental expense from continuing operations was $17,000 in 1995.
The aggregate commitment for future salaries at December 31, 1995, excluding
bonuses, during the remaining term of all management and employment agreements
is approximately $700,000.
F-22
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. INCOME TAXES
A summary of the provision (credit) for income taxes relating to operations is
as follows:
1995 1994 1993
-------- -------- -------
(in thousands)
Continuing operations:
State $ 35 $ 10 $ 33
======== ======== ========
The 1995 and 1994 extraordinary credits represent net gains from discharge of
bank indebtedness under the loan agreements of Lori and its discontinued fashion
costume jewelry subsidiaries. The 1993 extraordinary credit represents a gain
from a net discharge of indebtedness at the Company's former New Dimensions
subsidiary. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credits due to the utilization of
tax loss carryforwards.
The difference between the statutory Federal income tax rate and the effective
income tax rate is reconciled as follows:
% of Earnings (Loss)
Before Income Taxes
----------------------------
1995 1994 1993
------ ------ ------
Statutory Federal tax rate
Provision (Benefit) (34.0) (34.0) 35.0
State and local taxes,
net of Federal benefit .3 .1 .2
Current year tax loss not utilized 4.7 - -
Amortization of goodwill .6 3.6 .8
Impairment of goodwill 30.0 38.6 -
Previously unrecognized benefit from
utilizing tax loss carryforwards - (8.2) (35.8)
----- ----- -----
1.6 .1 .2
===== ===== =====
F-23
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. INCOME TAXES, Continued
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax liabilities and deferred tax assets at December 31, 1995 and 1994 and their
approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ---------------------------
Temporary Tax Temporary Tax
Difference Difference Difference Difference
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trade accounts receivable $ 500 $ 200 $ 1,300 $ 500
Inventories
700 300 300 100
Accrued other
900 300 400 200
Net operating loss 42,000 16,400 54,000 21,100
-------- ---------
Total deferred tax asset 17,200 21,900
-------- ---------
Machinery and equipment (200) (100) (400) (200)
-------- --------
Total deferred tax liability
(100) (200)
-------- --------
Valuation allowance (17,100) (21,700)
-------- --------
Net deferred tax asset $ - $ -
======== ========
</TABLE>
The Company has recorded a valuation allowance with respect to the future tax
benefits and the net operating loss reflected in deferred tax assets as a result
of the uncertainty of their ultimate realization.
At December 31, 1995, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $42,000,000 available to be applied against
future taxable income, if any, expiring principally in 1996 - 2010. Section 382
of the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. The Company has recently issued a significant
number of shares of its common stock in conjunction with the COMFORCE Global
acquisition and certain related transactions. Accordingly, the Company is
currently subject to significant limitations regarding the utilization of its
Federal income tax loss carryforwards.
14. EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net earnings (loss) by the
weighted average number of shares of common stock and common stock equivalents
(options and warrants), unless anti-dilutive, outstanding during the year. Fully
diluted earnings per share is not presented since the result is equivalent to
primary earnings per share.
F-24
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. RELATED PARTY TRANSACTIONS
Effective July 4, 1995, Lori's management agreed to issue up to a 35% common
stock interest in the Company to certain individuals to manage the Company's
entry into the telecommunications and computer technical staffing business
(approximatley 3,700,000 shares after ceratain anti-dilutive provisions). In
October 1996, the Company issued approximately 3,100,000 shares of its common
stock to the above individuals. The remaining common shares due the above
individuals will be issued in 1996 after shareholder approval of an increase in
Company's authorized common shares. The Company recognized a non-recurring
charge of $3,425,000 related to this stock since these stock awards were 100%
vested when issued, and were neither conditioned upon these individuals' service
to the Company as employees nor the consumation of the COMFORCE Global
acquisition. Accordingly, this compensation charge was fully recognized in 1995.
The cost of the remaining common shares to be issued in 1996 ($550,000) is
classified in the Company's consolidated balance sheet at December 31, 1995 as
obligations expected to be settled by the issuance of common stock. The shares
of the Company's common stock issued and to be issued in accordance with the
above agreements were valued at $.93 per share. Management valued the Company
based on its discussions with market makers and other advisors, taking into
account (i) that the Jewelry Business, which was discontinued at the end of the
second quarter of 1995, had a negligible value, and (ii) the value of the
Company was principally related to the potential effect that a purchase of
COMFORCE Global, if successfully concluded, would have market value of the
Company's Common Stock. Management believes this value of $.93 per share to be a
fair and appropriate value based upon the Company's financial condition as of
the date the Company became obligated to issue these shares. After the issuance
of these common shares, plus the effects of the issuance of common shares sold
by private placements and other common shares issued in conjunction with the
COMFORCE Global acquisition, ARTRA's common stock ownership interest in the
Company was reduced to approximately 25% at December 31, 1995.
In December 1995 the Company made loans totaling $56,000 to the above named
individuals to cover income tax liabilities relating to the issuances of shares
of the Company's common stock. Subsequent to December 31, 1995, the Company made
additional loans to these individuals totaling $289,000. All loans are evidenced
by notes which bear interest at 6% per annum and mature December 10, 1997.
In connection with the COMFORCE Global acquisition, a $500,000 fee was earned by
the above mentioned consultant, of which $250,000 was paid in 1995.
In conjunction with an agreement (see Note 7) to settle borrowings due a bank
under the loan agreements of Lori and its fashion costume jewelry subsidiaries
and Fill-Mor, ARTRA entered into a $1,850,000 short-term loan agreement with a
non-affiliated corporation, the proceeds of which were advanced to Lori and used
to fund amounts due Lori's bank. The loan, due June 30, 1995, was collateralized
by 100,000 shares of Lori common stock. These 100,000 Lori common shares,
originally issued to the bank under terms of the August 18, 1994 Settlement
Agreement, were carried in the Company's consolidated balance sheet at December
31, 1994 as restricted common stock. In August, 1995 the loan was extended until
September 15, 1995 and the lender received the above mentioned 100,000 Lori
common shares as consideration for the loan extension. The loan was repaid by
ARTRA in February, 1996. Accordingly, the carrying value of these 100,000 Lori
common shares was transferred to ARTRA as reduction of amounts due to ARTRA.
In the fourth quarter of 1995, ARTRA exchanged its interest in the entire issue
of the Company's Series C cumulative preferred stock for 100,000 newly issued
shares of the Company's common stock. The issuance of these shares of the
Company's common stock to ARTRA are subject to ratification by the Company's
shareholders. During 1995, ARTRA received $399,000 of advances from the Company.
In 1996, the Company advanced ARTRA an additional $54,000. ARTRA repaid the
above advances and paid down $647,000 of the pre-existing Lori liabilities it
assumed in conjunction with the COMFORCE Global acquisition as discussed in Note
9. The $399,000 advance to ARTRA and the $647,000 payment on pre-existing Lori
liabilities made by ARTRA have been classified in the Company's consolidated
financial statements at December 31, 1995 as amounts receivable from ARTRA.
During 1994, ARTRA made net advances to Lori of $2,531,000. The advances
consisted of a $1,850,000 short-term note with interest at 10%, the proceeds of
which were used to fund the $1,900,000 cash payment to the bank in conjunction
with the Amended Settlement Agreement with Lori's bank lender, and certain
non-interest bearing advances used to fund Lori working capital requirements.
F-25
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Effective December 29, 1994 ARTRA exchanged $2,242,000 of its notes and advances
for additional Lori Series C preferred stock. Additionally, the August 18, 1994
Settlement Agreement required ARTRA to contribute cash of $1,500,000 and ARTRA
common stock with a fair market value of $2,500,000 to Lori's capital account.
In February, 1993, ARTRA transferred all of its notes (with a principal value of
$15,990,000) to Lori's capital account.
Through 1995, ARTRA had provided certain financial, accounting and
administrative services for the Company's corporate entity. Additionally, the
Company's corporate entity had leased its administrative office space from
ARTRA. During 1995, 1994 and 1993 fees for these services amounted to $91,000,
$151,000 and $115,000, respectively.
16. LITIGATION
Prior to its entry into the Jewelry Business in 1985, the Company operated in
excess of 20 manufacturing facilities for the production of, inter alia,
photocopy machines, photographic chemical and paper coating. These operations
were sold or discontinued in the late 1970s and early 1980s. Certain of these
facilities may have used and/or generated hazardous materials and may have
disposed of the hazardous substances, particularly before the enactment of laws
governing the safe disposal of hazardous substances, at an indeterminable number
of sites. Although the controlling stockholders and current management had no
involvement in such prior manufacturing operations, the Company could be held to
be responsible for clean-up costs if any hazardous substances were deposited at
these manufacturing sites, or at off-site waste disposal locations, under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), or under other Federal or state environmental laws now or hereafter
enacted. However, except for the Gary, Indiana site described below, the Company
has not been notified by the Federal Environmental Protection Agency (the "EPA")
that it is a potentially responsible party for, nor is the Company aware of
having disposed of hazardous substances at, any site.
In December 1994, the Company was notified by the EPA that it is a potentially
responsible party under CERCLA for the disposal of hazardous substances at a
site in Gary, Indiana. The alleged disposal occurred in the mid-1970s at a time
when the Company conducted operations as APECO. In this connection, in December
1994, the Company was named as one of approximately 80 defendants in a case
brought in the United States District Court for the Northern District of Indiana
by a group of 14 potentially responsible parties who agreed in a consent order
entered into with the EPA to clean-up this site. The plaintiffs have estimated
the cost of cleaning up this site to be $45 million, and have offered to settle
the case with the Company for $991,445. This amount represents the plaintiffs'
estimate of the Company's pro rata share of the clean-up costs. The Company
declined to accept this settlement proposal, which was subsequently withdrawn.
The plaintiffs have produced only limited testamentary evidence, and no
documentary evidence, linking the Company to this site, and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised, that the Company deposited hazardous substances at
the site. Based on the foregoing, management of the Company does not believe
that it is probable that the Company will have any liability for the costs of
the clean-up of this site. The Company intends to vigorously defend itself in
this case.
Under the terms of the Assumption Agreement, ARTRA agreed to pay and
discharge substantially all of the Company's pre-existing liabilities and
obligations, including environmental liabilities at any sites at which the
Company allegedly operated facilities or disposed of hazardous substances,
whether or not the Company is currently identified as a potentially responsible
party therefor. Consequently, the Company is entitled to indemnification from
ARTRA for any environmental liabilities associated with the Gary, Indiana site.
No assurance can, however, be given that ARTRA will be financially capable of
satisfying its obligations under the Assumption Agreement.
The Company is a party to routine contract and employment-related litigation
matters in the ordinary course of its business. No such pending matters,
individually or in the aggregate, if adversely determined, are believed by
management to be material to the business, results of operations or financial
condition of the Company. The Company maintains general liability insurance,
property insurance, automobile insurance, employee benefit liability insurance,
owner's and contractor's protective insurance and exporter's foreign operations
insurance with coverage of $1 million on a per claim basis and $2 million
aggregate (with $3 million umbrella coverage). The Company insures against
workers' compensation in amounts required under applicable state law and in the
amount of $500,000 in the case of foreign workers. The Company also maintains
fidelity insurance in the amount of $25,000 per claim and directors' and
officers' liability insurance in the amount of $2 million. The Company is
presently soliciting quotations to obtain and errors and omissions coverage.
17. SUBSEQUENT EVENTS
On March 1, 1996, COMFORCE Global, a wholly-owned subsidiary of COMFORCE,
acquired substantially all of the assets of Williams Communication Services
("Williams"), a privately owned company engaged in the technical staffing,
consulting and outsourcing business for consideration consisting of cash of
$2,000,000 and contingent rights to future payments based on earnings over a
four year period. The acquisition of Williams, funded principally by a $2.25
million revolving credit facility with a bank, will be accounted for by the
purchase method.
F-26
<PAGE>
The Company has entered into an agreement to acquire the assets and business of
RRA Inc. ("RRA"), a provider of technical staffing services in the electronics,
telecommunications and information technology business sectors. The completion
of the acquisition of RRA is subject to certain contingencies which include the
completion of and satisfaction with due diligence, as well as satisfactory
financing to complete the acquisition.
F-27
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------
(1) (2)
Balance at Charged to Charged to
Beginning of Costs and Other Deductions Balance at
Description Period Expenses Accounts (Describe) End of Period
------------------- --------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1995:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 207 $ 25 $ 232 $ -
======== ========= ======= ========
Allowance for markdowns $ 835 $ 291 $ 1,126 (A) $ -
Allowance for doubtful accounts 503 424 927 (A) -
-------- --------- ------- --------
$ 1,338 $ 715 $ 2,053 $ -
======== ========= ======= ========
For the year ended December 31, 1994:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 4,150 $ 218 $ 4,161 (B) $ 207
======== ========= ======= ========
Allowance for markdowns $ 2,499 $ 4,799 $ 6,463 (C) $ 835
Allowance for doubtful accounts 432 269 198 (D) 503
-------- --------- ------- --------
$ 2,931 $ 5,068 $ 6,661 $ 1,338
======== ========= ======= ========
For the year ended December 31, 1993:
Deducted from assets to which they apply:
Allowance for inventory valuation $ 4,900 $ 172 $ 922 (B) $ 4,150
======== ========= ======= ========
Allowance for markdowns $ 5,280 $ 5,722 $ 8,503 (C) $ 2,499
Allowance for doubtful accounts 557 335 460 (D) 432
-------- --------- ------- --------
$ 5,837 $ 6,057 $ 8,963 $ 2,931
======== ========= ======= ========
</TABLE>
(A) Principally amounts reclassified to discontinued operations.
(B) Principally inventory written off, net of recoveries.
(C) Principally markdowns taken.
(D) Principally uncollectible accounts written off, net of recoveries.
F-28
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1996
(Unaudited in thousands)
ASSETS
Current assets:
Cash and equivalents $2,228
Restricted cash and equivalents 50
Receivables including $487 of unbilled revenue 6,709
Prepaid expenses 119
Officer loans 331
Other 218
----------
Total current assets 9,655
----------
Property, plant and equipment 420
Less accumulated depreciation and amortization 68
----------
352
----------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization of $251 12,051
Other 66
----------
12,117
----------
$22,124
==========
The accompanying notes are an integral part of the condensed consolidated
F-29
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1996
(Unaudited in thousands)
LIABILITIES
Current liabilities:
Borrowings under revolving line of credit $1,500
Accounts payable 566
Accrued expenses 1,145
Income taxes 265
Liabilities to be assumed by ARTRA GROUP Incorporated
and net of liabilities of discontinued operations 1,794
----------
Total current liabilities 5,270
----------
Obligations expected to be settled by the
issuance of common stock 550
----------
Commitments and contingencies
SHAREHOLDERS' EQUITY (DEFICIT)
Series E convertible preferred stock,
$.01 par value; 10 authorized, 9 issued
and outstanding, liquidation
Value of $100 per share ($887,100) 1
6%, Series D senior convertible preferred stock,
$.01 par value; 15 authorized, 7 issued and outstanding,
liquidation Value of $1,000 per share($7,002,000) 1
Common stock, $.01 par value; authorized 10,000 shares;
issued 9,632 shares 96
Additional paid-in capital 15,754
Accumulated deficit -
Retained earnings since January 1, 1996 452
----------
16,304
----------
$22,124
==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-30
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 9,893 $ -- $ 13,158 $ --
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold 8,424 -- 11,002 --
Selling, general and administrative 731 144 1,173 227
Depreciation and amortization 151 -- 228 --
-------- -------- -------- --------
9,306 144 12,403 227
-------- -------- -------- --------
Operating income (loss) 587 (144) 755 (227)
-------- -------- -------- --------
Other income (expense):
Interest expense (50) (74) (51) (131)
Other income, net 13 26 16 26
-------- -------- -------- --------
(37) (48) (35) (105)
-------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes 550 (192) 720 (332)
Provision for income taxes (198) -- (268) --
-------- -------- -------- --------
Earnings (loss) from continuing operations 352 (192) 452 (332)
-------- -------- -------- --------
Discontinued operations
Earnings from operations -- (14,679) -- (14,787)
Provision for income taxes -- (1) -- (3)
-------- -------- -------- --------
Loss from discontinued operations -- (14,680) -- (14,790)
-------- -------- -------- --------
Earnings(loss) before extraordinary credit 352 (14,872) 452 (15,122)
Extraordinary credit,
net discharge of indebtedness -- -- -- 6,657
-------- -------- -------- --------
Net earnings (loss) $ 352 ($14,872) $ 452 ($ 8,465)
======== ======== ======== ========
Earnings (loss) per share:
Earnings (loss) from continuing operations $ 0.03 ($ 0.06) $ 0.03 ($ 0.10)
Loss from discontinued operations -- (4.50) -- (4.54)
-------- -------- -------- --------
Earnings (loss) before extraordinary credit 0.03 (4.56) 0.03 (4.64)
Extraordinary credit -- -- -- 2.04
-------- -------- -------- --------
Net earnings (loss) $ 0.03 ($ 4.56) $ 0.03 ($ 2.60)
======== ======== ======== ========
Weighted average number of shares of common stock
and common stock equivalents outstanding 13,921 3,163 13,819 3,257
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
F-31
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited in thousands, except share data)
<TABLE>
<CAPTION>
Retained
Series E Series D Earnings Total
Common Stock Prefered Stock Prefered Stock Additional Since Shareholders'
---------------- ----------------- --------------- Paid-in Accumulated January 1, Equity
Shares Dollars Shares Dollars Shares Dollars Capital (Deficit) 1996 (Deficit)
------- ------- ------- ------- ------- ------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 9,309,198 $92 - - - - $95,993 ($93,847) $2,238
Quasi -Reorganization
as of January 1, 1996 - - - - - - ($93,847) $93,847
Net earnings - - - - - - - - $452 452
Exercise of stock options 4,500 1 - - - - 22 - - 23
Exercise of stock warrants 318,334 3 - - - - 999 - - 1,002
Issuance of Series E
convertible prefered stock - - 8,871 1 - - 4,635 - - 4,636
Issuance of Series D senior
convertible preferred stock - - - - 7,002 1 6,415 - - 6,416
Liabilities assumed by ARTRA - - - - - - 1,537 - - 1,537
-------- ---- ------- ----- ------ ------- -------- -------- --------- -------
Balance at June 30, 1996 9,632,032 $96 8,871 $1 7,002 $1 $15,754 $0 $452 $16,304
========= ==== ======== ==== ====== ======= ======== ======== ========= =======
<FN>
The accompanying notes are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
F-32
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Net cash flows used by operating activities ($ 3,318) ($ 1,377)
-------- --------
Cash flows from investing activities:
COMFORCE Global and Williams direct acquisition costs (31) --
Acquisition of Williams Telecommunications (2,074) --
Acquisition of RRA (5,345) --
Officer loans (331) --
Payment of liabilities with restricted cash -- 550
Additions to property, plant and equipment (323) (21)
Retail fixtures -- (609)
-------- --------
Net cash flows (used by) from investing activities (8,104) (80)
-------- --------
Cash flows from financing activities:
Proceeds from revolving line of credit 1,500 1,475
Reduction of long-term debt -- (750)
Repayment of Note (500) --
Issuance of Preferred Stock Series E 4,636 --
Issuance of Preferred Stock Series D 6,416 --
Proceeds from stock warrants 999 --
Other -- 1
-------- --------
Net cash flows from financing activities 13,051 726
-------- --------
Increase (decrease) in cash and cash equivalents 1,629 (731)
Cash and equivalents, beginning of period 649 783
-------- --------
Cash and equivalents, end of period $ 2,278 $ 52
======== ========
Supplemental cash flow information: Cash paid during the period for:
Interest $ 51 $ 80
Income taxes paid, net -- 3
Supplemental schedule of noncash investing and financing activities:
Common stock issued as consideration for debt restructuring -- 378
Net change in ARTRA receivables and liabilities 1,537 --
<FN>
The accompanying notes are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
F-33
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of COMFORCE
Corporation ("COMFORCE" or the "Company"), formerly The Lori Corporation
("Lori"), are presented on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company currently operates in one industry segment as a
provider of telecommunications and computer technical staffing and consulting
services worldwide. As discussed in Note 4, in September 1995, the Company
adopted a plan to discontinue its jewelry business ("Jewelry Business")
conducted by its two wholly-owned subsidiaries Lawrence Jewelry Corporation
("Lawrence") and Rosecraft, Inc.("Rosecraft").
Effective January 1, 1996 the Company effected a quasi-reorganization through
the application of $93,847,000 of its $95,993,000 Additional Paid in Capital
account to eliminate its Accumulated Deficit. Under generally accepted
accounting principles, when a business reaches a turnaround point and profitable
operations seem likely, a quasi-reorganization may be appropriate to eliminate
the accumulated deficit from past unprofitable operations. The Company's Board
decided to effect a quasi-reorganization given that the Company achieved
profitability following its entry into the technical staffing business and
discontinuation of its unprofitable Jewelry Business. The Company's Accumulated
Deficit at December 31, 1995 is primarily related to the discontinued operations
and is not, in management's view, reflective of the Company's current financial
condition.
At December 31, 1994, ARTRA GROUP Incorporated ("ARTRA"), a public company whose
shares are traded on the New York Stock Exchange, owned, through its
wholly-owned subsidiary Fill-Mor Holding, Inc. ("Fill-Mor"), approximately 62.9%
of the common stock and all of the outstanding preferred stock of the Company.
At June 30, 1996, ARTRA owned approximately 25% of the Company's stock.
On October 17, 1995 Lori acquired one hundred percent of the capital stock of
COMFORCE Global Inc. ("COMFORCE Global"), formerly Spectrum Global Services,
Inc, d/b/a YIELD Global, a wholly owned subsidiary of Spectrum Information
Technologies, Inc. In connection with the re-focus of Lori's business, Lori
changed its name to COMFORCE Corporation. See Note 2.
As discussed in Note 2, on May 10, 1996, the Company purchased all of the stock
of Project Staffing Support Team, Inc. and substantially all of the assets of
RRA Inc. and Datatech Technical Services, Inc. (collectively, "RRA"). RRA is in
the business of providing contract employees to other businesses.
These condensed consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all the
disclosures required in the Company's annual report on Form 10-K. Accordingly,
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying consolidated financial statements. The
condensed consolidated balance sheet as of December 31, 1995 was derived from
the audited consolidated financial statements in the Company's Annual Report on
Form 10-K.
Reported interim results of operations are based in part on estimates which may
be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
2. CERTAIN ACQUISITIONS
On September 11, 1995, Lori signed a stock purchase agreement to participate in
the acquisition of one hundred percent of the capital stock of COMFORCE Global.
On October 17, 1995, this transaction was completed. The price paid by the
Company for the COMFORCE Global stock and related acquisition costs was
approximately $6.4 million, net of cash acquired. This consideration consisted
of cash to the seller of approximately $5.1 million, fees of approximately
F-34
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
$700,000, including a fee of $500,000 to a related party, and 500,000 shares of
the Company's Common Stock issued at $843,000 (at a price per share of $1.68)
issued as consideration for various fees and guarantees associated with the
transaction. The 500,000 shares issued by the Company consisted of (i) 100,000
shares issued to an unrelated party for guaranteeing the purchase price to the
seller, (ii) 100,000 shares issued to ARTRA, then the majority stockholder of
the Company in consideration of its guaranteeing the purchase price to the
seller and agreeing to enter into the Assumption Agreement, (iii) 150,000 issued
to two unrelated parties for advisory services in connection with the
acquisition, and (iv) 150,000 shares issued to Peter R. Harvey, then a Vice
President and director of the Company for guaranteeing the payment of the
purchase price to the seller and other guarantees to facilitate the transaction.
Current management of the Company has questioned its obligation to deliver the
150,000 shares to Peter harvey and the 100,000 shares to ARTRA issued in
consideration of their guarantees. However, for purposes of presenting earnings
per share data, the Company is recognizing these shares as being issued and
outstanding pending resolution of the disagreement among the parties.
Additionally, in conjunction with the COMFORCE Global acquisition, ARTRA agreed
to pay and discharge substantially all pre-existing Lori liabilities and
indemnify COMFORCE in the event any future liabilities arise concerning pre-
existing environmental matters and business related litigation.
COMFORCE Global provides telecommunications and computer technical staffing
services worldwide to Fortune 500 companies and maintains an extensive, global
database of technical specialists with an emphasis on wireless communications
capability. The acquisition of COMFORCE Global was accounted for by the purchase
method and, accordingly, the assets and liabilities of COMFORCE Global were
included in the Company's financial statements at their estimated fair market
value at the date of acquisition and COMFORCE Global's operations are included
in the Company's statement of operations from the date of acquisition. The
excess purchase price over the fair value of COMFORCE Global's net assets
acquired (goodwill) of $4,852,000 is being amortized on a straight-line basis
over 20 years.
The acquisition of COMFORCE Global was funded principally by private placements
of approximately 1,950,000 shares of the Company's Common Stock at $3.00 per
share plus detachable warrants to purchase approximately 970,000 shares of the
Company's Common Stock at $3.375 per share. The warrants expire five years from
the date of issue.
On March 3, 1996, the Company acquired all of the assets of Williams
Communications Services, Inc. ("Williams"), a regional provider of
telecommunications and technical staffing services. The purchase price for the
assets of Williams was $2 million with a four year contingent payout based on
earnings of Williams. The value of the contingent payouts will not exceed $2
million, for a total purchase price not to exceed $4 million. The acquisition of
Williams was accounted for by the purchase method and, accordingly, Williams'
operations are included in the Company's statement of operations from the date
of acquisition. The excess purchase price over the fair value of Williams' net
assets acquired (goodwill) of $2,000,000 plus related direct costs of the
acquisition of $73,000 are being amortized on a straight-line basis over 20
years.
On May 10, 1996, the Company acquired RRA for an aggregate purchase price of
$5,000,000, plus contingent payments payable over three years in an aggregate
amount not to exceed $750,000. The acquisition of RRA was accounted for by the
purchase method and, accordingly, RRA operations are included in the Company's
statement of operations from the date of acquisition. The excess purchase price
over the fair value of RRA net assets acquired (goodwill) of $5,410,000 plus
related acquisition costs, are being amortized on a straight-line basis over 20
years. RRA is in the business of providing contract employees to other
businesses. The Company's headquarters are located in Tempe, Arizona. The
acquisition of RRA enables the Company, through its COMFORCE Technical Services,
Inc. subsidiary, to provide specialists for supplemental staffing assignments as
well as outsourcing and vendor-on-premises programs, primarily in the
electronics, avionics, telecommunications and information technology business
sectors.
F-35
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following unaudited pro forma condensed consolidated statements of
operations for the three and six months ended June 30, 1996 and June 30, 1995
present the Company's results of operations as if the acquisition of COMFORCE
Global, Williams, and RRA and the related revolving line of credit and private
placement of the Company's Common Stock and Series D Preferred Stock and Series
E Preferred Stock had been consummated as of January 1, 1995.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended June 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical RRA (A) Adjustments Pro Forma
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 9,893 $ 7,649 $ 17,542
---------- ------------- ----------
Operating costs and expenses:
Cost of revenues 8,424 6,670 15,094
Other operating costs and expenses 882 683 $ 43 (B) 1,608
---------- ------------- ----------- ----------
9,306 7,353 43 16,702
---------- ------------- ----------- ----------
Operating earnings (loss) 587 296 (43) 840
---------- ------------- ----------- ----------
Other income net 13 13
Interest and other non-operating expenses (50) (14) - (64)
---------- ------------- ----------- ----------
(37) (14) - (51)
---------- ------------- ----------- ----------
Earnings (loss) from continuing operations
before income taxes 550 282 (43) 789
(Provision) credit for income taxes (198) (113) 17 (294)
---------- ----------- ----------- ----------
Income from continuing operations $ 352 $ 169 $(26) $ 495
========== =========== =========== ==========
Income per share from continuing operations $ .03 $ .04
========== =========
Weighted average shares outstanding (E) 13,921 13,921
========== =========
</TABLE>
F-36
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended June 30, 1995
(In thousands)
<TABLE>
<CAPTION>
Lori COMFORCE Pro Forma
Historical Global (A) Williams(A) RRA (A) Adjustments Pro Forma
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ - $ 2,963 $ 1,026 $ 12,969 $ 16,958
---------- ------------ ---------- ------------ ------------
Operating costs and expenses:
Cost of Revenues 2,208 727 11,985 14,830
Spectrum corporate management
fees (D) 357 357
Other operating costs and
expenses 144 484 68 713 139 (B) 1,548
---------- ------------ ---------- ------------ ------------ ------------
144 3,049 795 12,608 139 16,735
---------- ------------ ---------- ------------ ------------ ------------
Operating earnings (loss) (144) (86) 231 361 (139) 223
---------- ------------ ---------- ------------ ------------ ------------
Other Income 26 2 3 31
Interest and other non-operating
expenses (74) (44) (40) (C) (158)
---------- ------------ ---------- ------------ ------------ ------------
(51) 2 (41) (40) (127)
---------- ------------ ---------- ------------ ------------ ------------
Earnings (loss) from continuing
operations before income taxes (192) (84) 231 320 (179) 96
(Provision) credit for income taxes (1) (2) (92) (128) 179 -
---------- ------------ ---------- ------------ ------------ ------------
Income (loss) from continuing
operations $ (193) $ (86) $ 139 $ 192 $ - $ 96
========== ============ =========== ============ ============ ============
Loss per share from continuing
operations $ (.06) $ (.01)
========== ============
Weighted average shares
outstanding (E) 3,257 9,790
========== ============
</TABLE>
F-37
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Pro forma adjustments to the unaudited condensed consolidated statement of
operations:
A) The pro forma data presented for COMFORCE Global's, Williams' and
RRA's operations is for the periods prior to their acquisitions (i.e.,
in the case of COMFORCE Global, the period from April 1, 1995 through
June 30, 1995, which precedes its October 17, 1995 acquisition; in the
case of Williams, its period from April 1, 1995 through June 30, 1995,
which precedes its March 3, 1996 acquisition; and, in the case of RRA,
the periods from April 1, 1996 through May 2, 1996 and from April 1,
1995 through June 30, 1995, which precede its May 10, 1996
acquisition).
B) Amortization of intangibles arising from the COMFORCE Global, Williams
and RRA acquisitions. The table below reflects where the amortization
of intangibles have been recorded.
Three Months Three Months
June 1996 June 1995
--------- ---------
Historical COMFORCE $137
Historical COMFORCE Global $ 41
Williams
RRA
Pro forma Adjustment 43 139
---- ----
Adjusted Pro forma per
Financial statement $180 $180
==== ====
C) Interest expense incurred for the purchase of Williams assuming $1,900,000
outstanding under the line of credit at an interest rate of 8.5%.
D) Corporate management fees from COMFORCE Global's former parent, Spectrum
Information Technologies, Inc. The amount of these management fees may not
be representative of costs incurred by COMFORCE Global on a stand alone
basis.
E) Pro forma weighted average shares outstanding includes shares of the
Company's Common Stock issued in the private placement that funded the
COMFORCE Global transaction, including 100,000 shares issued to ARTRA and
150,000 shares issued to Peter Harvey, then a Vice President of the
Company, for guaranteeing the payment of the purchase price to the seller
and other guarantees associated with the COMFORCE Global acquisition,
shares issued to certain individuals to manage the Company's entry into and
development of the telecommunications and computer technical staffing
services business, and Series D and Series E Preferred Stock issued in
conjunction with the purchase of RRA. Current management has questioned its
obligation to deliver the 150,000 shares to Peter Harvey and the 100,000
shares to ARTRA issued in consideration of their guarantees. However, for
purposes of presenting earnings per share data the Company is recognizing
these shares as being issued and outstanding pending resolution of the
disagreement among the parties.
F-38
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Williams(A) RRA (A) Adjustments Pro Forma
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 13,158 $ 654 $ 22,786 $ 36,598
---------- ---------- ------------ ------------
Operating costs and expenses:
Cost of Revenues 11,002 281 20,762 32,045
Other operating costs and
expenses 1,401 38 1,491 154 (B) 3,084
---------- ---------- ------------ ------------ ------------
12,403 319 22,253 154 35,129
---------- ---------- ------------ ------------ ------------
Operating earnings (loss) 755 335 533 (154) 1,469
---------- ---------- ------------ ------------ ------------
Other Income 16 16
Interest and other non-operating
expenses (51) (36) (30) (C) (117)
---------- ---------- ------------ ------------ ------------
(35) (36) (30) (101)
---------- ---------- ------------ ------------ ------------
Earnings (loss) from continuing
operations before income taxes 720 335 497 (184) 1,368
(Provision) credit for income taxes (268) (265) (199) 131 (601)
---------- ---------- ------------ ------------ ------------
Income (loss) from continuing
operations $ 452 $ 70 $ 298 $ (53) $ 767
========== =========== ============ ============ ============
Loss per share from continuing
operations $ .03 $ .06
========== ============
Weighted average shares
outstanding (F) 13,819 13,819
========== ============
</TABLE>
F-39
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
(In thousands)
<TABLE>
<CAPTION>
Lori COMFORCE Pro Forma
Historical Global (A) Williams(A) RRA (A) Adjustments Pro Forma
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ - $ 5,653 $ 1,678 $ 24,424 $ 31,755
---------- ------------ ---------- ------------ ------------
Operating costs and expenses:
Cost of Revenues 4,183 1,227 22,618 28,028
Spectrum corporate management
fees (D) 625 625
Stock compensation (E) 3,425 3,425
Other operating costs and
expenses 227 913 131 1,348 278 (B) 2,897
---------- ------------ ---------- ------------ ------------ ------------
227 5,721 1,358 23,966 3,703 34,975
---------- ------------ ---------- ------------ ------------ ------------
Operating earnings (loss) (227) (68) 320 458 (3,703) (3,220)
---------- ------------ ---------- ------------ ------------ ------------
Other Income 26 2 3 31
Interest and other non-operating
expenses (131) (60) (80) (C) (271)
---------- ------------ ---------- ------------ ------------ ------------
(105) 2 (57) (80) (240)
---------- ------------ ---------- ------------ ------------ ------------
Earnings (loss) from continuing
operations before income taxes (332) (66) 320 401 (3,783) (3,460)
(Provision) credit for income taxes (3) (19) (128) (160) 1,513 1,203
---------- ------------ ---------- ------------ ------------ ------------
Income (loss) from continuing
operations $ (335) $ (85) $ 192 $ 241 $ (2,270) $ (2,257)
========== ============ =========== ============ ============ ============
Loss per share from continuing
operations $ (.07) $ (.23)
========== ============
Weighted average shares
outstanding (F) 3,257 9,790
========== ============
</TABLE>
F-40
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Pro forma adjustments to the unaudited condensed consolidated statement of
operations:
(A) The pro forma data presented for COMFORCE Global's, Williams' and
RRA's operations is for the periods prior to their acquisitions (i.e.,
in the case of COMFORCE Global, the period from January 1, 1995
through June 30, 1995, which precedes its October 17, 1995
acquisition; in the case of Williams, the periods from January 1, 1996
through March 2, 1996 and from January 1, 1995 through June 30, 1995,
which precede its March 3, 1996 acquisition; and, in the case of RRA,
the periods from January 1, 1996 through May 9, 1996 and from January
1, 1995 through June 30, 1995, which precede its May 10, 1996
acquisition).
(B) Amortization of intangibles arising from the COMFORCE Global, Williams
and RRA acquisition. The table below reflects where the amortization
of intangibles have been recorded
Six Months Six Months
June 1996 June 1995
--------- ---------
Historical COMFORCE $ 206
Historical COMFORCE Global $ 82
Williams
RRA
Pro forma Adjustment 154 278
-------- --------
Adjusted Pro forma per
Financial statement $ 360 $ 360
======== ========
(C) To record interest expense incurred for the purchase of Williams for the
pro forma six months ended June 30, 1995 and for the period January 1, 1996
through March 3, 1996. Interest expense represents interest on the line of
credit assuming all $1,900,000 was outstanding for the six months ended
June 30, 1995 and for the period January 1, 1996 through March 3, 1996 at
the interest rate in effect of 8.5%.
(D) Represents a non-recurring compensation charge related to the issuance of
the 35% common stock interest in the Company to certain individuals to
manage the Company's entry into and development of the telecommunications
and computer technical staffing business.
(E) Corporate management fees from COMFORCE Global's former parent, Spectrum
Information Technologies, Inc. The amount of these management fees may not
be representative of costs incurred by COMFORCE Global on a stand alone
basis.
(F) Pro forma weighted average shares outstanding includes shares of the
Company's Common Stock issued in the private placement that funded the
COMFORCE Global transaction, Including 100,000 shares issued to a ARTRA,
and 150,000 shares issued to Peter Harvey, then a Vice President of the
Company, for guaranteeing the payment of the purchase price to the seller
and other guarantees associated with the COMFORCE Global acquisition,
shares issued to certain individuals to manage the Company's entry into and
development of the telecommunications and computer technical staffing
services business, and Series D and Series E Preferred Stock issued in
conjunction with the purchase of RRA. Current management has questioned its
obligation to deliver the 150,000 shares to Peter Harvey and the 100,000
shares to ARTRA issued in consideration of their guarantees. However, for
purposes of presenting earnings per share data, the Company is recognizing
these shares as being issued and outstanding pending resolution of the
disagreement among the parties.
F-41
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
3. NOTES PAYABLE
Notes payable and long-term debt (in thousands) consists of:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------- -------
<S> <C> <C>
Notes payable
Amounts due to a former related party,
interest at the prime rate plus 1% $ -- $ 750
Other, interest at 15% 263 1,736
Note payable to a bank under a revolving line of credit, due in 1,500 --
March 1997, with interest payable monthly at the bank's prime
rate plus a varying percentage not to exceed 1% based on certain
financial criteria. At June 30 the Company was
paying prime (8.25%) plus 1%.
Accounts Receivable credit facility, discontinued operations -- 1,535
Less:
Liabilities to be assumed by ARTRA (see Note 7) (263) (1,986)
Liabilities included with discontinued operations -- (1,535)
------- -------
$ 1,500 $ 500
======= =======
</TABLE>
The revolving line of credit agreement allowing for borrowings up to a maximum
of $2,250,000 replaces the $800,000 revolving line of credit which was in place
at December 31, 1995. Borrowings against the line can not exceed 80% of
acceptable receivables as defined. The note is collateralized by accounts
receivable and other assets of COMFORCE Global and guaranteed by COMFORCE. The
fair value of the Company's notes payable is estimated based on the quoted
market prices of the same or similar issues or on the current rates offered to
the Company for notes of the same remaining maturity.
See Note 10 for discussion of the Company's new $10,000,000 credit facility.
F-42
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
ARTRA, Fill-Mor, Lori and Lori's fashion costume jewelry subsidiaries entered
into an agreement with Lori's bank lender to settle obligations due the bank. As
partial consideration for the debt settlement agreement, the bank received a
$750,000 Lori note payable due March 31, 1995.
The $750,000 note due the bank was paid and the remaining indebtedness of Lori
and Fill-Mor was discharged, resulting in an additional extraordinary gain to
Lori of $6,657,000 in 1995. The $750,000 note payment was funded with the
proceeds of a $850,000 short-term loan from a former director of the Company.
The loan provided for interest at the prime rate plus 1%. As consideration for
assisting with the debt restructuring, the former director received 150,000
shares of the Company's Common Stock valued at $337,500 ($2.25 per share) based
upon the closing market value on March 30, 1995. The principal amount of the
loan was reduced $750,000 at July 31, 1995. The remaining loan principal was not
repaid on its scheduled maturity date of July 31, 1995. Per terms of the loan
agreement, the former director received an additional 50,000 of the Company's
Common Stock as compensation for the non-payment of the loan at its originally
scheduled maturity date. At December 31, 1995, the $750,000 note was classified
in the Company's consolidated balance sheet as liabilities to be assumed by
ARTRA. The loan was paid in full in March 1996 by ARTRA as required by the
Assumption Agreement discussed in Note 7.
During the second and third quarters of 1995, Lori entered into a series of
agreements with certain unaffiliated lenders that provided for short-term loans
with interest at 15%. As additional compensation certain lenders received an
aggregate of 91,176 shares of the Company's Common Stock and certain lenders
received warrants to purchase an aggregate of 195,000 shares of the Company's
Common Stock at prices ranging from $2.00 per share to $2.50 per share, the fair
market value at the dates of grant. The warrants expire five years from the date
of issue. The proceeds from these loans were used to fund the September, 1995
$500,000 down payment on the COMFORCE Global acquisition, with the remainder
used to fund working capital requirements of the Company's discontinued Jewelry
Business. At June 30, 1996 and December 31, 1995, short-term loans with an
aggregate principal balance of $886,000 and $1,236,000 respectively were
classified in the Company's consolidated balance sheet as liabilities to be
assumed by ARTRA. In the second quarter of 1996, the loans were paid in full by
ARTRA as required by the Assumption Agreement discussed in Note 7.
In August 1995, Lori obtained a credit facility for the factoring of the
accounts receivable of its discontinued Jewelry Business. The credit facility
provides for advances of 80% of receivables assigned, less allowances for
markdowns and other merchandise credits. The factoring charge, a minimum of
1.75% of the receivables assigned, increases on a sliding scale if the
receivables assigned are not collected within 45 days. Borrowings under the
credit facility are collateralized by the accounts receivable, inventory and
equipment of Lori's discontinued fashion costume jewelry subsidiaries and
guaranteed by Lori. At June 30, 1996, due to the sale of the Jewelry Business,
this credit facility is no longer available. At December 31, 1995, outstanding
borrowings under this credit facility of $1,535,000, along with other net
liabilities of the discontinued Jewelry Business, were classified in the
Company's consolidated balance sheet as liabilities to be assumed by ARTRA and
net liabilities of the discontinued Jewelry Business. At June 30, 1996, there
were no outstanding borrowings under this credit facility.
F-43
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
4. EQUITY
In March 1996, 4,500 stock options were exercised at an average price of $5 per
share.
In April 1996, 301,667 warrants were exercised at an average price of $3.12 per
share.
In April 1996, in conjunction with the purchase of RRA, the Company sold 8,871
shares of Series E Preferred Stock at a selling price of $550 per share for
8,470 shares and $750 per share for 401 shares. Each share of Series E Preferred
Stock will be automatically converted into 100 shares of Common Stock on the
date the Company's Certificate of Incorporation is amended so that the Company
has a sufficient number of authorized and unissued shares of Common Stock to
effect the conversion and any accrued and unpaid dividends have been paid in
full. Holders of shares of Series E Preferred Stock are entitled to dividends
equal to those declared on the Common Stock, or if no dividends are declared on
the Common Stock, nominal cumulative dividends payable only if the Series E
Preferred Stock fails to be converted into Common Stock by September 1, 1996.
The Series E Preferred Stock has a liquidation preference of $100 per share
($887,100 in the aggregate for all outstanding shares).
In May 1996, the Company sold 7,002 shares of Series D Preferred Stock at a
selling price of $1,000 per share. The holder of each share of Series D
Preferred Stock will have the right to convert such shares into 83.33 fully paid
and nonassessable shares of Common Stock at any time subsequent to the date the
Company's Certificate of Incorporation is amended so that the Corporation has
sufficient number of authorized and unissued Common Stock to effect the
conversion. Holders of the shares of Series D Preferred Stock are entitled to
cumulative dividends of 6% per annum, payable quarterly in cash on the first day
of February, May, August and November in each year. The Series D Preferred Stock
has a liquidation preference of $1,000 per share ($7,002,000 in the aggregate
for all outstanding shares).
5. EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net earnings (loss) by the
weighted average number of shares of Common Stock and Common Stock equivalents
(stock options and warrants), unless anti-dilutive, outstanding during each
period. Fully diluted earnings per share are not presented since the result is
equivalent to primary earnings per share.
6. INCOME TAXES
The 1995 extraordinary credit represents a net gain from discharge of bank
indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credit due to the utilization of tax
loss carryforwards. In 1995, the Company issued a significant number of shares
of its Common Stock in conjunction with the COMFORCE Global acquisition and
certain related transactions. Accordingly, the Company is currently subject to
significant limitations regarding the utilization of its Federal income tax loss
carryforwards.
7. LIABILITIES TO BE ASSUMED BY ARTRA GROUP INCORPORATED AND NET
LIABILITIES OF DISCONTINUED OPERATIONS
Under the Assumption Agreement between the parties in October, 1995 (the
"Assumption Agreement") entered into in connection with the COMFORCE Global
acquisition (see Note 2), ARTRA agreed to assume substantially all
pre-existing Lori liabilities and indemnify COMFORCE in the event any future
liabilities arise concerning pre-existing environmental matters and business
related litigation. Additionally, ARTRA agreed to assume all of the assets and
liabilities of the Company's discontinued Jewelry Business. In April 1996, ARTRA
sold the business and certain assets of the Jewelry Business.
F-44
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
At June 30, 1996 and December 31, 1995, liabilities to be assumed by ARTRA and
net liabilities of the discontinued Jewelry Business (in thousands) consist of:
June 30 December 31
Current: 1996 1995
------- --------
Liabilities to be assumed by ARTRA
Notes payable $ 263 $1,986
Court ordered payments 1,531 990
Accrued expenses - 349
------- -------
1,794 3,325
Net liabilities of the discontinued
Jewelry Business - 374
------- -------
$ 1,794 $ 3,699
======= =======
Noncurrent:
Liabilities to be assumed by ARTRA
Court ordered payments $ - $ 541
======= =======
As noted in the table above, as of June 30, 1996, remaining pre-existing Lori
liabilities assumed by ARTRA are $1,794,000. To the extent ARTRA is able to make
subsequent payments, they will be recorded as additional paid-in capital. The
ability of ARTRA to satisfy these obligations is uncertain. The financial
statements of ARTRA include an explanatory paragraph indicating substantial
doubt about the ability of ARTRA to continue as a going concern. The amounts
receivable from ARTRA, exclusive of subsequent payments, have not been reflected
in the Company's financial statements at June 30, 1996. No collateral has been
provided in support of these obligations.
At December 31, 1995, liabilities to be assumed by ARTRA included $1,531,000 of
court ordered payments arising from the May 3, 1993 reorganization of New
Dimensions. As of August 7, 1996, the $541,000 installment payment due December
31, 1995 had not been paid.
8. LITIGATION
Prior to its entry into the Jewelry Business in 1985, the Company operated in
excess of 20 manufacturing facilities for the production of, inter alia,
photocopy machines, photographic chemical and paper coating. These operations
were sold or discontinued in the late 1970s and early 1980s. Certain of these
facilities may have used and/or generated hazardous materials and may have
disposed of the hazardous substances, particularly before the enactment of laws
governing the safe disposal of hazardous substances, at an indeterminable number
of sites. Although the controlling stockholders and current management had no
involvement in such prior manufacturing operations, the Company could be held to
be responsible for clean-up costs if any hazardous substances were deposited at
these manufacturing sites, or at off-site waste disposal locations, under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), or under other Federal or state environmental laws now or hereafter
enacted. However, except for the Gary, Indiana site described below, the Company
has not been notified by the Federal Environmental Protection Agency (the "EPA")
that it is a potentially responsible party for, nor is the Company aware of
having disposed of hazardous substances at, any site.
F-45
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In December 1994, the Company was notified by the EPA that it is a potentially
responsible party under CERCLA for the disposal of hazardous substances at a
site in Gary, Indiana. The alleged disposal occurred in the mid-1970s at a time
when the Company conducted operations as APECO. In this connection, in December
1994, the Company was named as one of approximately 80 defendants in a case
brought in the United States District Court for the Northern District of Indiana
by a group of 14 potentially responsible parties who agreed in a consent order
entered into with the EPA to clean-up this site. The plaintiffs have estimated
that the cost of cleaning up this site to be $45 million, and have offered to
settle the case with the Company for $991,445. This amount represents the
plaintiffs' estimate of the Company's pro rata share of the clean-up costs. The
Company declined to accept this settlement proposal, which was subsequently
withdrawn.
The plaintiffs have produced only limited testamentary evidence, and no
documentary evidence, linking the Company to this site, and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised, that the Company deposited hazardous substances at
the site. Based on the foregoing, management of the Company does not believe
that it is probable that the Company will have any liability for the costs of
the clean-up of this site. The Company intends to vigorously defend itself in
this case.
Under the terms of the Assumption Agreement, ARTRA agreed to pay and discharge
substantially all of the Company's pre-existing liabilities and obligations,
including environmental liabilities at any sites at which the Company allegedly
operated facilities or disposed of hazardous substances, whether or not the
Company is currently identified as a potentially responsible party therefor.
Consequently, the Company is entitled to indemnification from ARTRA for any
environmental liabilities associated with the Gary, Indiana site. No assurance
can, however, be given that ARTRA will be financially capable of satisfying its
obligations under the Assumption Agreement.
The Company is a party to routine contract and employment-related litigation
matters in the ordinary course of its business. No such pending matters,
individually or in the aggregate, if adversely determined, are believed by
management to be material to the business, results of operations or financial
condition of the Company. The Company maintains general liability insurance,
property insurance, automobile insurance, employee benefit liability insurance,
owner's and contractor's protective insurance and exporter's foreign operations
insurance with coverage of $1 million on a per claim basis and $2 million
aggregate (with $3 million umbrella coverage). The Company insures against
workers' compensation in amounts required under applicable state law and in the
amount of $500,000 in the case of foreign workers. The Company also maintains
fidelity insurance in the amount of $25,000 per claim and directors' and
officers' liability insurance in the amount of $2 million. The Company is
presently soliciting quotations to obtain and errors and omissions coverage.
9. RELATED PARTY TRANSACTIONS
The Company made a loan of $331,000 in the aggregate to Michael Ferrentino, the
President and a Director of the Company, Christopher P. Franco, an Executive
Vice President of the Company, Kevin W. Kiernan, an employee of the Company, and
James L. Paterek, a consultant to the Company, to cover their tax liabilities
resulting from the issuance of the Company's Common Stock to them. Of this
amount, $55,000 was advanced in 1995, $38,000 was advanced in February 1996, and
$238,000 was advanced in April 1996.
Yield Industries, Inc., a corporation wholly-owned by Messrs. Paterek and
Ferrentino, earned a delivery fee of $500,000 in connection with the Company's
acquisition of COMFORCE Global, $250,000 of which was paid in 1995 and the
balance of which was paid in January 1996.
10. SUBSEQUENT EVENTS
On July 22, 1996, the Company and certain subsidiaries entered into a $10
million Revolving Credit Agreement (the "Credit Agreement") with The Chase
Manhattan Bank ("Chase") to provide working capital for the Company's
operations. The Company, COMFORCE Global, and COMFORCE Technical Services, Inc.
are co-borrowers under the Credit Agreement and Project Staffing Support Team,
Inc. ("PSST") is a guarantor of the obligations. Principal outstanding under the
Credit Agreement is due June 30, 1998. Chase agrees to make revolving credit
loans outstanding as Prime Rate loans or LIBOR loans, provided that, during the
occurrence and continuance of an event of default, the Company and its
subsidiaries may not elect, and Chase shall have no obligation to make, LIBOR
loans. Interest on LIBOR loans is payable in the amount of the LIBOR rate plus
2.0% per annum. Interest on the Prime Rate loans is payable in the amount of
Chase's prime rate as announced from time to time.
Chase may also issue letters of credit, not to exceed $250,000 in the aggregate,
to support offsite payroll services, as security in connection with operating
leases, and for other general corporate purposes with the consent of Chase.
Interest on drawings under letters of credit shall be calculated at the Prime
Rate of interest. One percent of the face amount of each letter of credit is
payable to Chase per annum and certain fees on each letter of credit issued,
payable at the time of issuance.
F-46
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Available advances under the Credit Agreement are based upon the amount equal to
80% of eligible receivables of COMFORCE Global and COMFORCE Technical Services,
Inc., less the aggregate amount of accrued payroll taxes due by those companies.
The Credit Agreement contains certain affirmative and negative covenants,
including restrictions on the creation of indebtedness or liens, the sale of
assets, the acquisition of stock or assets of another entity, the payment of
dividends, capital expenditures, and other financial covenants. Borrowings under
the Credit Agreement are secured by all goods, equipment, inventory, accounts,
contract rights, chattel paper, notes receivable, instruments, documents,
general intangibles, credits, claims, and obligations of the Company and its
subsidiaries. Additionally, all of the issued and outstanding stock of COMFORCE
Global, COMFORCE Technical Services, Inc. and PSST are pledged as security.
F-47
<PAGE>
Report of Independent Accountants
To the Board of Directors of COMFORCE Global, Inc.:
We have audited the accompanying balance sheets of COMFORCE Global, Inc.
(formerly Spectrum Global Services, Inc., the "Company") as of September 30,
1995 and December 31, 1994, and the related statements of operations and
retained earnings (accumulated deficit) and cash flows for the nine month period
ended September 30, 1995 and the year ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 COMFORCE Global, Inc. as of
September 30, 1995 and December 31, 1994, and the results of its operations and
its cash flows for the nine month period ended September 30, 1995 and the year
ended December 31, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Melville, New York
December 1, 1995
F-48
<PAGE>
COMFORCE Global, Inc.
Balance Sheets
as of September 30, 1995 and December 31, 1994
September 30, December 31,
ASSETS: 1995 1994
------------ ------------
Current assets:
Cash and cash equivalents $ 1,186,868 $ 426,334
Accounts receivable 1,602,659 1,456,583
Unbilled accounts receivable 279,626 158,793
Prepaid expenses and other assets 23,173 32,664
------------ ------------
Total current assets 3,092,326 2,074,374
Property and equipment, net 93,708 55,877
Intangible assets 2,149,661 2,272,890
Other assets 14,491 25,477
------------ ------------
Total assets $ 5,350,186 $ 4,428,618
============ ============
LIABILITIES AND STOCKHOLDERS'EQUITY(DEFICIENCY):
Current liabilities (deficiency):
Accounts payable $ 42,792 $ 27,714
Accrued liabilities 423,580 229,703
Income taxes payable 24,453
Accounts payable - parent 978,855 178,106
Accounts payable - affiliates 30,980 30,086
------------ ------------
Total current liabilities 1,476,207 490,062
------------ ------------
Stockholders' equity (deficiency):
Capital stock 1 1
Additional paid-in capital 3,919,999 3,919,999
Retained earnings (accumulated deficit (46,021) 18,556
------------ ------------
Total stockholders' equity 3,873,979 3,938,556
------------ ------------
Total liabilities and
stockholders' equity (deficiency) $ 5,350,186 $ 4,428,618
============ ============
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE>
COMFORCE Global, Inc.
Statements of Operations and Retained Earnings (Accumulated Deficit)
Nine month
period ended Year ended
September 30, December 31,
1995 1994
------------ ------------
Sales $ 9,007,461 $ 8,244,721
------------ ------------
Direct costs and expenses:
Cost of sales 6,764,942 6,417,395
General and administrative expenses 1,159,168 1,133,298
Overhead charges from parent (Note 9) 1,139,560 803,280
------------ ------------
Total costs and expenses 9,063,670 8,353,973
------------ ------------
(56,209) (109,252)
Interest income 6,632 8,975
------------ ------------
Loss before provision for income taxes (49,577) (100,277)
Income tax provision 15,000 14,740
------------ ------------
Net loss (64,577) (115,017)
Retained earnings, beginning of year 18,556 133,573
------------ ------------
Retained earnings(accumulated deficit),
end of period $ (46,021) $ 18,556
============ ============
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE>
COMFORCE Global, Inc.
Statements of Cash Flows
Nine month
period ended Year ended
September 30, December 31,
1995 1994
------------ ------------
Cash flows from operating activities:
Net (loss) income $ (64,577) $ (115,017)
Adjustments to reconcile net income to cash
flows provided by operating activities:
Depreciation 18,836 10,173
Amortization 123,229 164,305
Changes in operating assets and liabilities:
Accounts receivable (146,076) (256,348)
Unbilled accounts receivable (120,833) (158,793)
Prepaid expenses 9,491 (9,186)
Deposits 10,986 (24,360)
Accounts payable 15,078 22,645
Accrued liabilities 193,877 139,216
Accounts payable - parent 800,749 178,106
Income taxes payable (24,453) (18,657)
Accounts payable - affiliate 894 30,086
------------ ------------
Net cash provided by (used in)
operating activities 817,201 (37,830)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (56,667) (54,318)
------------ ------------
Net cash used in investing activities (56,667) (54,318)
------------ ------------
Net increase (decrease) in cash
and cash equivalents 760,534 (92,148)
------------ ------------
Cash and cash equivalents, beginning of year 426,334 518,482
------------ ------------
Cash and cash equivalents, end of period $ 1,186,868 $ 426,334
============ ============
Cash paid for:
Income taxes $ 35,371 $ 51,884
============ ============
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE>
COMFORCE Global, Inc.
Notes to Combined Financial Statements
1. Description of Business:
COMFORCE Global, Inc. (formerly Spectrum Global Services, Inc.) (the "Company"),
a Delaware Corporation, became a wholly owned subsidiary of Spectrum Information
Technologies, Inc. through an acquisition of the Company's assets on October 31,
1993. On October 17, 1995, 100% of the stock of Spectrum Global Services, Inc.
was sold to Lori (Now known as COMFORCE Corporation), at which time the Company
changed its name to COMFORCE Global, Inc.. The Company provides
telecommunications and computing staffing and consulting services worldwide.
2. Summary of Significant Accounting Policies:
Revenue Recognition
Revenue for providing staffing services is recognized at the time such services
are rendered.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid short-term investments with an
original maturity of three months or less. Cash equivalents consists primarily
of money market funds.
Accounts Receivable and Unbilled Accounts Receivable
Accounts receivable consists of those amounts due to the Company for staffing
services rendered to various customers. Accrued revenue consists of revenues
earned and recoverable costs for which billings have not yet been presented to
the customers as of the balance sheet dates.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to operations as incurred. Expenditures for betterments and
major renewals are capitalized. The cost of assets sold or retired and the
related amounts of accumulated depreciation are eliminated from the accounts in
the year of disposal, with any resulting profit or loss included in income.
Depreciation and amortization of assets are provided using the straight-line
method over the estimated useful life of the asset.
Intangibles
Goodwill is amortized over 15 years on a straight line basis.
F-52
<PAGE>
Notes to Combined Financial Statements, Continued
Income Taxes
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. A
valuation allowance is recorded to reduce deferred tax assets to their expected
realizable value. The cumulative effect of implementing SFAS No.
109 as of January 1, 1994 was not significant.
3. Purchase of Assets:
On October 31, 1993, Spectrum Information Technologies, Inc. purchased the
assets and assumed the liabilities of the Company (then known as Yield
Industries, Inc.) and Wintec Corporation ("Wintec"). Subsequent to this, the
name was changed to Spectrum Global Services, Inc. The acquisition has been
accounted for as a purchase. The fair value of the assets acquired, including
goodwill, was $4,120,000 and liabilities assumed totaled $199,000. Goodwill of
approximately $2,465,000 is being amortized over 15 years on a straight-line
basis.
4. Property and Equipment:
Property and equipment are summarized as follows:
Life of
equipment 1995 1994
--------- --------- ---------
Office equipment 3-5 years $ 61,311 $ 37,211
Furniture and fixtures 5-years 65,144 32,577
--------- ---------
126,455 69,788
Less, accumulated depreciation 32,747 13,911
--------- ---------
$ 93,708 $ 55,877
========= =========
F-53
<PAGE>
Notes to Combined Financial Statements, Continued
5. Income Taxes:
The provision for income taxes of $15,000 for the nine months ended September
30, 1995 and $14,740 for the year ended December 31, 1994 reflects minimum state
and local income taxes as the Company has state net operating losses on separate
Company returns. The Company files its federal income tax return as part of its
parent's consolidated return. Due to significant losses of the parent, the
Company has provided a full valuation on the potential future benefit from its
federal net operating losses. Net losses for financial reporting purposes do not
differ significantly from net losses for income tax purposes.
6. Concentration of Credit Risk:
The Company's accounts receivable as of September 30, 1995 and December 31, 1994
consist primarily of amounts due from telecommunication companies. As a result,
the collectibility of these receivables is dependent, to an extent, upon the
economic condition of the telecommunications industry. At September 30, 1995 and
December 31, 1994, the Company had four customers with accounts receivable
balances that aggregated 48% and 46%, respectively, of the Company's total
accounts receivable. Percentages of total revenues from significant customers
for the nine month period ended September 30, 1995 and the year ended December
31, 1994 are summarized as follows:
September 30, December 31,
1995 1994
------------ ------------
Customer 1 19.2% 19.9%
Customer 2 12.9% 12.8%
Customer 3 10.5% 9.9%
The Company maintains cash in bank accounts which at times may exceed federally
insured limits. The Company has not experienced any losses in such accounts and
believes they are not exposed to any significant credit risk on their cash
balances. The Company believes it mitigates such risk by investing its cash
through major financial institutions.
7. Accrued Expenses:
Accrued expenses consist of the following:
1995 1994
------------ ------------
Payroll and payroll taxes $ 274,864 $ 143,449
Workers' compensation 70,000 70,000
Professional fees 42,408 7,531
Vacation 27,595 8,723
Other 8,713
------------ ------------
$ 423,580 $ 229,703
============ ============
F-54
<PAGE>
Notes to Combined Financial Statements, Continued
8. Commitments and Contingencies:
Leases
At September 30, 1995, future minimum annual rental commitments under
noncancelable operating leases are as follows:
1996 $ 57,388
1997 58,583
1998 60,703
1999 62,913
2000 54,111
----------
$ 293,698
==========
Total rent expense for the nine month period ended September 30, 1995 and the
year ended December 31, 1994 was $25,627 and $46,498, respectively.
9. Charges From Parent:
For the nine months ended September 30, 1995 and the year ended December 31,
1994, approximately $1,139,560 and $803,280, respectively, was charged to the
Company by its parent, Spectrum Information Technologies, Inc. as a management
charge which reflects an allocation of corporate overhead. Management expects
that such charges will no longer continue as a result of the sale of the Company
to Lori. Such charges may not represent expenses that would have been incurred
had the Company operated as a stand-alone entity.
In addition, the Company was charged by its parent company for insurance, rent,
payroll, professional fees, and other miscellaneous office expenses. Such
charges amounted to $236,808 and $506,113 for the nine month period ended
September 30, 1995 and for the year ended December 31, 1994, respectively, and
are included in general and administrative expenses.
The Company purchased furniture and equipment and was charged miscellaneous
office expenses from its affiliates. Such charges amount to $1,014 and $29,967
in 1995 and 1994, respectively.
10. Other Matters:
On January 26, 1995, Spectrum Information Technologies, Inc., filed petition for
relief under Chapter 11 of the Bankruptcy Code (the Company was not included in
such filing). The sale of the stock of the Company to Lori on October 17, 1995
was formally approved by the bankruptcy court.
F-55
<PAGE>
Report of Independent Accountants
To the Shareholder
Williams Communication Services, Inc.
Englewood, Florida
We have audited the accompanying balance sheet of Williams Communication
Services, Inc. as of December 31, 1995 and the related statements of operations
and retained earnings and cash flows for the year 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 Williams Communication
Services, Inc. as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Myers, Florida
May 6, 1996
F-56
<PAGE>
Williams Communication Services, Inc.
Balance Sheet
December 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 0
Accounts receivable 599,607
Unbilled accounts receivable 173,904
----------
Total current assets 773,511
PROPERTY AND EQUIPMENT, net 25,329
----------
Total assets $ 798,840
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,500
Accrued liabilities 14,486
Bank overdraft 49,313
Income tax payable 326,475
---------
Total current liabilities 391,774
---------
STOCKHOLDERS' EQUITY
Common stock, 1,000 shares,
issued and outstanding, $1 par value 1,000
Retained earnings 406,066
---------
Total stockholders' equity 407,066
---------
Total liabilities and stockholders' equity $ 798,840
=========
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
Williams Communication Services, Inc.
Statement of Operations and Retained Earnings
year ended December 31, 1995
Sales $ 4,177,871
-----------
Direct costs and expenses:
Cost of sales 3,021,251
General and administrative expenses 450,225
-----------
Total direct costs and expenses 3,471,476
-----------
Income before provision for income taxes 706,395
Income tax provision 354,056
-----------
Net income 352,339
Retained earnings, beginning of year 53,727
-----------
Retained earnings, end of year $ 406,066
===========
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
Williams Communication Services, Inc.
Statement of Cash Flows
year ended December 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 352,339
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 723
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (293,361)
Unbilled accounts receivable (68,761)
Deposits 3,000
Other assets 240
Increase (decrease) in:
Accounts payable (256)
Accrued liabilities 290,692
Bank overdraft payable 49,313
----------
Net cash provided by operating activities 333,929
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (25,299)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of stockholder loan (309,500)
----------
Net decrease in cash and cash equivalents (870)
Cash and cash equivalents at beginning of year 870
----------
Cash and cash equivalents at end of year $ 0
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 1,586
==========
Cash paid during the year for income taxes $ 27,580
==========
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
Williams Communication Services, Inc.
Notes to Financial Statements
1. Description of Business:
Williams Communications Services, Inc. (the Company), a Florida
corporation, provides a wide range of technical and consulting services
to communication clients through the use of personnel who are designers,
drafters, engineers, programmers and other types of technicians. The
personnel are utilized by the clients on a temporary, project, or
peak-period basis.
2. Summary of Significant Accounting Policies:
Revenue Recognition: Revenue is recognized at the time such services are
rendered to the client.
Accounts Receivable and Unbilled Accounts Receivable: Accounts receivable
consists of those amounts due to the Company for services rendered to
various customers.
Unbilled accounts receivable consists of revenues earned and recoverable
costs for which billings have not yet been presented to the customers as
of the balance sheet date.
Property and Equipment: Property and equipment is recorded at cost.
Expenditures for maintenance and repairs are charged to operations as
incurred. Expenditures for betterments and major renewals are
capitalized. The cost of assets sold or retired and the related amounts
of accumulated depreciation are eliminated from the accounts in the year
of disposal, with any resulting profit or loss included in income.
Depreciation of assets have been computed using the straight-line method
over the estimated useful lives of the assets.
Income Taxes: The Company accounts for income taxes under the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109). Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109,
the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
As of December 31, 1995, deferred tax assets and liabilities are
immaterial in amount, and management has elected not to record them in
the financial statements.
The provision for income taxes does not bear the normal relationship to
net income due to the deductibility of only a portion of the amount of
meals reimbursed to employees.
F-60
<PAGE>
Notes to Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued
Management's Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. Property and Equipment:
Property and equipment consisted of the following at December 31, 1995:
Office equipment $ 15,000
Furniture and fixtures 3,342
Vehicle 25,300
----------
43,642
Less accumulated depreciation (18,313)
----------
$ 25,329
==========
4. Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
During the normal course of business, the Company extends credit to
customers located throughout the United States. At December 31, 1995, the
Company had approximately 90% or $699,000 of its billed and unbilled
accounts receivable due from two customers. The payment history of each
customer has been considered in determining the need for an allowance for
doubtful accounts. Sales to these customers aggregated approximately
$3,062,000, which represented approximately 74% of total sales for the
year ended December 31, 1995. The Company maintains substantially all of
its cash investments with what it believes to be high quality financial
institutions. The Company's investment policy is to limit concentrations
of credit risk.
F-61
<PAGE>
5. Income Taxes:
For the year ended December 31, 1995, the provision for income taxes
represents current income taxes. The components of the Company's
provision for income taxes are as follows:
Federal $ 302,556
State 51,500
---------
$ 354,056
=========
6. Subsequent Event:
On February 29, 1996, all of the equipment and intangible assets used in
the operation of the Company's business were acquired by COMFORCE Global,
Inc.
F-62
<PAGE>
To The Shareholders
RRA, Inc., Datatech Technical Services, Inc.
and Project Staffing Support Team, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying combined balance sheets of RRA, Inc., Datatech
Technical Services, Inc., and Project Staffing Support Team, Inc. as of December
31, 1995 and 1994, and the related combined statements of income, changes in
shareholder's equity, and cash flows for the years then ended. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our 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 RRA, Inc., Datatech Technical
Services, Inc., and Project Staffing Support Team, Inc. as of December 31, 1995
and 1994, and the results of their operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic combined
financial statements taken as a whole. The information included in the
accompanying schedules is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
ALEXANDER & DEVOLEY, P.C.
Phoenix, Arizona
February 1, 1996
F-63
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED BALANCE SHEET
For the Years Ended December 31, 1995 and 1994
ASSETS
1995 1994
---------- ----------
CURRENT ASSETS:
Cash ...................................... $ 53,662 $ 426,312
Accounts receivable - trade ............... 5,292,779 3,434,704
Other accounts receivable ................. 4,810 10,411
Note receivable - employee, current
portion (Note 2) ........................ 9,440 1,810
Note receivable - related parties,
current portion (Note 2) ................ 237,114 148,050
Prepaid expenses .......................... 49,616 27,284
Investments ............................... 4,925 --
---------- ----------
Total current assets .......................... 5,652,346 4,048,571
---------- ----------
PROPERTY AND EQUIPMENT (NOTE 1):
Office furniture and equipment ............ 438,607 346,395
Leasehold improvements .................... 131,325 114,435
Vehicles .................................. 23,912 215,330
---------- ----------
593,844 676,160
Less accumulated depreciation and
amortization ............................ 329,890 321,003
---------- ----------
263,954 355,157
---------- ----------
OTHER ASSETS:
Refundable deposits ....................... 9,666 50,396
Note receivable - employee, long-
term portion (Note 2) ................... 8,829 7,412
Note receivable - related parties,
long-term portion (Note 2) .............. 216,000 216,000
Deferred loan fee, less amortization
of $3,333 in 1995 and $5,312 in 1994 .... 1,667 2,188
Organizational costs, less accumulated
amortization of $13,121 in 1995 and
$9,841 in 1994 (Note 1) ................. 3,280 6,560
Client lists, less amortization of
$14,625 in 1995 and $8,125 in 1994
(Note 1) ................................ 4,875 11,375
---------- ----------
244,317 293,931
---------- ----------
$6,160,617 $4,697,659
========== ==========
See accompanying notes to financial statements.
F-64
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED BALANCE SHEET
For the Years Ended December 31, 1995 and 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
---------- ----------
CURRENT LIABILITIES:
Bank overdraft ............................ $ 496,879 $ 148,474
Accounts payable .......................... 49,058 42,572
Notes payable (Note 4) .................... 38,183 59,823
Note payable - bank (Note 3) .............. 1,220,000 1,200,000
Note payable - shareholder; due
on demand at 9.5% ....................... 100,000 --
Current portion of long-term debt ......... 6,657 62,978
Accrued expenses:
Wages, vacation, and holiday ............ 756,096 817,041
Payroll taxes and withholdings .......... 182,469 170,283
Gross receipts tax ...................... 78,141 64,565
Self insurance claims (Note 1) .......... 140,000 120,000
Interest ................................ 9,483 10,999
Pension plan contributions (Note 8) ..... 720,000 285,287
---------- ----------
Total current liabilities ................. 3,796,966 2,982,022
---------- ----------
LONG-TERM DEBT (NOTE 5): ........................... -- 73,185
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock (Note 7) ..................... 19,560 19,560
Additional paid-in capital ................ 415,631 387,863
Retained earnings ......................... 1,928,460 1,235,029
---------- ----------
2,363,651 1,642,452
---------- ----------
$6,160,617 $4,697,659
========== ==========
F-65
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED STATEMENT OF INCOME
For the Years Ended December 31, 1995 and 1994
1995 1994
------------ ------------
REVENUE .................................... $ 52,011,107 $ 38,559,163
COST OF REVENUE ............................ 47,830,459 35,601,360
------------ ------------
GROSS PROFIT ............................... 4,180,648 2,957,803
GENERAL AND ADMINISTRATIVE EXPENSES ........ 2,991,540 2,287,394
------------ ------------
INCOME FROM OPERATIONS ..................... 1,189,108 670,409
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense ........................ (175,338) (167,780)
Interest income ......................... 37,044 24,993
Gain (Loss) on abandonment and
sale of fixed assets .................. 5,385 (2,067)
------------ ------------
(132,909) (144,854)
------------ ------------
NET INCOME ................................. $ 1,056,199 $ 525,555
============ ============
See accompanying notes to financial statements.
F-66
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 ...................... $ 19,559 $ 325,264 $ 761,374 $ 1,106,197
ISSUANCE OF 100 SHARES OF
COMMON STOCK (NOTE 7) ..................... 1 -- -- 1
CONTRIBUTIONS TO CAPITAL ........................ -- 62,599 -- 62,599
DISTRIBUTIONS TO SHAREHOLDERS ................... -- -- (51,900) (51,900)
NET INCOME - 1994 ............................... -- -- 525,555 525,555
BALANCE, DECEMBER 31, 1994 ...................... 19,560 387,863 1,235,029 1,642,452
REDEMPTION OF STOCK AND
CAPITAL (NOTE 7) ................................ -- (25,000) -- (25,000)
CONTRIBUTIONS TO CAPITAL (NOTE 7) ............... -- 52,768 -- 52,768
DISTRIBUTIONS TO SHAREHOLDERS ................... -- -- (362,768) (362,768)
NET INCOME - 1995 ............................... -- -- 1,056,199 1,056,199
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 ...................... $ 19,560 $ 415,631 $ 1,928,460 $ 2,363,651
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1995 and 1994
1995 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers ............. $ 50,152,358 $ 37,544,620
Cash paid to suppliers and employees ..... (50,220,197) (36,842,673)
Interest paid ............................ (176,854) (98,437)
Interest received ........................ 674 3,544
------------ ------------
NET CASH (USED IN) PROVIDED FROM OPERATING
ACTIVITIES ............................... (244,019) 607,054
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................... (109,101) (321,652)
Net receipts (advances) on related
party loans ............................... 17,765 (17,845)
Net receipts (advances) on employee loans 2,953 (9,222)
Purchase of investment stock ............. (4,925) --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .......... (93,308) (348,719)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft ........................... 348,405 148,474
Net borrowings (payments) under line of
credit agreements ........................ 20,000 (41,660)
Principal payments on notes payable-
other .................................. (21,640) (117,649)
Proceeds from stock issuance or
capital contributions .................. 27,768 62,600
Distributions to shareholders ............ (362,768) (51,900)
Proceeds from long-term debt ............. -- 190,285
Proceeds from sale of fixed assets ....... 87,418
Payments on long-term debt ............... (129,506) (54,122)
Payment of deferred loan fee ............. (5,000) (7,500)
------------ ------------
NET CASH (USED IN) PROVIDED FROM
FINANCING ACTIVITIES ..................... (35,323) 128,528
------------ ------------
NET (DECREASE) INCREASE IN CASH ................ (372,650) 386,863
CASH AT BEGINNING OF YEAR ...................... 426,312 39,449
------------ ------------
CASH AT END OF YEAR ............................ $ 53,662 $ 426,312
============ ============
See accompanying notes to financial statements.
F-68
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995 and 1994
1995 1994
------------ ------------
RECONCILIATION OF NET INCOME TO NET
CASH (USED BY) PROVIDED FROM
OPERATING ACTIVITIES:
NET INCOME ....................................... $ 1,056,199 $ 525,555
----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH (USED BY) PROVIDED FROM OPERATING
ACTIVITIES:
Depreciation and amortization ................ 114,743 133,454
(Gain) Loss on abandonment and sale of
fixed assets .......................... (5,385) 2,067
Increase in accounts receivable .............. (1,858,075) (1,010,999)
Decrease in other receivables ................ 5,601 6,883
Decrease (Increase) in prepaid
expenses and deposits ................. 18,398 (19,887)
(Decrease) Increase in accounts
payable ............................... (3,014) 23,764
Increase in accrued expenses ................. 427,514 946,217
----------- -----------
Total adjustments ....................... (1,300,218) 81,499
----------- -----------
NET CASH (USED BY) PROVIDED FROM OPERATING
ACTIVITIES ................................. $ (244,019) $ 607,054
=========== ===========
See accompanying notes to financial statements.
F-69
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1995 and 1994
(1) SIGNIFICANT ACCOUNTING POLICIES:
Business organization
RRA, Inc. (RRA) was incorporated in 1964 under the laws of the
State of New York. Datatech Technical Services, Inc. (DTS) was
incorporated in 1991 under the laws of the State of Arizona and
commenced operations in 1992. Effective January 1, 1992, certain
customer accounts and property and equipment of RRA were transferred to
DTS in exchange for a down payment of $25,000 and a note for $150,000.
The terms of the note call for 10 equal annual payments to RRA from DTS
of $22,354, which includes principal and interest at 8%. The note
receivable and note payable have been eliminated in combination. DTS
charged RRA $225,350 in 1994 for a management fee. Any income or
expense related to these transactions have been eliminated in
combination. The Companies remain under common management and control.
Ray Rashkin owns 100% of RRA. Stanley Rashkin owns 100% of DTS.
Project Staffing support Team, Inc. (PSST) was incorporated under
the laws of the State of Arizona and commenced operations in 1994. At
inception, PSST was owned in equal shares by Ray Rashkin and Stanley
Rashkin. PSST had no revenue in 1994, and absorbed $41,327 in costs.
In 1995, RRA charged PSST $208,607 for a management fee. Ray
Rashkin redeemed his shares during the year, leaving Stanley Rashkin as
the sole shareholder of PSST (see note 7).
Principles of combination
These combined financial statements include the accounts of RRA,
DTS, and PSST. All significant intercompany transactions and balances
have been eliminated in combination.
Nature of business
The Companies provide highly trained individuals primarily to
large corporate customers that contract with various governmental
entities throughout the United States. The employees are provided on a
temporary or semi-permanent basis. The individuals are employees of the
Companies. The Companies maintain offices in Arizona, New York,
Connecticut, New Mexico, Missouri, Washington, South Carolina, and
California.
The companies have two major contracts that are renewable. One of
the contracts started early in 1994. Management is confident these
contracts will continue. The largest of the two renewed for five years,
and the other contract was extended for the second option year to
January 1997.
F-70
<PAGE>
Property and equipment
Property and equipment are stated at cost. Depreciation is
provided using accelerated methods over the estimated useful lives of
the assets. Amortization of leasehold improvements is provided using
the straight-line method over the lesser of the lease term or the
estimated useful lives of the assets. Depreciation expense was $99,442
and $118,362 in 1995 and 1994, respectively.
Organizational costs, client lists and deferred loan fees
Organizational costs for DTS are being amortized on a
straight-line basis over five years. Client lists purchased for $19,500
are being amortized over three years. Deferred loan fees are being
amortized over the term of the revolving line of credit agreement.
Concentration of risks
Periodically during the year, the Companies maintain cash in
financial institutions in excess of the amounts insured by the Federal
government.
Income taxes
The Companies have elected under applicable sections of the
Internal Revenue Code to be treated as "S" Corporations for income tax
purposes. Therefore, any income, loss and tax credits are reportable by
the shareholders on their individual income tax returns. In 1995, the
owners drew approximately $335,000 to pay estimated taxes on the
earnings from these entities, with an additional $70,000 drawn in
January 1996. Certain states in which the Companies do business do not
recognize the "S" Corporation status or they impose minimum taxes.
State income taxes are more of a license cost. They are included in
administrative expenses in the accompanying combined statement of
income. DTS reports to the Internal Revenue Service using the cash
basis of accounting.
Employee benefit plan
The Companies maintain 401(k) plans and Section 125 cafeteria
plans for the benefit of their employees. Employees elect to withhold
specified amounts from their wages to contribute to the plans. The
Companies have a fiduciary responsibility with respect to the plans.
Estimated health self-insurance claims
The Companies maintain a self-insurance plan for those employees
who elect to participate. Under this plan, the Company is responsible
for paying claims up to $40,000 annually per individual. There are
provisions for reinsurance in the plan. The financial statements
include an estimate for claims to be paid under this policy.
F-71
<PAGE>
(2) NOTES RECEIVABLE:
Notes receivable - related parties consists of the following:
1995 1994
-------- --------
Note receivable - shareholder,
is an informal, unsecured
agreement due on demand with
interest at 8% ................ $ 6,830 $ 57,604
Note receivable - shareholder,
is an informal, unsecured
agreement due on demand with
interest at 8% ................ 213,737 81,705
Accrued interest on the above . 16,547 8,741
-------- --------
Total shown as a current asset $237,114 $148,050
======== ========
Note receivable - shareholder,
is an unsecured note which
requires monthly interest only
payments at prime plus 1.5%
through 2005 when all principal
and interest is due; 1995 and
1994 include $16,000 in accrued
interest receivable ........... $216,000 $216,000
======== ========
Note receivable - employee consists of the following:
Promissory note from one employee;
payable weekly with interest at
8%; note matures in July 1999;
Upon termination, the note is
immediatly due and payable. $ 7,374 $ 9,222
Promissory note from one employee;
payable weekly with interest at
9.5%; note matures in June 2000;
secured by automobile. 10,895 -
-------- --------
18,269 9,222
Less current portion 9,440 1,810
-------- --------
$ 8,829 $ 7,412
======== ========
(3) NOTE PAYABLE - BANK:
Note payable - bank, consists of a revolving line of credit
agreement which provides for borrowings up to the lesser of $4,000,000
or 80% of acceptable receivables as defined, payable in full May 1,
1996 with interest at prime plus .5%. The interest rate as of December
31, 1995 was 8.75%. The note is collateralized by accounts receivable,
property and fixtures, and inventory, and is personally guaranteed by
the shareholders. The line of credit agreement contains certain
restrictive covenants regarding the financial position of the
Companies. The Companies were in compliance with respect to the
restrictive covenants as of December 31, 1995 and 1994.
F-72
<PAGE>
(4) NOTES PAYABLE - OTHER:
Notes payable - other consists of the following:
1995 1994
-------- --------
Unsecured note payable to an
individual, due on demand with
interest payable monthly at
prime plus 1.5%. $ - $ 3,346
Unsecured note payable to an
individual, due on demand with
interest payable monthly at
prime plus 1.5%. - 56,477
-------- --------
$ - $ 59,823
======== ========
A new agreement was entered at the end of 1995 with the party of
the first note mentioned above . The note is due on demand with
interest payable monthly at 11%. The balance on December 31, 1995 was
$38,183.
(5) LONG-TERM DEBT:
1995 1994
-------- --------
6.75% notes payable to Toyota Motor
Credit Corp; aggregate monthly payments
of $5,854, including interest;
original amount of $190,285 beginning
in January 1994; matures in January 1997;
secured by vehicles. $ 6,657 $ 136,163
Less current portion 6,657 62,978
-------- --------
$ - $ 73,185
======== ========
Eleven 1994 Toyota trucks were purchased in 1994 and were leased
individually to a large customer for $550 per month. In 1995, ten of
the vehicles were sold and the notes were paid off. The remaining note
was paid off in January 1996.
F-73
<PAGE>
(6) COMMITMENTS:
As of December 31, 1995, the Companies have the following
commitments for operating facilities, which are accounted for as
operating leases:
Approximate
Expiration base monthly
of lease rent
-------------- -----------
Plainview, New York Month-to-month $ 1,000
Tempe, Arizona January, 2000 4,380
Albuquerque, New Mexico October, 1996 1,185
Stamford, Connecticut Month-to-month 145
Greenville, S. Carolina June, 1996 419
Kennewick, Washington October, 1996 705
St. Louis, Missouri December, 1996 554
Carlsbad, New Mexico December, 1996 450
The Companies are responsible for property taxes, insurance and
maintenance on certain leases.
The Companies currently lease their office facilities in Tempe,
Arizona from one of the shareholders. The lease contains a five-year
renewal option. The rent on this office totalled $54,932 in 1995 and
$47,938 in 1994.
The following is a schedule by years of approximate future minimum
rental payments on operating leases. The leases in New York,
Connecticut, and Arizona are included through 2000:
Year ended
December 31,
------------
1996 $ 99,762
1997 66,300
1998 66,300
1999 66,300
2000 66,300
-------
$364,962
=======
Total rent expense was $98,822 for the year ended December 31,
1995, and $94,653 for 1994.
F-74
<PAGE>
(7) COMMON STOCK:
Common stock consists of the following:
1995 1994
------- -------
Common stock, RRA, no par;
authorized 200 shares;
issued and outstanding
100 shares ............. $19,558 $19,558
Common stock, DTS, $.01 par;
authorized 100 shares;
issued and outstanding
100 shares ............. 1 1
Common stock, PSST, $.01 par;
authorized 100 shares;
issued and outstanding
100 shares (see below) . 1 1
------- -------
$19,560 $19,560
======= =======
In July 1995, PSST redeemed Ray Rashkin's fifty shares upon his
resignation as president of the corporation. The shares were retired by
the corporation at fifty-percent of the net equity of the corporation
as of June 30, 1995.
This transaction had the effect of lowering the issued and
outstanding shares to fifty. Paid in capital of PSST was reduced by
$25,000. Ray Rashkin used the proceeds from the redemption as
additional paid in capital of RRA, Inc.
(8) MONEY PURCHASE PENSION PLAN:
On June 1, 1993, the Company adopted a pension plan that
contributes 10% to covered employees. This covered initially the
Phoenix based administrative group. In December, 1993, the plan was
amended to include employees at Lawrence Livermore National Laboratory
effective January 1, 1994. In 1995, the administrative group was
removed from the plan on January 1, and employees at Los Alamos were
included as of May 1. The accrual as of December 31, 1995 and 1994 was
$720,000 and $2855,287, respectively. Expense for 1995 and 1994 was
$911,339 and $269,913, respectively.
(9) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For purposes of the Statement of Cash Flows, management considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Bank overdrafts are included as a financing activity because of
their direct relation to line of credit funding.
Cash paid during the years ended
December 31, 1995 and 1994 was as follows:
1995 1994
---------- ----------
Interest $ 176,854 $ 163,210
========== ==========
F-75
<PAGE>
Noncash investing and financing activities
During 1994, the Washington and Texas offices were closed. Assets
with a book value of $2,067 were written off.
A financing arrangement for the purchase of trucks was
entered in 1994. Assets were capitalized and loans were obtained
totalling $190,285 in connection with this transaction.
Common stock and paid in capital for PSST were made in 1994
through adjustments to retained earnings and notes receivable from
related parties. In relation to this, the redemption of stock in 1995
for $25,000 was an adjustment to paid in capital and notes receivable
(see note 7).
In 1995, a truck owned by the company was purchased by an employee
for a note for $12,000. A truck was purchased by a shareholder as a
note receivable for $6829.
(10) LITIGATION, CLAIMS, AND ASSESSMENTS:
DTS complied with a client request to place a former client
employee on the DTS payroll for the purpose of providing payrolling
services. The individual was involved in an accident during his
employment which resulted in the death of the individual, reported
injuries to another individual, and damage to the client's property. A
claim has been made against DTS on the theory that the company is
vicariously liable for the individual's alleged negligence in the
accident.
The injured individual has filed a personal injury lawsuit against
DTS and the client. A recent settlement demand was made for $1.2
million. In addition, the client has informally requested that DTS
settle with it for the property damage that they approximate to be
$1.58 million.
DTS will vigorously defend the current lawsuit and any other legal
action that is taken against it in relation to this occurence.
Due to the facts described above, the amount of possible loss to
DTS cannot be reasonably estimated , although it is possible that a
loss may occur as a result of this legal action. Any potential loss has
not been recorded on the accompanying financial statements.
F-76
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED COST OF REVENUE
For the Years Ended December 31, 1995 and 1994
1995 1994
----------- -----------
Salaries ....................... $38,288,202 $28,451,365
Payroll Taxes .................. 3,335,931 2,493,840
Per Diem ....................... 1,524,415 714,387
Healthcare Benefits ............ 1,173,836 986,378
Other .......................... 57,894 199,329
Subcontractors ................. -- 19,975
Vacation and Holiday Pay ....... 2,276,145 2,231,270
Workman's Compensation Insurance 262,697 234,903
Pension Plan ................... 911,339 269,913
----------- -----------
$47,830,459 $35,601,360
=========== ===========
F-77
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED GENERAL AND ADMINISTRATIVE EXPENSES
For the Years Ended December 31, 1995 and 1994
1995 1994
---------- ----------
Salaries:
Officers .................... $ 462,217 $ 326,333
Office ...................... 897,526 619,640
Payroll Taxes .................... 97,141 72,113
Accounting ....................... 23,221 10,850
Advertising ...................... 85,984 37,844
Business Developments ............ 66,241 5,587
Commissions ...................... 85,279 42,150
Depreciation and Amortization .... 114,743 133,454
Insurance ........................ 129,973 105,860
Legal Fees ....................... 82,644 89,082
Licenses and Fees ................ 12,873 3,150
Miscellaneous .................... 59,997 124,164
Office Expense ................... 165,433 117,798
Outside Services ................. 159,348 147,220
Property Taxes ................... 11,221 2,430
Rent ............................. 104,968 96,010
Repairs and Maintenance .......... 25,242 9,821
Telephone ........................ 104,230 90,802
Travel and Subsistence ........... 287,473 237,242
Utilities ........................ 15,786 15,844
---------- ----------
$2,991,540 $2,287,394
========== ==========
F-78
<PAGE>
To The Shareholders
RRA, Inc., Datatech Technical Services, Inc.
and Project Staffing Support Team, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying combined balance sheets of RRA, Inc., Datatech
Technical Services, Inc., and Project Staffing Support Team, Inc. as of December
31, 1994 and 1993, and the related combined statements of income, changes in
shareholder's equity, and cash flows for the years then ended. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our 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 RRA, Inc., Datatech Technical
Services, Inc., and Project Staffing Support Team, Inc. as of December 31, 1994
and 1993, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic combined
financial statements taken as a whole. The information included in the
accompanying schedules is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
ALEXANDER & DEVOLEY, P.C.
Phoenix, Arizona
February 1, 1995
F-79
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED BALANCE SHEET
For the Years Ended December 31, 1994 and 1993
Assets
1994 1993
--------- ---------
CURRENT ASSETS:
Cash ...................................... $ 426,312 $ 39,449
Accounts receivable -
Trade, less allowance for doubtful
accounts of $10,000 in 1993 (Note 3) .... 3,434,704 2,423,705
Other accounts receivable ................. 10,411 17,294
Note receivable - employee, current
portion (Note 2) ........................ 1,810 --
Note receivable - related parties,
current portion (Note 2) ................ 148,050 130,205
Prepaid expenses .......................... 27,284 32,724
---------- ----------
Total current assets .................... 4,048,571 2,643,377
---------- ----------
PROPERTY AND EQUIPMENT (NOTE 1):
Office furniture and equipment ............ 346,395 283,571
Leasehold improvements .................... 114,435 92,552
Vehicles .................................. 215,330 2,300
---------- ----------
676,160 378,423
Less accumulated depreciation and
amortization ............................ 321,003 224,490
---------- ----------
355,157 153,933
---------- ----------
OTHER ASSETS:
Refundable deposits ....................... 50,396 25,069
Note receivable - employee, long-
term portion (Note 2) ................... 7,412 --
Note receivable - related parties,
long-term portion (Note 2) .............. 216,000 216,000
Deferred loan fee, less amortization
of $5,312 (Note 1) ...................... 2,188 --
Organizational costs, less accumulated
amortization of $9,841 in 1994 and
$6,560 in 1993 (Note 1) ................. 6,560 9,841
Client lists, less amortization of
$8,125 in 1994 and $1,623 in 1993
(Note 1) ................................ 11,375 17,877
---------- ----------
293,931 268,787
---------- ----------
$4,697,659 $3,066,097
========== ==========
See accompanying notes to financial statements.
F-80
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED BALANCE SHEET
For the Years Ended December 31, 1994 and 1993
LIABILITIES
1994 1993
--------- ---------
CURRENT LIABILITIES:
Bank overdraft ............................ $ 148,474 $ --
Accounts payable .......................... 42,572 18,808
Notes payable (Note 4) .................... 59,823 177,472
Note payable - bank (Note 3) .............. 1,200,000 1,241,660
Current portion of long-term debt ......... 62,978 --
Accrued expenses:
Wages, vacation, and holiday ............ 817,041 213,770
Payroll taxes and withholdings .......... 170,283 205,544
Gross receipts tax ...................... 64,565 57,128
Self insurance claims (Note 1) .......... 120,000 30,000
Interest ................................ 10,999 6,429
Pension plan contributions (Note 8) ..... 285,287 9,089
---------- ----------
Total current liabilities ................. 2,982,022 1,959,900
---------- ----------
LONG-TERM DEBT (NOTE 5): ........................... 73,185 --
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock (Note 7) ..................... 19,560 19,559
Additional paid-in capital ................ 387,863 325,264
Retained earnings ......................... 1,235,029 761,374
---------- ----------
1,642,452 1,106,197
---------- ----------
$4,697,659 $3,066,097
========== ==========
F-81
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED STATEMENT OF INCOME
For the Years Ended December 31, 1994 and 1993
1994 1993
------------ ------------
REVENUE .................................... $ 38,559,163 $ 25,016,730
COST OF REVENUE ............................ 35,601,360 23,313,171
------------ ------------
GROSS PROFIT ............................... 2,957,803 1,703,559
GENERAL AND ADMINISTRATIVE EXPENSES ........ 2,287,394 1,487,757
------------ ------------
INCOME FROM OPERATIONS ..................... 670,409 215,802
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense .................. (167,780) (133,311)
Interest income ................... 24,993 23,540
Loss on abandonment and
sale of fixed assets .......... (2,067) --
------------ ------------
(144,854) (109,771)
------------ ------------
NET INCOME ................................. $ 525,555 $ 106,031
============ ============
See accompanying notes to financial statements.
F-82
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 .. $ 19,559 $ 240,264 $ 662,843 $ 922,666
CONTRIBUTION TO CAPITAL ..... -- 85,000 -- 85,000
DISTRIBUTION TO SHAREHOLDER . -- -- (7,500) (7,500)
NET INCOME - 1993 ........... -- -- 106,031 106,031
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1993 .. 19,559 325,264 761,374 1,106,197
ISSUANCE OF 100 SHARES OF
COMMON STOCK (NOTE 7) . 1 -- -- 1
CONTRIBUTIONS TO CAPITAL .... -- 62,599 -- 62,599
DISTRIBUTIONS TO SHAREHOLDERS -- -- (51,900) (51,900)
NET INCOME - 1994 ........... -- -- 525,555 525,555
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 .. $ 19,560 $ 387,863 $ 1,235,029 $ 1,642,452
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-83
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1994 and 1993
1994 1993
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers ....... $ 37,544,620 $ 25,179,069
Cash paid to suppliers and employees (36,842,673) (24,664,840)
Interest paid ...................... (98,437) (137,683)
Interest received .................. 3,544 51
------------ ------------
NET CASH PROVIDED FROM OPERATING
ACTIVITIES ......................... 607,054 376,597
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............... (321,652) (55,553)
Net advances on related party loans (17,845) (115,820)
Net advances on employee loan ...... (9,222) --
Business list purchase ............. -- (19,500)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .... (348,719) (190,873)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft ..................... 148,474 --
Net payments under line of credit
agreements ....................... (41,660) (169,856)
Principal payments on notes payable-
other ............................ (117,649) (69,251)
Proceeds from stock issuance or
capital contributions ............ 62,600 85,000
Distributions to shareholders ...... (51,900) (7,500)
Proceeds from long-term debt ....... 190,285 --
Payments on long-term debt ......... (54,122) --
Payment of deferred loan fee ....... (7,500) --
------------ ------------
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES ............... 128,528 (161,607)
------------ ------------
NET INCREASE IN CASH ..................... 386,863 24,117
CASH AT BEGINNING OF YEAR ................ 39,449 15,332
------------ ------------
CASH AT END OF YEAR ...................... $ 426,312 $ 39,449
============ ============
See accompanying notes to financial statements.
F-84
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994 and 1993
1994 1993
------------ ------------
RECONCILIATION OF NET INCOME TO NET
CASH USED IN OPERATING ACTIVITIES:
NET INCOME .............................. $ 525,555 $ 106,031
----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED FROM OPERATING
ACTIVITIES:
Depreciation and amortization .. 128,142 57,819
Amortization of loan fee ....... 5,312 --
Loss on abandonment and sale of
fixed assets ................. 2,067 --
(Increase) decrease in accounts
receivable ................... (1,010,999) 162,339
Decrease in other receivables .. 6,883 7,220
(Increase) decrease in prepaid
expenses and deposits ........ (19,887) 72
(Increase) decrease in accounts
payable ...................... 23,764 (5,801)
Increase in accrued expenses ... 946,217 48,917
----------- -----------
Total adjustments .............. 81,499 270,566
----------- -----------
NET CASH PROVIDED FROM OPERATING
ACTIVITIES ........................ $ 607,054 $ 376,597
=========== ===========
See accompanying notes to financial statements.
F-85
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1994 and 1993
(1) SIGNIFICANT ACCOUNTING POLICIES:
Business organization
RRA, Inc. (RRA) was incorporated in 1964 under the laws of the
State of New York. Datatech Technical Services, Inc. (DTS) was
incorporated in 1991 under the laws of the State of Arizona and
commenced operations in 1992. Effective January 1, 1992, certain
customer accounts and property and equipment of RRA were transferred to
DTS in exchange for a down payment of $25,000 and a note for $150,000.
The terms of the note call for 10 equal annual payments to RRA from DTS
of $22,354 which includes principal and interest at 8%. The note
receivable and note payable have been eliminated in combination. DTS
charged RRA $225,350 in 1994 and $150,000 in 1993 for a management fee.
Any income or expense related to these transactions have been
eliminated in combination. The Companies remain under common management
and control. Ray Rashkin owns 100% of RRA. Stanley Rashkin owns 100% of
DTS.
Project Staffing support Team, Inc. (PSST) was incorporated under
the laws of the State of Arizona and commenced operations in 1994. PSST
is owned in equal shares by Ray Rashkin and Stanley Rashkin. PSST had
no revenue in 1994, and absorbed $41,327 in costs.
Principles of combination
These combined financial statements include the accounts of RRA,
DTS, and PSST. All significant intercompany transactions and balances
have been eliminated in combination.
Nature of business
The Companies provide highly trained individuals primarily to
large corporate customers that contract with various governmental
entities throughout the United States. The employees are provided on a
temporary or semi-permanent basis. The individuals are employees of the
Companies. The Companies maintain offices in Arizona, New York,
Connecticut and New Mexico.
The companies have two major contracts that are renewable. One of
the contracts started early in 1994. Management is confident these
contracts will continue. The largest of the two renewed for five years,
and the other contract was extended for the first option year to
January 1996.
F-86
<PAGE>
Property and equipment
Property and equipment are stated at cost. Depreciation is
provided using accelerated methods over the estimated useful lives of
the assets. Amortization of leasehold improvements is provided using
the straight-line method over the lesser of the lease term or the
estimated useful lives of the assets. Depreciation and amortization
expense was $118,362 and $52,914 in 1994 and 1993, respectively.
Organizational costs, client lists and deferred loan fees
Organizational costs for DTS are being amortized on a
straight-line basis over five years. Client lists purchased for $19,500
are being amortized over three years. Deferred loan fees are being
amortized over the term of the revolving line of credit agreement.
Concentration of risks
Periodically during the year, the Companies maintain cash in
financial institutions in excess of the amounts insured by the Federal
government.
Income taxes
The Companies have elected under applicable sections of the
Internal Revenue Code to be treated as "S" Corporations for income tax
purposes. Therefore, any income, loss and tax credits are reportable by
the shareholders on their individual income tax returns. In 1995, the
owners drew approximately $134,500 to pay the balance of estimated
taxes on the earnings from these entities. Certain states in which the
Companies do business do not recognize the "S" Corporation status or
they impose minimum taxes. State income taxes are more of a license
cost. They are included in administrative expenses in the accompanying
combined statement of income. DTS reports to the Internal Revenue
Service using the cash basis of accounting.
Employee benefit plan
The Companies maintain 401(k) plans and Section 125 cafeteria
plans for the benefit of their employees. Employees elect to withhold
specified amounts from their wages to contribute to the plans. The
Companies have a fiduciary responsibility with respect to the plans.
Estimated health self-insurance claims
The Companies maintain a self-insurance plan for those employees
who elect to participate. Under this plan, the Company is responsible
for paying claims up to $30,000 annually per individual and
approximately $300,000 in claims and premiums on a combined
company-wide basis. There are provisions for reinsurance in the plan.
The financial statements include an estimate for claims to be paid
under this policy.
F-87
<PAGE>
(2) NOTES RECEIVABLE:
Notes receivable - related parties consists of the following:
1994 1993
--------- ---------
Note receivable - shareholder,
is an informal, unsecured
agreement due on demand with
interest at 8% $ 57,604 $ 69,685
Note receivable - shareholder,
is an informal, unsecured
agreement due on demand with
interest at 8% 81,705 53,031
Accrued interest on the above 8,741 7,489
--------- ---------
Total shown as a current asset $ 148,050 $ 130,205
========= =========
Note receivable - shareholder,
is an unsecured note which requires
monthly interest only payments at
prime plus 1.5% through 2005 when
all principal and interest is due;
1994 and 1993 include $16,000 in
accrued interest receivable. $ 216,000 $ 216,000
========= =========
Note receivable - employee consists of the following:
1994 1993
--------- ---------
Promissory note from one employee;
payable weekly with interest at
8%; note matures in July 1999. $ 9,222 $ -
Less current portion 1,810 -
--------- ---------
$ 7,412 $ -
========= =========
(3) NOTE PAYABLE - BANK:
Note payable - bank, consists of a revolving line of credit
agreement which provides for borrowings up to the lesser of $3,000,000
or 80% of acceptable receivables as defined, payable in full May 1,
1995 with interest at prime plus .75%. The interest rate as of December
31, 1994 was 8.0%. The note is collateralized by accounts receivable,
property and fixtures, and inventory, and is personally guaranteed by
the shareholders. The line of credit agreement contains certain
restrictive covenants regarding the financial position of the
Companies. The Companies were in compliance with respect to the
restrictive covenants as of December 31, 1994.
F-88
<PAGE>
The agreement above replaced a similar agreement with another bank
that matured in April 1994. This agreement, which was in effect at
December 31, 1993, provided borrowings up to $2,000,000 with interest
at prime plus 2%. Collateral, guarantees, and covenants were virtually
the same as mentioned above.
(4) NOTES PAYABLE - OTHER:
Notes payable - other consists of the following:
1994 1993
--------- ---------
Unsecured note payable to an
individual, due on demand with
interest payable monthly at
prime plus 1.5%. $ 3,346 $ 49,995
Unsecured note payable to an
individual, due on demand with
interest payable monthly at
prime plus 1.5%. 56,477 127,477
--------- ---------
$ 59,823 $ 177,472
========= =========
(5) LONG-TERM DEBT:
1994 1993
--------- ---------
6.75% notes payable to Toyota Motor
Credit Corp; aggregate monthly
payments of $5,854, including interest;
original amount of $190,285 beginning
in January 1994; matures in January
1997; secured by vehicles. $ 136,163 $ -
Less current portion 62,978 -
--------- ---------
$ 73,185 $ -
========= =========
Principal maturities are as follows:
1995 $ 67,364
1996 5,821
1997 -
----------
$ 73,185
==========
Eleven 1994 Toyota trucks were purchased and have been leased
individually to a large customer for $550 per month.
F-89
<PAGE>
(6) COMMITMENTS:
As of December 31, 1994, the Companies have the following
commitments for operating facilities, which are accounted for as
operating leases:
Approximate
Expiration base monthly
of lease rent
-------------- ------------
Farmingdale, New York Month-to-month $ 1,700
Tempe, Arizona January, 1995 3,572
Albuquerque, New Mexico October, 1996 1,185
Stamford, Connecticut Month-to-month 320
The Companies are responsible for property taxes, insurance and
maintenance on certain leases.
The Companies currently lease their office facilities in Tempe,
Arizona from one of the shareholders. The lease contains two five-year
renewal options which the Company intends to execute. The rent on this
office totalled $47,938 in 1994 and $42,864 in 1993.
The following is a schedule by years of approximate future minimum
rental payments on operating leases. The leases in New York,
Connecticut, and Arizona are included through 1999:
Year ended
December 31,
------------
1995 $ 93,492
1996 91,122
1997 79,272
1998 79,272
1999 79,272
-------
$422,430
=======
Total rent expense was $89,059 for the year ended December 31,
1993, and $94,653 for 1994.
F-90
<PAGE>
(7) COMMON STOCK:
Common stock consists of the following:
1994 1993
-------- --------
Common stock, RRA, no par;
authorized 200 shares;
issued and outstanding
100 shares $ 19,558 $ 19,558
Common stock, DTS, $.01 par;
authorized 100 shares;
issued and outstanding
100 shares 1 1
Common stock, PSST, $.01 par;
authorized 100 shares;
issued and outstanding
100 shares 1 -
-------- --------
$ 19,560 $ 19,559
======== ========
(8) MONEY PURCHASE PENSION PLAN:
On June 1, 1993, the Company adopted a pension plan that
contributes 10% to covered employees. This covered initially the
Phoenix based administrative group. The accrual for 1993 was
approximately $9,000. In December, 1993, the plan was amended to
include employees at Lawrence Livermore National Laboratory effective
January 1, 1994. The Lawrence Livermore contract started on January 1,
1994. The accrual for 1994 was approximately $285,000. Expense for 1994
and 1993 was $269,913 and $9,089, respectively.
(9) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For purposes of the Statement of Cash Flows, management considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Cash paid during the years ended
December 31, 1994 and 1993 was as follows:
1994 1993
---------- ----------
Interest $ 98,437 $ 137,683
========== ==========
F-91
<PAGE>
Noncash investing and financing activities
During 1994, the Washington and Texas offices were closed. Assets
with a book value of $2,067 were written off.
A financing arrangement for the purchase of trucks was
entered in 1994. Assets were capitalized and loans were obtained
totalling $190,285 in connection with this transaction.
Common stock and paid in capital for PSST were made in 1994
through adjustments to retained earnings and notes receivable from
related parties.
F-92
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED COST OF REVENUE
For the Years Ended December 31, 1994 and 1993
1994 1993
----------- -----------
Salaries ................................... $28,451,365 $18,864,072
Payroll Taxes .............................. 2,493,840 1,642,875
Per Diem ................................... 714,387 878,097
Healthcare Benefits ........................ 986,378 348,047
Other ...................................... 199,329 197,129
Subcontractors ............................. 19,975 2,275
Vacation and Holiday Pay ................... 2,231,270 1,216,704
Workman's Compensation Insurance ........... 234,903 154,883
Pension Plan ............................... 269,913 9,089
----------- -----------
$35,601,360 $23,313,171
=========== ===========
F-93
<PAGE>
RRA, INC., DATATECH TECHNICAL SERVICES, INC.
AND PROJECT STAFFING SUPPORT TEAM, INC.
COMBINED GENERAL AND ADMINISTRATIVE EXPENSES
For the Years Ended December 31, 1994 and 1993
1994 1993
----------- -----------
Salaries:
Officers .............................. $ 326,333 $ 179,148
Office ................................ 619,640 468,159
Payroll Taxes .............................. 72,113 54,095
Accounting ................................. 10,850 26,991
Advertising ................................ 37,844 19,738
Business Developments ...................... 5,587 6,608
Commissions ................................ 42,150 27,763
Depreciation and Amortization .............. 128,142 57,819
Insurance .................................. 105,860 65,248
Legal Fees ................................. 89,082 45,291
Licenses and Fees .......................... 8,462 5,182
Miscellaneous .............................. 124,164 57,037
Office Expense ............................. 117,798 73,279
Outside Services ........................... 147,220 81,054
Property Taxes ............................. 2,430 1,855
Rent ....................................... 96,010 89,059
Repairs and Maintenance .................... 9,821 9,321
Telephone .................................. 90,802 82,997
Travel and Subsistence ..................... 237,242 124,032
Utilities .................................. 15,844 13,081
---------- ----------
$2,287,394 $1,487,757
========== ==========
F-94
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS 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. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
______________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary....................... 2
Risk Factors............................. 4
The Company.............................. 8
Selected Pro Forma
Financial Information............. 8
Management's Discussion and Analysis
of Financial Condition and
Results of Operation.............. 15
Description of Business.................. 19
Market Price of the Company's
Common Stock...................... 28
Dividend Policy.......................... 28
Description of the Company's Securities.. 29
Management............................... 31
Certain Transactions..................... 36
Discontinued Operations.................. 37
Principal Stockholders................... 40
Selling Stockholders..................... 44
Plan of Distribution..................... 50
Selected Historical Financial
Information....................... 51
Legal Matters............................ 52
Experts.................................. 53
Additional Information................... 53
Index to Financial Statements............ F-1
</TABLE>
----------------
UNTIL ________________, 199_, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
____________ SHARES
COMFORCE
CORPORATION
COMMON STOCK
____________________
PROSPECTUS
, 1996
____________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses estimated to be incurred (other than the fees of the
Commission which are actual) in connection with the offering, all of which
are payable by the Registrant, are as follows:
Description Amount
- -------------------------------------------------
SEC Registration Fee $ 43,712 *
Printing Costs 10,000 *
Legal Fees 40,000 *
Accounting Fees 20,000 *
Blue Sky Fees and Expenses 5,000 *
Miscellaneous 11,288 *
---------
Total $ 30,000 *
=========
----------
* Estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Bylaws effectively provide that the Registrant, to the
full extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 145"), shall
indemnify all directors and officers of the Company and may indemnify all
employees, representatives and other persons as permitted pursuant thereto.
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts
paid in settlements actually and reasonably incurred by them in connection
with any action, suit or proceeding brought by a third party if such
directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation
and, with respect to any criminal action or proceeding, had no reason to
believe their conduct was unlawful. In a derivative action, indemnification
may be made only for expenses actually and reasonably incurred by directors
and officers in connection with the defense or settlement of an action or
suit and only with respect to a matter as to which they shall have acted in
good faith and in a manner they reasonably believed to be in or not opposed
to the best interest of the corporation, except that no indemnification
shall be made if such person shall have been adjudged liable to the
corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the
defendant officers or directors are reasonably entitled to indemnity for
such expenses despite such adjudication of liability.
The Company has no present intention of entering into separate
indemnification agreements with its current directors, officers, or
employees but may do so in the future. It may also enter into contracts
with anyone else it is permitted to indemnify under Delaware law, but has
no present intention of doing so.
The Company maintains insurance against liabilities under the Securities
Act of 1933 for the benefit of its officers and directors.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions,
the Company 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 and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
There have been no sales of unregistered securities by the Registrant
within the past three years, except as follows. Unless specifically noted
otherwise, the securities were not registered under the Securities Act of
1933, as amended, in reliance upon the exemption from registration provided
by Section 4(2) of the Act. The factors that assured the availability of
that exemption for each such transaction included the sophistication of the
offerees and of the purchasers, their access to material information, the
disclosures actually made to them by the Registrant and the absence of any
general solicitation or advertising. Kwiatt, Silverman & Ruben, Ltd.
previously advised the Company as to the availability of exemptions in
certain cases.
1. On December 28, 1993, 5,532 shares of the common stock of the
Registrant were issued to Ross Llewelyn, Inc. in consideration of its
discharge of $32,500 owed by the Registrant to it.
2. The Registrant granted (i) to Nitsua, Ltd., a corporation wholly-
owned by Austin A. Iodice, then the Chairman, President and Chief Executive
Officer of the Registrant, an option to purchase 370,419 shares of the
Registrant's common stock, and (ii) to Anthony Giglio, then a consultant to
the Registrant, an option to purchase 185,209 shares of the Registrant's
common stock, in each case at an exercise price of $1.125 per share,
pursuant to written agreements with Messrs. Iodice and Giglio dated March
1993 whereby they agreed to provide management services to the Registrant
when it was engaged in its discontinued jewelry business and known as The
Lori Corporation. The options were delivered in February 1994 following
the approval of the Registrant's Long-Term Incentive Plan by its
stockholders in December 1993. Current management maintains that these
options have expired. Mr. Iodice and Mr. Giglio dispute this claim.
3. The Company, when operating as The Lori Corporation, did not have
sufficient funds available to repay $750,000 due to a bank lender on March
31, 1995. Accordingly, on March 31, 1995, Alex Verde, a director of the
Company, entered into an assignment agreement with the bank lender to
purchase this indebtedness for $750,000, and advanced an additional
$100,000 to the Company. In this connection, Mr. Verde and the Company
also entered into an agreement whereby he reduced this indebtedness to
$850,000 in consideration of the Company's issuance to him of 150,000
shares of its common stock valued at $337,500 ($2.25 per share) based upon
closing market value of the shares on March 30, 1995. This loan, which was
originally due July 31, 1995 (subsequently extended to September 15, 1995),
was repaid in February 1996 by ARTRA, which had assumed the obligation to
repay the loan under the terms of the Assumption Agreement. As
compensation for agreeing to extend the maturity date of the loan, Mr.
Verde received an additional 100,000 shares of the Company's Common Stock.
4. On June 7, 1995, the Registrant issued 11,765 shares of its common
stock to Manufacturers Indemnity and Insurance Co. of America and 5,882
shares of its common stock to each of Boeckman Investments, Matthew A. Gohd
and Dobbins Partners, L.P., in each case as additional consideration for
such persons agreeing to extend short-term loans to the Registrant.
5. On October 17, 1995, the Company agreed to issue 500,000 shares of
the Company's Common Stock as partial consideration for various fees and
guarantees associated with its acquisition of all of the capital stock of
COMFORCE Global. The 500,000 shares to be issued by the Company consisted
of (i) 100,000 shares to be issued to an unrelated party for guaranteeing
the payment of the purchase price to the seller, (ii) 100,000 shares to be
issued to ARTRA, then the majority stockholder of the Company, in
consideration of its guaranteeing the payment of the purchase price to the
seller and agreeing to enter into the Assumption Agreement, (iii) 150,000
to be issued to two unrelated parties for advisory services in connection
with the acquisition, and (iv) 150,000 shares to be issued to Peter
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R. Harvey, then a Vice President and director of the Company, for
guaranteeing the payment of the $6.4 million purchase price to the seller.
Current management has questioned its obligation to deliver the 150,000
shares to Peter R. Harvey and the 100,000 shares to ARTRA in consideration
of their guarantees. However, for purposes of preparing the Company's
earnings per share data for its financial statements, the Company is
recognizing these shares as being issued and outstanding pending resolution
of the disagreement among the parties. In addition, the Company issued
100,000 shares of the Company's Common Stock to ARTRA in exchange for all
of the Series C Preferred Stock of the Company then held by it (9,701
shares) in order to facilitate the COMFORCE Global acquisition.
6. On June 29, 1995, the Company entered into a letter agreement with
Michael Ferrentino, the President and a Director of the Company,
Christopher P. Franco, an Executive Vice President of the Company, and
James L. Paterek, a consultant to the Company, subsequently amended as of
October 6, 1995 (as amended, the "Letter Agreement"). Pursuant thereto, in
exchange for their agreement to manage the Company's entry into and
development of the telecommunications and computer technical staffing
business, the Company agreed to issue to Messrs. Ferrentino, Franco and
Paterek and Kevin W. Kiernan, Vice President of COMFORCE Global
(collectively, the "Designated Individuals"), such number of shares of
Common Stock equal to 35% of the total of the Company's then issued and
outstanding Common Stock together with additional shares issued and
warrants or options to purchase additional shares granted between October
6, 1995 and December 1, 1995 and to reserve for issuance to the Designated
Individuals and other employees of the Company options or warrants to
purchase 10% of the total of the Company's then issued and outstanding
Common Stock together with additional shares issued and warrants or options
to purchase additional shares granted between October 6, 1995 and December
1, 1995.
On October 6, 1995, 3,091,302 shares of the Company's Common Stock in the
aggregate were issued to the Designated Individuals and 796,782 additional
shares are to be issued under the anti-dilution provisions of the Letter
Agreement, all as follows:
Shares Issued Shares to be Issued Total
Shares
Michael Ferrentino 794,907 204,887 999,794
Christopher P. Franco 794,907 204,887 999,794
James L. Paterek 1,324,844 341,478 1,666,322
Kevin W. Kiernan 176,644 45,530 222,174
--------- ------- ---------
Total 3,091,302 796,782 3,888,084
7. From July 1995 to October 1995, the Company issued to various
creditors of the Company in consideration of extending credit to the
Company or in payment of interest or fees due to such creditors under
obligations of the Company (i) warrants to purchase 130,000 shares of the
Company at exercise prices ranging from $2.00 to $2.062 per share and (ii)
notes evidencing indebtedness aggregating $350,000 in original principal
amount convertible into Common Stock of the Company based on a price of
$2.00 per share.
8. In October and November 1995, the Company sold 1,946,667 shares of
its Common Stock in a private placement to certain accredited investors.
The shares were offered in units consisting of one share of Common Stock
and a detachable warrant to purchase one-half share of Common Stock
(973,333 shares in the aggregate) for a selling price of $3.00 per unit.
The gross proceeds from the offering were $5,840,000. The warrants have an
exercise price of $3.375 per share and are exercisable for a period of five
years from the date of grant commencing June 1, 1996 (except for certain
warrants which were subsequently amended to provide for immediate exercise,
as described in Item 9, below).
9. In April 1996, the Company amended the warrants held by Manufacturers
Indemnity and Insurance Company of America and Norman F. Siegel, both
unaffiliated stockholders, to purchase 285,000 shares and 16,667 shares,
respectively, of the Company's Common Stock at exercise prices ranging from
$2.125 to $3.375 per share to permit immediate exercise (in the case of
warrants to purchase 241,667 shares not immediately exercisable) and
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to provide for the issuance of one supplemental warrant at an exercise
price of $9.00 per share for each warrant exercised on or before April 12,
1996. Warrants to purchase all 301,667 shares were exercised in April 1996
for an aggregate exercise price of $943,000.
10. In April and May 1996, the Company sold 8,871 shares of its Series
E Convertible Preferred Stock in a private placement to certain accredited
investors. Of the shares offered, 8,470 were sold for $550.00 per share
and 401 shares were sold for $750.00. The gross proceeds of the offering
were $4,959,250. Under certain circumstances, each share of Series E
Convertible Preferred Stock is convertible into 100 shares of Common Stock.
11. In May 1996, the Company sold 7,002 shares of its Series D
Convertible Preferred Stock in a private placement to certain accredited
investors. The shares were sold for $1000.00 per share. The gross
proceeds of the offering were $7,002,000. Under certain circumstances,
each share of Series D Convertible Preferred Stock is convertible into
83.33 shares of Common Stock.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
3.1** Restated Certificate of Incorporation of the Company, as amended by
Certificates of Amendment filed with the Delaware Secretary of State
on June 14, 1987 and February 12, 1991.
3.2 Certificate of Ownership (Merger) of COMFORCE Corporation into the
Company (included as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference).
3.3** Bylaws of the Company, as amended and restated effective as of May
9, 1996.
3.4 Designation of Rights and Preferences of Series D Preferred Stock
(included as an exhibit to the Company's Amended Quarterly Report on
Form 10-Q/A for the quarter ended March 31, 1996 and incorporated
herein by reference).
3.5 Designation of Rights and Preferences of Series E Preferred Stock
(included as an exhibit to the Company's Amended Quarterly Report on
Form 10-Q/A for the quarter ended March 31, 1996 and incorporated
herein by reference).
5.1* Opinion of Doepken Keevican & Weiss.
10.1 Management Agreement dated as of April 9, 1993 between the Company
and Nitsua, Ltd. (a corporation wholly-owned by Austin Iodice,
formerly Lori's Chairman and Chief Executive Officer) (included as
an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992 and incorporated herein by reference).
10.2 Letter Agreement dated June 29, 1995, regarding employment or
consulting services among the Company, ARTRA Group Incorporated,
James L. Paterek, Michael Ferrentino and Christopher P. Franco
(included as an exhibit to the Company's Current Report on Form 8-K
dated September 11, 1995 and incorporated herein by reference).
10.3 Stock Purchase Agreement dated September 11, 1995 among Spectrum
Technologies, Inc., the Company, COMFORCE Corporation, ARTRA Group
Incorporated, Peter R. Harvey, Marc L. Werner, James L. Paterek,
Michael Ferrentino and Christopher P. Franco (included as an exhibit
to the Company's Current Report on Form 8-K dated September 11, 1995
and incorporated herein by reference).
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<PAGE>
10.4 Purchase Agreement among COMFORCE Global, Inc., Williams
Communications Services, Inc. and Bruce Anderson (included as an
exhibit to the Company's Current Report on Form 8-K dated March 13,
1996 and incorporated herein by reference).
10.5 Loan Agreement between COMFORCE Global, Inc. and Chase Manhattan
Bank (included as an exhibit to the Company's Current Report on Form
8-K dated March 13, 1996 and incorporated herein by reference).
10.6 Amendment dated October 6, 1995 of Letter Agreement dated June 29,
1995, regarding employment or consulting services among the Company,
ARTRA Group Incorporated, James L. Paterek, Michael Ferrentino and
Christopher P. Franco (included as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.7 Employment Agreement dated December 9, 1995 between the Company and
Michael Ferrentino (included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.8 Employment Agreement dated December 9, 1995 between the Company and
Christopher Franco (included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.9 Assumption Agreement dated October 17, 1995 between the Company and
ARTRA GROUP Incorporated respecting ARTRA's assumption of
substantially all of the Company's pre-existing liabilities
(included as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference).
10.10 Asset Purchase Agreement dated as of April 11, 1996 among Lawrence
Jewelry Corporation, ARTRA GROUP Incorporated, the Company and
Hanover Advisors, Inc. respecting the disposition of the assets of
the Company's Jewelry Business (included as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995 and incorporated herein by reference).
10.11 Stock Purchase Agreement effective as of May 13, 1996 among the
Company, COMFORCE Technical Services, Inc., Project Staffing Support
Team, Inc., Raphael Rashkin and Stanley Rashkin (included as an
exhibit to the Company's Amended Quarterly Report on Form 10-Q/A for
the quarter ended March 31, 1996 and incorporated herein by
reference).
10.12 Asset Purchase Agreement effective as of May 13, 1996 among the
Company, COMFORCE Technical Services, Inc., DataTech Technical
Services, Inc., Raphael Rashkin and Stanley Rashkin (included as an
exhibit to the Company's Amended Quarterly Report on Form 10-Q/A for
the quarter ended March 31, 1996 and incorporated herein by
reference).
10.13 Asset Purchase Agreement effective as of May 13, 1996 among the
Company, COMFORCE Technical Services, Inc., RRA, Inc., Raphael
Rashkin and Stanley Rashkin (included as an exhibit to the Company's
Amended Quarterly Report on Form 10-Q/A for the quarter ended March
31, 1996 and incorporated herein by reference).
10.14 Letter Agreement dated May 6, 1996 amending Asset Purchase Agreement
effective as of May 13, 1996 among the Company, COMFORCE Technical
Services, Inc., RRA, Inc., Raphael Rashkin and Stanley Rashkin
(included as an exhibit to the Company's Amended Quarterly Report on
Form 10-Q/A for the quarter ended March 31, 1996 and incorporated
herein by reference).
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<PAGE>
10.15 Letter Agreement dated April 19, 1996 among CTS Acquisition Co. I,
COMFORCE Technical Services, Inc., Project Staffing Support Team,
Inc. and RRA, Inc. (included as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
and incorporated herein by reference).
11.1 Computation of earnings per share and equivalent share of Common
Stock for the three years ended December 31, 1995 (included as an
exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference).
11.2 Computation of earnings per share and equivalent share of Common
Stock for the quarter ended March 31, 1996 (included as an exhibit
to the Company's Amended Quarterly Report on Form 10-Q/A for the
quarter ended March 31, 1996 and incorporated herein by reference).
21.1 List of Subsidiaries (included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
23.1* Consent of Doepken Keevican & Weiss.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Alexander & Devoley, P.C.
24.1** Powers of Attorney (included on page II-7 of Amendment No. 1 to the
Registration Statement).
99.1** Consent of Kwiatt, Silverman & Ruben, Ltd.
________________
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules. Set forth below is a list of the
Financial Statement Schedules included as a part of the Registration
Statement. Schedules not listed have been omitted because they are not
applicable or the required information has been included in the financial
statements or notes thereto.
II. Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
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<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant of expenses incurred or paid by a
director, officer or controlling person of the 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, the 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 Act and will be governed by the
final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be filed on its
behalf by the undersigned, thereupon duly authorized, in the City of Lake
Success, State of New York, on October 16, 1996.
COMFORCE Corporation
(Registrant)
By: /s/ Michael Ferrentino
----------------------------------
Michael Ferrentino,
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
President (Principal
/s/ Michael Ferrentino * Executive Officer) and
- ------------------------------- Director October 16, 1996
Michael Ferrentino
/s/ Andrew Reiben * Chief Financial Officer
- -------------------------------- (Principal Financial
Andrew Reiben and Accounting Officer) October 16, 1996
/s/ Richard Barber * Director October 16, 1996
- ---------------------------------
Richard Barber
/s/ Keith Goldberg * Director October 16, 1996
- ---------------------------------
Keith Goldberg
/s/ Glen Miller * Director October 16, 1996
- ---------------------------------
Glen Miller
* By: /s/ Christopher P. Franco
----------------------------------
Christopher P. Franco, as
Attorney-in-Fact
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<PAGE>
EXHIBIT INDEX
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Alexander & Devoley, P.C.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No.2 to registration statement on
Form S-1 (File No. 33-60403) of our report, dated April 15, 1996 on our audit of
the consolidated financial statements and financial statement schedules of
COMFORCE Corporation and Subsidiaries as of December 31, 1995 and 1994, and for
each of the three fiscal years in the period ended December 31, 1995. We also
consent to the inclusion in this Amendment No. 2 to Form S-1 of our report,
dated December 1, 1995 on our audit of the balance sheets of Comforce Global,
Inc. (formerly Spectrum Global Services, Inc.) as of September 30, 1995 and
December 31, 1994, and the related statements of operations and retained
earnings (accumulated deficit) and cash flows for the nine month period ended
September 30, 1995 and the year ended December 31, 1994, and the balance sheet
of Williams Communications Services, Inc. as of December 31, 1995 and the
related statements of operations and retained earnings and cash flows for the
year then ended December 31, 1995. We also consent to the reference to our firm
under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
October 17, 1996
<PAGE>
[LETTERHEAD OF ALEXANDER & DEVOLEY, P.C.]
EXHIBITS 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in this amendment No.2 to registration statement on
form S-1 (file no. 33-60403) of our reports, dated February 1, 1996 on our
audits of the consolidated financial statements and financial statement
schedules of RRA, INC. and subsidiaries as of December 31, 1995 and 1994, and
for each of the three fiscal years in the period ended December 31, 1995. We
also consent to the reference to our firm under the captions "Experts".
Alexander & Devoley, P.C.
/s/ Alexander & Devoley, P.C.
Phoenix Arizona
October 17, 1996
