SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1565578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 North Central Expressway
Suite 350
Dallas, Texas 75243
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 458-8500
Former name, former address and former fiscal year if changed since last report:
Indicate by check mark whether registrant (1) has filed all reports
required 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___
Number of shares of common stock of the registrant outstanding on June
30, 1996, was 1,758,211.
Total Number of pages for this 10-Q filing: 11
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
CURRENT ASSETS: 1996 1995
---------------- ----------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents..................................................... $ 200,620 $ 69,627
Accounts receivable, less allowance for doubtful accounts
of approximately $449,000 and $412,000, respectively......................... 3,295,350 2,140,623
Notes receivable ............................................................. 29,023 13,052
Prepaid expenses and other current assets..................................... 171,817 96,806
---------------- ----------------
TOTAL CURRENT ASSETS........................................................ 3,696,810 2,320,108
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET ............................................................ 583,838 467,043
OTHER ASSETS:
Investment in and advances to joint venture ................................... 62,188 103,838
Other.......................................................................... 140,901 179,153
================ ================
$4,483,737 $3,070,142
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses ........................................ $4,029,761 $3,358,163
Current maturities of long-term debt 16,745 21,603
......................................... to majority shareholder in 1994) (Note 6)
---------------- ---------------
TOTAL CURRENT LIABILITIES.................................................... 4,046,506 3,379,766
DEFERRED LEASE RENTS................................................................ 21,012 52,531
LONG TERM DEBT ..................................................................... 79,096 90,048
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY):
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued...................................................... - -
Common stock, $.10 par value; 10,000,000 shares
authorized, 1,881,161 shares issued.......................................... 188,116 188,116
Additional paid-in capital..................................................... 3,615,151 3,615,151
Accumulated deficit............................................................ (3,296,719) (4,086,045)
Common stock held in treasury (122,950 shares), at cost........................ (169,425) (169,425)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY).............................. 337,123 (452,203)
---------------- ---------------
$4,483,737 $3,070,142
<FN>
================ ===============
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
--------------------------------------- ------------------------------------
1996 1995 1996 1995
------------------- ------------------ ------------------ ----------------
NET SERVICE REVENUES
<S> <C> <C> <C> <C>
Regular Placements................................ $3,184,203 $2,509,768 $5,961,464 $ 4,730,767
Temporary......................................... 1,807,098 1,001,194 3,364,500 1,935,844
Contract Labor.................................... 1,822,149 1,364,847 3,701,485 2,752,055
------------------- ------------------ ------------------ ----------------
6,813,450 4,875,809 13,027,449 9,418,666
COST AND EXPENSES..................................... 5,607,376 4,299,010 10,847,271 8,233,693
------------------- ------------------ ------------------ ----------------
INCOME FROM OPERATING ENTITIES........................ 1,206,074 576,799 2,180,178 1,184,973
GENERAL AND ADMINISTRATIVE EXPENSES................... (659,975) (461,916) (1,200,417) (852,820)
OTHER INCOME (EXPENSES):
Loss from joint venture operations................ (25,717) - (60,085) -
Interest expense, net............................. (62,672) (47,663) (132,862) (107,446)
Other, net........................................ 12,196 17,894 21,167 37,965
------------------- ------------------ ------------------ ----------------
(76,193) (29,769) (171,780) (69,481)
------------------- ------------------ ------------------ ----------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM............................ 469,906 85,114 807,981 262,672
INCOME TAXES, net of tax benefit from utilization
of net operating loss carry forward............... (18,655) - (18,655) -
------------------- ------------------ ------------------ ----------------
INCOME BEFORE EXTRAORDINARY ITEM..................... 451,251 85,114 789,326 262,672
EXTRAORDINARY ITEM - gain on troubled debt
restructuring, net of income tax ................. - 5,621 - 5,621
------------------- ------------------ ------------------ ----------------
NET INCOME...................................... $ 451,251 $ 90,735 $ 789,326 $ 268,293
=================== ================== ================== ================
INCOME PER SHARE:
Income before extraordinary item................. $ .24 $ .04 $ .43 $ .14
Extraordinary item................................ - .01 - .01
------------------ ------------------ ------------------ ----------------
INCOME PER SHARE...................................... $ .24 $ .05 $ .43 $ .15
=================== ================== ================== ================
WEIGHTED AVERAGE COMMON AND
COMMON SHARES OUTSTANDING ........................... 1,853,064 1,758,211 1,853,064 1,758,211
=================== ================== ================== ================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
================================================================================
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
-----------------------------------
1996 1995
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income................................................................. $ 789,326 $ 268,293
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................ 93,838 56,935
Increase (decrease) in provision for losses on accounts
receivable............................................................ (18,814) 15,745
Increase in accounts receivable.......................................... (1,135,913) (176,007)
Increase in prepaid expenses and other current assets..................... (90,982) (15,259)
Equity in loss of joint venture........................................... 60,085 -
Decrease in other assets.................................................. 19,817 5,916
Increase in accounts payable and accrued expenses......................... 568,790 228,069
Decrease in deferred lease rents.......................................... (31,519) (33,549)
--------------- ----------------
Net cash provided by operating activities.............................. 254,628 350,143
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................ (210,633) (149,017)
--------------- ----------------
Net cash used in investing activities................................. (210,633) (149,017)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt................................................ - (25,323)
Increase (decrease) in proceeds from factored receivables................... 102,808 (71,960)
Principal payments under long-term debt obligations
to others........................................................... (15,810) (13,284)
--------------- ----------------
Net cash provided by (used in) financing activities................... 86,998 (110,567)
--------------- ----------------
Net increase in cash and cash equivalents................................... 130,993 90,559
Cash and cash equivalents at beginning of year.............................. 69,627 45,780
--------------- ----------------
Cash and cash equivalents at end of period.................................. $ 200,620 $ 136,339
=============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for interest...................................... $ 136,365 $ 143,959
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its subsidiaries (the "Company"). The financial
information for the six months ended June 30, 1996, is unaudited but includes
all adjustments (consisting only of normal recurring accruals) which the Company
considers necessary for a fair presentation of the results for the period. The
financial information should be read in conjunction with the consolidated
financial statements for the year ended December 31, 1995, included in the
Company's annual report on Form 10-K. Operating results for the six months ended
June 30, 1996, are not necessarily indicative of the results that may be
expected for the entire year ended December 31, 1996.
Nature of Operations
Diversified Corporate Resources, Inc. (the "Company") is a Texas
corporation. The Company, through its wholly-owned subsidiaries, is engaged in
the full-time (regular) and temporary placement of personnel in various
industries, and the contract placement services industry. The Company operates
branch offices in a number of cities which are responsible for marketing to
clients, recruitment of personnel, operations, local advertising, credit and
collections. The Company's executive office provides centralized training,
payroll, collections and certain accounting and administrative services for the
branch offices.
Revenue Recognition
Fees for placement of full-time (regular) personnel are recognized as income
at the time the applicants accept employment. Provision is made for estimated
losses in realization (principally due to applicants not commencing employment
or not remaining in employment for the guaranteed period). Revenue from
temporary and contract personnel placements is recognized upon performance of
services by the Company. The Company's operating expenses consist principally of
commissions, direct wages paid to temporary personnel, payroll taxes, rent and a
provision for uncollectible accounts (approximately $80,000 in 1996 and $57,000
in 1995).
Cash and Cash Equivalents
Cash and cash equivalents includes certificates of deposit of approximately
$32,000 at June 30, 1995. The Company considers all highly liquid investment
instruments purchased with remaining maturities of three months or less to be
cash equivalents for purposes of the consolidated statements of cash flow.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
Joint Venture Operations
During January, 1995, the Company entered into a joint venture agreement
with CFS, Inc. for the purpose of providing personnel services to certain
businesses requiring minority suppliers and to others. CFS, Inc. is a minority
operated corporation, which because of its status, supplies services to clients
requiring a certain portion of its business to be allocated to minority owned
and operated vendors. The majority shareholder of CFS, Inc. purchased the 49%
ownership interest of Laurie Moore, the wife of J. Michael Moore, the Chief
Executive Officer and Chairman of the Board of the Company, pursuant to a
transaction which was made effective retroactive to January 1, 1995.
The Company provides the joint venture with personnel and contract labor on
a subcontractor basis. The Company has a 49% ownership interest in the joint
venture and is allocated 65% of the net income or loss resulting from the joint
venture operations. The joint venture recorded a net loss for the second quarter
of 1996 of $40,000. Accordingly, the Company recognized a $26,000 loss from
joint venture operations in the Consolidated Statement of Operations for the
quarter ended June 30, 1996. For the six months ended June 30, 1996, the joint
venture recorded a net loss of $92,000, and the Company recognized a $60,000
loss from joint venture operations. For more discussion of joint venture
operations, refer to the Company's Form 10-K for the year ended December 31,
1995.
Income Taxes
During 1993, the Company changed its method of accounting for income taxes
to conform to the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Accordingly, income taxes are provided for
the tax effects of transactions reported in the financial statements and consist
of taxes currently payable plus deferred taxes related primarily to differences
between the basis of installment sales, property and equipment and accounts
receivable for financial and income tax reporting. The deferred taxes represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
The Company has a net operating loss carryforward of approximately $4.4
million as of December 31, 1995, which, if unused, expires in 2002 through 2008.
However, due to a more than 50% change in ownership of the Company's stock
beginning with an April 1991 transaction, the Company's use of its net operating
loss carryforward is subject to certain limitations pursuant to provisions of
the Internal Revenue Code. The amount of the Company's net operating loss
available for use as of December 31, 1995, was approximately $1.6 million. An
additional amount of approximately $467,000 will become available annually
through 2001.
Income Per Share
Income per share was determined by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding. The
effect of the stock options granted in October of 1995 had a dilutive effect on
the earnings per share calculations for the second quarter and six months ended
June 30, 1996. Using the treasury stock method for computing weighted average
shares
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
outstanding, it was assumed that an additional 94,853 shares were issued.
Therefore, the weighted average number of shares of common stock and common
stock equivalents outstanding for the three and six months ended June 30, 1996,
were 1,853,064, while for the respective periods in 1995 there were 1,758,211
shares.
Use of Estimates in the Preparation of Financial Statements
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.
Accounting Pronouncements
During the first quarter of 1996, the Company changed its valuation of
long-lived assets to conform to the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Accordingly, the Company
recognized a reduction in market value of certain long-lived assets. This write
down resulted in a charge to current earnings of approximately $37,000 during
the first quarter of 1996.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended June 30, 1996, Compared to Three Months Ended June 30, 1995
Total revenues were $6.8 million for the second quarter ended June 30, 1996,
compared to $4.9 million in 1995. This increase of 39.7% resulted from an
increase in all areas of the Company's business. Cost and expenses were $5.6
million in the second quarter of 1996 as compared to $4.3 million in the second
quarter of 1995. This represents a 30.4% increase. The increase in revenues and
cost and expenses in the second quarter of 1996, as compared to the second
quarter of 1995, resulted from an increase in the level of activities in all
areas of the Company's operations during the second quarter of 1996.
General and administrative expenses increased approximately $198,000, or
42.9%, in 1996 as compared to the second quarter of 1995. This increase is the
result of an increase in corporate operating expenses for rent, telephone and
depreciation, as well as payroll expenses in the Company's employment placement
business, and a reserve of $110,000 for disputed claims which was established in
the second quarter of 1996. Management anticipates a successful resolution of
these disputed claims.
The Company recorded a loss of approximately $26,000 during the second
quarter of 1996 in connection with its joint venture operation with CFS, Inc..
This joint venture was formed in January of 1995 for the purpose of providing
personnel services to certain businesses requiring minority suppliers and to
others. No accruals were made for such losses until the fourth quarter of 1995.
Interest expense for the second quarter of 1996 increased approximately
$15,000 over the prior year quarter; such increase is the result of the Company
factoring a larger amount of accounts receivable in 1996 as compared to 1995.
As a result of these factors, the Company recorded net income of
approximately $451,000 for the second quarter of 1996, compared to net income of
approximately $91,000 for the second quarter of 1995.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total revenues were $13.0 million for the six months ended June 30, 1996,
compared to $9.4 million in the first six months of 1995. This increase of 38.3%
resulted from an increase in all areas of the Company's business. Cost and
expenses were $10.8 million for the first six months of 1996 as compared to $8.2
million in the first six months of 1995. This represents a 31.7% increase. The
increase in both revenues and cost and expenses in the first six months of 1996,
as compared to the first six months of 1995, resulted from an increase in the
level of activities in all areas of the Company's operations during the first
six months of 1996.
General and administrative expenses increased approximately $348,000, or
40.8%, in 1996 as compared to the first six months of 1995. This increase is
primarily the result of an increase in corporate operating expenses for rent,
telephone, professional services and depreciation, as well as payroll expenses
in the Company's employment placement business. In addition, the reserve for
disputed claims discussed in the comparison of the second quarter operations
impacted the six month period ended June 30, 1996.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The Company recorded a loss of approximately $60,000 during the first six
months of 1996 in connection with its joint venture operation. This joint
venture was formed in January of 1995 for the purpose of providing personnel
services to certain businesses requiring minority suppliers and to others. No
accruals were made for such losses until the fourth quarter of 1995.
Interest expense for the first six months of 1996 increased approximately
$25,000 over the same period during the prior year; such increase is the result
of the Company factoring a larger amount of accounts receivable during the first
half of 1996 as compared to 1995.
As a result of these factors, the Company recorded net income of
approximately $789,000 for the first six months of 1996, compared to net income
of approximately $268,000 for the first six months of 1995.
Liquidity and Capital Resources
The Company had a working capital deficit of $350,000 at June 30, 1996,
compared with a $1,060,000 deficit at December 31, 1995. This working capital
improvement of approximately $710,000 during the first six months of 1996 can be
primarily attributed to an increase in the accounts receivable of the employment
placement business, partially offset by an increase in the related accounts
payable.
Cash flow provided by operating activities of $255,000 resulted primarily
from the profitable operations of the Company's employment placement business
and an increase in accounts payable and accrued expenses, offset in part by a
corresponding increase in accounts receivable.
Net cash used in investing activities of $211,000 resulted from capital
expenditures made by the Company during the first six months of 1996. The
Company retired approximately $16,000 in debt obligations during the first six
months of 1996, and increased its utilization of proceeds from factored accounts
receivable by approximately $103,000 to fund the operations of the Company's
employment placement business during the six month period ended June 30, 1996.
Presently, the Company's only major source of income relates to the
operations of its employment placement business. Management of the Company
anticipates that the cash flow of its employment placement business will provide
sufficient liquidity to fund its future operations, and enable the Company to
continue to make reductions in its current obligations.
Although the Company significantly lowered its cost of factored funds in
1995, the Company is presently seeking alternative sources of funds to be
utilized in expanding its employment placement business and possibly to fund
future acquisitions.
The Company is continuing to evaluate the possibility of expanding its
employment placement business through acquisitions, and by joint venture
operations, the development of training center operations to assist in
increasing the number of potential applicants, and the enhancement of its data
base services to facilitate employee placements.
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
Item 1. LEGAL PROCEEDINGS
Not Applicable.
Item 2. CHANGES IN SECURITIES
Not Applicable.
Item 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Item 5. OTHER INFORMATION
Not Applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Not Applicable.
<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 thereunto duly authorized.
DIVERSIFIED CORPORATE RESOURCES, INC.
Registrant
DATE: August 14, 1996 By: /s/ J. Michael Moore
J. Michael Moore,
Chief Executive Officer
DATE: August 14, 1996 By: /s/ M. Ted Dillard
M. Ted Dillard
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000779226
<NAME> DIVERSIFIED CORPORATE RESOURCES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 200,620
<SECURITIES> 0
<RECEIVABLES> 3,295,350
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,696,810
<PP&E> 583,838
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,483,737
<CURRENT-LIABILITIES> 4,046,506
<BONDS> 0
0
0
<COMMON> 188,116
<OTHER-SE> 149,007
<TOTAL-LIABILITY-AND-EQUITY> 4,483,737
<SALES> 13,027,449
<TOTAL-REVENUES> 13,027,449
<CGS> 10,847,271
<TOTAL-COSTS> 1,200,417
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (132,862)
<INCOME-PRETAX> 807,981
<INCOME-TAX> 18,655
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 789,326
<EPS-PRIMARY> .43
<EPS-DILUTED> 0
</TABLE>
