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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 NO. CENTRAL EXPRESSWAY, SUITE 350 75243
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 458-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on Which Registered
------------------- ------------------------------------
COMMON STOCK, PAR VALUE $.10 PER SHARE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the 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
----- -----
The Registrant had requested in writing that the Securities and Exchange
Commission (the "Commission") waive the Registrant's obligation to file
certain pro forma financial statement information not filed with its Form 8-K
dated February 22, 1994, reporting the repossession of certain assets. The
Commission did not waive the Company's obligation to file the required
information but has taken a no-action position against the Registrant. See
Note 2 of the Registrant's Consolidated Financial Statement for more
information.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of the Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 31, 1996, was $81,070.
Number of shares of common stock of the registrant outstanding on March
31, 1996 was 1,758,211.
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DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its subsidiaries (the "Company"). All
intercompany accounts and transactions have been eliminated in consolidation.
The Company's Consolidated Statement of Operations for the year ended
December 31, 1993 includes income from the operations of the repossessed Power
Placement Assets from May 1993 until December, 1993, when the Company sold the
corporation owning such assets, and income from the operations of the
repossessed employment placement service business (the "Employment Placement
Business") for the month of December, 1993. (See discussion in Note 3.)
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 offices provide
centralized training, payroll, collections and certain accounting and
administrative services for the branch offices.
REVENUE RECOGNITION
During 1993, and until the repossession of the Employment Placement
Business in January, 1994, the cost recovery method of accounting was being
used for recognition of income from sales of the operating divisions until
such time as the liabilities assumed by the purchasers of the operating
divisions had been satisfied and a collection history on the notes receivable
had provided an expectation that the gain from such sales would be reasonably
assured (see Note 3).
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 personnel placements is recognized upon performance of
services. Cost of services consists of expenses for the operation of agencies
(principally commissions, direct wages paid to temporary personnel, payroll
taxes and rent) and a provision for uncollectible accounts (approximately
$116,000 in both 1995 and 1994). Accounts receivable at December 31, 1995
and 1994, includes approximately $36,000 of unbilled receivables which will
be billed during 1996 and $133,000 of unbilled receivables that were billed
in 1995, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes certificates of deposits of
approximately $31,000 at December 31, 1994. 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 flows.
DEPRECIATION AND AMORTIZATION
Equipment, furniture, and leasehold improvements are recorded at cost.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the individual assets (which
<PAGE>
range from three to seven years) or the related lease terms, if applicable,
whichever is shorter. Intangible assets are amortized on the straight-line
method over their estimated useful lives which range from three to ten years.
LEASES
Capital leases are recorded at the inception of the lease at the lower
of the discounted present value of future minimum lease payments or the fair
value of the asset.
Rent expense on operating leases is recorded on a straight-line basis
over the terms of the leases.
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.
Previously, the Company provided deferred taxes resulting from timing
differences between financial and taxable income. Under the new method,
however, an asset and liability approach is used in accounting for income
taxes. There was no cumulative effect (to January 1, 1993) of the change in
accounting principle.
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 (common stock equivalents are excluded if the effects of
inclusion are antidilutive). The weighted average number of shares
outstanding for the years ended December 31, 1995, 1994, and 1993 were
1,758,211.
RECLASSIFICATIONS
Certain amounts previously reported in the 1994 and 1993 financial
statements have been reclassified for comparative purposes.
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
In March 1995, Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," was issued. The statement must be adopted by the
Company in the first quarter of 1996. Under provisions of the statement,
impairments, measured using fair market value, are recognized whenever events
or changes in circumstances indicate that the carrying amount of long-lived
assets may not be recoverable and the future undiscounted cash flows
attributable to the asset are less than its carrying value. The statement is
not expected to have a material impact on the Company's results of operations
or financial position.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
In October 1995, SFAS No. 123, "Stock Based Compensation," was issued.
This statement will require the Company to choose between two different
methods of accounting for stock options. The statement defines a
fair-value-based method of accounting for stock options but allows an entity
to continue to measure compensation cost for stock options using the
accounting prescribed by APB Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees." Use of the APB 25 accounting method results in no
compensation cost being recognized if options are granted at an exercise
price at the current market value of the stock. The Company will continue to
use the intrinsic value method under APB 25 but will be required by SFAS 123
to make pro forma disclosure of net income and earnings per share as if the
fair value method had been applied in its 1996 financial statements.
OTHER
The Company had requested that the Securities and Exchange Commission
(the "Commission") waive the Company's obligation to file certain financial
statements and information not filed with the Company's Form 8-K dated
February 22, 1994, reporting the repossession of the Employment Placement
Business. The Commission did not waive the Company's obligations to comply
with the provisions of Form 8-K, and the Commissions' rules and regulations
related thereto, but has taken a no-action position against the Company which
is based solely on failure to file the required audited historical financial
statements and pro forma financial information.
Further, until the Company has filed the required audited financial
statements (a) registration statements of the Company under the Securities
Act of 1993 will not be declared effective, and (b) offerings may not be made
by the Company pursuant to effective registration statements, or pursuant to
Rules 505 and 506 of Regulation D where any purchasers are not accredited
investors under Rule 501(a) of the Regulation. The foregoing restriction
will not apply to sales of securities pursuant to Rule 144.
2. FINANCIAL CONDITION:
In December of 1992, both Management Alliance Group Corp., formerly
Financial Recruiters, Inc. ("MAGC"), and Gary K. Steeds, Inc. ("GKS") sought
protection from their respective creditors under the federal bankruptcy laws.
As more fully described below, in order to protect the Company's assets, the
Company was able to obtain the necessary court approval to allow the Company
to foreclose upon the accounts receivable and certain other assets pledged to
the Company by MAGC and GKS. The Company foreclosed upon these assets on
January 3, 1994.
The Company formed Management Alliance Corporation ("MAC") and
Information Systems Consulting Corp. ("ISC"), two wholly-owned subsidiary
corporations, to operate the employment placement service businesses (the
"Employment Placement Business") which were operated by MAGC and GKS prior to
the aforesaid foreclosure action taken by the Company. The Company is
substantially dependent on the success of the Employment Placement Business
operations. As a result of foreclosure transactions, the Company has
recorded a $23,000, $133,000 and $1,947,000 gain on the foreclosure of
divisional assets for the years ended December 31, 1995, 1994 and 1993,
respectively.
During 1995 and 1994 the Employment Placement Business core operations
experienced profitable growth. However, during late 1993, MAC activated its
medical placement business, primarily in the area of physician search. The
offices of this operation were then located in Dallas, Texas and Atlanta,
Georgia. Due in large part to start-up costs and problems associated
therewith, these operations, Legacy Healthcare Resources and Nova Healthcare
Resources, incurred losses of approximately $242,000 and $579,000 during the
years ended December 31, 1995 and 1994, respectively. During the fourth
quarter of 1994, the Atlanta office of this operation was closed and expenses
were reduced significantly. However, management continues to evaluate the
prospects of further developing the medical placement field.
<PAGE>
At December 31, 1995, the Company had a total capital deficiency of
$452,000 and a working capital deficit of $1,060,000.
In addition, at December 31, 1995, the Company had accrued approximately
$250,000 relating to a settlement agreement with a landlord. Management
believes that the terms of the Company's settlement agreement with the
landlord involved will be satisfied by October, 1996. Satisfaction of these
terms will relieve the Company of the obligation to pay the full amount of
this accrued expense and will enable the Company to report an extraordinary
gain related thereto in the fourth quarter of 1996.
Although the Company significantly lowered its cost of funds in 1995
through negotiations with its factoring sources, the Company is presently
seeking alternative sources of funds to be utilized in expanding the
Employment Placement Business to fund future growth or acquisitions.
The Company is currently evaluating the possibility of expanding its
Employment Placement Business in 1996 through acquisitions, joint venture
operations, the development of training center operations to assist in
increasing the number of potential applicants, and enhancing its data base
services to facilitate employee placements.
Although management anticipates that the operations of its wholly-owned
subsidiaries (a) will provide adequate cash flow in 1996 to fund the
Company's continuing operations, and to enable the Company to reduce its
current payables and factoring lines, and (b) result in positive
shareholders' equity at December 31, 1996, there is no guarantee the above
actions can be successfully implemented.
3. SALE AND REPOSSESSION OF ASSETS:
GENERAL
In May, 1993, the Company repossessed from one of the purchasers of
Company assets most of the assets (the "Power Placement Assets") previously
sold by the Company to such purchaser.
Pursuant to an agreement dated December 16, 1993 and after operating the
Power Placement Assets since May, 1993, the Company sold the capital stock of
Recruiters Network Group, Inc. ("RNG"), a wholly-owned subsidiary of the
Company formed to operate these assets, to Donald A. Bailey ("Bailey"), then
acting President of and a Director of the Company. As part of the purchase
agreement, Bailey provided funding to enable RNG to reimburse the Company for
RNG payroll costs, RNG issued a $40,000 promissory note payable to the
Company (secured by RNG stock, RNG assets and personally guaranteed by
Bailey), RNG issued a $15,000 promissory note payable to a former landlord of
the Company and guaranteed by Bailey, and $57,400 was paid to the Company in
the form of one or more affiliates of Bailey releasing the Company from
certain obligations and liabilities payable by the Company to Bailey. These
promissory notes are reflected as notes receivable in the balance sheets at
December 31, 1994 and 1993, respectively. Prior to the sale, the Company had
considered closing RNG due to recurring operating losses during 1993. As of
the date of this report the $40,000 promissory note has been paid in full,
and all note payments due pursuant to the above mentioned $15,000 promissory
note have been made in a timely manner.
In December of 1992, another purchaser of Company assets caused both
Management Alliance Group Corp., formerly named Financial Recruiters, Inc.
("MAGC") and Gary K. Steeds, Inc. ("GKS") to seek protection from their
respective creditors under the federal bankruptcy laws.
In 1993, the Company was able to obtain the necessary court approval to
allow the Company to foreclose upon the accounts receivable and certain other
assets of MAGC and GKS. The Company foreclosed upon MAGC and GKS assets on
January 3, 1994. During December, 1993, the Company formed Management
Alliance Corporation ("MAC") and Information Systems Consulting Corp.
("ISC"), two wholly-owned subsidiary corporations, to operate the employment
placement service businesses (the "Employment Placement Business") which MAGC
and GKS operated prior to the aforesaid foreclosure action taken by the
<PAGE>
Company. The Company is substantially dependent on the success of the
Employment Placement Business operations.
FINANCIAL INFORMATION
The Company's Consolidated Statement of Operations includes income from
the operation of the repossessed Power Placement Assets from May 1993 until
the sale of capital stock in December 1993, and income from the operation of
the repossessed Employment Placement Business for the years ended December
31, 1995 and 1994, and for the month of December, 1993.
Cost of services and agency expenses consist of expenses for the
operation of agencies (principally commissions, direct wages paid to
temporary personnel, payroll taxes, and rent) and a provision for
uncollectible accounts (approximately $116,000 in both 1995 and 1994).
During the years ended December 31, 1995, 1994 and 1993, and due to the
various foreclosure transactions described above, management has recognized a
$23,000, $133,000 and $1,947,000 gain, respectively, on the foreclosure of
divisional assets which primarily represents deferred income from note
payments and Company liabilities assumed and paid by the third party
purchasers of the Company's divisional assets.
The following table sets forth the net book value of the MAGC and GKS
assets foreclosed upon and repossessed by the Company on January 3, 1994:
<TABLE>
INFORMATION
MANAGEMENT SYSTEMS
ALLIANCE CONSULTING
CORPORATION CORP. CORPORATE TOTAL
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Accounts receivable $ 267,186 $ 228,510 $ 1,505 $ 497,201
Receivables from affiliates 143,955 183,273 - 327,228
Equipment, furniture and
leasehold improvements, net 99,839 62,386 15,659 177,884
Other assets 26,282 - 87,462 113,744
Accounts payable, office reserves,
accrued rents and expenses, notes and
capital lease obligations (387,780) (311,101) (128,250) (827,131)
--------- --------- --------- ---------
Net Book Value $ 149,482 $ 163,068 $ (23,624) $ 288,926
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The net book value of the MAGC and GKS assets repossessed at January 3,
1994, is reflected in the gain on foreclosure of divisional assets in the
Consolidated Statement of Operations for the years ended December 31, 1995
and 1994.
4. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS:
Equipment, furniture and leasehold improvements consist of:
DECEMBER 31,
----------------------
1995 1994
--------- ---------
Office equipment and furniture...................... $ 944,717 $ 632,321
Less accumulated depreciation and amortization...... (477,674) (345,492)
--------- ---------
$ 467,043 $ 286,829
--------- ---------
--------- ---------
<PAGE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of:
DECEMBER 31,
------------------------
1995 1994
---------- ----------
Accounts payable............................ $ 727,866 $ 820,562
Accrued compensation........................ 1,031,434 1,053,698
Accrued payroll taxes....................... 178,704 186,123
Factored accounts receivable liability...... 647,650 537,013
Cash overdraft.............................. 192,624 377,129
Other....................................... 579,885 168,582
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$3,358,163 $3,143,107
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---------- ----------
The Company has entered into factoring arrangements involving advances
on its outstanding accounts receivable for a fee ranging from 2% to 7%, based
on the number of days the receivable is outstanding. The maximum amount of
factored accounts receivable liability outstanding was approximately
$762,000, $650,000 and $140,000 during 1995, 1994 and 1993, respectively.
The proceeds from factored accounts receivable were used to fund the
operations of the Employment Placement Business during the years ended
December 31, 1995 and 1994, and for the month of December, 1993.
6. LONG-TERM DEBT:
<TABLE>
DECEMBER 31,
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1995 1994
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<S> <C> <C>
Long-term debt consists of:
Non-interest bearing note due to the Federal Deposit
Insurance Corporation with quarterly installments of
$5,000 due July 1997.......................................... $ 40,000 $ 55,000
10% note payable due January 13, 1991.......................... - 9,166
Adjustable rate (approximately 10%) mortgage note due
in monthly installments through June, 2013.................... 71,651 73,240
10% demand note payable to USFG-DHRG #1 Ltd., formerly a
majority shareholder, initially due November 3, 1992.......... - 14,500
Non-interest bearing note payable to former controlling
shareholder where Company is contingently liable.............. - 50,000
Other notes payable with interest rates ranging from 10%
to 11% and varying maturities through November, 1994.......... - 11,467
Capital lease obligations...................................... - 1,689
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111,651 215,062
Less current maturities of long-term debt...................... (21,603) (101,822)
-------- ---------
Total long-term debt........................................... $ 90,048 $ 113,240
-------- ---------
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</TABLE>
Approximately $95,000 in obligations assumed by third party purchasers
during 1991, was recorded by the Company as part of the foreclosure upon and
repossession of assets previously owned by the Company.
<PAGE>
The obligations include a $71,700 mortgage note payable that is
collateralized by a first lien on real estate, having a net book value of
$87,500.
During the year ended December 31, 1994, the Company settled a 9%
adjustable rate note payable to the FDIC and a 10% promissory note also due
to the FDIC in November, 1993, for $5,000 down and a non-interest bearing
note for $60,000 payable in $5,000 quarterly installments.
The Company has written off the 10% note payable due January 13, 1991,
and other notes with varying interest rates and maturities through November,
1994, totaling approximately $20,600 at December 31, 1995. The amounts were
in dispute and no legal claims have been brought against the Company within
the time statutes.
In November, 1992, a former controlling shareholder of the Company
loaned $50,000 to Veritas, Inc., a former purchaser of Company assets.
Veritas, Inc. is currently in bankruptcy proceedings. The Company was
contingently liable for this obligation, and recorded a $50,000 note due to
this shareholder at December 31, 1994. This note was paid in full by
December 31, 1995.
The aggregate maturities of long-term debt as of December 31, 1995, are
as follows:
Total
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1996............................................ $ 21,603
1997............................................ 21,809
1998............................................ 1,999
1999............................................ 2,209
2000............................................ 2,441
2001 and thereafter............................. 61,590
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$111,651
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7. STOCKHOLDERS' EQUITY:
Pursuant to the terms of two purchase agreements, the Company is to
receive 27,499 and 278,352 shares, respectively, of the Company's common
stock from two former officers and directors of the Company in connection
with these agreements. A former officer and director had pledged certain
shares to various lenders to secure certain debts, which are currently in
default. As a result of a breach of certain pledge agreements operating in
favor of the Federal Deposit Insurance Corporation ("FDIC"), the FDIC
foreclosed on a total of 100,000 shares of the Company's common stock. At
December 31, 1995, none of the common stock of the former officers and
directors has been conveyed to the Company.
In October, 1995, the option to purchase 50,000 shares of Common Stock
(150,000 shares in the aggregate) were granted to each of the following: J.
Michael Moore, the Chairman of the Board and Chief Executive Officer of the
Company, M. Ted Dillard, Chief Financial Officer, Secretary, Treasurer, and
director of the Company, and Donald A. Bailey, a director of the Company.
The terms and conditions of each of these options are as follows: (a) each
of the optionees (i) were immediately vested as to 15,000 shares (45,000
shares in the aggregate), and (ii) will become vested as to an additional
3,000 shares (9,000 shares in the aggregate) per quarter (commencing
November, 1995) until such time as they are fully vested as to 50,000 shares
each, (b) prior to options becoming vested, vesting is contingent upon the
optionee's continued involvement as an officer or director of the Company,
(c) at such time as an optionee becomes vested with respect to shares of
Common Stock, such optionee may thereafter purchase the number of shares to
which the optionee is vested, subject to certain conditions, (d) the option
price for options exercised is $.50 per share, (e) subject to earlier
termination as herein provided, vested options (i) may be exercised at any
time or times within five years from the date of vesting, and (ii) must be
exercised prior to the expiration of five years from the date of vesting, and
(f) if an optionee ceases to be an officer or director of the Company the
options then vested as to such optionee must be exercised within (i) six
calendar months from the date on which optionee's continuous involvement with
the Company is terminated for any reason other than as
<PAGE>
provided in subsections (ii) and (iii) below, (ii) twelve calendar months
from the date on which optionee's continuous involvement with the Company is
terminated due to death, total disability or retirement at age 65, (iii)
three months from the date of termination of employment of optionee by the
Company for cause, or (iv) October 31, 2000 (five years from the date of
authorization of these options).
The earnings per share calculation does not include the above mentioned
stock options because they would have an antidilutive effect on the
calculation.
8. FEDERAL INCOME TAXES:
The Company incurred no income tax expense in any of the years in the
three-year period ended December 31, 1995. The income tax provision and the
amount computed by applying the federal statutory income tax rate to income
(loss) before income taxes differs as follows:
<TABLE>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Tax provision (benefit at statutory rate)............... $ 156,632 $ 76,322 $ 544,235
Net operating loss carried forward to future periods.... (156,632) (76,322) (544,235)
Other................................................... - - -
--------- -------- ---------
$ - $ - $ -
--------- -------- ---------
--------- -------- ---------
</TABLE>
The components of the Company's deferred tax asset (liability) are as
follows:
DECEMBER 31,
--------------------------
1995 1994
----------- -----------
Net operating loss carryforward............. $ 1,483,100 $ 1,659,200
Allowance for doubtful accounts............. 142,000 70,000
Other....................................... 39,200 46,940
Gross deferred tax asset.................... 1,664,300 1,776,140
Valuation allowance......................... (1,664,300) (1,776,140)
----------- -----------
$ - $ -
----------- -----------
----------- -----------
The Company's valuation allowance decreased $111,840 and $75,354 during
the years ended December 31, 1995 and 1994, respectively.
The Company has a net operating loss carryforward of approximately
$4,360,000 as of December 31, 1995, which, if unused, expires in 2002 through
2008. However, due to a more than 50% change in ownership beginning with an
April 1991 transaction, the Company's 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 $1,600,000. An additional $466,600 will
become available annually through 2001.
9. TROUBLED DEBT RESTRUCTURING:
During the years ended December 31, 1995, 1994 and 1993, the Company
settled certain delinquent accounts payable on a discounted basis as follows:
December 31,
------------------
1995 1994 1993
-------- -------- -------
Gain on Troubled Debt Restructuring............ $174,811 $208,212 $71,750
-------- -------- -------
-------- -------- -------
<PAGE>
10. RELATED PARTY TRANSACTIONS:
Pursuant to an agreement dated December 16, 1993 and after operating the
Power Placement Assets since May, 1993, the Company sold the capital stock of
Recruiters Network Group, Inc. ("RNG"), a wholly-owned subsidiary of the
Company formed to operate these assets, to an officer and director of the
Company. As part of the purchase agreement the officer and director provided
funding to enable RNG to reimburse the Company for RNG payroll costs, RNG
issued a $40,000 promissory note payable to the Company (secured by RNG
stock, RNG assets and personally guaranteed by the officer and director), RNG
issued a $15,000 promissory note payable to a former landlord of the Company
and guaranteed by the officer and director, and $57,400 was paid to the
Company in the form of the officer and a director releasing the Company from
certain obligations and liabilities payable by the Company to this officer
and director.
Pursuant to the terms of the purchase agreements for the sale of assets
by the Company, the Company is to receive 27,499 and 278,352 shares,
respectively, of the Company's common stock from two former officers and
directors of the Company in connection with these agreements. A former
officer and director had pledged certain shares to various lenders to secure
certain debts, which are currently in default. As a result of a breach of
certain pledge agreements operating in favor of the Federal Deposit Insurance
Corporation ("FDIC"), the FDIC foreclosed on a total of 100,000 shares of the
Company's common stock. At December 31, 1995, none of the common stock of
the former officers and directors has been conveyed to the Company.
During 1991, USFG-DHRG #1, Ltd. ("USFG Ltd."), then the controlling
stockholder of the Company, loaned the Company $175,000 on a one-year, 10%
note, due November 3, 1992, to be used in the operations of the business.
The Company made principal payments of $75,500 during 1992, and borrowed from
USFG Ltd. an additional $50,000 during the year. During 1993, the Company
borrowed from USFG Ltd. an additional $100,000, and repaid $135,000. During
1994 and 1995, the Company repaid $100,000 and $14,500, respectively, of such
loan. In addition, the Company leased approximately 1,400 square feet from
United States Funding Group, Inc., ("USFG") the general partner of USFG Ltd.,
for $1,250 per month under a lease that expired July 31, 1992; and currently
leases approximately 2,000 square feet for approximately $2,000 per month
from this related party, used as its principal offices. USFG is wholly owned
by J. Michael Moore, Chairman of the Board and Chief Executive Officer of the
Company.
During 1995, the Company paid various expenses on behalf of USFG and Mr.
Moore in the amount of approximately $25,200. The Company has offset these
related party loans with amounts due to USFG and Mr. Moore for purchases of
office furniture and equipment in the amount of approximately $19,000. As of
December 31, 1995, the balance remaining is approximately $6,200. It is
expected that this amount will be settled or paid in full during 1996.
In January of 1996, Preferred Funding Corporation, loaned $25,000 to
United States Funding Group Oil and Gas, Inc., an entity wholly-owned by Mr.
Moore, Chairman of the Board and Chief Executive Officer of the Company.
Such loan is evidenced by a promissory note bearing interest at the rate of
1% per month on the unpaid balance. In addition, a 10% loan origination and
administration fee was charged. Payments on the loan are scheduled on a
monthly basis with a minimum payment of $2,000 plus interest due on the last
day of each month. As of March 31, 1996, all required payments have been
made on a timely basis.
In November, 1992, a former controlling shareholder of the Company
loaned $50,000 to Veritas, Inc., a former purchaser of Company assets.
Veritas, Inc. is currently in bankruptcy proceedings. The Company was liable
for this obligation, and had recorded a $50,000 note due to this shareholder
at December 31, 1994. As of the date of this report, this note plus accrued
interest has been paid in full.
During 1995 and 1994, the Company advanced a total of $37,000 and
$29,000 to former officers of its wholly-owned subsidiary companies. These
advances are reflected in prepaid expenses and other current assets in the
balance sheet at December 31, 1994.
<PAGE>
11. EMPLOYEE BENEFIT PLANS:
During the year ended December 31, 1991, the Company adopted the
Diversified Human Resources Group, Inc. Employees' Stock Ownership Plan
("ESOP"). Due to the financial difficulties incurred by the Company during
the year ended December 31, 1991, an initial contribution was not made to the
ESOP. Management is currently evaluating the possibility of initiating the
ESOP or some other form of stock ownership plan for certain of its employees.
12. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company rents office space for its Employment Placement Business
agencies under various operating leases. The Company is liable for the
future minimum lease payments for the periods subsequent to December 31,
1995, as follows:
Operating
leases
----------
1996........................... $1,001,118
1997........................... 910,577
1998........................... 869,305
1999........................... 746,952
2000........................... 663,981
2001 and thereafter............ 1,280,833
----------
Less sublease income................ -
----------
Future minimum lease payments....... $5,472,766
----------
----------
The Company has engaged in negotiations with many of its lessors to
negotiate payouts over time of various amounts of past due rent owed by the
Company as a result of its inability to make certain monthly rental payments
during prior periods, which inability was caused by the financial
difficulties the Company experienced prior to and during those periods. The
aggregate amount of past due rental payments owed by the Company under all of
the occupied leases was approximately $31,000 as of December 31, 1995, which
is reflected in the 1996 future minimum lease payments in the table above.
Rent expense was approximately $894,000, $897,000 and $170,000 for the
years ended December 31, 1995, 1994, and 1993, respectively.
EMPLOYMENT AGREEMENTS
The Company had entered into employment contracts with certain key
officers in connection with the Employment Placement Business at December 31,
1995.
At December 31, 1995, the Company has entered into preliminary
discussions with certain key employees for equity arrangements involving the
operations they manage in the Employment Placement Business.
OTHER CONTINGENCIES
The Company is involved in certain other litigation and disputes not
previously noted. Management believes such claims are without merit or are
adequately covered by insurance and has concluded that the
<PAGE>
ultimate resolution of such disputes will not have a material effect on the
Company's consolidated financial statements.
13. 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 Company provides CFS, Inc. with
personnel and contract labor on a subcontractor basis. Laurie Moore, the
wife of J. Michael Moore, the Chief Executive Officer and Chairman of the
Board of the Company, owns 49% of CFS, Inc. 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 had assets of
$79,000 and liabilities of $151,000 owed to the Company at December 31,
1995. The joint venture recorded a net loss for the year of $74,000.
Accordingly, the Company recognized a $48,000 loss from joint venture
operations in the Consolidated Statement of Operations for the year ended
December 31, 1995.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Diversified Human Resources Group, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Diversified
Corporate Resources, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity
(capital deficiency), and cash flows for each of the three years in the
period ended December 31, 1995. Our audits also included the financial
statement schedule listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidate financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide as reasonable basis for our opinion.
The Company's financial statements do not disclose proforma results of
operations for the years ended December 31, 1993 relating to a business
acquisition on January 3, 1994 as further described in Note 3. In our opinion,
disclosure of this information is required to conform with generally accepted
accounting principles.
In our opinion, except for omission of the information discussed in the
previous paragraph, the consolidated financial statements referred to above
present fairly, in all material aspects, the consolidated financial position of
Diversified Corporate Resources, Inc. and subsidiaries as of December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Weaver and Tidwell, L.L.P.
WEAVER AND TIDWELL, L.L.P.
Dallas, Texas
April 9, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: December 16, 1996 By: /s/ J. Michael Moore
-----------------------------------
J. Michael Moore
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
/s/ J. Michael Moore Chairman and Chief Executive Officer
- ------------------------
J. Michael Moore
/s/ M. Ted Dillard Chief Financial Officer, Secretary, Treasurer and
- ------------------------ Director (Principal Financial and Accounting Officer)
M. Ted Dillard
/s/ Donald A. Bailey Director
- ------------------------
Donald A. Bailey
