SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
April 14, 1997 (February 28, 1997)
COMFORCE Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-6081 36-2262248
(Commission File Number) (I.R.S. Employer Identification No.)
2001 Marcus Avenue, Lake Success, NY 11042
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (516) 328-7300
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
As reported in the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 14, 1997, on February 28, 1997, the
Company, through a subsidiary, purchased all of the stock of RHO Company
Incorporated ("RHO"). The acquisition was completed under the terms of
definitive agreements entered into by the parties in November 1996. The
registrant hereby files this Form 8-K/A, Amendment No. 1 to its Form 8- K dated
March 14, 1997, to file the financial statements as required in accordance with
Item 7(a)(4) of Form 8-K and to file related pro forma financial information as
required in accordance with Item 7(b) of Form 8-K.
Terms of the acquisition, as proposed to be consummated pursuant to the
definitive agreements, were previously reported in a Current Report on Form 8-K
filed with the Commission on November 19, 1996, required financial and pro forma
financial statements for which, for the years ended December 31, 1994 and 1995
and the nine months ended September 30, 1996, were included in Amendment No. 1
on Form 8-K/A filed with the Commission on January 13, 1997, as amended by
Amendment No. 2 on Form 8-K/A filed with the Commission on February 3, 1997.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The following pro forma data is filed herewith: Balance sheets of RHO as of
December 31, 1995 and December 31, 1996 and the related statements of income,
changes in shareholders' deficit and cash flows for the years ended December 31,
1994, 1995 and 1996.
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Rho Company Incorporated:
We have audited the accompanying balance sheets of Rho Company Incorporated (a
Washington Corporation) as of December 31, 1995 and 1996, and the related
statements of income, changes in shareholders' deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rho Company Incorporated as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
January 24, 1997
3
<PAGE>
RHO COMPANY INCORPORATED
BALANCE SHEETS -- DECEMBER 31, 1995 AND 1996
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 412 $ 287
Restricted cash 705 1,133
Escrow deposit -- 500
Accounts receivable, less allowance for doubtful accounts of
$200 and $180, respectively 8,725 7,572
Prepaid expenses 167 155
-------- --------
Total current assets 10,009 9,647
-------- --------
FURNITURE AND EQUIPMENT, less accumulated depreciation of $1,065
and $1,007 513 575
-------- --------
OTHER ASSETS 132 51
-------- --------
Total assets $ 10,654 $ 10,273
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank $ 6,253 $ 6,223
Current portion of long-term debt, related party 130 396
Accounts payable 329 218
Wages payable 844 647
Payroll taxes and withholdings payable 1,167 630
Accrued interest 147 113
Accrued vacations, bonuses and other 605 625
-------- --------
Total current liabilities 9,475 8,852
-------- --------
LONG-TERM DEBT, RELATED PARTY 9,956 9,268
-------- --------
SHAREHOLDERS' EQUITY:
Common stock; $1.00 par value; authorized 50,000 and 1,000,000
shares, respectively, issued and outstanding 50,000 shares 50 50
Other capital -- 2,680
Deferred stock option charge -- (1,920)
Retained deficit (8,827) (8,657)
-------- --------
Total shareholders' equity (8,777) (7,847)
-------- --------
Total liabilities and shareholders' equity $ 10,654 $ 10,273
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE>
RHO COMPANY INCORPORATED
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollar amounts in thousands)
1994 1995 1996
------- ------- -------
REVENUES $76,170 $83,631 $85,746
COST OF OPERATIONS 69,157 74,978 76,457
------- ------- -------
Gross profit 7,013 8,653 9,289
GENERAL AND ADMINISTRATIVE EXPENSES 5,266 6,510 7,512
------- ------- -------
Income from operations 1,747 2,143 1,777
------- ------- -------
OTHER EXPENSES:
Stock option expense -- -- 260
Interest expense, net 1,435 1,643 1,317
------- ------- -------
Total other expenses 1,435 1,643 1,577
------- ------- -------
Net income $ 312 $ 500 $ 200
======= ======= =======
The accompanying notes are an integral part of these statements.
5
<PAGE>
RHO COMPANY INCORPORATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Deferred
Stock Total
Common Other Option Retained Shareholders'
Stock Capital Charge Deficit Deficit
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ 50 $ -- $ -- $(9,534) $(9,484)
Net income -- -- -- 312 312
------- ------- ------- ------- -------
BALANCE, December 31, 1994 50 -- -- (9,222) (9,172)
Net income -- -- -- 500 500
Dividends paid -- -- -- (105) (105)
------- ------- ------- ------- -------
BALANCE, December 31, 1995 50 -- -- (8,827) (8,777)
Net income -- -- -- 200 200
Dividends paid -- -- -- (30) (30)
Stock option granted -- 2,180 (2,180) -- --
Amortization of deferred
stock option charge -- -- 260 -- 260
Treasury stock subscribed -- (567) -- -- (567)
Common stock subscribed -- 1,067 -- -- 1,067
------- ------- ------- ------- -------
BALANCE, December 31, 1996 $ 50 $ 2,680 $(1,920) $(8,657) $(7,847)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
RHO COMPANY INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Dollar amounts in thousands)
1994 1995 1996
------- ------- -------
OPERATING ACTIVITIES:
Net income $ 312 $ 500 $ 200
Depreciation 196 223 268
Amortization of intangible assets 4 4 35
Loss on retirement of furniture and fixtures -- 17 4
Deferred income taxes (37) -- --
Stock option expense -- -- 260
Net change in current assets and liabilities-
Accounts receivable and other (1,559) (1,778) 1,153
Prepaid expenses 214 (70) 12
Accounts payable 60 200 (111)
Wages payable 139 9 (197)
Payroll taxes and withholdings payable 72 296 (537)
Accrued interest 40 15 (34)
Accrued vacations, bonuses and other (56) 110 20
------- ------- -------
Cash flows from operating activities (615) (474) 1,073
------- ------- -------
INVESTING ACTIVITIES:
Purchase of furniture and equipment (136) (334) (334)
Decrease (increase) in other assets (8) (24) 46
------- ------- -------
Cash flows from investing activities (144) (358) (288)
------- ------- -------
FINANCING ACTIVITIES:
Increase in restricted cash (591) (35) (428)
(Decrease) increase in bank borrowings 1,482 1,302 (30)
Borrowings of long-term debt 114 168 --
Repayments of long-term debt (270) (266) (422)
Dividends paid -- (105) (30)
------- ------- -------
Cash flows from financing activities 735 1,064 (910)
------- ------- -------
(DECREASE) INCREASE IN CASH (24) 232 (125)
CASH, beginning of year 204 180 412
------- ------- -------
CASH, end of year $ 180 $ 412 $ 287
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 1,395 $ 1,628 $ 1,351
Income taxes 8 8 43
The accompanying notes are an integral part of these statements.
7
<PAGE>
RHO COMPANY INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Dollar amounts in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business
The Company markets the services of temporary technical and clerical people to
various industries located primarily in the states of Washington and California.
Furniture and Equipment
Furniture and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided using the straight-line and accelerated methods over
expected useful lives of three to seven years.
Income Taxes
The Company has elected S-corporation status for reporting taxable income. Any
income or loss from the corporation is reportable on the personal returns of the
stockholders.
Use of 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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates and those
differences could be significant.
Reclassifications
Certain reclassifications have been made to the prior year statements to conform
to the current year format.
2. RESTRICTED CASH:
Collections of accounts receivable are deposited in a restricted collateral
account used for repayment of advances under the Company's bank line of credit.
The balance in the collateral account at December 31, 1995 and 1996 was $705 and
$1,133, respectively, shown in the accompanying balance sheets. The remaining
cash balance is unrestricted.
8
<PAGE>
3. NOTE PAYABLE - BANK:
The Company has available a line of credit for up to $7.5 million in borrowings,
bearing interest at the bank's prime rate plus .875% (9.125% at December 31,
1996), collateralized by accounts receivable. The line of credit is limited to
75% of eligible accounts receivable and requires collections to be deposited in
a restricted collateral account. The outstanding balance on the line of credit
was $6,223 at December 31, 1996. The loan agreement contains various covenants,
including minimum levels of working capital and net worth. The loan agreement
expires June 15, 1997. Although there can be no assurance, the Company
anticipates it will be able to renew the line of credit. If it were not able to
renew the line of credit or obtain other acceptable financing, it then could
have adverse consequences, including possible cessation of operations.
4. LONG-TERM DEBT:
Long-term debt as of December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Subordinated notes payable to former stockholder in monthly installments equal
to 55% of average monthly net income, as defined, or $50, whichever is
greater, with total minimum payments of $195 per quarter, including interest
at 6.6% (10.5% prior to January 1, 1996), collateralized by a stock pledge
agreement with shareholders of Rho Company Incorporated $ 6,882 $ 6,531
Subordinated note payable to former stockholder, 9.125%, collateralized by
accounts receivable, subordinate to the bank line of credit. Due on demand,
but stockholder does not intend to call the note before January 1, 1998 1,548 1,548
Subordinated note payable to stockholder, 9.125%, collateralized by
accounts receivable, subordinate to the bank line of credit
Due on demand, but stockholder does not intend to call the note
before January 1, 1998 1,369 1,369
Subordinated note payable to stockholder, 9.125%, collateralized by
accounts receivable, subordinate to the bank line of credit
Due on demand, but stockholder does not intend to call the note
before January 1, 1998 178 178
Other 109 38
-------- --------
10,086 9,664
Less- Current portion (130) (396)
-------- --------
$ 9,956 $ 9,268
======== ========
</TABLE>
All of the notes payable agreements are with related parties. Total interest
expense related to these notes was $987, $1,038 and $744 for the years ended
December 31, 1994, 1995 and 1996.
9
<PAGE>
Effective as of January 1, 1996, the Company's 10.5% subordinated notes were
modified to provide for a new interest rate of 6.6% and for accelerated payments
based on net income. The noteholder was granted an option to purchase up to 25%
of the Company's common stock (after giving effect to the exercise of the
option) at a price based on a formula. The noteholder has the right to use the
interest calculated using the difference between the old interest rate and the
new lower interest rate as a credit toward the option price. The Company has
valued the option using the fair value method. The option was valued at $2,180
based on the present value of the foregone interest payments under the modified
note agreement. This amount is being amortized using the effective interest
method over the life of the note payable.
Debt maturities on these notes are as follows:
1997 $ 396
1998 3,478
1999 409
2000 436
2001 466
Thereafter 4,479
------
$9,664
======
5. LEASE COMMITMENTS:
The Company leases office and storage space and equipment under noncancelable
operating leases. Future minimum rentals are as follows:
Year ending December 31,
------------------------
1997 $ 608
1998 547
1999 389
2000 337
2001 99
------
$1,980
======
Rental expense under operating leases totaled $316, $457 and $659 for the years
ended December 31, 1994, 1995 and 1996, respectively.
6. COMMITMENTS:
The Company has covenant not-to-compete agreements with the former stockholders
of an acquired/merged company. Payments under the agreements are the greater of:
(a) $50 per year for five years; or (b) 8% of the gross margin (defined as gross
billings minus temporary employee wages) generated by the merged company's
clients.
The minimum future payment under these covenant not-to-compete agreements is $50
for the year ending December 31, 1997.
The Company expensed $236, $167 and $118 under these agreements for the years
ended December 31, 1994, 1995 and 1996, respectively.
10
<PAGE>
7. EMPLOYEE BENEFIT PLAN:
The Company has a qualified 401(k) profit sharing plan covering eligible
employees. The plan provides for contributions by the Company without regard to
current or accumulated earnings at the discretion of the Board of Directors. The
Company did not make any matching contributions to the plan for the years ended
December 31, 1994 and 1995. Matching contributions totaling $44 were made during
the year ended December 31, 1996.
8. MAJOR CUSTOMERS:
During the year ended December 31, 1996, the Company had two customers with
sales greater than 10% of the Company's revenues. Contracts with one customer in
the software industry accounted for approximately $22,600, $29,000 and $26,100,
of the Company's sales for the years ended December 31, 1994, 1995 and 1996,
respectively. As of December 31, 1995 and 1996, this customer's accounts
receivable balance was $1,540 and $680, respectively. Contracts with one
customer in the aerospace industry accounted for approximately $12,800 of the
Company's sales for the year ended December 31, 1996. As of December 31, 1996,
this customer's accounts receivable balance was $1,484. Contracts with these two
customers can be terminated at any time with 30 days' notice.
9. PRIOR PERIOD ADJUSTMENT:
During 1995, the Company began accruing for vacations earned but unpaid to its
permanent employees and the portion of bonuses earned but unpaid to its contract
employees. The effect of this correction on the prior year financial statements
was as follows:
Net income, year ended December 31, 1994, as
previously reported $ 364
Less: Adjustment for correction of error (52)
-------
Net income, year ended December 31, 1994, as restated $ 312
=======
Retained deficit, as previously reported for
December 31, 1993 $(9,221)
Less: Adjustment for correction of error (313)
-------
Retained deficit, as restated for December 31, 1993 $(9,534)
=======
10. CONTINGENCIES:
The Company is the defendant in litigation with a previous insurer regarding a
settlement paid by the insurer which the insurer alleges should be indemnified
by the Company in the amount of approximately $1.6 million. The Company is
vigorously defending the lawsuit and management, in consultation with legal
counsel, believes it is more likely than not that the Company will prevail. In
November 1996, the Court granted a motion for summary judgment to dismiss the
case in favor of the Company. The plaintiff may still appeal the decision.
11
<PAGE>
11. PURCHASE AGREEMENT:
The stockholders of the Company have signed a definitive purchase agreement
whereby the Company will repurchase their shares concurrent with issuing shares
to COMFORCE Corporation. COMFORCE would then own all of the outstanding shares
of the Company. As part of this agreement, COMFORCE has advanced, on behalf of
the Company, $567 to a shareholder as a prepayment for the purchase of his
shares, which represent 1/3 of the outstanding shares of the Company. This
amount represents treasury stock subscribed and is shown as a reduction of
shareholders' equity. COMFORCE has also placed $500 in an earnest money escrow
account. In the event the stock purchase agreement fails to close as a result of
a breach of or material representative by the Company, the Company would be
required to return the entire $1,067 to COMFORCE, which was advanced as common
stock subscribed.
12
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
The following pro forma data is filed herewith: Pro forma balance sheet as
of December 31, 1996 and Pro forma statements of operations for the years ended
December 31, 1994, 1995 and 1996.
The October 1995 acquisition of COMFORCE Telecom, Inc. ("COMFORCE Telecom")
marked the Company's entry into the technical staffing business, followed by the
acquisition of six additional technical staffing businesses through February
1997. Following is a summary of these acquisitions:
<TABLE>
<CAPTION>
Year Acquisition Current
Acquired Company Founded Date Offices Headquarters Market Served
---------------- ------- ---- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
COMFORCE Telecom 1987 October 1995 5 Lake Success, Telecommunications
NY
Williams 1991 March 1996 1 Englewood, Telecommunications
Communications FL
Services, Inc.
("Williams")
RRA, Inc., Project 1964 May 1996 8 Tempe, AZ Technical Services
Staffing Support Team,
Inc. and DataTech
Technical Services, Inc.
(collectively, "RRA")
Force Five, Inc. 1993 August 1996 4 Dallas, TX Information Technology
("Force Five")
AZATAR Computer 1980 November 2 Rochester, Information Technology
Systems, Inc. 1996 NY
("AZATAR")
Continental Field 1965 November 2 Elmsford, NY Telecommunications
Service Corporation and 1996
Progressive Telecom,
Inc. (collectively,
"Continental")
RHO Company 1971 February 1997 9 Redmond, Technical Services and
Incorporated ("RHO") WA Information Technology
</TABLE>
The following unaudited pro forma financial statements reflect (i) the
treatment of the operation of the Company's jewelry business prior to September
1995 as a discontinued operation and (ii) the acquisitions of businesses
operating in the staffing industry, including COMFORCE Telecom in 1995,
Williams, RRA, Force Five, Continental and AZATAR in 1996, and RHO in 1997, as
if such acquisitions had occurred on January 1, 1994 (other than the unaudited
pro forma balance sheet at December 31, 1996, which has been prepared as if RHO
was consummated as of such date). All acquisitions have been accounted for by
the purchase method. Prior to its
13
<PAGE>
acquisition by the Company, each of these acquired businesses operated as a
separate independent entity. Since the unaudited pro forma financial statements
set forth below show the combined financial condition and operating results of
these recently acquired businesses during periods when they were not under
common control or management, the information presented may not be indicative of
the results which would have actually been obtained had such acquisitions been
completed on the dates indicated, or of the Company's future financial or
operating results.
The pro forma financial information is being presented to show the effect
of all such acquisitions since the presentation of pro forma information as to
RHO alone would not be meaningful.
14
<PAGE>
Unaudited Proforma Balance Sheet
As of December 31, 1996
<TABLE>
<CAPTION>
COMFORCE Pro Forma Consolidation
CORP. RHO Adjustments(1) Pro Forma
----- --- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 3,608 1,920 3,320 B 8,848
Accounts Receivable 12,042 7,572 -- 19,614
Other Assets 373 -- -- 373
Deferred Tax Asset 278 -- -- 278
Prepaid Expenses 243 155 -- 398
------- ------- ------- -------
Total Current Assets 16,544 9,647 3,320 29,511
------- ------- ------- -------
Property, Plant & Equipment 890 1,582 -- 2,472
Accumulated Depreciation (146) (1,007) -- (1,153)
Total Prop., Plant & Equipment 744 575 -- 1,319
Intangible assets net 24,756 -- 12,937 C 37,693
Other Assets 1,322 51 1,373
------- ------- ------- -------
TOTAL ASSETS 43,366 10,273 16,257 69,896
======= ======= ======= =======
LIABILITIES & EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts Payable 1,398 218 -- 1,616
Income Tax Accrual 354 -- -- 354
Accrued Expenses 2,930 625 -- 3,555
Wages Payable -- 647 -- --
Accrued interest -- 113 (113) A --
Revolving Bank Line 3,850 6,223 (3,850) B 6,223
Debt financing -- -- 25,200 B 25,200
Current portion long-term debt -- 396 (396) A --
Payroll Taxes Liabilities -- 630 -- 630
------- ------- ------- -------
Total Current Liabilities 8,532 8,852 20,841 38,225
------- ------- ------- -------
Deferred income tax 90 -- -- 90
Long-Term debt -- 9,268 (9,268) A --
EQUITY
Capital Stock 127 50 (50) A 127
Series D Pfd Stock 1 -- -- 1
Series F Pfd Stock 1 -- (1) B --
Paid-in-Capital 34,253 2,680 (5,842) D 31,091
Deferred stock option charge -- (1,920) 1,920 A --
Retained Earnings -- (8,657) 8,657 A --
Retained Earnings since January 1, 1996 362 -- -- 362
------- ------- ------- -------
Total Equity 34,744 (7,847) 4,684 31,581
------- ------- ------- -------
TOTAL LIABILITIES & EQUITY 43,366 10,273 16,257 69,896
======= ======= ======= =======
</TABLE>
15
<PAGE>
COMFORCE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (2)
<TABLE>
<CAPTION>
Pro Forma
COMFORCE FORCE Adjust-
Corporation Williams RRA FIVE RHO AZATAR Continental ments(3) Pro Forma
----------- -------- ----- ----- --- ------ ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $55,867 $657 $22,799 $4,598 $85,746 $6,403 $8,368 $184,438
Cost of revenues 47,574 499 20,959 3,454 76,457 5,054 7,017 61,014
------- ---- ------- ------ ------- ------ ------ ------- --------
Gross Profit 8,293 158 1,840 1,144 9,289 1,349 1,351 23,424
Operating Expenses:
Selling, general
and administrative 5,340 64 1,375 1,274 7,215 612 898 16,778
Depreciation and amortization 541 1 34 14 297 28 13 $609 1,537
------- ---- ------- ------- ------- ------ ------ ------- --------
Income (loss) from operations 2,412 93 431 (144) 1,777 709 440 (609) 5,109
Other (income) expense:
Other (41) 260 (54) (25) 140
Interest 201 34 7 1,317 29 5 551 2,144
-------- ---- ------- -------- ------- ------ ------ -------- --------
160 34 7 1,577 (25) (20) 551 2,284
-------- ---- ------- -------- ------- ------ ------ -------- --------
Income (loss) before
income taxes 2,252 93 397 (151) 200 734 460 (1,160) 2,825
Provision (credit) for
income taxes 900 39 (49) 301 246 1,437
------- ---- ------- ------- ------- ------ ------ ------- --------
Net income (loss) 1,352 $54 $397 $(102) $172 $433 $460 $(1,406) 1,360
==== ======= ======= ======= ====== ====== =======
Less dividends on preferred
stock (325) (468)(7)
------- -------
Income available for
common stock before accretive
dividend on series F 1,027 892
Accretive Dividend (665) (665)
------- -------
Income available for
common stock $362 $227
======= =======
Income per share $0.03 $0.02
======= =======
Weighted average shares
outstanding and common
stock equivalents 12,991 13,378(6)
======= =======
</TABLE>
See notes to unaudited pro forma financial statements.
16
<PAGE>
COMFORCE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 (2)
<TABLE>
<CAPTION>
COMFORCE COMFORCE
Corporation Telecom Williams RRA FORCE FIVE
----------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,387 $9,007 $4,178 $52,011 $7,067
Cost of revenues 1,818 6,765 3,022 47,830 5,287
------- ------ ------ ------- ------
Gross profit 569 2,242 1,156 4,181 1,780
Operating expenses:
Selling, general and
administrative 765 1,017 449 2,877 1,373
Depreciation and amortization 58 142 1 115 19
Non-recurring expenses:
Stock compensation 3,425(4)
Management fees to former
parent company 1,140(5)
------- ------ ------ ------- ------
Income (loss) from operations (3,679) (57) 706 1,189 388
Other (income) expenses:
Other 33 (7) (42) (36)
Interest 585 175 48
------- ------ ------ ------- ------
618 (7) -- 133 12
------- ------ ------ ------- ------
Income (loss) before
income taxes (4,297) (50) 706 1,056 376
Provision (credit) for
income taxes 15 354 -- 120
------- ------ ------ ------- ------
Net income (loss) 35 $(65) $352 $1,056 $256
------- ====== ====== ======= ======
$(4,332)
Dividends on preferred stock
Income available for common stock $(4,332)
=======
Loss per share $ (0.95)
=======
Weighted average shares outstanding 4,596
=======
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Adjust-
RHO AZATAR Continental ments(3) Pro Forma
----- ------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $83,631 $7,071 $9,850 $175,202
Cost of revenues 74,978 5,578 8,215 153,493
------- ------ ------ ------- --------
Gross profit 8,653 1,493 1,635 21,709
Operating expenses:
Selling, general and
administrative 6,283 571 1,126 14,461
Depreciation and amortization 227 28 39 989 1,618
Non-recurring expenses:
Stock compensation 3,425
Management fees to former
parent company 1,140
------- ------ ------ ------- --------
Income (loss) from operations 2,143 894 470 (989) 1,065
Other (income) expenses:
Other (44) (80) (176)
Interest 1,643 40 60 179 2,730
------- ------ ------ ------- --------
1,643 (4) (20) 179 2,554
------- ------ ------ ------- --------
Income (loss) before
income taxes 500 898 490 (1,168) (1,489)
Provision (credit) for
income taxes -- 363 -- (54) 833
------- ------ ------ ------- --------
Net income (loss) $500 $535 $490 $(1,114) 2,322
======= ====== ====== =======
Dividends on preferred stock (197)(7)
Income available for common stock --------
2,529
========
Loss per share $(0.26)
========
Weighted average shares outstanding 9,876(6)
========
</TABLE>
See notes to unaudited pro forma inancial statements.
17
<PAGE>
COMFORCE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994 (2)
<TABLE>
<CAPTION>
COMFORCE COMFORCE
Corporation Telecom Williams RRA FORCE FIVE
----------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $8,245 $2,930 $38,559 $3,234
Cost of revenues 6,417 2,107 35,601 2,485
------ ------ ------- ------
Gross profit 1,828 823 2,958 749
Operating expenses:
Selling, general and administrative 966 959 582 2,156 625
Depreciation and amortization 175 15 133 5
Non-recurring charges:
Management fees to former parent company 803(4)
------- ------ ------ ------- ------
Income (loss) from operations (966) (109) 226 669 119
Other (income) expense (9) (25)
Interest expense 1,316 26 168 16
------- ------ ------ ------- ------
1,316 (9) 26 143 16
------- ------ ------ ------- ------
Income (loss) before income taxes (2,282) (100) 200 526 103
Provision (credit) for income taxes 15 78 -- 48
------- ------ ------ ------- ------
Net Income (loss) (2,282) $ (115) $122 $526 $55
====== ====== ======= ======
Dividends on preferred stock --
Dividends on common stock equivalents --
-------
$(2,282)
=======
Income (loss) per share operations $ (0.72)
=======
Weighted average shares outstanding 3,195
=======
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro
RHO AZATAR Continental Adjustments(3) Forma
------- ------- ----------- -------------- --------
<S> <C> <C> <C> <C> <C>
Revenues $76,170 $4,923 $8,386 $142,447
Cost of revenues 69,157 3,982 7,181 126,930
------- ------- ------- --------
Gross profit 7,013 941 1,205 15,517
Operating expenses:
Selling, general and administrative 5,066 423 1,347 12,124
Depreciation and amortization 200 24 74 967 1,593
Non-recurring charges:
Management fees to former parent company 803
------- ------- ------- ------- --------
Income (loss) from operations 1,747 494 (216) (967) 997
Other (income) expense (20) (74) (128)
Interest expense 1,435 39 3 460 3,463
------- ------- ------- ------- --------
1,435 19 (71) 460 3,335
------- ------- ------- ------- --------
Income (loss) before income taxes 312 475 (145) (1,427) (2,338)
Provision (credit) for income taxes -- 242 -- (383) --
------- ------- ------- ------- --------
Net Income (loss) $312 $233 $(145) $(1,044) $(2,338)
======= ======= ======= =======
Dividends on preferred stock (197)(7)
Dividends on common stock equivalents --
--------
$ (2,535)
========
Income (loss) per share operations $ (0.26)
========
Weighted average shares outstanding 9,615(6)
========
</TABLE>
See notes to unaudited pro forma financial statements.
18
<PAGE>
COMFORCE Corporation
Notes to Unaudited Pro Forma Financial Statements
(1) The pro forma adjustments of the unaudited pro forma balance sheet consist
of:
(A) Record acquisition of RHO and related entries and the elimination of
RHO liabilities not purchased or assumed. (B) Record proceeds from the debt
financing of $25,200,000, less payments for the purchase of RHO of
$14,800,000, and less the redemption of 2,750 shares of Series F Preferred
Stock for $3,162,000. The debt financing bears interest at 8% per annum and
requires additional redemption premiums ranging from 2.5% to 25% based
upon, among other factors, the timing of the redemptions, which premiums
are not reflected in the unaudited pro forma data presented. (C) Record the
purchase price of RHO over the net assets acquired over intangibles,
primarily goodwill. (D) Record the transactions described in (A) and (B)
above.
(2) The unaudited pro forma statements of operations include the statements of
operations for the companies listed for the periods prior to their
acquisition by COMFORCE Corporation. The unaudited pro forma statement of
operations for the year ended December 31, 1996, presents the financial
statements of COMFORCE and RHO for their respective 1996 fiscal years and
the results of operations for companies acquired during the year ended
December 31, 1996 as follows: Williams (January 1 through March 3, 1996),
RRA, Inc. ("RRA") (January 1 through May 10, 1996) and Force Five (January
1 through July 31, 1996), Continental (January 1 through November 8, 1996),
AZATAR (December 1, 1995 through September 30, 1996). The financial
statements for the year ended December 31, 1995 includes the annual 1995
results of operation of each entity, except for COMFORCE Telecom which
reflects results of operations for the period January 1 through September
30, 1995, prior to its acquisition on October 16, 1995. The financial
statements for all companies for the year ended December 31, 1994 present
the twelve month results of operations of the respective companies. All
periods presented exclude the revenues and expenses related to the jewelry
business of COMFORCE which was discontinued in September 1995. The pro
forma results of operations are presented as if these companies were
acquired on January 1, 1994 and do not purport to be an indication of the
results of operation had these acquisitions been made as of that date or of
results which may occur in the future.
19
<PAGE>
(3) Pro forma adjustments include the following:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------------------
1996 1995 1994
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Additional amortization of intangibles (a) (609) (989) (967)
(Increase) decrease in interest expense (b) (551) (179) (460)
(Increase) decrease in provision for income taxes (c) (246) 54 383
-------- ------- -------
Total pro forma adjustments $(1,406) $(1,114) $(1,044)
</TABLE>
(a) Amortization of intangibles assumes all of the acquisitions and
proposed acquisitions occurred on January 1, 1994. The table below
reflects the amortization of intangibles with lives ranging from 5 to
40 years:
Year ended
December 31,
---------------------------------
1996 1995 1994
----- ----- -----
(In thousands)
Pro forma amortization
Telecom $243 $243 $243
Williams 52 52 52
RRA 164 164 164
Force Five 52 52 52
Continental 125 125 125
AZATAR 129 129 129
RHO 370 370 370
Less: historical amortization (526) (146) (168)
----- ----- -----
Pro forma adjustment $ 609 $ 989 $ 967
===== ===== =====
(b) Interest expense relates to the elimination of interest expense on
notes and other liabilities assumed by ARTRA GROUP Incorporated
totaling $410,000 for September and December 1995, the elimination of
interest expense on debt due to RHO shareholders which was not
assumed, interest expense on the $15,000,000 debt financing for RHO at
an interest rate of 8%, interest expense on the line of credit used to
purchase Williams and Force Five (assuming all $3,350,000 was
outstanding for 1994 and 1995 at an interest rate of 8.5%) and
interest expense for 1996 on the line of credit used to purchase
Williams and Force Five (assuming that $3,350,000 was outstanding from
January 1, 1996 to March 3, 1996 and $1,450,000 was outstanding from
March 3, 1996 to July 31, 1996). The interest expense eliminated in
1995 was for interest and notes directly related to The Lori
Corporation
20
<PAGE>
activities and was incurred in 1996. The Company has raised
$25,162,500 through the private placement of debt instruments bearing
interest at 8% per annum. Such private placement of debt will require
additional redemption premiums ranging from 2.5% to 25% based upon,
among other factors, the timing of the redemptions, which premiums are
not reflected in the unaudited pro forma data presented.
(c) The proforma adjustment for income taxes reflects the tax effect of
the proforma adjustment (excluding non-deductible amortization), the
tax effect of S Corporation earnings treated as C Corporation earnings
and the tax benefit of losses by other entities within the pro forma
combined group.
(4) Represents a non-recurring compensation charge related to the issuance of
the 35% common stock interest in the Company to certain individuals to
manage the Company's entry into, and development of, the telecommunications
and computer staffing business.
(5) Represent a non-recurring management fee paid by Telecom to its former
parent company prior to its acquisition by the Company.
(6) Pro forma weighted average shares outstanding are calculated as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------------
1996 1995 1994
------ ----- -----
(in thousands of shares)
<S> <C> <C> <C>
Historical weighted average shares outstanding 12,991 4,596 3,195
Shares issued as compensation * 2,464 3,091
Shares issued-Telecom acquisition * 2,049 2,562
Shares issued-Force Five acquisition * 27 27
Shares issued-AZATAR acquisition * 243 243
Shares issued-Continental acquisition * 37 37
Common stock sold to fund Continental acquisition * 460 460
Common stock equivalents Series E preferred * ** **
Common stock equivalents on Series D and F Preferred Stock ** ** **
Warrants issued in connection with the Continental acquisition * ** **
Warrants issued in connection with the Telecom acquisition * ** **
Shares issued to certain shareholders * ** **
Contingent shares:
AZATAR (a) * ** **
RHO (b) 387 ** **
------ ----- -----
Total Pro forma shares 13,378 9,876 9,615
====== ===== =====
</TABLE>
* Included in historical weighted average shares outstanding.
21
<PAGE>
** Excluded as the effect would be anti-dilutive.
(a) AZATAR contingent purchase price of $1.2 million is payable in stock
at a rate of $400,000 per year for a three year period, if certain
earnings criteria are met.
(b) RHO's contingent purchase price of up to $3,300,000 is payable in
stock if certain earnings criteria are being met. The conversion price
to calculate shares to be issued was based upon a trading average
price of the Company's common stock at the closing of the acquisition.
(7) The following summarizes the pro forma dividends on Preferred Stock.
Year ended
December 31,
-----------------------
1996 1995 1994
---- ---- ---
(in thousands)
Series D Preferred Stock 280 * *
Series E Preferred Stock 26 35 35
Series F Preferred Stock 162 162 162
Accretive dividends on Series F Preferred Stock(a) 665
---- --- ---
1133 197 197
==== === ===
(a) Represents discounts upon conversion of Series F Preferred Stock of 17
percent.
* Series D not deemed issued in prior periods as proceeds were utilized in
1996 for working capital requirements.
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMFORCE Corporation
(Registrant)
By /s/ Andrew Reiben
-----------------------------
Andrew Reiben, Chief Accounting Officer
Dated: April 14, 1997
23
