<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- --------------
Commission file number
COMFORCE Corporation: 1-6081
COMFORCE Operating, Inc.: 333-43341
COMFORCE CORPORATION AND
COMFORCE OPERATING, INC.
(Exact name of registrant as specified in its charter)
COMFORCE Corporation: 36-23262248
Delaware COMFORCE Operating, Inc.: 11-3407855
------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 Marcus Avenue Lake Success, New York 11042
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 328-7300
-----------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
----- ----------------------------
COMFORCE Corporation:
Common stock, $.01 par value 15,790,747 shares
COMFORCE Operating, Inc.:
Common stock, $.01 par value 100 shares (all owned by COMFORCE Corporation)
<PAGE>
COMFORCE CORPORATION AND
COMFORCE OPERATING, INC.
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 3-4
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 1998
and June 30, 1997 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1998
and June 30, 1997 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 4,200 $ 6,512
Restricted cash 1,071 1,036
Accounts receivable, net 90,519 73,116
Prepaid expenses 1,926 793
Other assets 2,799 5,755
Deferred income tax 2,939 1,710
-------- --------
Total current assets 103,454 88,922
Property and equipment, net 7,301 4,271
Intangible assets, net 139,440 134,687
Deferred financing costs 5,627 5,790
Other assets 2,534 2,515
-------- --------
Total assets $258,356 $236,185
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, Continued
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
1998 1997
(unaudited)
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under revolving line of credit $ 4,597 $ 5,038
Accounts payable 4,640 4,954
Accrued expenses 28,567 19,647
-------- --------
Total current liabilities 37,804 29,639
Long-term debt 178,056 166,000
Other liabilities 951 1,144
-------- --------
Total liabilities 216,811 196,783
-------- --------
Commitments and contingencies
Stockholders' Equity:
Series F convertible preferred stock, $.01 par value;
10,000 shares authorized, 500 shares issued and
outstanding; liquidation value of $1,000 per share
($500,000). 1 1
Common stock, $.01 par value; 100,000,000 shares
authorized; 15,790,747 shares issued and outstanding
in 1998 and 15,344,247 shares issued and outstanding
in 1997. 158 153
Additional paid-in capital 45,779 43,323
Accumulated (deficit) since January 1, 1996 (4,393) (4,075)
-------- --------
Total stockholders' equity 41,545 39,402
-------- --------
Total liabilities and stockholders' equity $258,356 $236,185
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Net sales of services $118,110 $55,669 $230,118 $91,477
-------- ------- -------- -------
Costs and expenses:
Cost of services 96,174 48,666 187,881 79,751
Selling, general and administrative 14,373 4,278 28,321 7,339
Depreciation and amortization 1,360 461 2,697 802
-------- ------- -------- -------
Total costs and expenses 111,907 53,405 218,899 87,892
-------- ------- -------- -------
Operating income 6,203 2,264 11,219 3,585
-------- ------- -------- -------
Other income (expense):
Bridge and financing charges -- (4,385) -- (5,822)
Interest expense (5,443) (747) (10,602) (1,019)
Other income, net 8 -- 24 344
-------- ------- -------- -------
(5,435) (5,132) (10,578) (6,497)
-------- ------- -------- -------
Earnings (loss) before income taxes 768 (2,868) 641 (2,912)
Credit (provision) for income taxes (617) 1,095 (947) 1,037
-------- ------- -------- -------
Net income (loss) 151 (1,773) (306) (1,875)
Dividends on preferred stock 6 592 12 726
-------- ------- -------- -------
Net income (loss)
applicable to common
stockholders 145 (2,365) (318) (2,601)
-------- ------- -------- -------
Basic income (loss) per common share $ 0.01 $ (0.18) $ (0.02) $ (0.20)
======== ======= ======== =======
Diluted income (loss) per common share $ 0.01 $ (0.18) $ (0.02) $ (0.20)
======== ======= ======== =======
Basic weighted average shares 15,911 13,280 15,629 13,050
======== ======= ======== =======
Diluted weighted average shares 17,368 13,280 15,629 13,050
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Net cash flows (used in) operating activities $(3,760) $ (792)
------- --------
Cash flows from investing activities:
Acquisition payments, net of cash acquired (3,574) (14,355)
Officer loans 30
Restricted cash (32) (1,000)
Increase in other assets (1,736) -
Additions to property, plant and equipment (3,528) (392)
------- --------
Net cash flows (used in) investing activities (8,870) (15,717)
------- --------
Cash flows from financing activities:
Net proceeds from line of credit agreement 9,872 6,454
Proceeds from short-term debt 20,628
Payment of short-term debt (27,930)
Proceeds from long-term debt 20,000
Repurchase of common stock (2,300)
Principal payments on capital lease obligations (102) -
Proceeds from exercise of stock options 137 140
Proceeds from exercise of warrants 458 121
Payment of registration costs (35) (388)
Dividends paid (12) (262)
------- --------
Net cash flows provided by financing activities 10,318 16,463
------- --------
(Decrease) increase in cash and cash equivalents (2,312) (46)
------- --------
Cash and equivalents, beginning of period 6,512 3,608
------- --------
Cash and equivalents, end of period $ 4,200 $ 3,562
======= ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 8,627 $ 416
Income taxes paid 106 164
Supplemental schedule of noncash investing and financing
activities:
Issuance of short-term debt to redeem Series F preferred
stock 3,162
Dividends accrued but not yet paid 6 75
Common stock issued in connection with acquisitions 1,900 -
Common stock issued to settle liabilities 633
Warrants issued in connection with the sale of convertible
debentures 734
Warrants issued in connection with short-term loan 100
Warrants issued in connection with credit facility 170
Issuance of Senior Secured PIK Debentures in lieu of interest
payment 1,542
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
COMFORCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited interim financial statements of COMFORCE Corporation,
COMFORCE Operating, Inc. ("COI") and their subsidiaries (collectively, the
"Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements have been condensed or omitted
pursuant to those rules and regulations. In the opinion of management, all
adjustments, consisting of normal, recurring adjustments considered necessary
for a fair presentation, have been included. Although management believes that
the disclosures made are adequate to ensure that the information presented is
not misleading, it is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997. The results of the six months ended June 30, 1998 and 1997 are not
necessarily indicative of the results of operations for the entire year.
2. NEWLY-ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES ("FAS 133"). FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Company). FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments, the
adoption of FAS 133 will not have a significant effect on the Company's results
of operations or its financial position.
3. RECENT ACQUISITIONS
On January 26, 1998, COMFORCE Telecom, Inc., a wholly-owned subsidiary of the
Company, purchased all of the issued and outstanding stock of Camelot Consulting
Group Inc., Camelot Communications Group Inc, Camelot Control Group Inc. and
Camelot Group Inc. (collectively, "Camelot"), for total consideration of $3.7
million in cash and 203,307 shares of the Company's Common Stock. In addition,
the Company issued contingent payment certificates under which it could be
required to pay up to $3.25 million in cash over a three-year period. Camelot
is in the business of selling and installing telecommunications equipment and of
providing staffing services. This transaction is not material to the Company.
4. DEBT
Notes payable and long-term debt at June 30, 1998 (unaudited) and December 31,
1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
12% Senior Notes, due 2007 $110,000 $110,000
15% Senior Secured PIK Debentures, due 2009 21,542 20,000
Revolving line of credit, due in November 26, 2002, with interest payable monthly
at the bank's prime rate plus up to .50% (at June 30, 1998, the bank's prime rate
was 8.5%) and/or LIBOR plus 2.25%. 51,111 41,038
-------- --------
182,663 171,038
-------- --------
Less, current portion 4,597 5,038
-------- --------
Total long-term debt $178,056 $166,000
======== ========
</TABLE>
7
<PAGE>
5. EQUITY
During the first six months of 1998, warrants to purchase 108,132 shares of
common stock at prices ranging from $2.00 to $7.575 per share were exercised.
During the first six months of 1998, options to exercise 80,500 shares of common
stock at prices ranging from $1.125 to $6.00 per share were exercised.
In January 1998, 203,307 shares of common stock with a value of $1.5 million
were issued in connection with the acquisition of Camelot Consulting Group, Inc.
and certain affiliated companies. (See note 3.)
In February 1998, 54,561 shares of common stock with a value of $400,000 were
issued in connection with the contingent payment due on the acquisition of
AZATAR Computer Systems, Inc.
6. EARNINGS PER SHARE
At December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Basic earnings (loss) per common share
is computed by dividing net earnings (losses) available for common shareholders
by the weighted average number of shares of common stock outstanding during each
period. Diluted earnings (loss) per share is computed assuming the conversion
of stock options and warrants with a market value greater than the exercise
price. The following represents a reconciliation of the denominator for basic
and diluted earnings (loss) per share for the three and six month periods ended
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
1998 1997 1998 1997
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares 15,911 13,280 15,629 13,050
Employee stock options 593 -- -- --
Warrants 582 -- -- --
Contingent shares - acquisitions 282 -- -- --
------ ------ ------ ------
Dilutive potential common shares
Denominator for diluted earnings
(loss) per share - adjusted
weighted-average shares and
assumed conversions 17,368 13,280 15,629 13,050
====== ====== ====== ======
</TABLE>
7. RELATED PARTY TRANSACTION
The Company paid L.H. Frishkoff & Company, a certified public accounting firm at
which Richard Barber, a Director of the Company, is a partner, approximately
$53,000 in fees during the first six months of 1998 for tax-related advisory
services.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion set forth below supplements the information found in the
unaudited condensed consolidated financial statements and related notes of
COMFORCE Corporation, COMFORCE Operating, Inc. ("COI") and their subsidiaries
(collectively, the "Company").
OVERVIEW
Set forth below are discussions and analyses of financial condition and
results of operations of the Company. The Company believes that its future
operating results may not be directly comparable to historical operating results
because of the Company's increased size, related cost savings and marketing
synergies.
From October 1995 through June 30, 1998, the Company has completed 10
acquisitions. Each of these acquisitions has been accounted for on a purchase
basis and the results of operations of each of the businesses acquired have been
included in the Company's historical financial statements from the date of
acquisition. Certain of these acquisitions provide for contingent payments by
the Company as a part of the purchase consideration based upon the operating
results of the acquired businesses for specified future periods. The
acquisitions were financed by the Company principally through its issuance of
debt and equity securities and borrowings under bank credit facilities. As a
result, the Company's historical results of operations include bridge financing
costs which are not expected to be incurred in future periods and preferred
stock dividends. In addition, as a result of its rapid growth through
acquisitions, the discussion and comparison of the Company's historical results
of operations set forth below may not be meaningful.
Gross margins on staffing services can vary significantly depending on
factors such as the specific services being performed, the overall contract size
and the amount of recruiting required. Margins on the Company's sales in the
technical services sector are typically significantly lower than those in the
telecommunications and information technology sectors. Consequently, changes in
the Company's sales mix can be expected to impact the overall gross margins
generated by the Company.
Staffing personnel placed by the Company are employees of the Company. The
Company is responsible for employee related expenses for its employees,
including workers' compensation, unemployment compensation insurance, Medicare
and Social Security taxes and general payroll expenses. The Company offers
health, dental, disability and life insurance to its billable employees.
Staffing and consulting companies, including the Company, typically pay their
billable employees for their services before receiving payment from their
customers, often resulting in significant outstanding receivables. To the extent
the Company increases revenues through acquisitions and/or internal growth,
these receivables will grow and there will be greater requirements for borrowing
availability under its credit facilities to fund current operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenues of $118.1 million for the three months ended June 30, 1998 were
$62.4 million, or 112% higher than revenues for the three months ended June 30,
1997. The increase in 1998 revenues is attributable principally to the Company's
acquisition of Uniforce Services, Inc. ("Uniforce") on November 26, 1997.
Cost of services for the three months ended June 30, 1998 was 81.4% of
services compared to cost of services of 87.4% for the three months ended June
30, 1997. The cost of services decrease of 6% for the second quarter of 1998 is
a result of the Company's business mix in the 1998 period, which reflected the
full period impact of acquisitions completed
9
<PAGE>
during 1997, as well as the Company's growth in the information technology,
telecommunications and financial services sectors. These sectors have
historically generated higher gross margin than the more mature technical
staffing sector.
Selling, general and administrative expenses as a percentage of revenue was
12.2% for the three months ended June 30, 1998, compared to 7.7% for the three
months ended June 30, 1997. Included in selling and general and administrative
expenses are $1.7 million in licensee costs related to the Company's franchise
operations.
Operating income for the three months ended June 30, 1998 was $6.2 million,
compared to operating income of $2.3 million for the three months ended June 30,
1997. This increase was principally attributable to the Company's completion of
the Uniforce acquisition.
The Company's interest expense for the three months ended June 30, 1998 is
attributable to the interest on (i) the Loan and Security Agreement with Heller
Financial, Inc., as lender and agent for other participating lenders, to provide
to the Company a secured revolving credit facility (the "Current Credit
Facility"), (ii) $110.0 million principal amount of 12% Senior Notes due 2007
issued by COI (the "Notes") and (iii) $21.5 million principal amount of 15%
Senior Secured PIK Debentures issued by the Company (the "Senior Debentures"),
all of which obligations were incurred in November 1997. For the three months
ended June 30, 1997, interest expense is principally attributable to the $25.2
million principal amount of the Subordinated Convertible Debentures (the "Old
Subordinated Debentures") issued by the Company in February and March 1997, the
proceeds of which were used to partially fund the acquisition of The Rho Company
Incorporated ("Rhotech") and for working capital purposes. The amortization of
the costs payable on the Old Subordinated Debentures is reflected in bridge and
financing charges for such three-month period.
The income tax provision for the three months ended June 30, 1998 was
$617,000 on pretax income of $768,000, compared to a tax credit of $1.1 million
on a loss before taxes of $1.8 million for the three months ended June 30, 1997.
The difference between the Federal statutory income tax rate and the Company's
effective tax rate relates primarily to state income taxes and the
nondeductibility of certain intangible assets.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues of $230.1 million for the six months ended June 30, 1998 were
$138.6 million, or nearly 152% higher than revenues for the six months ended
June 30, 1997. The increase in 1998 revenues is attributable principally to the
Company's acquisition of Uniforce on November 26, 1997.
Cost of services for the six months ended June 30, 1998 was 81.6% of
services compared to cost of services of 87.2% for the six months ended June
30, 1997. The cost of services decrease of 5.6% for the first six months of
1998 is a result of the Company's business mix in the 1998 period, which
reflected the full period impact of acquisitions completed during 1997 as well
as the Company's growth in the information technology, telecommunications and
financial services sectors. These sectors have historically generated higher
gross margin than the more mature technical staffing sector.
Selling, general and administrative expenses as a percentage of revenue was
12.3% for the six months ended June 30, 1998, compared to 8% for the six months
ended June 30, 1997. Included in selling general and administrative expenses
are $3.5 million in licensee costs related to the Company's franchise
operations.
Operating income for the six months ended June 30, 1998 was $11.2 million,
compared to operating income of $3.6 million for the six months ended June 30,
1997. This increase was principally attributable to the Company's completion of
the Rhotech and Uniforce acquisitions.
The Company's interest expense for the six months ended June 30, 1998 is
attributable to the interest on the Current Credit Facility, the Notes and the
Senior Debentures, all of which obligations were incurred in November 1997. For
the six months ended June 30, 1997, interest expense is principally attributable
to the $25.2 million principal amount of the Old Subordinated Debentures issued
by the Company in February and March 1997, the proceeds of which were used to
partially
10
<PAGE>
fund the acquisition of Rhotech and for working capital purposes. The
amortization of the costs payable on the Old Subordinated Debentures is
reflected in bridge and financing charges for such six-month period.
The income tax provision for the six months ended June 30, 1998 was for
$947,000 on pretax income of $641,000, compared to a tax credit of $1.0 million
on a loss before taxes of $2.9 million for the six months ended June 30, 1997.
The difference between the Federal statutory income tax rate and the Company's
effective tax rate relates primarily to state income taxes and the
nondeductibility of certain intangible assets.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has historically paid its billable employees weekly for their
services before receiving payment from its customers. Additionally, certain
statutory payroll and related taxes, as well as other fringe benefits, are
generally paid by the Company before the Company receives payment from its
customers. Consequently, a significant portion of the Company's cost of revenues
is normally paid by the Company prior to receiving payment from its customers.
Increases in the Company's revenues, resulting from expansion of existing
offices or establishment of new offices, will require additional cash resources
necessary to support such growth. The debt service costs associated with the
borrowings under the Notes and the Current Credit Facility have significantly
increased liquidity requirements. The debt service costs associated with the
Senior Debentures may be satisfied through the issuance of new notes. To date,
the Company has chosen to issue new notes to pay these costs. Management of the
Company believes that, based on the results of operations and anticipated
growth, including growth through acquisitions, cash flow from operations and
funds anticipated to be available under the Current Credit Facility will be
sufficient to service the Company's indebtedness, to fund growth at anticipated
levels and to meet anticipated working capital requirements for the foreseeable
future. However, various factors, including those described or referenced under
"Forward Looking Statements" in Item 1 of the Company's Annual Report on Form
10-K for the year ended December 31, 1997 could prevent the Company from
realizing these objectives.
As of June 30, 1998, the Company had outstanding $21.5 million in principal
amount of Senior Debentures bearing interest at a rate of 15%, $110.0 million in
principal amount of Notes issued by COI bearing interest at a rate of 12%,
$48 million outstanding under the Current Credit Facility bearing interest at a
rate of 7.94% and $3.1 million outstanding under the Current Credit Facility
bearing interest at a rate of 9.0%. As of June 30, 1998, approximately $139.4
million, or 53%, of the Company's total assets were intangible assets. These
intangible assets substantially represent amounts attributable to goodwill
recorded in connection with the Company's acquisitions and will be amortized
over a five to 40 year period, resulting in an annual charge of approximately $
4.0 million. Various factors could impact the Company's ability to generate the
earnings necessary to support this amortization schedule, including those
described or referenced under "Forward Looking Statements" in Item 1 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The Company is obligated under various acquisition agreements to make
earn-out payments to the sellers of acquired companies, subject to the acquired
companies' meeting certain contractual requirements. The maximum amount of the
remaining potential earn-out payments is $8.3 million in cash and $4.1 million
in stock payable in the three-year period from 1998 to 2000. The Company cannot
currently estimate whether it will be obligated to pay the maximum amount;
however, the Company anticipates that the cash generated by the operations of
the acquired companies will provide all or a substantial part of the capital
required to fund the cash portion of the earn-out payments.
During the first six months of 1998, the Company's primary sources of funds
to meet working capital needs were (i) cash from operations, (ii) the proceeds
of the Notes and Senior Debentures and (iii) and borrowings under the Current
Credit Facility.
Cash and cash equivalents decreased $2.3 million during the six months
ended June 30, 1998. Cash flows used in operating activities of $3.8 million
and cash flows used in investing activities of $8.8 million were in excess of
cash flows provided by financing activities of $10.3 million. Cash flows used in
operating activities were principally attributable to the need to fund growth in
accounts receivable and their carrying costs. Cash flows used in investing
activities were principally related to the purchase of Camelot Consulting Group,
Inc. and certain affiliated companies and addition of property plant and
equipment. Cash flows provided by financing activities were principally
attributable to net borrowings under the Current
11
<PAGE>
Credit Facility.
YEAR 2000
The Company has conducted a review of its computer systems to identify
those areas that could be affected by the Year 2000 issue and has developed an
implementation plan to ensure compliance. The Company presently believes that
with modest modifications to existing software, the Year 2000 problem will
neither pose significant operational concerns nor have a material impact on the
financial position or results of operations in any given year.
SEASONALITY
The Company's quarterly operating results are affected primarily by the
number of billing days in the quarter and the seasonality of its customers'
businesses. Demand for services in the technical services sector has
historically been lower during the year-end holidays through January of the
following year, showing gradual improvement over the remainder of the year.
Although less pronounced than in technical services, the demand for services in
the telecommunications and IT sectors is typically lower during the first
quarter until customers' operating budgets are finalized. The Company believes
that the effects of seasonality will be less severe in the future if revenues
contributed by the information technology and telecommunications sectors
continue to increase as a percentage of the Company's consolidated revenues.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Since the date of the filing of the Company's Annual Report on Form 10-K,
there have been no material new legal proceedings involving the Company or any
material developments to the proceedings described in such 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
12
<PAGE>
SIGNATURES
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 thereunder duly authorized.
COMFORCE CORPORATION
--------------------
Registrant
Dated: August 12, 1998 /s/ Andrew Reiben
-----------------------------
Vice President of Finance and
Chief Accounting Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000006814
<NAME> COMFORCE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,200
<SECURITIES> 0
<RECEIVABLES> 91,052
<ALLOWANCES> 533
<INVENTORY> 0
<CURRENT-ASSETS> 103,454
<PP&E> 8,517
<DEPRECIATION> 1,216
<TOTAL-ASSETS> 258,356
<CURRENT-LIABILITIES> 37,804
<BONDS> 131,541
0
1
<COMMON> 158
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