DIVERSIFIED CORPORATE RESOURCES INC, S-1, 1997-07-22

DIVERSIFIED CORPORATE RESOURCES INC
S-1, 1997-07-22
EMPLOYMENT AGENCIES

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY , 1997

REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------

DIVERSIFIED CORPORATE RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
TEXAS 7371 75-1565578
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

<TABLE>
<S> <C>
J. MICHAEL MOORE M. TED DILLARD
CHIEF EXECUTIVE OFFICER PRESIDENT
DIVERSIFIED CORPORATE RESOURCES, INC. DIVERSIFIED CORPORATE RESOURCES, INC.
12801 NORTH CENTRAL EXPRESSWAY 12801 NORTH CENTRAL EXPRESSWAY
SUITE 350 SUITE 350
DALLAS, TEXAS 75243 DALLAS, TEXAS 75243
(972) 458-8500 (972) 458-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL AND TELEPHONE NUMBER, INCLUDING
EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS) AREA CODE, OF AGENT FOR SERVICE)
</TABLE>

------------------------

COPIES TO:

<TABLE>
<S> <C>
MARK D. WIGDER, ESQ. LAWRENCE B. LOW, ESQ.
GREGORY J. SCHMITT, ESQ. DAVID M. NIEBAUER, ESQ.
JENKENS & GILCHRIST, A PROFESSIONAL CORPORATION GRAHAM & JAMES, LLP
1445 ROSS AVENUE, SUITE 3200 ONE MARITIME PLAZA, SUITE 300
DALLAS, TEXAS 75202 SAN FRANCISCO, CALIFORNIA 94111
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH OFFERING PRICE AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $.10 par value shares $ $ 12,000,000 $ 3,636.36
</TABLE>

(1) Includes shares that may be purchased by the Underwriters to cover
over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE PROSPECTUS IS DELIVERED IN FINAL FORM. UNDER
NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES, IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION, DATED , 1997
SHARES
DIVERSIFIED CORPORATE RESOURCES, INC.
[LOGO]

COMMON STOCK

Of the shares of common stock, par value $0.10 per share (the "Common
Stock"), offered hereby (the "Offering"), shares are being sold by
Diversified Corporate Resources, Inc., a Texas corporation (the "Company"), and
shares are being sold by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholders.
See "Use of Proceeds."

The Common Stock is currently traded in the over-the-counter market and is
listed in the pink sheets under the symbol "HIRE." On , 1997, the
last reported sales price of the Common Stock as reported by a market maker for
the Common Stock was $ per share. See "Price Range of Common Stock."
Application will be made to have the Common Stock approved for listing on the
Nasdaq National Market under the symbol " ."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share................................................... $ $ $ $
Total(3).................................................... $ $ $ $
</TABLE>

(1) Does not reflect additional compensation to the Underwriters in the form of
warrants granted to the Representative of the Underwriters to purchase
shares of Common Stock at a price of 120% of the Price to Public
exercisable over a period of four years commencing one year from the date of
this Prospectus (the "Representative's Warrants"). In addition, the Company
and the Selling Shareholders have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."

(2) Before deducting estimated expenses of $ payable by the Company,
including the Representative's non-accountable expense allowance and
expenses of the Selling Shareholders. See "Principal and Selling
Shareholders."

(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional shares of Common Stock, solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholders will be $ , $ , $
and $ , respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to the right of the Underwriters to reject any order
in whole or in part and certain other conditions. It is expected that delivery
of the certificates for the Common Stock will be made against payment therefor
at the offices of Cruttenden Roth Incorporated, Irvine, California, on or about
, 1997.

------------------------

CRUTTENDEN ROTH
INCORPORATED
<PAGE>
[PICTURE]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.

------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY. FOR A DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT INDICATES OTHERWISE, ALL REFERENCES HEREIN TO THE "COMPANY" REFER TO
DIVERSIFIED CORPORATE RESOURCES, INC. AND ITS SUBSIDIARIES AND PREDECESSORS
COLLECTIVELY. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR THE
REPRESENTATIVE'S WARRANTS.

THE COMPANY

Diversified Corporate Resources, Inc. is an employment services firm that
provides professional and technical personnel on a contract, permanent placement
and temporary basis to high-end niche employment markets, such as the
information technology ("IT") market. While the majority of the Company's
revenues are derived from providing IT staffing solutions, the Company also
fills other high-end niche employment positions in the engineering/technical,
accounting/finance and professional/technical sales disciplines. The Company
offers contract, permanent placement and temporary staffing solutions in this
broad variety of disciplines in order to position itself as a single source
provider of solutions to meet all of a client's high-end staffing needs. In
addition to maintaining this competitively balanced business model, the Company
focuses on recruiting qualified applicants for placement, and enhancing its
training capabilities. The Company manages its operations as a group of profit
centers, each of which is incentivized to share leads and draw from each other's
information resources, as well as to achieve strong independent performance. The
Company serves its clients, including several Fortune 500 companies, through its
network of offices located in Dallas, Houston and Austin, Texas, Atlanta,
Georgia, Chicago, Illinois, Kansas City, Missouri and Raleigh, North Carolina.

The employment services industry has experienced significant growth.
According to a May 16, 1997 Staffing Industry Report, 1995 and 1996 revenues for
the U.S. staffing industry and its segments were estimated at $63.7 billion and
$74.4 billion, respectively, a 17% increase, and 1997 revenues are projected to
be $86.6 billion, a 16% increase. Such growth reflects fundamental changes in
the employer-employee relationship which have caused employers to impose
heightened hiring criteria for permanent employees and have increased the demand
for project-oriented contract hiring. These employers require the ability to
outsource their staffing needs and, the flexibility provided by the use of
contract, permanent or temporary personnel helps them keep personnel costs
variable, achieve maximum flexibility, and avoid the negative effects of
layoffs. These trends have been compounded by the ever increasing rate at which
companies must respond to, and take advantage of, advances in IT, particularly
because these advances create a significant corresponding need for access to
professionals with up-to-date IT skills.

The IT services industry has undergone and continues to undergo rapid
evolution and growth. "IT services" is a term that now encompasses not only
computer and communications systems hardware but also the personnel who design,
manage and maintain those systems. According to a May 16, 1997 Staffing Industry
Report, 1995 and 1996 revenues for this sector were estimated at $8.9 billion
and $11.7 billion, respectively, a 31% increase, and 1997 revenues are projected
to be $14.9 billion, a 27% increase.

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<PAGE>
more difficult. To keep up with these changes, companies are increasingly
seeking employment services firms like the Company to provide IT professionals
on a permanent, temporary or contract basis.

The Company's objective is to become a nationally recognized leader in
permanent placement and contract specific personnel solutions for high-end niche
employment markets. The Company's business strategy is to: (i) maintain its high
margin niche focus, (ii) build on its single source provider strategy for
staffing services, (iii) focus on recruiting, management and retention of highly
skilled professionals, (iv) improve and expand its training programs, and (v)
broaden its geographic coverage. The Company believes that its business strategy
will provide it with certain competitive advantages that will enable it to
address the demands of the high-end niche employment markets it serves.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by:

The Company................................. shares

The Selling Shareholders.................... shares

Common Stock to be outstanding after the
Offering...................................... shares(1)

Use of Proceeds................................. For enhancement of the Company's training
facilities, for expansion and improvement
of its applicant database capabilities,
to retire certain factoring and/or other
credit facilities, for possible
acquisitions, and for general corporate
purposes. See "Use of Proceeds."

Proposed Nasdaq National Market symbol..........
</TABLE>

- ------------------------

(1) Excludes an aggregate 350,000 shares of Common Stock reserved for issuance
under options granted to certain members of management and under the
Company's 1996 Amended and Restated Nonqualified Stock Option Plan (the
"1996 Stock Option Plan"). See "Management--Stock Option Plans."

4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
OPERATING DATA:

Net service revenues............................. $ 15,233 $ 19,358 $ 27,430 $ 6,214 $ 7,279
Cost of services................................. 11,132 14,332 19,675 4,450 5,195
---------- ---------- ---------- ---------- ----------
Gross margin................................... 4,101 5,026 7,755 1,764 2,084

Selling, general and administrative expenses..... 4,147 4,497 5,703 1,283 1,887
Other income (expenses).......................... 62 (183) (288) (93) (49)
---------- ---------- ---------- ---------- ----------
Income before income taxes and extraordinary
item......................................... 16 346 1,764 388 148
Income (taxes) benefit, net...................... -- (60) (225) (50) 43
Extraordinary item............................... 208 175 246 -- 43
---------- ---------- ---------- ---------- ----------
Net income..................................... $ 224 $ 461 $ 1,785 $ 338 $ 234
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Primary earnings per share....................... $ .13 $ .26 $ .98 $ .19 $ .13
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding............................. 1,758,211 1,758,211 1,814,016 1,758,211 1,844,741
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Cash and cash equivalents........................ $ 46 $ 6 $ 613 $ 489
Working capital (deficit)........................ (1,142) (1,060) 95 14
Total assets..................................... 2,563 3,007 5,204 5,726
Total liabilities................................ 3,476 3,459 4,016 4,319
Stockholders' equity (capital deficiency)........ (913) (452) 1,188 1,406
</TABLE>

5
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK OF THE COMPANY INVOLVES CERTAIN RISKS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. CERTAIN INFORMATION CONTAINED IN
THIS PROSPECTUS CONSTITUTES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT, AND SECTION 31E OF THE EXCHANGE ACT, WHICH
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "EXPECT," "BELIEVE," "ANTICIPATE," "ESTIMATE," "PLAN" OR "CONTINUE" OR
THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
STATEMENTS BELOW CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS,
INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.

DEPENDENCE ON AVAILABILITY OF QUALIFIED PERSONNEL

The Company depends upon its ability to attract, retain and place qualified
personnel, particularly technical and professional personnel, who possess the
skills and experience necessary to meet the staffing requirements of its
clients. Competition for individuals with proven technical or professional
skills is intense and demand for such individuals is expected to remain very
strong for the foreseeable future. The Company must continually evaluate and
upgrade its base of available qualified personnel to keep pace with changing
client needs and emerging technologies. There can be no assurance that qualified
personnel will continue to be available to the Company in sufficient numbers and
upon economic terms acceptable to the Company or that the Company will be able
to attract, retain and place qualified personnel who can meet client needs. See
"Business--Competition."

LIMITED OPERATING HISTORY

The Company reentered the permanent and contract professional placement
business in 1993. Consequently, the Company has a limited operating history upon
which prospective investors may base an evaluation of its performance. While the
Company has been profitable and its revenues have grown in each of the last
three fiscal years, there can be no assurance that the Company will continue to
be profitable or that its revenues will continue to grow. See "The Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY

The Company's periodic operating results have fluctuated in the past due to
many factors. In view of the Company's significant growth in recent years, the
Company believes that period-to-period comparisons of its financial results are
not necessarily meaningful and should not be relied upon as an indication of
future performance. The Company's operating results are adversely affected when
client facilities close due to holidays. In particular, the Company generally
experiences a certain amount of seasonality in its fourth quarter due to the
number of holidays in that period.

COMPETITION

The Company believes that the availability and quality of candidates, the
quality of service, the scope of geographic service and the price of service are
the principal elements of competition. Although the Company believes it competes
favorably with respect to these factors, it expects competition to increase, and
there can be no assurance that the Company will remain competitive. See
"Business--Competition."

The employment services industry is very competitive and fragmented. There
are relatively limited barriers to entry and new competitors frequently enter
the market. A number of the Company's competitors possess substantially greater
resources than the Company. The Company faces substantial competition for
potential clients and for technical and professional personnel from providers of
outsourcing services,

6
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systems integrators, computer systems consultants, other providers of staffing
services, temporary personnel agencies and search firms, ranging from large
national companies to local employment staffing entities. Large national
companies that offer employment staffing services include Robert Half
International, Computer Horizons, Inc., and Alternative Resources Corporation.
Other firms that the Company competes with include RCM Technologies,
Professional Staff, Personnel Management, Joulet, ROMAC International, Inc.,
Source Services Corp., Data Processing Corp. and General Employment Enterprises.
Local employment staffing entities are typically operator-owned, and each market
generally has one or more significant competitors. In addition, the Company
competes with national clerical and light industrial staffing firms that also
offer temporary staffing services. These companies include Interim Services,
Inc., Norrell Corporation, AccuStaff Incorporated, and Olsten Corp. In addition,
national and regional accounting firms also offer certain employment staffing
services. Finally, the Company also faces the risk that certain of its current
and prospective clients will decide to provide similar services internally.
There can be no assurance that the Company will be able to continue to compete
effectively with existing or potential competitors. See "Business--Competition."

POSSIBLE ADVERSE EFFECTS OF FLUCTUATIONS IN THE GENERAL ECONOMY

Historically, the general level of economic activity has significantly
affected the demand for the employment services provided by the Company and the
employment services industry at large. As economic activity increases, temporary
and contract personnel often are added to the work force before permanent
employees are hired. During these periods of increased economic activity and
generally higher levels of employment, the competition among staffing services
firms for qualified temporary and contract personnel is intense. There can be no
assurance that during these periods the Company will be able to recruit the
temporary and contract personnel necessary to fill its clients' needs or that
other competitive factors will not adversely affect the Company's results of
operation or financial condition. Similarly, an economic downturn may adversely
affect the demand for permanent, temporary and contract personnel and may have a
material adverse effect on the Company's business, results of operations or
financial condition.

RELIANCE ON KEY EXECUTIVES AND QUALIFIED OPERATING EMPLOYEES

The Company is highly dependent on its key executive management and its
regional/district managers. The Company expects that its continued success will
largely depend upon the efforts and abilities of J. Michael Moore, the Company's
Chairman of the Board and Chief Executive Officer, M. Ted Dillard, the Company's
President, Douglas G. Furra, its Chief Financial Officer and its
regional/district managers. The loss of services of Mr. Moore, Mr. Dillard, Mr.
Furra or any other key executive for any reason could have a material adverse
effect upon the Company. The Company's success also depends upon its ability to
identify, develop, and retain qualified operating managers, and recruiting and
account management personnel. The Company expends significant resources in
recruiting and training its employees, and the pool of available applicants for
these positions is limited. There can be no assurance that the Company will
continue to be able to identify, develop, and retain qualified operating
management and client servicing employees. In addition, the loss of some of the
Company's operating management and client servicing employees could have a
material adverse effect on the Company's operations, including the Company's
ability to establish and maintain client relationships. See
"Management--Employment Agreements."

ABILITY TO MANAGE GROWTH

The Company has experienced significant recent growth and expansion. This
rapid growth and expansion has placed and could continue to place a significant
strain on the Company's management, resources and operating systems, and the
failure to manage growth effectively could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Management."

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IMPLEMENTATION OF BUSINESS STRATEGY AND ABILITY TO ACHIEVE GROWTH

The Company's continued growth depends on a number of factors, including the
ability to maintain profit margins in the face of competitive pressures and
changing regulatory environments, the ability to continue to develop successful
additional service offerings, the availability of sufficient working capital,
the success of its continuing efforts to improve the recruitment, motivation,
and retention of its key executives, operating employees and applicants, the
strength of demand in the Company's markets, and the ability to develop and
successfully expand and upgrade its information processing capabilities. The
Company has developed a number of business strategies that are designed to
continue the growth in the Company's business. However, there can be no
assurance that the Company will be able to successfully implement such
strategies, or that the Company's business strategies will produce the desired
results. See "Business-- Business Strategy."

Where appropriate, the Company plans to pursue acquisitions of employment
services firms. There can be no assurance that the Company will be able to
successfully identify suitable acquisition candidates, complete acquisitions,
integrate acquired businesses into its operations, or expand into new markets.
Once integrated, acquisitions may not achieve comparable levels of revenues,
profitability or productivity as those historically achieved by the Company, or
otherwise perform as expected. The Company is unable to predict whether or when
any prospective acquisition candidate will become available or the likelihood
that any acquisition will be completed. The Company competes for acquisition and
expansion opportunities with entities that have substantially greater resources
than the Company. In addition, acquisitions involve a number of special risks,
such as diversion of management's attention, difficulties in the integration of
acquired operations and retention of personnel, unexpected problems or legal
liabilities, and tax and accounting issues, some or all of which could have a
material adverse effect on the Company's results of operations and financial
condition. The Company currently has no definitive arrangements or
understandings in effect regarding possible acquisitions.

DEPENDENCE ON CERTAIN CLIENTS; TERMINABILITY OF CLIENT ARRANGEMENTS

The Company's largest client accounted for approximately 6.6% and 8.0% of
revenues in fiscal 1995 and 1996, respectively. The Company's top ten clients
accounted for approximately 21.8% of revenue in fiscal 1996. The loss of a
significant client or clients could have a material adverse effect on the
Company's business, operating results and financial condition. Substantially,
all of the Company's arrangements with clients are terminable by the client at
will or on 30 days' notice and without any penalty. There can be no assurance
that existing clients will continue to engage the Company's services at
historical levels, if at all.

EMPLOYMENT LIABILITY RISK

Providers of staffing services employ and place people in the workplaces of
other businesses. An inherent risk of such activity includes possible claims
against the Company for errors and omissions, misuse of client proprietary
information, misappropriation of funds, discrimination and harassment,
employment of illegal aliens, theft of client property, other criminal activity
or torts, and other claims. Damages to the Company's clients could arise from a
variety of mistakes or failures to act by personnel placed by the Company (e.g.,
the negligent action or inaction of a computer technician could cause disruption
to a client's management information systems or the mistake of an accountant
could result in a client's financial statements being inaccurate). A failure of
any Company employee or personnel to observe a client's or the Company's
policies and guidelines intended to reduce exposure to these risks, or
applicable federal, state, or local laws, rules and regulations, or other
circumstances that cannot be predicted, could result in negative publicity,
injunctive relief, and the liability of the Company for monetary damages or
fines, or have other material adverse effects upon the Company. There can be no
assurance that the Company will not experience such problems in the future. To
reduce its exposure to these risks, the Company maintains insurance covering
general liability and errors and omissions for contract and temporary
placements. There can be no assurance that such insurance coverage will continue
to be available economically in

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amounts adequate to cover any such liability. The Company is also exposed to
potential claims with respect to the candidates it places on a permanent basis,
particularly because of legal constraints and considerations that might make it
difficult for the Company to perform background investigations into certain
matters. See "Business--Insurance."

GOVERNMENT REGULATION

The Company is required to pay a number of federal, state, and local payroll
and related costs, including unemployment taxes, workers' compensation and
insurance, FICA, and Medicare, among others, for its employees and personnel.
Significant increases in the effective rates of any payroll related costs would
likely have a material adverse effect upon the Company. The Company's costs
could also increase as a result of health care reforms or the possible
imposition of additional requirements and restrictions related to the placement
of personnel. Recent federal and state legislative proposals have included
provisions extending health insurance benefits to personnel who currently do not
receive such benefits. There can be no assurance that the Company will be able
to increase the fees charged to its clients in a timely manner and in a
sufficient amount to cover increased costs, if any such proposals are adopted or
that the Company will be able to adapt to future regulatory changes.

In addition, most states require permanent placement firms to be licensed in
order to conduct business. Such licenses may be revoked upon material
noncompliance with state regulations. Any such revocations would have a material
adverse effect on the business of the Company. Various government agencies have
advocated proposals from time to time to license or regulate the placement of
temporary personnel. The Company does not believe that such proposals, if
enacted, would have a material adverse effect on its business. See
"Business--Regulation."

CONCENTRATION OF OWNERSHIP

Upon completion of the Offering, the Company's Chairman of the Board, Chief
Executive Officer and principal shareholder, Mr. J. Michael Moore, will own
directly or indirectly approximately % of the Company's outstanding shares of
Common Stock ( % if the over-allotment option is exercised in full). As a
result, Mr. Moore will be able to exercise effective control over almost all
matters requiring shareholder approval. This concentration of ownership could
have the effect of making it difficult for a third party to acquire control of
the Company and may discourage third parties from attempting to do so. Further,
future sales of substantial amounts of Common Stock by Mr. Moore, or the
potential for such sales, could adversely affect the prevailing market price of
the Common Stock. As security for a $1.75 million loan from Imperial Bank (the
"Imperial Loan") USFG-DHRG L.P. No. 2, Inc. a/k/a DCRI L.P. No.2, Inc., an
entity controlled by Mr. Moore (the "Controlling Shareholder"), has pledged
643,500 shares of Common Stock and, upon obtaining control of such shares from
D&H (as defined below), 130,700 of the D&H Shares (as defined below),
representing approximately 43.4% of the outstanding shares of Common Stock as of
June 30, 1997. The Controlling Shareholder is obligated to cause the repayment
of the Imperial Loan from the proceeds of shares of Common Stock sold by the
Controlling Shareholder in the Offering. If, however, the Imperial Loan is not
repaid pursuant to its terms, Imperial Bank may foreclose on such security
interest, which could result in the transfer of Mr. Moore's effective control
over matters requiring shareholder approval to a third-party. In addition,
255,700 shares of Common Stock (the "D&H Shares") acquired by the Controlling
Shareholder are subject to a security interest held by D&H Partners, L.P., a
Delaware limited partnership ("D&H"), to secure certain purchase price
promissory notes that are in default. D&H has instituted litigation with respect
to such defaults seeking, among other things, judicial foreclosure of the D&H
Shares. See "Business--Legal Proceedings," and "Principal and Selling
Shareholders."

9
<PAGE>
MANAGEMENT DISCRETION CONCERNING USE OF PROCEEDS

The Company intends to use the net proceeds of the Offering for expansion of
the Company's training facilities, for expansion and improvement of its
applicant database capabilities, to retire certain factoring and/or other credit
facilities, for possible acquisitions and for general corporate purposes;
however, management will have substantial discretion in spending the proceeds to
be received by the Company. Pending such uses, the net proceeds will be invested
in short-term, investment grade securities, certificates of deposit, or direct
guaranteed obligations of the United States government. See "Use of Proceeds."

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Common Stock could be subject to significant
fluctuations in response to operating results of the Company, changes in general
conditions in the economy, the financial markets, the employment services
industry, or other developments affecting the Company, its clients, or its
competitors, some of which may be unrelated to the Company's performance. See
"Price Range of Common Stock."

OFFERING PRICE DETERMINATION; LIMITED PUBLIC MARKET

The public offering price of the Common Stock was determined by arms-length
negotiations among the Company, the Selling Shareholders and Cruttenden Roth
Incorporated (the "Representative") and does not necessarily bear any
relationship to assets, book value, earnings history or other investment
criteria. The primary factors considered in determining such offering price
include the trading price for the Company's Common Stock, the history of and
prospects for the industry in which the Company competes, market valuation of
comparable companies, market conditions for public offerings, the history of and
prospects for the Company's business, the Company's past and present operations
and earnings and the trend of such earnings, the prospects for future earnings
of the Company, the Company's current financial position, an assessment of the
Company's management, the general condition of the securities markets, the
demand for similar securities of comparable companies and other relevant
factors. Prior to the Offering, there has been a limited public market for the
Company's Common Stock. Although application will be made to have the Common
Stock approved for quotation on the Nasdaq National Market, there can be no
assurance that such application will be approved or that, if approved, an active
trading market will develop or that the prices at which the Common Stock will
trade in the public market following the Offering will not be lower than the
initial public offering price. See "Price Range of Common Stock" and
"Underwriting."

ABSENCE OF DIVIDENDS

The Company has never paid any cash dividends on the Common Stock and does
not anticipate paying any cash dividends on the Common Stock in the foreseeable
future. In addition, a significant subsidiary of the Company is prohibited under
the terms of its revolving line of credit from paying dividends without the
consent of the lender. See "Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that future sales of
Common Stock will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock (including shares
issued upon the exercise of options or warrants, including the Representative's
Warrants) in the public market following the Offering, or the perception that
such sales could occur, could adversely affect prevailing market prices of the
Common Stock. Upon completion of the Offering, the Company will have shares of
Common Stock outstanding. Of this amount, shares ( shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction. The remaining shares will be "Restricted
Securities" and may only be sold pursuant to a registration statement under the
Securities Act, or an applicable exemption from the registration requirements of
the

10
<PAGE>
Securities Act, including the exemption provided by Rule 144. The Company, its
executive officers, directors and certain current shareholders, owning an
aggregate of shares of Common Stock, have agreed that they will not, without
the prior written consent of the Representative, directly or indirectly, offer
to sell, sell or otherwise dispose of any shares of Common Stock owned by them
for a period of one year after the date of this Prospectus. See "Principal and
Selling Shareholders," "Shares Eligible for Future Sale," and "Underwriting."

POSSIBLE ISSUANCE OF PREFERRED STOCK

In addition to the Common Stock, the Company's Articles of Incorporation
authorize the issuance of up to 1,000,000 shares of preferred stock. Immediately
following the Offering, no shares of preferred stock of the Company will be
outstanding, and the Company has no current plans to issue any shares of
preferred stock. However, because the rights and preferences for any series of
preferred stock may be set by the Board of Directors in its sole discretion,
those rights and preferences may be superior to the rights of holders of the
Common Stock and thus may adversely affect the rights of holders of Common
Stock. See "Description of Capital Stock--Preferred Stock."

LIMITATION OF LIABILITY

The Company's Articles of Incorporation provide that directors of the
Company shall not be personally liable for monetary damages to the Company or
its shareholders for a breach of fiduciary duty as a director, subject to
limited exceptions. Although such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission, the
presence of these provisions in the Articles of Incorporation could prevent the
recovery of monetary damages against directors of the Company.

ACTUAL RESULTS MAY DIFFER FROM FORWARD-LOOKING STATEMENTS

Statements in this Prospectus that reflect projections or expectations of
future financial or economic performance of the Company, and statements of the
Company's plans and objectives for future operations, including those relating
to the Company's services and business strategies, are "forward-looking"
statements. No assurance can be given that actual results or events will not
differ materially from those projected, estimated, assumed or anticipated in any
such forward looking statements. Important factors that could result in such
differences, in addition to the risk factors identified above, include: general
economic conditions in the Company's markets, including inflation, recession,
interest rates and other economic factors; the availability of qualified
personnel; the level of competition experienced by the Company; the Company's
ability to implement its business strategies and to manage its growth; and other
factors that generally affect businesses.

11
<PAGE>
THE COMPANY

Diversified Corporate Resources, Inc. is a Texas corporation that was
incorporated in 1977 under the name of Diversified Human Resources Group, Inc.
The Company changed its name in 1994 to its current name. The Company's Common
Stock traded on the Nasdaq over-the-counter market from November 21, 1985 to
December 31, 1991. Since that time the Common Stock has been traded on the
over-the-counter market and listed in the pink sheets. The Company plans to file
an application for listing on the Nasdaq National Market.

Prior to September 1991, the Company was primarily engaged in the permanent
and temporary placement of professional personnel. In September 1991, the
Company consummated four separate transactions relating to the sale of
substantially all of the Company's assets. As consideration for the Company's
agreement to sell its assets, the various purchasers (i) executed interest
bearing secured promissory notes that were payable to the Company over periods
of three to six years; (ii) assumed various liabilities and obligations of the
Company in connection with the purchased assets; and (iii) agreed to pay the
Company a monthly royalty fee for six years equal to specified percentages of
the gross revenues of the respective divisions. In 1992 and 1993, the Company
foreclosed on certain assets which secured the promissory notes issued to the
Company and began its current permanent, temporary and contract staffing
business.

The Company's principal executive offices are located at 12801 North Central
Expressway, Suite 350, Dallas, Texas 75243, and its telephone number is (972)
458-8500.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $ per share, after deducting the underwriting discount
and estimated offering expenses. The Company will not receive any proceeds from
the sale of shares of Common Stock by the Selling Shareholders. See
"Principal and Selling Shareholders" and "Underwriting."

The Company intends to use its net proceeds from the Offering for
enhancement of the Company's training facilities, for expansion and improvement
of its applicant database capabilities, to retire certain factoring and/or other
credit facilities, for possible acquisitions, and for general corporate
purposes. Pending such uses, the net proceeds will be invested in short term,
investment grade securities, certificates of deposit, or direct or guaranteed
obligations of the United States government.

12
<PAGE>
CAPITALIZATION

The following table sets forth as of March 31, 1997: (i) the capitalization
of the Company and (ii) the capitalization of the Company as adjusted to give
effect to the sale of the shares of Common Stock offered by the Company hereby
at an assumed public offering price of $ per share and the application
of the estimated net proceeds to the Company therefrom as described under "Use
of Proceeds." This information is qualified in its entirety by, and should be
read in conjunction with, the Consolidated Financial Statements of the Company,
and related notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(1)
--------- --------------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................... $ 489 $ 7,764
--------- --------------
--------- --------------
Current portion of long-term debt and other borrowings.................................. $ 725 $ --
--------- --------------
--------- --------------
Long-term debt.......................................................................... $ 68 $ 68
Stockholders' equity:
Common Stock, $0.10 par value; 10,000,000 shares authorized; shares outstanding;
shares outstanding as adjusted (1)............................................ 188
Preferred Stock, $1.00 par value; 1,000,000 shares authorized; no shares outstanding;
no shares outstanding as adjusted................................................... -- --
Additional paid-in capital............................................................ 3,615
Retained earnings (deficit)........................................................... (2,067) (2,067)
Common stock held in treasury (245,849 shares) at cost................................ (185) (185)
Receivables from related party........................................................ (145) (145)
--------- --------------
Stockholders' equity.............................................................. 1,406 9,406
--------- --------------
Total capitalization.............................................................. $ 1,474 $ 9,474
--------- --------------
--------- --------------
</TABLE>

- ------------------------

(1) Excludes an aggregate 350,000 shares of Common Stock reserved for issuance
under options granted to certain directors and members of management under
the Company's 1996 Stock Option Plan. See "Management--Stock Option Plans."

13
<PAGE>
PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded in the over-the-counter market and is
listed in the pink sheets under the symbol "HIRE." The following table sets
forth, for the periods indicated, the range of high and low closing sale prices
for the Common Stock, which prices were obtained from a market maker for the
Company's Common Stock.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1995
1st Quarter................................................................ $ .13 $ .13
2nd Quarter................................................................ .13 .13
3rd Quarter................................................................ .25 .25
4th Quarter................................................................ .25 .25

FISCAL YEAR 1996
1st Quarter................................................................ $ .62 $ .25
2nd Quarter................................................................ 1.75 .50
3rd Quarter................................................................ 3.75 2.00
4th Quarter................................................................ 4.00 3.00

FISCAL YEAR 1997
1st Quarter................................................................ $ 8.00 $ 2.50
2nd Quarter................................................................ 6.00 3.50
3rd Quarter (through July 14, 1997)........................................ 6.00 4.50
</TABLE>

The Company had approximately 180 holders of record of Common Stock as of
June 30, 1997. While the Company knows that a number of beneficial owners of its
Common Stock hold shares in street name, no estimate has been made as to the
number of shareholders owning stock of the Company in street name.

DIVIDEND POLICY

The Company has not paid any cash dividends on its stock since its
inception. The Company expects that it will retain all available earnings
generated by its operations for the development and growth of its business and
does not anticipate paying any cash dividends in the foreseeable future. Any
future determination as to dividend policy will be made in the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including the future earnings, capital requirements, financial condition and
future prospects of the Company and such other factors as the Board of Directors
may deem relevant. In addition, a significant subsidiary of the Company is
prohibited under the terms of its revolving line of credit from paying dividends
without the consent of the lender. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

14
<PAGE>
SELECTED FINANCIAL DATA

The following table sets forth historical consolidated financial data for
the Company as of the dates and for the periods indicated. The selected
financial data as of and for the years ended December 31, 1994, 1995 and 1996
have been derived from the audited consolidated financial statements of the
Company. The selected financial data as of and for the periods ended March 31,
1996 and 1997 are unaudited but, in the opinion of management, reflect all
adjustments necessary for a fair statement of the results for such periods and
as of such dates. All such adjustments are of a normal recurring nature. The
results for the three months ended March 31, 1997, are not necessarily
indicative of the results to be expected for the full fiscal year. In September
1991, the Company consummated the sale of substantially all of its assets. In
1992 and 1993, the Company repossessed certain of those assets. See "The
Company." Because no audited financial statements with respect to such assets
are available for 1992 or 1993, and because such assets represented a
substantial portion of the assets of the Company in 1992 and 1993, no financial
information for 1992 and 1993 has been provided. The selected financial data
should be read in conjunction with the Consolidated Financial Statements of the
Company and notes thereto contained elsewhere in this Prospectus, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------

<CAPTION>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net service revenues............................. $ 15,233 $ 19,358 $ 27,430 $ 6,214 $ 7,279
Cost of services................................. 11,132 14,332 19,675 4,450 5,195
---------- ---------- ---------- ---------- ----------
Gross margin................................... 4,101 5,026 7,755 1,764 2,084

Primary earnings per share....................... $ .13 $ .26 $ .98 $ .19 $ .13
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding............................. 1,758,211 1,758,211 1,814,016 1,758,211 1,844,741
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<CAPTION>

YEAR ENDED DECEMBER 31,
---------------------------------- THREE MONTHS
1994 1995 1996 ENDED MARCH 31, 1997
---------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 46 $ 6 $ 613 $ 489
Working capital (deficit)........................ (1,142) (1,060) 95 14
Total assets..................................... 2,563 3,007 5,204 5,726
Total liabilities................................ 3,476 3,459 4,016 4,319
Stockholders' equity (capital deficiency)........ (913) (452) 1,188 1,406
</TABLE>

15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE PRECEDING "SELECTED
FINANCIAL DATA." MOREOVER, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
ADDITIONALLY, THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES
THERETO, AS WELL AS OTHER DATA INCLUDED IN THIS PROSPECTUS, SHOULD BE READ AND
ANALYZED IN COMBINATION WITH THE ANALYSIS BELOW.

OVERVIEW

Diversified Corporate Resources, Inc. is an employment services firm that
provides professional and technical personnel on a contract, permanent placement
and temporary basis to high-end niche employment markets, such as the
information technology ("IT") market. While the majority of the Company's
revenues are derived from providing IT staffing solutions, the Company also
fills other high value-added employment positions in the engineering/technical,
accounting/finance, and professional/technical sales disciplines. The Company
offers contract, permanent placement and temporary staffing solutions in this
broad variety of disciplines in order to position itself as a single source
provider of solutions to meet all of a client's high-end staffing needs. In
addition to maintaining this competitively balanced business model, the Company
focuses on recruiting qualified applicants for placement and enhancing its
training capabilities. The Company manages its operations as a group of profit
centers, each of which is incentivized to share leads and draw from each other's
information resources, as well as to achieve strong independent performance. The
Company serves its clients, including several Fortune 500 companies, through its
network of offices located in Dallas, Houston and Austin, Texas, Atlanta,
Georgia, Chicago, Illinois, Kansas City, Missouri and Raleigh, North Carolina.

Fees for permanent placement of personnel are recognized as income at the
time the applicants accept employment. Provision is made for estimated losses in
realization (principally due to applicants failing to commence employment or not
remaining employed for the guaranteed period). Revenue from specialty services
and contract personnel placements is recognized upon performance of services by
the Company. Cost of services consists of expenses for the operation of offices,
principally commissions, direct wages paid to contract personnel, and payroll
taxes.

RESULTS OF OPERATIONS

The following table sets forth, as a percentage of net service revenues,
certain items in the Company's consolidated statements of income for the
indicated periods:

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
Revenues:
Permanent placement................................... 49.0% 47.1% 45.8% 44.7% 50.6%
Specialty services.................................... 18.9 21.8 27.2 25.1 25.8
Contract placement.................................... 32.1 31.1 27.0 30.2 23.6
--------- --------- --------- --------- ---------
Net service revenues................................ 100.0 100.0 100.0 100.0 100.0
Gross margin............................................ 26.9 26.0 28.3 28.4 28.6
Selling, general, and administrative expenses........... 27.2 23.2 20.8 20.6 25.9
Other income (expenses)................................. 0.4 (1.0) (1.1) (1.6) (0.7)
--------- --------- --------- --------- ---------
Income before taxes and extraordinary item.............. 0.1% 1.8% 6.4% 6.2% 2.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income.......................................... 1.5% 2.4% 6.5% 5.4% 3.2%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

16
<PAGE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996

NET SERVICE REVENUES. Net service revenues increased approximately $1.1
million or 17.1% to $7.3 million in the first quarter of 1997, compared to $6.2
million for the comparable 1996 quarter. Permanent placement revenues increased
approximately $903,000 or 32.5% to $3.7 million for the quarter ended March 31,
1997, compared to $2.8 million for the comparable 1996 quarter. Specialty
service revenues increased approximately $318,000 or 20.4% to $1.9 million for
the first quarter of 1997, compared to $1.6 million for the comparable 1996
quarter. The increases in permanent placement and specialty services were
primarily attributable to the Company's continued focus on high-end niche
employment markets, such as the information technology and engineering/technical
disciplines. Contract placement revenues decreased approximately $157,000 or
8.3% to $1.7 million in the first quarter of 1997, compared to $1.9 million for
the comparable 1996 quarter. Contract placement revenues declined as a result of
a lower number of people on job assignments, which was primarily attributable to
certain contracts coming to an end, the Company not replacing these contracts
until late in the quarter, certain personnel being converted to permanent
positions and unusually high recruiter turnover at the end of 1996.

GROSS MARGIN. Gross margin increased approximately $320,000 or 18.1% to
$2.1 million in the first quarter of 1997, compared to $1.8 million for the
comparable 1996 quarter. Gross margin as a percentage of net service revenues
increased to 28.6% in the first quarter of 1997 compared to 28.4% in the
comparable period in 1996, primarily due to an increase in permanent placement
revenues.

SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $604,000 or 47.1% to $1.9
million in the first quarter of 1997, compared to $1.3 million for the
comparable 1996 quarter. Selling, general and administrative expenses as a
percentage of net service revenues increased to 25.9% in the first quarter of
1997 from 20.6% in the comparable 1996 quarter. The increase was primarily the
result of increased marketing and recruiting expenses, increased expenditures on
the Company's back office to support the growth in sales, litigation expenses
and an increase in the provision for uncollectible accounts. Included in these
increases were increases in litigation expenses of approximately $109,000,
provision for uncollectible accounts of approximately $199,000, and
approximately $35,000 for the establishment of the Company's training facilities
over amounts for the comparable 1996 period.

OTHER EXPENSES. Other expenses declined approximately $44,000 to $49,000 in
the first quarter of 1997, compared to approximately $93,000 in the comparable
1996 quarter. The decrease in expenses was the result of a decrease in the loss
from joint venture operations and the collection of a receivable, previously
written off, associated with a prior year sale of assets.

INCOME TAXES. The income tax benefit was approximately $43,000 for the
first quarter of 1997, compared to an income tax expense of approximately
$50,000 for the comparable 1996 quarter. This decrease of approximately $93,000
resulted primarily from a first quarter 1997 credit of approximately $68,000
relating to an estimated prior year provision taken by the Company for state
income tax expense.

EXTRAORDINARY ITEMS. The extraordinary item-gain on debt restructuring, net
of income taxes, of approximately $43,000 during the first quarter of 1997
resulted from the Company settling certain prior year delinquent accounts
payable on a discounted basis.

NET INCOME. Net income decreased approximately $104,000 or 30.8% to
approximately $234,000 in the first quarter of 1997 as compared to $338,000 in
1996.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995

NET SERVICE REVENUES. Net service revenues increased approximately 41.7% to
$27.4 million in 1996, compared to $19.3 million for 1995. Permanent placement
revenues increased approximately 37.8% to

17
<PAGE>
$12.6 million in 1996, compared to $9.1 million in 1995. Specialty service
revenues increased approximately 77.0% to $7.4 million in 1996, compared to $4.2
million in 1995. Contract placement revenues increased approximately 22.9% to
$7.4 million in 1996 compared to $6.0 million in 1995. The increases in revenues
in 1996 were primarily attributable to the Company's continued focus on high
margin, high-end niche markets as demonstrated by the redeployment of Company
management and marketing resources and the opening of two new local offices
(Austin, Texas and Raleigh, North Carolina) to service IT clients in those
areas, further implementation of the Company's single source provider strategy
through the continued training and development of the Company's local office
management staff which resulted in sales growth within existing offices and
continued demand for the Company's services.

GROSS MARGIN. Gross margin increased approximately 54.3% to $7.8 million in
1996, compared to $5.0 million in 1995. Gross margin as a percentage of net
service revenues increased to 28.3% in 1996 from 26.0% in 1995, primarily as a
result of the Company's focus on higher margin business, particularly IT, and
the Company implementing cost reduction programs allowing fixed costs to be
spread over a larger revenue base.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately 26.8% to $5.7 million in 1996,
compared to $4.5 million in 1995; representing 20.8% of 1996 revenues. The
increase was primarily the result of increased marketing and recruiting
expenses, increased expenditures on the Company's back office, including
accounting, support staff and management information systems to support the
Company's growth strategies, as well as the overall growth in the Company's
business. Included in the increase in selling, general and administrative
expenses was an increase in selling expenses of $261,000 in 1996 over the
comparable period in 1995, an increase of $773,000 in general and administrative
expenses primarily for back office administration to support the Company's
growth and an increase of $172,000 primarily related to certain litigation
matters described in "Business--Legal Proceedings."

OTHER EXPENSES. Other expenses increased approximately $105,000 to $288,000
in 1996, compared to $183,000 in 1995, primarily due to increased losses from
joint venture operations and a writedown of a long-lived asset.

INCOME TAXES. Provisions for income taxes increased to approximately
$225,000 in 1996 from approximately $60,000 in 1995, as a result of increases in
the Company's taxable income.

NET INCOME. Net income increased approximately 287.5% to $1.8 million in
1996, as compared to $461,000 in 1995.

COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994

NET SERVICE REVENUES. Net service revenues increased approximately 27.1% to
$19.3 million in 1995, compared to $15.2 million in 1994. Permanent placement
revenues increased approximately 22.1% to $9.1 million in 1995, compared to $7.4
million in 1994. Specialty service revenues increased approximately 46.2% to
$4.2 million in 1995, compared to $2.9 million in 1994. Contract placement
revenues increased approximately 23.4% to $6.0 million in 1995, compared to $4.9
million in 1994. The increases in revenues in 1995 were primarily attributable
to the implementation of the Company's strategy to focus on high-end niche
markets, the Company's expansion of its specialty service offerings in all of
its offices as part of the Company's strategy to become a single source provider
of staffing solutions and continued demand for the Company's services.

GROSS MARGIN. Gross margin increased approximately 22.6% to $5.0 million in
1995, compared to $4.1 million in 1994. Gross margin as a percentage of net
service revenues decreased to 26.0% in 1995 from 26.9% in 1994, primarily as a
result of increases in employee payroll expenses, as well as specialty service
and contract labor compensation, to meet competitive pressures.

18
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately 8.4% in 1995 to $4.5 million,
compared to $4.1 million in 1994. The increase was primarily the result of
increased expenditures on the Company's back office, including accounting,
support staff and management information systems, to support the Company's
growth strategies, as well as the overall growth in the Company's business.
Included in the increase in selling, general and administrative expenses was an
increase in selling expenses of $114,000 in 1995 over the comparable period in
1994, and an increase of $236,000 in general and administrative expenses
primarily for back office administration to support the Company's growth.

OTHER EXPENSES. Other expenses increased approximately $245,000 in 1995 to
$183,000, compared to other income of $62,000 in 1994, primarily due to
decreased gains on foreclosed assets, losses from joint venture operations and
increased interest expense resulting from an increase in factored accounts
receivable.

INCOME TAXES. Provision for income taxes increased to approximately $60,000
in 1995 from zero in 1994, as a result of increases in the Company's taxable
income.

NET INCOME. Net income increased approximately 105.2% to $461,000 in 1995,
compared to $224,000 in 1994.

LIQUIDITY AND CAPITAL RESOURCES

Working capital was approximately $14,000 at March 31, 1997, compared to
working capital of approximately $95,000 at December 31, 1996. The decrease in
working capital of approximately $81,000 during the first quarter of 1997 was
primarily due to an increase in the Company's current liabilities, including
borrowings of $85,000 on an equipment line of credit for the purchase of
computer equipment and other fixed assets to build its back office to support
the growth in sales.

Cash flow provided by operating activities of approximately $171,000
resulted primarily from the profitable operations of the Company during the
first quarter of 1997. The Company made capital expenditures of approximately
$286,000 in the first quarter of 1997, primarily to improve its computer
systems, data base operations, and back office operations. As mentioned above,
the Company borrowed approximately $85,000 on a line of credit to purchase
computer equipment and other fixed assets to support its back office operations,
and increased its factored accounts receivable borrowings by $125,000 to fund
its operations during the first quarter of 1997.

The Company has entered into factoring arrangements involving advances on
its outstanding accounts receivable for fees ranging from 2% to 7% of factored
receivables, based on the number of days the receivable is outstanding. The
proceeds from factored accounts receivable were used to fund the operations of
the Company's business during 1996, 1995 and 1994. In addition, in 1996 a
subsidiary of the Company entered into an accounts receivable based revolving
line of credit agreement with a finance company, which replaced one of the
Company's factoring arrangements. The term of the credit agreement is for one
year but may be renewed if the subsidiary and lender so agree. Fees and interest
are based on the monthly average outstanding balance under the line of credit.
The amount available under the line of credit is based upon eligible accounts
receivable up to a maximum aggregate amount not to exceed the lesser of 85% of
the aggregate amount of eligible receivables or $1.0 million. The subsidiary had
approximately $881,000 in accounts receivable at March 31, 1997. All eligible
receivables are pledged as collateral. Interest is payable monthly at prime plus
2.5% ( 10.75% at March 31, 1997) plus an administrative fee of 0.6% on the
average daily outstanding balance during the preceding month. The loan requires
that the monthly interest and administrative fees be at least $7,500. At March
31, 1997, borrowings under the line of credit amounted to approximately
$454,000. The loan agreement requires such subsidiary to maintain positive cash
flow (as defined) and net income of no less than $50,000 per quarter and
restricts dividend payments and certain transactions of such subsidiary with its
affiliates.

19
<PAGE>
In August 1996, the Company entered into a $300,000 line of credit agreement
for the purchase of fixed assets. Interest is payable monthly at prime plus 2.5%
( 10.75% at March 31, 1997) and the fixed assets financed are pledged as
collateral. The line of credit will convert into long-term debt upon $300,000
being advanced, depending on the Company's continued relationship with the
lender. The long-term debt will have a five year term and bear interest monthly
at prime plus 2.5%. In addition, the Company has pledged as collateral on this
line of credit $450,000 of one of its subsidiary company's accounts receivable.
The outstanding balance of approximately $182,000 under this line of credit is
reflected in other short-term debt in the Consolidated Balance Sheet at March
31, 1997.

The Company is continually evaluating various financing strategies to be
utilized in expanding its business and to fund future growth or acquisitions.
Management of the Company anticipates that the net proceeds from the Offering,
combined with cash flow from operations, will provide adequate liquidity to fund
its business growth plans and its operations for at least the next 12 months. It
is anticipated that certain of the proceeds of the Offering will be used to
retire certain factoring and/or credit facilities. Management of the Company
anticipates that the cash flow from operations as well as its existing funding
sources, in the absence of the completion of the Offering, will provide adequate
liquidity to fund its existing operations for at least the next 12 months. See
"Use of Proceeds."

Inflation has not had a significant effect on the Company's operating
results.

In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("Statement
128"), which is effective for periods ending after December 15, 1997. Statement
128 specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS"). Some of the changes made to current EPS standards
include: (i) eliminating the presentation of primary EPS and replacing it with
basic EPS, with the principal difference being that common stock equivalents are
not considered in computing basic EPS, (ii) eliminating the modified treasury
stock method and the three percent materiality provision, and (iii) revising the
contingent share provision and the supplemental EPS data requirements. Statement
128 also requires dual presentation of basic and diluted EPS on the face of the
income statement, as well as a reconciliation of the numerator and denominator
used in the two computations of EPS. Basic EPS is defined by Statement 128 as
net income from continuing operations divided by the average number of common
shares outstanding without the consideration of common stock equivalents which
may be dilutive to EPS. The Company's current methodology for computing its
fully diluted EPS will not change in future periods as a result of its adoption
of Statement 128.

20
<PAGE>
BUSINESS

OVERVIEW

Diversified Corporate Resources, Inc. is an employment services firm that
provides professional and technical personnel on a contract, permanent placement
and temporary basis to high-end niche employment markets, such as the
information technology ("IT") market. While the majority of the Company's
revenues are derived from providing IT staffing solutions, the Company also
fills other high value-added employment positions in the engineering/technical,
accounting/finance, and professional/technical sales disciplines. The Company
offers contract, permanent placement and temporary staffing solutions in this
broad variety of disciplines in order to position itself as a single source
provider of solutions to meet all of a client's high-end staffing needs. In
addition to maintaining this competitively balanced business model, the Company
focuses on recruiting qualified applicants for placement, and enhancing its
training capabilities. The Company manages its operations as a group of profit
centers, each of which is incentivized to share leads and draw from each other's
information resources, as well as to achieve strong independent performance. The
Company serves its clients, including several Fortune 500 companies, through its
network of offices located in Dallas, Houston and Austin, Texas, Atlanta,
Georgia, Chicago, Illinois, Kansas City, Missouri and Raleigh, North Carolina.

INDUSTRY OVERVIEW

The growth of the IT services industry has been driven by: (i) the
interdependence of software applications, (ii) the integration of
telecommunications and computers, (iii) businesses, increasing reliance on
information technology as a strategic tool, (iv) the shift to distributed
computing with the movement from mainframe to client/server environments, and
(v) the fact that these computer networks are comprised of hardware and software
produced by a wide variety of vendors. As businesses struggle to integrate
multiple processing platforms and software applications which serve an
increasing number of end-users, systems and applications development has become
increasingly challenging. Furthermore, as businesses continue to focus on their
core competencies, but at the same time, strive to operate more efficiently with
fewer people, managing and planning staffing requirements to meet IT needs
becomes more difficult. To keep up with these changes, companies are
increasingly seeking employment services firms like the Company to provide IT
professionals who can manage the integration of computers, operating systems,
networks, and voice and data systems, as well as programming, hardware and
software system design and development, LAN management, Internet Web site
development and management or project staffing.

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<PAGE>
IT and engineering/technical projects, tend to be significantly longer and
more rigorously defined and require longer-term, more highly-skilled personnel
services than traditional temporary staffing placements. At the same time, these
IT and engineering/technical services offer the opportunity for higher
profitability than clerical and light industrial staffing because of the high
value-added nature of IT and engineering/ technical personnel, the expanding
demand for such qualified personnel and the limited number of sufficiently
skilled personnel to fill these positions. The recruiting and retention of
qualified IT and engineering/technical professionals is, therefore, a challenge
common to all companies in the IT and engineering/technical employment services
industries. Competitive companies have increased advertising and recruiting
efforts and are implementing strategies that utilize recruiting teams, the
Internet, full employment benefits, referral bonuses and specialized training
programs.

As a result of the continued growth and acceptance of the use of contract
personnel, including IT and engineering/technical personnel, management believes
that clients will demand expanded services from their staffing providers.
Management believes that a key characteristic of outsourcing is providing
convenience, flexibility and efficiency to clients and, in that regard, clients
will increasingly prefer to have their permanent, temporary and contract
staffing needs to all be satisfied by the same provider.

BUSINESS STRATEGY

MAINTAIN HIGH MARGIN NICHE FOCUS. The Company serves its clients by
delivering services across disciplines, such as: IT, engineering/technical,
financial/accounting and professional/technical sales, which generally provide
higher margins. The Company plans to continue to build on its existing strengths
by focusing management time and resources on higher margin services in markets
where the demand for the Company's services are strong. For example, in March
1996, the Company opened a new office in Austin, Texas which focuses exclusively
on the IT and engineering/technical disciplines. Furthermore, to provide its
clients with personnel with the most up-to-date technical skills possible, the
Company plans to implement its Train International programs, which will provide
training to its applicants.

SINGLE SOURCE PROVIDER STRATEGY. The Company has endeavored to offer
services in many of the employment disciplines required by its clients. By
responding to its client needs, the Company maintains strong client
relationships and leverages its existing operating overhead to expand its
service offerings to existing clients. The Company plans to continue to build
and expand on its core disciplines of IT, engineering/technical,
financial/accounting and professional/technical sales services by providing
trained professionals in evolving areas within these disciplines. At the same
time, the Company believes that offering the full range of contract, permanent
and temporary professional personnel across all of its disciplines is as
important as offering a variety of disciplines. The Company believes that this
approach will position it as a single source provider of staffing services and
will give the Company the ability to respond to changes in its market and, to a
limited extent, fluctuations in the demand for staffing services.

FOCUS ON RECRUITING, MANAGEMENT AND RETENTION OF APPLICANTS. The
recruiting, management and retention of skilled IT, engineering/technical,
financial/accounting and professional/technical sales professionals is one of
the main challenges for all companies in the employment services industry. The
Company plans on meeting this challenge with an approach which includes: (i)
aggressive direct marketing to targeted groups, such as professional
associations and industry trade groups; (ii) building its SearchNet data base
system to enhance the Company's ability to track applicants and to internally
share applicant information across the Company's profit centers; (iii) the use
of the Internet to attract applicants; (iv) offering competitive wage and
benefit packages; and (v) improving and expanding its training programs.

22
<PAGE>
IMPROVE AND EXPAND TRAINING PROGRAMS. Clients are demanding better trained
applicants to fill their staffing needs as well as continued training for their
own employees in order to keep pace with technological change. The Company
currently offers training programs at its corporate offices and plans to further
fill these needs by offering training and certification courses at Company
operated training centers. Management believes that through the Company's Train
International programs the Company can: (i) increase its ability to provide more
qualified high margin applicants to meet its clients' needs, (ii) offer training
to its clients' existing employees on developments in their respective fields of
interest, and (iii) further enhance its recruiting and retention of
professionals by offering programs that allow them to update their marketable
skills. Training is anticipated to encompass a full range of skill enhancements
from basic orientations through formal certification processes.

BROADEN GEOGRAPHIC COVERAGE. Currently the Company serves its clients in
selected markets. While the Company continues to expand its service offerings in
these markets, management believes that further growth can be achieved through
expansion into certain additional markets. The Company plans to open additional
offices in 1997 and 1998 to grow its core permanent placement and contract
placement business. This will complement the Company's recent opening of new
offices in Austin, Texas (March 1996) and Raleigh, North Carolina (October
1996), and allow better servicing of those clients with geographically dispersed
operations but which desire single source consistency in fulfilling their
staffing requirements. As another part of this strategy, the Company will
continue to examine opportunities to acquire complementary employment services
businesses in certain geographic markets.

CURRENT BUSINESS ACTIVITIES

The Company operates along functional lines of permanent and contract
placement of professional personnel. Specialty services, consisting of temporary
placements, are offered to the Company's permanent placement clients as part of
the Company's single source provider strategy. The permanent placement of
professional personnel is generally characterized by specified search parameters
and goals. The contract placement of IT and engineering/technical personnel is
generally a more project specific business, with IT and engineering/technical
personnel of the Company undertaking well defined projects for time periods
ranging from four weeks to a year or more. The Company believes that its focus
on high-end niche employment markets, its single source provider strategy, its
emphasis on recruiting and retention of qualified applicants and its plan to
pursue improved and expanded training programs will provide it with certain
competitive advantages.

PERMANENT PLACEMENT SERVICES

The Company is currently engaged in providing permanent placement services
in Dallas, Houston and Austin, Texas, Atlanta, Georgia, Chicago, Illinois and
Raleigh, North Carolina. The Company offers these services in the following
selected core disciplines:

- Information Technologies--Services include systems design, programming and
network analysis, as well as consulting, conversions, software
development, and information systems disaster control.

- Engineering/Technical--Services include process engineering, industrial
engineering and manufacturing services, as well as software design and
maintenance and related information technology services. Technical areas
serviced include environmental, construction, plastics, chemical,
telecommunications, computer hardware, food, and metals.

- Financial/Accounting--Services range from project-based accounting work to
recruitment and placement of financial managers.

- Professional/Technical Sales--Services range from technical
sales/marketing personnel to recruitment and placement of management
personnel.

As part of the Company's strategy to be a single source provider of
employment services to its clients, the Company recently began providing
permanent clerical and administrative personnel to its existing

23
<PAGE>
clients, primarily to support professional staff and executive management of
those clients. The Company is also involved in the recruitment and placement of
medical personnel, including doctors, nurses and therapists.

The Company usually enters into written contracts with clients specifying
its fee arrangements prior to undertaking any permanent placement services on
behalf of such clients. Fees range from 15% to 35% of the newly placed
employee's first year's annual salary. Although these fees are usually paid by
the employer, in certain instances such fees are paid by the newly placed
employee. The Company often offers its clients a 30 day guarantee of permanent
professional placements during which the Company agrees to replace, without
additional charge to the client, any newly placed employee who leaves such job.
If the Company is unable to replace the employee, it will generally refund the
client's fee or a prorated portion thereof depending upon the circumstances.

SPECIALTY SERVICES

As part of its single source provider strategy, the Company also provides
specialty services to its clients consisting of the placement of temporary
personnel in all of the Company's disciplines. These services have grown out of
demand from the Company's permanent placement clients to fill temporary
employment needs without incurring the associated costs of hiring, training or
providing employee benefits or to fill permanent employment needs with
applicants only after having had that applicant work for the client prior to
committing to a permanent hire. Personnel needs that can be filled by temporary
or temporary-to-permanent employees are primarily caused by vacation, illness,
resignation, increases in work volume, the need to staff special projects and a
desire for pre-screening of permanent hires.

An order for the Company's specialty services is typically generated as a
result of a referral from the Company's existing permanent placement clients or
as a result of the Company's marketing efforts. The Company obtains from the
client a description of the order and uses this information to select an
appropriate individual from the Company's data base of available temporary
personnel. Clients request temporary personnel for periods generally ranging
from one day to several weeks. The Company generally receives notice of the
assignment from 30 minutes to three days in advance. The Company charges clients
an hourly rate for temporary personnel. Substantially, all temporary personnel
assigned by the Company are Company employees and the Company pays all
employment costs, including hourly wages, unemployment taxes, social security
taxes and fringe benefits. The Company generally offers clients a guarantee
period during which the Company will refund the client's payment if the client
notifies the Company that it is dissatisfied with the employee's performance,
and the Company is unable to replace the employee.

CONTRACT PLACEMENT SERVICES

Substantially all of the Company's contract placement services relate to IT.
The Company provides these services primarily in the Dallas, Texas, Kansas City
and St. Louis, Missouri and Denver, Colorado markets. The Company's IT personnel
provide services in the following areas:

- project management

- systems analysis, development and design

- product implementation

- systems migration and conversions

- technical writing

- documentation support

- functional support

- company educational and project planning

- testing

- systems and network administration

- hardware, network, and software evaluation services

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<PAGE>
Contract engagements are generally project oriented and typically last from
four weeks to one year or more. The Company usually enters into written
contracts with clients after becoming an approved vendor. Services are then
provided on a time and materials or purchase order basis. The Company provides
individualized attention to each of its clients and develops and designs
tailored service programs based on its clients' unique needs. All contract
personnel assigned by the Company are Company employees. To assure that its
recruits provide clients with the highest degree of value-add possible, the
Company plans to provide training programs to its applicants.

CUSTOMERS

The Company has provided personnel and human resource solutions to many of
the nation's largest companies including: DSC Communications, Hitachi America,
American Airlines, Compaq Computer Corp., Mobil Oil, Dr. Pepper/7-UP, Texas
Instruments, MCI, Fidelity Investments, Blockbuster, DST Systems, MBNA,
Informix, and TU Electric.

RECRUITING

The Company recruits qualified applicants primarily through referrals from
other applicants and through newspaper advertising, its applicant data base, job
fairs and various media advertisements. The Company maintains extensive records
on qualified applicants. In order to attract permanent, temporary and contract
assignment candidates, the Company places emphasis upon its ability to provide
attractive placement opportunities, competitive compensation, quality and varied
assignments, and scheduling flexibility. The recruiting of skilled IT,
engineering/technical, financial/ accounting and professional/ technical sales
professionals is a central challenge for participants in the industry and
management believes that it has positioned the Company to address this challenge
in the future with an approach which includes: (i) aggressive direct marketing
to targeted groups, such as professional associations and industry trade groups;
(ii) building its SearchNet data base system to enhance the Company's ability to
track applicants and to internally share applicant information across the
Company's profit centers; (iii) the use of the Internet to attract applicants;
(iv) offering competitive wage and benefit packages; and (v) improving and
expanding its training programs.

The Company's professional personnel qualifying procedures include
interviewing, testing and reference checking. These procedures also enable the
Company to categorize its professional personnel by preference for job location,
hours and work environment. In order to attract high quality professional
employees, the Company grants paid vacations, holidays and other benefits for
temporary professional employees who work a specified minimum number of hours
for the Company.

TRAINING

The Company has begun to expand and improve its training of its applicant
pool. Train International programs contemplated to be offered in the future
include but are not limited to:

- Training in Various Software Applications

- Self-Paced Training for Support Personnel

- Internet/Intranet Network Training Programs

- Manufacturing Processes and Systems Certification and Training

- E-mail and Groupware

- Database/SpreadSheet

- Graphics and Desk Top Publishing

- Word Processing

- Certified Network Engineers

- Certified Network Administrators

- Power Point Application

- Microsoft Programs

- Windows 95

- Lotus Notes

- C++

- Visual Basic

25
<PAGE>
The Company plans on offering these services to its clients' employees and
the Company's applicant pool on a fee basis. Train International's first
classroom facility was completed during the second quarter of 1997. Its
classroom facilities feature state-of-the-art computer equipment. Eventually,
Train International plans to have training facilities in several locations.

MARKETING

The Company's marketing efforts are largely implemented at the local office
level and are focused on high-end niche employment markets. Historically, the
Company's contract, permanent placement and temporary services marketing efforts
have relied primarily on telephone solicitation, referrals from other Company
offices (each of which is incentivized to share leads and draw from each other's
information resources) and, to a lesser extent, on direct mail, yellow pages and
newspaper advertising. Increasingly, however, client visits have begun to play a
more important role in the Company's contract, permanent placement and temporary
services marketing efforts. The Company's contract placement marketing efforts
have largely involved the Company's efforts to become an approved vendor to
prospective clients. This process generally involves a rigorous review of the
Company's fitness to meet the staffing demands of prospective clients and,
management believes, creates a marketing advantage for the Company.

OTHER OPERATIONS AND SERVICES

The Company formed Preferred Funding Corporation ("PFC"), as a wholly-owned
subsidiary, in 1994 for the purpose of providing financing to its subsidiary
companies. To date, PFC has facilitated borrowings by the Company, and recently
arranged an accounts receivable based revolving line of credit for another
subsidiary of the Company with an unaffiliated finance company at lower rates
than those available to the Company from traditional factoring sources.
Management of the Company believes it can reduce the Company's overall cost of
funds (which are relatively high because of the Company's reliance on factoring)
thereby improving the Company's consolidated operating performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

COMPETITION

The Company believes that the availability of qualified candidates, the
quality of service, the scope of geographic service and the price of service are
the principal elements of competition. The Company believes that availability of
qualified applicants is an especially important facet of competition. Because
many candidates pursue other employment opportunities on a regular basis, it is
important that the Company respond to market conditions affecting applicants.
Although the Company believes it competes favorably with respect to these
factors, it expects competition to increase, and there can be no assurance that
the Company will remain competitive.

The employment services industry is very competitive and fragmented. There
are limited barriers to entry and new competitors frequently enter the market. A
number of the Company's competitors possess substantially greater resources than
the Company. The Company faces substantial competition for potential clients and
for technical and professional personnel from providers of outsourcing services,
systems integrators, computer systems consultants, other providers of staffing
services, temporary personnel agencies and search firms, ranging from large
national companies to local employment staffing entities. Large national
companies that offer employment staffing services include Robert Half
International, Computer Horizons, Inc., and Alternative Resources Corporation.
Other firms that the Company competes with include RCM Technologies,
Professional Staff, Personnel Management, Joulet, ROMAC International, Inc.,
Source Services Corp., Data Processing Corp., Alternative Resources Corp. and
General Employment Enterprises. Local employment staffing entities are typically
operator-owned, and each market generally has one or more significant
competitors. In addition, the Company competes with national clerical and light
industrial staffing firms that also offer temporary staffing services. These
companies include Interim Services, Inc., Norrell Corporation, AccuStaff
Incorporated, and Olsten Corp. In addition, national and regional accounting
firms also offer certain employment staffing services. Finally, the Company also
faces the risk that certain of its current and prospective clients will decide
to provide

26
<PAGE>
similar services internally. There can be no assurance that the Company will be
able to continue to compete effectively with existing or potential competitors.

REGULATION

Most states require permanent placement firms to be licensed in order to
conduct business. Such licenses may be revoked upon material noncompliance with
state regulations. Any such revocations would have a material adverse effect on
the business of the Company. The Company believes that it is in substantial
compliance with all such regulations and possesses all licenses necessary to
engage in the placement of permanent personnel in the jurisdictions in which it
does business. Various government agencies have advocated proposals from time to
time to license or regulate the placement of temporary personnel. The Company
does not believe that such proposals, if enacted, would have a material adverse
effect on its business. See "Risk Factors--Governmental Regulation."

EMPLOYEES

In addition to the temporary and contract personnel from time to time
employed by the Company for placement with clients, the Company had
approximately 285 full-time employees as of December 31, 1996. Of these
employees, approximately 250 were personnel consultants and office managers paid
on a commission basis and approximately 35 were administrative and executive
salaried employees. The Company considers its relations with its employees to be
good.

The Company emphasizes initial and ongoing training of its counselors and
managers. The primary focus of such training is on marketing the Company's
placement services as well as recruiting, qualifying and hiring applicants.

INSURANCE

The Company maintains a number of insurance policies. Its general liability
policy has aggregate coverage of $2.0 million, with a $1.0 million limit per
occurrence. The Company maintains an automobile liability policy with a combined
single coverage limit of $1.0 million. The Company also carries an excess
liability policy, which covers liabilities that exceed the policy limits of the
above policies, with an aggregate and a per occurrence limit of $2.0 million.
The Company also maintains professional liability and errors and omissions
policies, each with aggregate coverage of $500,000, covering certain liabilities
that may arise from the actions or omissions of its contract and temporary
personnel. There can be no assurance that any of the above coverages will be
adequate for the Company's needs. The Company currently maintains key man life
insurance on each of Mr. Moore and Mr. Dillard in the amount of $1.0 million.
See "Risk Factors--Employment Liability Risk."

PROPERTIES

As of December 31, 1996, the Company leased approximately 41,600 square feet
in one building in Dallas, Texas; the terms of such leases and its amendments
range from four years to seven years. The Company also leases approximately
17,000 square feet in Houston, Texas, 5,200 square feet in Austin, Texas, 2,000
square feet in Kansas City, Missouri, 10,000 square feet in Atlanta, Georgia,
3,000 square feet in Chicago, Illinois and 2,000 square feet in Raleigh, North
Carolina. Such leases generally range from three to five years. The current cost
of all of the Company's office leases is approximately $1,185,000 per annum.

The Company believes that all of its present facilities are adequate for its
current needs and that additional space is available for future expansion upon
acceptable terms.

LEGAL PROCEEDINGS

In September 1996 a lawsuit (the "Litigation") was filed by Ditto Properties
Company ("Ditto Properties") against the Controlling Shareholder, whose sole
shareholder is J. Michael Moore, Chairman of the Board and Chief Executive
Officer of the Company, USFG/DHRG L.P. No. 1 and J. Michael Moore individually
(collectively referred to as the "Defendants")

27
<PAGE>
In the Litigation, Ditto Properties seeks to rescind a Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated March 26, 1993, between Ditto
Properties and the Controlling Shareholder, pursuant to which Ditto Properties
had agreed to transfer 899,200 shares (the "Shares") of Common Stock to the
Controlling Shareholder, alleging, that the Defendants had fraudulently induced
Ditto Properties to execute the Stock Purchase Agreement and that the Defendants
failed to perform their obligations under the Stock Purchase Agreement. The suit
seeks injunctive relief and damages. The Controlling Shareholder's summary
judgment motion seeking dismissal of Ditto Properties' rescission claim was
granted on June 2, 1997.

On October 7, 1996, the Company filed a separate lawsuit against Ditto
Properties in state District Court in Dallas, Texas, seeking in excess of
$100,000,000 in damages and the reimbursement of expenses alleging that Ditto
Properties and Donald Ditto, Sr. interfered with Company business transactions
and proposed financings resulting in delays of certain transactions, lost
opportunities, lost profits and other significant losses.

In connection with the Litigation, the Company has incurred legal expenses
on its own behalf and, in addition, has funded the legal expenses of the
Defendants incurred in connection with the Litigation. Management has caused
funds to be advanced on behalf of the Defendants to try to prevent the
Litigation from having an adverse impact on the Company's business. The
Controlling Shareholder and Mr. Moore have entered into an agreement with the
Company pursuant to which Mr. Moore has agreed to reimburse such legal fees and
expenses deemed personal in nature by the Board of Directors. The Board of
Directors has determined that approximately 50% of the legal fees paid to the
Company's and Mr. Moore's counsel through October 24, 1996, should be reimbursed
by the Controlling Shareholder and that all of such fees and expenses after such
date should be reimbursed to the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes to the
Company's Consolidated Financial Statements.

Pursuant to the terms of an agreed order ("Agreed Order") entered by the
court in the Litigation, the Controlling Shareholder has deposited $1.5 million
with the special master appointed by the court. The funds for such deposit were
obtained pursuant to the Imperial Loan. The Representative has received certain
fees in exchange for arranging the Imperial Loan. See "Underwriting."

On April 5, 1994, a lawsuit was filed by D&H against the Controlling
Shareholder seeking, among other things, judicial foreclosure of the D&H Shares
representing approximately 14.3% of the outstanding Common Stock as of June 30,
1997. In connection with the Controlling Shareholder's acquisition of the D&H
Shares, the Controlling Shareholder entered into purchase price promissory notes
(the "Promissory Notes") and a security agreement (the "Security Agreement")
pursuant to which the D&H Shares were pledged as collateral. The Promissory
Notes are currently in default.

On September 13, 1996, a lawsuit was filed in the 44th Judicial District of
the District Court of Dallas County, Texas, by Billie Jean Tapp ("Ms. Tapp")
(which has since been joined by Gary K. Steeds ("Mr. Steeds") as a third party
plaintiff) against the Company, two of the Company's subsidiaries, Management
Alliance Corporation ("MAC") and Information Systems Consulting Corp. ("ISCC")
and three of the Company's officers and directors (J. Michael Moore, M. Ted
Dillard and Donald A. Bailey). The lawsuit has since been administratively
transferred to the District Court of Dallas County, Texas, 160th Judicial
District.

In their lawsuit, Ms. Tapp and Mr. Steeds, (former employees of the Company)
each allege damages in excess of $29 million for breach of contract, conspiracy
and tortious conduct, as well as mismanagement, misappropriation of corporate
assets and self-dealing by Company officers and directors. Their breach of
contract claims include allegations that the Company breached an agreement
purporting to convey up to 20% of the issued and outstanding shares of MAC and
ISCC to each of Ms. Tapp and Mr. Steeds, and certain other alleged agreements.
The Company believes that all of Ms. Tapp's and Mr. Steeds' claims are without
merit and has filed an answer and counterclaim against Ms. Tapp and a plea in
abatement and is vigorously defending the lawsuit. In addition, the Company has
filed a third party petition against Mr. Steeds. The Company maintains that
there were no such contractual agreements with Ms. Tapp and Mr. Steeds and that
they are not owed anything by the Company or any of the other defendants in this
case. The Company further denies conspiring to injure either Ms. Tapp or Mr.
Steeds.

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<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the current
directors and executive officers of the Company, and its wholly-owned subsidiary
Management Alliance Corporation, as of June 30, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>

J. Michael Moore.................... 50 Chairman of the Board and Chief Executive Officer

M. Ted Dillard...................... 44 President, Secretary, Treasurer and Director

Douglas G. Furra.................... 36 Chief Financial Officer

Anthony J. Bruno.................... 61 President, Management Alliance Corporation

James L. Woo........................ 46 Executive Vice President, Management Alliance Corporation

Donald A. Bailey.................... 54 Director

Samuel E. Hunter.................... 62 Director
</TABLE>

- ------------------------

MR. J. MICHAEL MOORE has served as the Chairman of the Board of Directors of
the Company since May 1991. Mr. Moore has served as Chief Executive Officer of
the Company since May 1993. He has been President and Chief Executive Officer of
United States Funding Group, Inc., a Texas corporation ("USFG"), since 1986.
USFG has been involved in acquiring, from the Resolution Trust Corporation and
the Federal Deposit Insurance Corporation, real estate and notes secured
primarily by real estate, located within the United States. Mr. Moore is the
sole shareholder of USFG-DHRG L.P. No. 2, Inc., a Texas corporation.

MR. M. TED DILLARD has served on the Board of Directors of the Company since
August 1991. Mr. Dillard has served as President of the Company since October
1996. Prior to that he was the Chief Financial Officer of the Company from
January 1994 to October 1996. He has been Secretary and Treasurer of the Company
since January 1994, and was Controller of the Company from June 1990 to January
1994. Prior to his employment with the Company, Mr. Dillard held various SEC
reporting, tax and accounting positions with publicly held companies, such as
Pratt Hotel Corporation (an owner and operator of hotels) and Dixico
Incorporated, as well as senior financial management roles at various private
companies. Mr. Dillard is a Certified Public Accountant and worked for a big-six
accounting firm for approximately two years, and is also a Certified Management
Accountant and Certified Financial Planner.

MR. DOUGLAS G. FURRA has been the Chief Financial Officer of the Company
since June 1997. From January 1992 to April 1997, Mr. Furra was the audit
manager on the Company's audits by Weaver and Tidwell, L.L.P., the Company's
previous independent auditors. Mr. Furra was employed by Weaver and Tidwell,
L.L.P. from 1985 until June 1997. Mr. Furra is a Certified Public Accountant.

MR. ANTHONY J. BRUNO has been the President of Management Alliance
Corporation since August 1996. Prior to that he was a regional Manager of
Management Alliance Corporation from June 1995 to August 1996. He has over
thirty years of industry experience and is the author of several training
manuals, planners and motivational tapes and has held seminars and in-house
training sessions all over the world. Mr. Bruno is a Certified Personnel
Consultant, Certified Temporary Staffing Specialist, and Certified International
Personnel Consultant. He is a recipient of the Hall of Fame Award from the
National Association of Personnel Consultants.

MR. JAMES L. WOO has been the Executive Vice President of Management
Alliance Corporation, since August 1996. Prior to that time he has been employed
by the Company since 1980 in various management positions.

29
<PAGE>
MR. DONALD A. BAILEY has served on the Board of Directors of the Company
since May 1991. Since 1989 Mr. Bailey has been the President of Bailey Capital
Group, Ltd., an investment banking concern, and Diamond Bay Securities Corp., a
registered NASD broker dealer. From January 1993 until January 1994, Mr. Bailey
was acting President of the Company. Since September 1993, Mr. Bailey has been
President of Human Resources Corporation, an employee leasing concern.

MR. SAMUEL E. HUNTER was elected to the Board of Directors of the Company on
February 28, 1997. Since 1993, Mr. Hunter has served as managing director for
equities trading for Ormes Capital Markets, Inc. From 1989 to 1993 he served as
managing director of Invemed Associates in New York City. From 1986 to 1989 he
served as a senior vice president of Drexel Burnham Lambert, Inc.

Directors of the Company hold office until the next annual meeting of
shareholders and until their respective successors are elected and have
qualified, or until their earlier resignation or removal. Subject to any
applicable employment agreement provisions, all officers are appointed by, and
serve at the discretion of, the Board of Directors of the Company.

COMPOSITION OF THE BOARD OF DIRECTORS

Pursuant to the terms of the Company's Articles of Incorporation and Bylaws,
the Board of Directors has the power to set the number of directors by
resolution. The Company intends to maintain at all times at least two
independent directors on its Board of Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

Working committees of the Board of Directors include the Audit Committee and
the Compensation Committee. The Board of Directors does not have a standing
Nominating Committee.

AUDIT COMMITTEE. The Company established an Audit Committee on April 10,
1997, consisting of Messrs. Bailey and Hunter. The Audit Committee will make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.

COMPENSATION COMMITTEE. The Company established a Compensation Committee on
April 10, 1997, consisting of Messrs. Bailey and Hunter. The Compensation
Committee will determine the compensation of the Company's executive officers.
The Compensation Committee administers the Company's 1996 Stock Option Plan and
makes all determinations as to grants of stock options under the 1996 Stock
Option Plan.

OTHER COMMITTEES. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time, including, but not limited
to, an Executive Committee of the Board of Directors.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Messrs. Moore and
Dillard which provide that: (i) compensation payable to Mr. Moore and Mr.
Dillard be not less than $150,000 per annum and $125,000 per annum,
respectively; (ii) the term of employment for each shall be for three years
commencing January 1, 1997; (iii) Mr. Moore shall be the Chief Executive Officer
of the Company and shall report to the Board of Directors of the Company; (iv)
Mr. Dillard shall be the President of the Company and shall report to Mr. Moore;
and (v) both individuals shall have the right to participate in all of the
benefit, bonus and incentive compensation plans of the Company.

The Company contemplates entering into an employment agreement with Mr.
Furra which will provide that: (i) compensation payable to Mr. Furra will be
$96,000 per annum; (ii) the term of

30
<PAGE>
employment shall be for one year commencing June 1, 1997, and renewing for
successive one year terms unless either the Company or Mr. Furra determine not
to renew; (iii) Mr. Furra shall be the Chief Financial Officer of the Company;
(iv) Mr. Furra shall receive options pursuant to the Company's 1996 Stock Option
Plan for the purchase of 30,000 shares of Common Stock to be exercisable on the
following dates, in the following amounts, and for the following exercise
prices: (A) on May 31, 1998, 10,000 shares of Common Stock at $4.00 per share
and (B) on May 31, 1999 and 2000, 10,000 shares of Common Stock at the lesser of
$8.00 per share or the price per share at which the Company first effectuates a
public sale of its Common Stock in 1997 or 1998 using an investment banking firm
chosen by the Board of Directors (the Offering will be such a public sale); and
(v) Mr. Furra shall have the right to participate in all of the benefit, bonus
and incentive compensation plans of the Company and its subsidiaries at the
discretion of the Compensation Committee of the Board of Directors.

COMPENSATION OF DIRECTORS

Nonemployee members of the Board of Directors currently receive $1,000 for
each Directors' meeting attended. Members of the Board of Directors who are also
employees of the Company currently receive $500 for each Directors' meeting
attended. As of the year ended December 31, 1996, $5,500 of Directors' fees owed
to Messrs. Moore ($1,000), Bailey ($2,500) and Dillard ($2,000), respectively,
had been accrued but not paid for 1996 and 1995. Nonemployee directors are also
eligible for stock option grants under the 1996 Stock Option Plan. See "--Stock
Option Plans."

EXECUTIVE COMPENSATION

The following table summarizes certain information regarding compensation
paid or accrued during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and each of the Company's three other most
highly compensated executive officers (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
COMPENSATION
LONG-TERM AWARDS
ANNUAL COMPENSATION -------------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) COMPENSATION ($)(1) OPTIONS/SARS (#)(2) COMPENSATION($)
- ------------------------------- --------- --------- ----------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Moore............... 1996 $ 117,000 $ 37,585 $ 1,500 155,000 $ --
Chairman and Chief 1995 87,000 7,996 1,000 50,000 --
Executive Officer 1994 61,500 -- 1,500 -- --

M. Ted Dillard................. 1996 $ 111,314 $ 27,216 $ 1,500 105,000 $ --
President, Secretary 1995 78,000 2,962 1,000 50,000 --
and Treasurer 1994 61,500 -- 1,500 -- --

Anthony J. Bruno(3)............ 1996 $ 56,625 $ 15,000 $ 50,500 -- $ --
President, Management 1995 -- -- 49,305 -- --
Alliance Corporation 1994 -- -- -- -- --

James L. Woo(4)................ 1996 $ 96,000 $ 13,188 $ -- -- $ --
Executive Vice-President, 1995 81,000 -- -- -- --
Management Alliance 1994 59,340 10,961 -- -- --
Corporation
</TABLE>

- ------------------------

(1) Includes perquisites and other personal benefits if value is greater than
the lesser of $50,000 or 10% of reported salary and bonus. Includes
directors fees for each of Mr. Moore and Mr. Dillard of $1,500, $1,000 and
$1,500 in 1996, 1995 and 1994, respectively.

(2) All options granted in 1996 were granted pursuant to the Company's 1996
Stock Option Plan.

31
<PAGE>
(3) Mr. Bruno became a full-time consultant of the Company in June 1995. Mr.
Bruno was named President of Management Alliance Corporation, a wholly-owned
subsidiary of the Company, in August 1996. Amounts shown under Other Annual
Compensation reflect amounts paid to Mr. Bruno in his capacity as a
full-time consultant, including a housing allowance of $3,000 in 1996.

(4) Mr. Woo became the Executive Vice-President of Management Alliance
Corporation, a wholly-owned subsidiary of the Company, in August 1996.

STOCK OPTION GRANTS DURING 1996

The following table provides information with respect to the Named Executive
Officers concerning the grant of options to acquire Common Stock in 1996.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
INDIVIDUAL GRANTS ANNUAL
----------------------------------------------------------------- RATES OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS/SARS OPTION
UNDERLYING GRANTED TO EXERCISE TERM(2)
OPTIONS/SARS EMPLOYEES OR BASE EXPIRATION ---------------------
NAME GRANTED (#)(1) IN FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- --------------------------------- -------------- ------------------- --------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Moore................. 155,000 59.6% (3) 12-31-01 $ 53,475 $ 119,970
M. Ted Dillard................... 105,000 40.4% (4) 12-31-01 $ 36,225 $ 81,270
Anthony J. Bruno................. -- -- -- -- -- --
James L. Woo..................... -- -- -- -- -- --
</TABLE>

- ------------------------

(1) All of the options granted to Named Executive Officers in 1996 were granted
under the Company's 1996 Stock Option Plan.

(2) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of the
Company's Common Stock appreciates in value from the date of grant at the 5%
and 10% annual rates prescribed by the Securities and Exchange Commission
("SEC") and therefore are not intended to forecast possible future
appreciation, if any, of the price of the Company's Common Stock. The Board
of Directors determined that the market price for the Common Stock on the
date of grant was equal to $2.50 per share, based on the limited liquidity
of the Common Stock.

(3) The options are immediately exercisable for 77,500 shares of Common Stock at
an exercise price of $2.50 per share. Subject to Mr. Moore being an officer
or director of the Company on the relevant dates, the remaining options will
become exercisable on the following dates, in the following amounts, and for
the following exercise prices: (a) December 31, 1997, 46,500 shares of
Common Stock, $4.00 per share; and (b) December 31, 1998, 31,000 shares of
Common Stock, the lesser of $8.00 per share or the price per share at which
the Company first effectuates a public sale of its Common Stock in 1997 or
1998 using an investment banking firm chosen by the Board of Directors (the
Offering is such a public sale).

(4) The options are immediately exercisable for 52,500 shares of Common Stock at
an exercise price of $2.50 per share. Subject to Mr. Dillard being an
officer or director of the Company on the relevant dates, the remaining
options will become exercisable on the following dates, in the following
amounts, and for the following exercise prices: (a) December 31, 1997,
31,500 shares of Common Stock, $4.00 per share; and (b) December 31, 1998,
21,000 shares of Common Stock, the lesser of $8.00 per share or the price
per share at which the Company first effectuates a public sale of its Common
Stock in 1997 or 1998 using an investment banking firm chosen by the Board
of Directors (the Offering is such a public sale).

32
<PAGE>
AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1996 AND STOCK OPTION/SAR VALUES
AS OF DECEMBER 31, 1996

The following table sets forth information with respect to the Chief
Executive Officer and the Named Executive Officers concerning the exercise of
options during 1996 and unexercised options held as of December 31, 1996:

AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
FISCAL AT FISCAL YEAR END
YEAR END (#)(1) ($)(1)(2)
SHARES --------------------- -------------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------------- --------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
J. Michael Moore...................... -- -- 127,500/77,500 $ 100,000/$0
M. Ted Dillard........................ -- -- 102,500/52,500 $ 100,000/$0
Anthony J. Bruno...................... -- -- -- --
James L. Woo.......................... -- -- -- --
</TABLE>

- ------------------------

(1) The amounts under the headings entitled "Exercisable" reflect vested options
as of December 31, 1996 and the amounts under the headings entitled
"Unexercisable" reflect options that have not vested as of December 31,
1996.

(2) Values stated are pre-tax and net of cost. The Board of Directors determined
that the market price for the Common Stock on December 31, 1996 was equal to
$2.50 per share, based on the limited liquidity of the Common Stock.

STOCK OPTION PLANS

1995 STOCK OPTIONS. In October 1995, options to purchase 50,000 shares of
Common Stock 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, President, Secretary, Treasurer, and director of the Company, and
Donald A. Bailey, a director of the Company. These options were exercised in
April of 1997 and were not granted pursuant to the 1996 Stock Option Plan.

AMENDED AND RESTATED 1996 NONQUALIFIED STOCK OPTION PLAN. The Diversified
Corporate Resources, Inc. Amended and Restated 1996 Nonqualified Stock Option
Plan (the "1996 Stock Option Plan") was adopted by the Board of Directors on
December 27, 1996 and ratified on April 10, 1997. The 1996 Stock Option Plan
terminates on December 27, 2006. The purpose of the 1996 Stock Option Plan is to
enable the Company to obtain and retain the services of the types of employees
and officers who will contribute to the Company's long range success and to
provide incentives which are linked directly to increases in share value which
will inure to the benefit of all shareholders of the Company. Options granted
under the 1996 Stock Option Plan will be stock options not intended to qualify
for incentive stock option treatment ("Non-Qualified Stock Options" or
"Options"). The 1996 Stock Option Plan is not required to be qualified under
Section 401(a) of the Internal Revenue Code, nor is it subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended. Under the
1996 Stock Option Plan, Non-Qualified Stock Options may be granted to employees
(including officers and Directors) of the Company or a parent or subsidiary of
the Company (approximately 460 persons at March 31, 1997).

The 1996 Stock Option Plan authorizes the granting of Non-Qualified Stock
Options to optionees to purchase Common Stock. A total of 450,000 shares of
Common Stock (subject to certain adjustments) have been reserved for sale upon
the exercise of Non-Qualified Stock Options to be granted under the

33
<PAGE>
1996 Stock Option Plan. As of June 30, 1997, Non-Qualified Stock Options for
350,000 shares had been granted under the 1996 Stock Option Plan. If a
Non-Qualified Stock Option expires fully or partially unexercised, the shares
then subject to such Option are available for later grant. In the event of a
change in the number of shares outstanding as a result of a declaration of a
stock dividend or any recapitalization resulting in a stock split-up,
combination or exchange of shares, there shall be a proportionate adjustment in
the shares available for grant and the shares subject to outstanding Options.

The 1996 Stock Option Plan is administered by the Compensation Committee or
in the absence of a Compensation Committee by a committee composed of officers
of the Company selected by the Board of Directors. Subject to the provisions of
the 1996 Stock Option Plan, the Compensation Committee has authority to
determine all terms and provisions under which Options are granted pursuant to
the 1996 Stock Option Plan, including, without limitation, (i) the number of
shares subject to each Option, (ii) when the Option becomes exercisable, (iii)
the vesting schedule for each grant, (iv) the exercise price and (v) the
duration of the Option, which cannot exceed ten years. An Option granted under
the 1996 Stock Option Plan is not transferable by the optionee except by will or
by the laws of descent and distribution and is exercisable during the lifetime
of the optionee only while the optionee is in the employ of the Company or
within specified periods of time after termination of employment. The 1996 Stock
Option Plan does not impose any specific vesting requirements.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1996, no executive officer of the Company served as a director, or
member of the Compensation Committee of another entity whose executive officers
served as a director, or on the Compensation Committee of the Company.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 1996 and 1995, the Company paid various expenses on behalf of Mr.
Moore or various entities that he controls in the amount of approximately
$160,000 and $25,000, respectively. As these amounts are to be repaid by Mr.
Moore, they have been recorded as receivables. Of the $160,000 in 1996,
approximately $105,000 (which represents approximately 50% of the total legal
expense) relates to litigation defense associated with the Ditto Properties
Litigation. See "The Company--Legal Proceedings." With respect to the $105,000,
Mr. Moore has executed a non-interest bearing promissory note to the Company
which has a maturity of the earlier of a public offering of the Company's Common
Stock or December 31, 1997. Since December 31, 1996, the Company has continued
to pay various litigation expenses of Mr. Moore and the Controlling Shareholder.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The balance of the $160,000 consists of approximately $24,000 of
advances and approximately $31,000 of interest bearing notes. These notes bear
interest at 10% and require monthly principal and interest payments over 36
months. None of these receivables are collateralized. The $105,000 note and the
$24,000 of advances are reported as receivables from related party in the
Stockholders' Equity section of the Consolidated Balance Sheet. The $31,000 of
notes are included in notes receivable--related party.

In January 1996, the Company loaned $25,000 to United States Funding Group
Oil and Gas, Inc., an entity wholly owned by Mr. Moore. Such loan was evidenced
by a promissory note bearing interest at the rate of 1% per month on the unpaid
balance due in monthly installments. In addition, a 10% loan origination and
administration fee was charged. As of March 31, 1997, this note has been paid in
full.

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 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, owned 49% of

34
<PAGE>
CFS, Inc. The majority shareholder of CFS, Inc. purchased the 49% ownership
interest of Ms. Moore, pursuant to a transaction which was made effective
retroactive to January 1, 1995. Ms. Moore received no monetary gain on her
investment in CFS, Inc. or on this transaction. 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
approximately $150,000 and liabilities of approximately $361,000 at December 31,
1996. The joint venture recorded net losses for the years ended December 31,
1996 and 1995, respectively of approximately $139,000 and $74,000. Accordingly,
the Company recognized approximately $90,000 and $48,000, respectively, in
losses from joint venture operations in the Consolidated Statement of Operations
for the year ended December 31, 1996 and 1995.

35
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1997 by (i) each person known by
the Company to own beneficially five percent or more of the outstanding Common
Stock; (ii) each of the Company's directors; (iii) each of the executive
officers named in the Summary Compensation Table; and (iv) all directors and
executive officers of the Company as a group. The address of each person listed
below is 12801 N. Central Expressway, Suite 350, Dallas, Texas 75243, unless
otherwise indicated.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES (2)
----------------------------------
<S> <C> <C> <C> <C>
NUMBER OF
SHARES SHARES
BENEFICIALLY BEING PRIOR TO
NAME OF BENEFICIAL OWNER OWNED OFFERED OFFERING AFTER OFFERING
- ----------------------------------------------------------- ----------- ------- --------------- -----------------

J. Michael Moore........................................... 1,026,700(3) 55.1%

USFG-DHRG L.P. No. 2, Inc.................................. 899,200(4) 50.4

D&H Partners, L.P. ........................................ 255,700(5) 14.3

Donald R. Ditto, Sr........................................ 125,000(6) 7.0

M. Ted Dillard............................................. 102,500(7) 5.6

Gary K. Steeds............................................. 93,500(8) 5.2

Donald A. Bailey........................................... 87,100(9) 4.9

Samuel E. Hunter........................................... 5,000(10) *

All directors and executive officers as a group
(6 persons)(1), (2), (4), (7), (9), (10)................. 1,221,300 63.4
</TABLE>

- ------------------------

* Represents less than 1% of outstanding Common Stock.

(1) Beneficial ownership as reported in the above table has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The persons and entities named in the table
have sole voting and investment power with respect to all shares shown as
beneficially owned by them, except as noted below and subject to applicable
community property laws.

(2) Except for the percentages of certain parties that are based on presently
exercisable options which are indicated in the following footnotes to the
table, the percentages indicated are based on 1,785,312 shares of Common
Stock issued and outstanding on June 30, 1997 and shares issued and
outstanding subsequent to the completion of the Offering. In the case of
parties holding presently exercisable options, the percentage ownership is
calculated on the assumption that the shares purchasable within the next 60
days underlying such options are outstanding.

(3) Includes the Shares beneficially owned by the Controlling Shareholder (as J.
Michael Moore owns all of the capital stock of the Controlling Shareholder)
as described below in note 4, and 77,500 shares of Common Stock issuable
upon exercise of options within 60 days. Mr. Moore has granted a security
interest in 25,000 shares of Common Stock as security for the Imperial Loan,
which will be released to Mr. Moore upon the delivery of the 130,700 D&H
Shares described in footnote 4. In addition, Mr. Moore has transferred
25,000 shares of Common Stock to various other parties but has advised the
Company that he has retained voting power with respect to such shares.

36
<PAGE>
(4) The 899,200 shares (the "Shares") were originally comprised of two blocks of
shares, including 255,700 shares (the "D&H Shares") previously owned by D&H
Partners, L.P., a Delaware limited partnership ("D&H"). The Shares were
ultimately acquired by the Controlling Shareholder from Ditto Properties
pursuant to the Stock Purchase Agreement. Ditto Properties has since filed
the Litigation against the Controlling Shareholder. Ditto Properties has
also filed a Schedule 13D claiming that it is the beneficial owner of the
Shares based on a successful outcome of Ditto Properties' rescission claim
in the Litigation. The trial court has granted the Controlling Shareholder's
motion for summary judgment seeking dismissal of Ditto Properties'
rescission claim. See "Business-- Legal Proceedings."

The Controlling Shareholder has granted a security interest in 774,200 of the
Shares as security for the Imperial Loan (130,700 of which represent D&H
Shares to be delivered upon the Controlling Shareholder obtaining possession
of the certificates representing such shares). The Controlling Shareholder,
however, holds sole voting and investment power with respect to the Shares,
subject to (i) the rights retained by Imperial Bank in connection with the
Imperial Loan and (ii) the rights of D&H with respect to the D&H Shares. See
the discussion below, note 5. In addition to a security interest granted in
the Shares, the loan documents prohibit the Controlling Shareholder from
selling, transferring or encumbering the Shares without the consent of
Imperial Bank, other than a portion of the Shares to be sold pursuant to
this Offering to satisfy the Imperial Loan and other obligations of the
Controlling Shareholder. The D&H Shares are still registered in the name of
D&H and are subject to purchase price promissory notes (the "Promissory
Notes") and a security agreement (the "Security Agreement") pursuant to
which the D&H Shares are pledged as collateral. The Promissory Notes are
currently in default, and D&H has instituted litigation with respect to the
Promissory Notes and the Security Agreement. See Note 5, below. With respect
to the D&H Shares, D&H possesses voting power. The Controlling Shareholder
has advised the Company, however, that D&H has granted the Controlling
Shareholder an irrevocable proxy with respect to the D&H Shares until
December 31, 1997.

In connection with the Imperial Loan, the Controlling Shareholder has granted
to Imperial Bank an option (the "Imperial Option") to purchase 60,000 shares
of Common Stock owned by the Controlling Shareholder for $.01 per share. The
Imperial Option expires on July 9, 2002.

The address of the Controlling Shareholder is 12801 N. Central Expressway,
Ste. 260, Dallas, TX 75243.

(5) As discussed above in note 4, the D&H Shares are registered in the name of
D&H. The Promissory Notes and the Security Agreement are in default. D&H has
instituted litigation with respect to such default seeking among other
things judicial foreclosure of the D&H Shares. With respect to the D&H
Shares, D&H possesses voting power. The Controlling Shareholder has advised
the Company, however, that D&H has granted the Controlling Shareholder an
irrevocable proxy with respect to the D&H Shares until December 31, 1997.

(6) Does not include Ditto Properties' alleged beneficial ownership of the
Shares discussed above in note 4. Ditto Properties has asserted in the
Litigation and in the Schedule 13D discussed above in note 4 that Donald R.
Ditto, Sr. is the beneficial owner of the Shares (as manager of Ditto
Properties) by virtue of its claim for rescission. However, the Controlling
Shareholder's motion for summary judgment seeking dismissal of Ditto
Properties' rescission claim has been granted. The Company is also currently
contesting Mr. Ditto's ownership of 100,000 of the shares listed in the
above table. The address of Mr. Ditto is Route 2, Box 21633, Winnsboro,
Texas 75494.

(7) Includes 52,500 shares of Common Stock issuable upon the exercise of options
within 60 days.

(8) The address of Mr. Steeds is 5528 Inverrary, Dallas, Texas 75287. The
Company is currently contesting Mr. Steeds ownership of these shares.

37
<PAGE>
(9) Includes 5,000 shares of Common Stock issuable upon the exercise of options
within 60 days. Does not include the D&H Shares, which are beneficially
owned by the Controlling Shareholder. See discussion above in note 5 for
further information as to the beneficial ownership of the D&H Shares. Donald
A. Bailey is a partner in D&H. The address of Mr. Bailey is 2351 W.
Northwest Highway, Suite 3120, Dallas, Texas 75220.

(10) Includes 5,000 shares of Common Stock issuable upon the exercise of options
within 60 days. The address of Mr. Hunter is 55 Broadway, 10th Floor, New
York, NY 10006.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
shares of Common Stock. Of these shares of Common Stock, all may be sold
without restriction, unless they are purchased by affiliates of the Company.
shares of Common Stock outstanding prior to completion of the Offering
will be "restricted securities" under the Securities Act (the "Restricted
Shares"). The Restricted Shares may be sold only if they are registered under
the Securities Act or pursuant to an applicable exemption from the registration
requirements of the Securities Act, including Rule 144 thereunder. The Company,
its executive officers, directors and certain current shareholders have agreed
that they will not, directly or indirectly, offer, sell, contract to sell, grant
any option to sell, or otherwise dispose of shares of Common Stock or other
securities which are substantially similar to the Common Stock or securities
convertible into or exercisable or exchangeable for any rights to purchase or
acquire Common Stock or securities which are substantially similar to the Common
Stock for a period of one year after the date of this Prospectus. See
"Underwriting."

In general, under Rule 144 as currently in effect, affiliates of the Company
or a person (persons whose shares are aggregated) who has beneficially owned
Restricted Shares for at least one year but less than two years is entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an "affiliate" of the Company at any
time during the 90 days preceding a sale, and who has beneficially owned
Restricted Shares for at least two years, would be entitled to sell such shares
under Rule 144 without regard to the volume or manner of sale limitations
referred to above.

There are also (i) 350,000 shares of Common Stock reserved for issuance
under the Company's 1996 Stock Option Plan and under options previously granted
to the directors of the Company and to certain members of management of the
Company, and (ii) shares of Common Stock subject to the Representative's
Warrants. The Company has filed a registration statement on Form S-8 covering
sales of shares issued upon exercise of any securities issued under the 1996
Stock Option Plan and under options previously granted to certain members of
management of the Company. See "Management--Stock Option Plans."

No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of Common Stock. The sale of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock.

38
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 1,000,000 shares of
preferred stock, par value $1.00 per share ("Preferred Stock"), and 10,000,000
shares of Common Stock, par value $0.10 per share.

COMMON STOCK

As of June 30, 1997, there were 1,785,312 shares of Common Stock outstanding
which were held of record by approximately 180 shareholders. Holders of Common
Stock are entitled to receive dividends when, as and if declared by the Board of
Directors from funds legally available therefor. See "Dividend Policy." Each
share of Common Stock entitles the holder thereof to one vote. Cumulative voting
for the election of directors is not permitted, which means that the holders of
the majority of shares voting for the election of directors can elect all
members of the Board of Directors. Except as otherwise required by law, a
two-thirds vote is sufficient for any act of the shareholders. The holders of
Common Stock are entitled to receive the Company's assets remaining after
payment of liabilities and liquidation preferences of any series of Preferred
Stock proportionate to their pro rata ownership of the outstanding shares of
Common Stock. All shares of Common Stock now outstanding are, and the shares of
Common Stock to be outstanding upon the completion of the offering will be,
fully paid and non-assessable.

PREFERRED STOCK

The Board of Directors is authorized, without further action of the
shareholders of the Company, to issue from time to time shares of Preferred
Stock in one or more series and with such relative rights, powers, preferences,
limitations as the Board of Directors may determine at the time of issuance.
Such shares may be convertible into Common Stock and may be superior to the
Common Stock in the payment of dividends, liquidation, voting and other rights,
preferences and privileges. The issuance of shares of Preferred Stock could
adversely affect the holders of Common Stock. By way of example, the issuance of
Preferred Stock could be used in certain circumstances to render more difficult
or discourage a merger, tender offer, proxy contest or removal of incumbent
management. Preferred Stock may be issued with voting and conversion rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. Upon completion of the offering, the Company will not have any
shares of Preferred Stock outstanding, and currently, the Company has no
intention to issue shares of Preferred Stock after the offering.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.

39
<PAGE>
UNDERWRITING

The Underwriters named below, for whom Cruttenden Roth Incorporated is
acting as the representative (the "Representative"), have agreed severally,
subject to the terms and conditions contained in an Underwriting Agreement
("Underwriting Agreement"), to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock indicated below opposite their
respective names at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions, and that the Underwriters are committed to purchase all of
such shares (other than those covered by the over-allotment option described
below), if any are purchased.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Cruttenden Roth Incorporated...............................................

------
Total......................................................................
</TABLE>

The Underwriters initially propose to offer the shares of Common Stock
offered hereby to the public at the price to public set forth on the cover page
of this Prospectus. The Underwriters may allow a concession to selected dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD")
not in excess of $. per share, and the Underwriters may allow, and such dealers
may re-allow, to members of the NASD, a concession not in excess of $. per
share. After the public offering, the price to public, the concession and the
re-allowance may be changed by the Representative.

The Company has granted an option to the Underwriters, exercisable within 45
days after the date of this Prospectus, to purchase up to an additional
shares of Common Stock at the initial price to public, less the underwriting
discount, set forth on the cover page of this Prospectus. The Underwriters may
exercise the option only for the purpose of covering over-allotments. To the
extent that the Underwriters exercise such option, each Underwriter will be
committed, subject to certain conditions, to purchase from the Company that
number of additional shares of Common Stock which is proportionate to such
Underwriter's initial commitment.

The Company has also agreed to sell to the Representative warrants to
purchase up to shares of Common Stock (the "Representative's Warrants").
The Representative's Warrants will be exercisable for a period of four years,
commencing one year after the date of this prospectus, at an initial per share
exercise price equal to 120% of the price to public set forth on the cover page
of this Prospectus. Neither the Representative's Warrants nor the shares of
Common Stock issuable upon exercise thereof may be transferred, assigned or
hypothecated until one year from the date of this Prospectus, except that they
may be assigned, in whole or in part, to (i) to any of the Underwriters, or to
individuals who are either officers or partners of an Underwriter, or (ii) by
will or the laws of descent and distribution. Any profit realized by the
Representative on the sale of securities issuable upon exercise of the
Representative's Warrants may be deemed to be additional compensation.

The holder of the Representative's Warrants will have no voting, dividend or
other rights as a shareholder of the Company unless and until the exercise of
the Representative's Warrants. The number of securities deliverable upon any
exercise of the Representative's Warrants or its underlying securities and

40
<PAGE>
the exercise price of the Representative's Warrants are subject to adjustment to
protect against any dilution upon the occurrence of certain events, including
issuance of stock dividends, stock splits, subdivision or combination of
outstanding stock and reclassification of stock.

The Company has agreed with the Representative to register the
Representative's Warrants and/or the underlying shares for resale, on one such
occasion at any time during the four-year period commencing one year following
the date of this Prospectus upon written demand by the Representative. The
Company has agreed with the Representative that if, during the four-year period
commencing one year following the date of this Prospectus, the Company registers
any of its Common Stock for sale pursuant to a registration statement (with the
exception of Form S-4, Form S-8 or other inappropriate form), it will use its
best efforts, upon request of any of holder of the Representative's Warrants
and/or the underlying shares, to include such securities as a part of the
registration statement. The Company will bear all the costs, except underwriting
discounts and the Representative's legal fees, for one "piggyback" registration.

The Representative will also receive at the closing of the Offering a
non-accountable expense allowance equal to 2% of the aggregate public offering
price of the shares of Common Stock sold in the Offering including proceeds from
the over-allotment option, if exercised. The Representative's expenses in excess
of the non-accountable expenses allowance, including its legal expenses, will be
borne by the Representative. To the extent that the expenses of the
Representative are less than the non-accountable expense allowance, the excess
shall be deemed to be compensation to the Representative.

The Company, its executive officers, directors and certain current
shareholders have agreed that for a period of one year after the date of this
Prospectus they will not, directly or indirectly, offer, sell, contract to sell,
grant any option to sell, or otherwise dispose of shares of Common Stock or
other securities which are substantially similar to the Common Stock or
securities convertible into or exercisable or exchangeable for or any rights to
purchase or acquire Common Stock or securities which are substantially similar
to the Common Stock without the prior written consent of Cruttenden Roth
Incorporated, on behalf of itself and as Representative of the Underwriters.

Prior to this Offering, there has been a limited market for the Common Stock
and there can be no assurance that a regular trading market will develop upon
the completion of this Offering. The public offering price was determined by
arms-length negotiations between the Company, the Selling Shareholders and the
Representative. The primary factors considered in determining such offering
price include the trading price for the Company's Common Stock, the history of
and prospects for the industry in which the Company competes, market valuation
of comparable companies, market conditions for public offerings, the history of
and prospects for the Company's business, the Company's past and present
operations and earnings and the trend of such earnings, the prospects for future
earnings of the Company, the Company's current financial position, an assessment
of the Company's management, the general condition of the securities markets,
the demand for similar securities of comparable companies and other relevant
factors. There can be no assurance, however, that the prices at which the Common
Stock will trade in the public market following the Offering will not be lower
than the initial public offering price.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments which the Underwriters may be
required to make in respect thereof.

The Representative has advised the Company that it does not expect any sales
by the Underwriters to accounts over which they exercise discretionary
authority.

The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. The Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.

In connection with this Offering, certain Underwriters and selling group
members who in the past have acted as market makers in the Common Stock may
engage in passive market making activities in the

41
<PAGE>
Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A under
the Exchange Act. Underwriters and other participants in the distribution of the
Common Stock generally are prohibited during a specified time period (the
"qualifying period") determined in light of the timing of the distribution, from
bidding for or purchasing the Common Stock or a related security except to the
extent permitted under applicable rules, primarily Rules 10b-6 and 10b-6A. Rule
10b-6A allows, among other things, an Underwriter or member of the selling group
for the Common Stock to effect "passive market making" transactions on the
Nasdaq National Market in the Common Stock during the qualifying period at a
price that does not exceed the highest independent bid for that security at the
time of the transaction. Such a passive market maker must not display a bid for
the subject security at a price in excess of the highest independent bid, and
generally must lower its bid if all independent bids are lowered. Moreover, the
passive market maker's net purchases of such security on each day of the
qualifying period shall not exceed 30% of its average daily trading volume
during a reference period preceding the distribution.

The Controlling Shareholder has agreed to pay the Representative a fee of
$175,000 in consideration for arranging the Imperial Loan. The fee is to be
represented by a promissory note (the "Controlling Shareholder Note") that will
become due on the earlier of the closing of the Offering or July 8, 1998. If the
Controlling Shareholder Note has not been paid by July 8, 1998, the due date may
be extended by the Controlling Shareholder for an additional year. The
Controlling Shareholder Note will bear interest at the rate of 6.14% per annum.

LEGAL MATTERS

The validity of the Common Stock to be offered hereby will be passed upon
for the Company by Jenkens & Gilchrist, a Professional Corporation, Dallas,
Texas. Certain legal matters in connection with the Offering will be passed upon
for the Underwriters by Graham & James LLP, San Francisco, California.

EXPERTS

The consolidated financial statements of the Company for the one year period
ended December 31, 1996, appearing in this Prospectus and Registration
Statement, have been audited by Coopers & Lybrand L.L.P., independent auditors,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of the Company for each of the two
years in the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement, have been audited by Weaver and Tidwell, L.L.P.,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

Weaver and Tidwell, L.L.P. served as the independent auditors of the Company
for the fiscal years ended December 31, 1995 and 1996 and until April 18, 1997.
During the past two fiscal years and through and including April 18, 1997, there
have been no disagreements between the Company and Weaver and Tidwell, L.L.P.,
on any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedures, which disagreements, if not resolved
to the satisfaction of Weaver and Tidwell, L.L.P., would have caused it to make
reference to the subject matter of the disagreements in connection with its
reports. Further, the audit reports of Weaver and Tidwell, L.L.P. on the
financial statements as of and for the years ended December 31, 1995 and 1996,
did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.

42
<PAGE>
ADDITIONAL INFORMATION

This Prospectus constitutes a part of a Registration Statement filed by the
Company with the SEC under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits and schedules for further information with
respect to the Company and the Common Stock offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and in each such instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference. The Registration Statement and
the exhibits and schedules forming a part thereof can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, NW, Washington, D.C. 20549, or on the Internet at HTTP://
WWW.SEC.GOV, and should also be available for inspection and copying at the
following regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
NW, Washington, D.C. 20549, at prescribed rates.

The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Commission, such reports and other information (including
proxy and information statements) filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, NW, Room 1024, Washington, D.C. 20549, and at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048; and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may be obtained from the
public reference section of the Commission at 450 Fifth Street, NW, Washington,
D.C. 20549, at prescribed rates.

43
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC.
INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants

Coopers & Lybrand L.L.P.................................................................... F-2

Weaver and Tidwell, L.L.P.................................................................. F-3

Consolidated Balance Sheets - December 31, 1996, and 1995........................................ F-4

Consolidated Statements of Operations - Years Ended December 31, 1996, 1995, and 1994............ F-5

Consolidated Statements of Stockholders' Equity (Capital Deficiency) - Years Ended December 31,
1996, 1995, and 1994........................................................................... F-6

Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995, and 1994............ F-7

Notes to Consolidated Financial Statements....................................................... F-8

Report of Independent Accountants................................................................ F-22

Schedule II--Valuation and Qualifying Accounts - Years Ended December 31, 1996, 1995, and 1994... F-23

Consolidated Balance Sheets - March 31, 1997, and December 31, 1996.............................. F-24

Consolidated Statements of Operations - Three Months Ended March 31, 1997 and 1996............... F-25

Consolidated Statements of Cash Flows - Three Months Ended March 31, 1997 and 1996............... F-26

Notes to Condensed Consolidated Financial Statements............................................. F-27
</TABLE>

All other schedules have been omitted because they are either not applicable
or the information required by the schedule is included in the financial
statements or the notes thereto.

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of
Diversified Corporate Resources, Inc.:

We have audited the accompanying consolidated balance sheet of Diversified
Corporate Resources, Inc. and Subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity (capital
deficiency) and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated statements based
on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Diversified Corporate Resources, Inc. and Subsidiaries as of December 31, 1996
and the consolidated results of their operations and their cash flows for the
year then ended, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.
Dallas, Texas

May 30, 1997

F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders of
Diversified Corporate Resources, Inc.
Dallas, Texas

We have audited the accompanying consolidated balance sheet of Diversified
Corporate Resources, Inc. and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity (capital
deficiency), and cash flows for each of the two years in the period ended
December 31, 1995. Our audits also included the financial statement schedule for
the years ended December 31, 1995 and 1994 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 consolidated 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 a reasonable basis for our opinion.

In our opinion, 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 the results of their operations and their cash flows for each of the two
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.

WEAVER AND TIDWELL, L.L.P.

Dallas, Texas
April 9, 1996

F-3
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
<S> <C> <C>
1996 1995
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 612,512 $ 6,239
Trade accounts receivable, less allowances
of approximately $494,000 and $412,000, respectively............................ 3,387,138 2,140,623
Notes receivable-related party.................................................. 9,326 13,052
Prepaid expenses and other current assets....................................... 34,443 96,805
-------------- --------------
TOTAL CURRENT ASSETS.......................................................... 4,043,419 2,256,719
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET............................................................... 807,997 467,043
OTHER ASSETS:
Investment in and advances to joint venture..................................... 152,905 103,838
Notes receivable-related party.................................................. 21,690 --
Other........................................................................... 177,879 179,153
-------------- --------------
$ 5,203,890 $ 3,006,753
-------------- --------------
-------------- --------------

LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)

CURRENT LIABILITIES:
Trade accounts payable and accrued expenses..................................... $ 3,329,616 $ 2,517,889
Book overdraft.................................................................. 98,158 129,235
Borrowings under factoring and loan agreements.................................. 400,682 647,650
Other short-term debt........................................................... 97,652 --
Current maturities of long-term debt............................................ 21,834 21,603
-------------- --------------
TOTAL CURRENT LIABILITIES..................................................... 3,947,942 3,316,377

DEFERRED LEASE RENTS.............................................................. -- 52,531

LONG-TERM DEBT.................................................................... 68,157 90,048

COMMITMENTS AND CONTINGENCIES (Note 12)

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............................................................. (2,301,108) (4,086,045)
Common stock held in treasury (245,849 and
122,950 shares, respectively), at cost.......................................... (185,175) (169,425)
Receivables from related party.................................................. (129,193) --
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)............................... 1,187,791 (452,203)
-------------- --------------
$ 5,203,890 $ 3,006,753
-------------- --------------
-------------- --------------
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET SERVICE REVENUES:
Permanent placement............................................... $ 12,573,995 $ 9,124,545 $ 7,471,318
Specialty services................................................ 7,451,563 4,209,685 2,879,143
Contract placement................................................ 7,404,730 6,023,655 4,882,253
------------- ------------- -------------
27,430,288 19,357,885 15,232,714

COST OF SERVICES.................................................... 19,675,352 14,332,011 11,131,682
------------- ------------- -------------
GROSS MARGIN........................................................ 7,754,936 5,025,874 4,101,032

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................ (5,702,992) (4,497,097) (4,146,979)
OTHER INCOME (EXPENSES):
Gain on foreclosure of division assets............................ -- 22,815 133,000
Loss from joint venture operations................................ (90,313) (47,826) --
Interest expense, net............................................. (235,327) (237,111) (140,916)
Other, net........................................................ 37,282 79,271 70,127
------------- ------------- -------------
(288,358) (182,851) 62,211
------------- ------------- -------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM................... 1,763,586 345,926 16,264
INCOME TAXES-current expense........................................ (224,774) (60,054) --
------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM.................................... 1,538,812 285,872 16,264
EXTRAORDINARY ITEM--gain on debt restructuring, net of income tax... 246,125 174,811 208,212
------------- ------------- -------------
NET INCOME.......................................................... $ 1,784,937 $ 460,683 $ 224,476
------------- ------------- -------------
------------- ------------- -------------
PRIMARY EARNINGS PER SHARE:
Income before extraordinary item.................................. $ .84 $ .16 $ .01
Extraordinary item................................................ .14 .10 .12
------------- ------------- -------------
Total........................................................... $ .98 $ .26 $ .13
------------- ------------- -------------
------------- ------------- -------------
Weighted average common and common equivalent shares outstanding.... 1,814,016 1,758,211 1,758,211
------------- ------------- -------------
------------- ------------- -------------
FULLY DILUTED EARNINGS PER SHARE:
Income before extraordinary item.................................. $ .83 $ .16 $ .01
Extraordinary item................................................ .13 .10 .12
------------- ------------- -------------
Total........................................................... $ .96 $ .26 $ .13
------------- ------------- -------------
------------- ------------- -------------
Weighted average common and common equivalent shares outstanding.... 1,860,284 1,758,211 1,758,211
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)

<TABLE>
<CAPTION>
RECEIVABLES
ADDITIONAL FROM
COMMON PAID-IN ACCUMULATED TREASURY RELATED
STOCK CAPITAL DEFICIT STOCK PARTY TOTAL
---------- ------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1994......................... $ 188,116 $ 3,615,151 $ (4,771,204) $(169,425) $ -- $(1,137,362)
Net income..................... -- -- 224,476 -- -- 224,476
---------- ------------ ------------- ----------- ----------- -------------
BALANCE, December 31,
1994......................... $ 188,116 3,615,151 (4,546,728) (169,425) -- (912,886)
Net income..................... -- -- 460,683 -- -- 460,683
---------- ------------ ------------- ----------- ----------- -------------
BALANCE, December 31,
1995......................... $ 188,116 3,615,151 (4,086,045) (169,425) -- (452,203)
Net income..................... -- -- 1,784,937 -- -- 1,784,937
Treasury stock purchase........ -- -- -- (15,750) -- (15,750)
Advances to a related party.... -- -- -- -- (129,193) (129,193)
---------- ------------ ------------- ----------- ----------- -------------
BALANCE, December 31,
1996......................... $ 188,116 $ 3,615,151 $ (2,301,108) $(185,175) $ (129,193) $1,187,791
---------- ------------ ------------- ----------- ----------- -------------
---------- ------------ ------------- ----------- ----------- -------------
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994
----------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 1,784,937 $ 460,683 $ 224,476
Adjustments to reconcile net income to cash provided by operating activities:
Extraordinary item.................................................................... (246,125) (174,811) (208,212)
Depreciation and amortization......................................................... 188,760 132,183 86,026
Provision for allowances.............................................................. 81,434 207,363 41,266
Equity in loss of joint venture....................................................... 90,313 47,336
Fixed assets from foreclosure......................................................... -- -- (177,884)
Write-down of long-lived assets....................................................... 37,462 -- --
Deferred lease rents.................................................................. (52,531) (65,067) (80,273)
Changes in operating assets and liabilities:
Accounts receivable................................................................... (1,327,949) (473,232) (897,748)
Receivable from net assets foreclosed................................................. -- -- 236,973
Refundable federal income taxes....................................................... -- -- 30,779
Prepaid expenses and other current assets............................................. 62,363 60,573 (150,919)
Other assets.......................................................................... 9,379 17,697 (112,945)
Trade account payable and accrued expenses............................................ 1,057,852 463,735 731,677
----------- --------- ---------

Cash provided by (used in) operating activities..................................... 1,685,895 676,460 (276,784)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................. (529,714) (312,396) (157,014)
Deposits.............................................................................. (45,567) (35,606) (22,442)
Loans and advances to related parties................................................. (160,209) -- --
Repayment from related parties........................................................ 13,052 23,844 18,104
Obligations resulting from restructuring/settlement agreements........................ -- (20,634) (217,150)
Net advances to joint venture......................................................... (139,380) (151,175) --
----------- --------- ---------

Cash used in investing activities................................................... (861,818) (495,967) (378,502)

CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing under short-term debt....................................................... 97,652 -- 10,000
Issuance of notes payable............................................................. -- -- 50,000
Repayment of short-term debt.......................................................... -- (64,500) (110,000)
Increase (decrease) in borrowing under factoring and loan agreements.................. (246,968) 110,637 396,931
Purchase of treasury stock............................................................ (15,750) -- --
Principal payments under long-term debt obligations................................... (21,660) (18,277) (30,397)
Book overdraft........................................................................ (31,078) (246,329) 265,118
----------- --------- ---------

Cash provided by (used in) financing activities..................................... (217,804) (218,469) 581,652
----------- --------- ---------

Increase (decrease) in cash and cash equivalents.................................... 606,273 (37,976) (73,634)

Cash and cash equivalents at beginning of year........................................ 6,239 44,215 117,849
----------- --------- ---------
Cash and cash equivalents at end of period............................................ $ 612,512 $ 6,239 $ 44,215
----------- --------- ---------
----------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest................................................ $ 249,000 $ 264,000 $ 163,000
Cash paid during the year for income tax.............................................. $ 13,601 $ -- $ --
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE>
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 of which are
wholly owned. All intercompany accounts and transactions have been eliminated in
consolidation.

NATURE OF OPERATIONS AND CONCENTRATION OF CREDIT RISK

The Company is a Texas corporation and is engaged, through its subsidiaries,
in the permanent and specialty placement of personnel in various industries, and
in contract placement services. The Company operates offices in Dallas, Houston
and Austin, Texas; Atlanta, Georgia; Kansas City, Missouri; Chicago, Illinois;
and Raleigh, North Carolina. The offices 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 its
offices. The Company maintains cash on deposit in interest bearing accounts
which, at times, exceed federally insured limits. The Company has not
experienced any losses on such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.

REVENUE RECOGNITION AND COST OF SERVICES

Fees for placement of permanent 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 specialty
services and contract placements are recognized upon performance of services by
the Company. Cost of services consists of expenses for the operation of the
Company's offices, principally commissions, direct wages paid to non-permanent
personnel, and payroll taxes. Accounts receivable at December 31, 1996 and 1995,
includes approximately $185,000 and $36,000, respectively, of unbilled
receivables that were billed in 1997 and 1996, respectively.

CASH AND CASH EQUIVALENTS

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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 1996, the Company's financial instruments consist of notes
receivable from related party and long-term debt. The Company believes that the
recorded values approximate fair value.

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 range from three to
seven years) or the related lease terms, if applicable, whichever is shorter.
Upon retirement or sale, the cost and related accumulated depreciation and
amortization are removed from the accounts and any resultant gains or losses are
included in the Consolidated Statement of Operations. Maintenance and repair
costs are charged to expense as incurred.

F-8
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ADVERTISING EXPENSE

Advertising costs are expensed as incurred. For the years ended December 31,
1996, 1995 and 1994, advertising expenses amounted to approximately $341,000,
$410,000 and $384,000, respectively.

EARNINGS PER SHARE

Earnings per share was determined by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year (common stock equivalents are excluded if the
effects of inclusion are anti-dilutive).

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, particularly deferred
tax 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.

IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF

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 was 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. Accordingly, the Company recognized a reduction in
market value of a certain long-lived asset. This write down resulted in a charge
to 1996 earnings of approximately $37,000.

STOCK BASED COMPENSATION

In October 1995, SFAS No. 123, "Stock Based Compensation," was issued. This
statement requires the Company to choose between two different methods of
accounting for employee stock options. The statement defines a fair-value-based
method of accounting for employee stock options but allows an entity to continue
to measure compensation cost for employee 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 equal to or greater
than the current market value of the stock. The Company will continue to use the
intrinsic value method under APB 25 but is 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 and 1995 financial statements. See Note 7 to
the consolidated financial statements for a more complete discussion of this
matter.

NEW ACCOUNTING PRONOUNCEMENT

F-9
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
December 15, 1997. Statement 128 specifies the computation, presentation and
disclosure requirements for earnings per share ("EPS"). Some of the changes made
to current EPS standards include: (i) eliminating the presentation of primary
EPS and replacing it with basic EPS, with the principal difference being that
common stock equivalents are not considered in computing basic EPS, (ii)
eliminating the modified treasury stock method and the three percent materiality
provision, and (iii) revising the contingent share provision and the
supplemental EPS data requirements. Statement 128 also requires dual
presentation of basic and diluted EPS on the face of the income statement, as
well as a reconciliation of the numerator and denominator used in the two
computations of EPS. Basic EPS is defined by Statement 128 as net income from
continuing operations divided by the average number of common shares outstanding
without the consideration of common stock equivalents which may be dilutive to
EPS. The Company's current methodology for computing its fully diluted EPS will
not change in future periods as a result of its adoption of Statement 128.

RECLASSIFICATION

Certain amounts in the 1995 and 1994 Consolidated Financial Statements have
been reclassified to conform to the 1996 presentation.

2. SALE AND REPOSSESSION OF ASSETS:

In May, 1993, the Company repossessed from one of the purchasers of Company
assets most of the assets ("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 (collateralized 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 one or more affiliates of Bailey
released the Company from certain obligations and liabilities totaling
approximately $57,000 payable by the Company to Bailey. These promissory notes
are reflected as notes receivable-related party in the balance sheet at December
31, 1995. Prior to the sale, the Company had considered closing RNG due to
recurring operating losses during 1993. As of December 31, 1996, all promissory
notes have been paid in full.

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 which MAGC and GKS operated
prior to the foreclosure action taken by the Company. The Company's Consolidated
Statements of Operations include the operations of these businesses from the
date of repossession.

F-10
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SALE AND REPOSSESSION OF ASSETS: (CONTINUED)
During the years ended December 31, 1995 and 1994, and due to the various
foreclosure transactions described above, the Company has recognized gains of
approximately $23,000 and $133,000, respectively, on the foreclosure of
divisional assets.

The following table sets forth the net book value, which approximates fair
value, of the MAGC and GKS assets foreclosed upon and repossessed by the Company
on January 3, 1994:

<TABLE>
<CAPTION>
INFORMATION
MANAGEMENT SYSTEMS
ALLIANCE CONSULTING CONSOLIDATED
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)
------------ ----------- ------------ ----------
$ 149,482 $ 163,068 $ (23,624) $ 288,926
------------ ----------- ------------ ----------
------------ ----------- ------------ ----------
</TABLE>

3. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS:

Equipment, furniture and leasehold improvements consist of:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Computer equipment.................................................... $ 673,699 $ 397,258
Office equipment and furniture........................................ 697,947 511,272
Leasehold improvements................................................ 102,785 36,187
Less accumulated depreciation and amortization........................ (666,434) (477,674)
---------- ----------
$ 807,997 $ 467,043
---------- ----------
---------- ----------
</TABLE>

F-11
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Trade accounts payable and accrued expenses consist of:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------ ------------
Trade accounts payable............................................ $ 517,808 $ 739,366
Accrued expenses.................................................. 712,421 372,850
Accrued compensation.............................................. 1,761,246 1,031,434
Self-insured medical reserve...................................... 159,233 131,053
Accrued payroll expense........................................... 136,194 183,647
Other............................................................. 42,714 59,539
------------ ------------
$ 3,329,616 $ 2,517,889
------------ ------------
------------ ------------
</TABLE>

5. BORROWINGS UNDER FACTORING AND LOAN AGREEMENT AND OTHER SHORT-TERM DEBT:

During 1996 and 1995, wholly owned subsidiaries of the Company factored
certain trade accounts receivable pursuant to factoring agreements. Currently,
one of the Company's wholly owned subsidiaries factors its trade accounts
receivable with a factoring company that provides for advances up to $1.2
million. The subsidiary had approximately $3.1 million in accounts receivable at
December 31, 1996. Funds advanced on the receivables are reported as borrowings.
Interest charged on the outstanding balance of the borrowings is based on the
base lending rate as defined by the agreement plus 3%. The interest rate and
outstanding borrowings under the factoring agreement were 11.25% and
approximately $292,000 at December 31, 1996, and 21.16% and approximately
$648,000 at December 31, 1995. In addition, the factoring company charges a fee
of .6% on the amount of accounts receivable factored.

On August 26, 1996, one of the Company's wholly owned subsidiaries entered
into an accounts receivable based revolving line of credit agreement with a
finance company, which replaced one of the Company's factoring arrangements. The
term of the loan agreement is for one year but may be renewed if the subsidiary
and lender so agree. Fees and interest are based on the monthly average
outstanding balance under the line of credit. The amount available under the
line is based upon eligible accounts receivable up to a maximum aggregate amount
not to exceed the lesser of 85% of the aggregate amount of eligible receivables
or $1.0 million. The subsidiary had approximately $740,000 in accounts
receivable at December 31, 1996. All eligible receivables are pledged as
collateral. Interest is payable monthly at prime plus 2.5% (11% at December 31,
1996) plus an administrative fee of .6% on the average daily outstanding balance
during the preceding month. The loan requires that the monthly interest and
administrative fees be at least $7,500. At December 31, 1996, borrowings under
the line amounted to approximately $108,000. The loan agreement requires the
Company to maintain positive cash flow (as defined) and net income of no less
than $50,000 per quarter and restricts dividend payments and certain
transactions of such subsidiary with its affiliates.

On August 26, 1996, the Company entered into a $300,000 line of credit
agreement for the purchase of fixed assets. Interest is payable monthly at prime
plus 2.5% (11% at December 31, 1996) and the fixed assets financed are pledged
as collateral. The line of credit will convert into long-term debt upon $300,000
being advanced, depending on the Company's continued relationship with the
lender. The long-term debt will have a five year term and bear interest monthly
at prime plus 2.5%. In addition, the Company has

F-12
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. BORROWINGS UNDER FACTORING AND LOAN AGREEMENT AND OTHER SHORT-TERM DEBT:
(CONTINUED)
pledged as collateral on this line of credit $450,000 of one of its subsidiary
company's accounts receivable. The outstanding balance of approximately $98,000
under this line is reflected in other short-term debt in the Consolidated
Balance Sheet at December 31, 1996.

6. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Long-term debt consists of:

Noninterest bearing note due to the Federal Deposit Insurance
Corporation, quarterly installments of $5,000, due October 1997....... $ 20,000 $ 40,000
Adjustable rate (approximately 10%) at December 31, 1996, mortgage note
monthly installments of $729 plus interest, due 2013.................. 69,991 71,651
--------- ---------
89,991 111,651
Less current maturities of long-term debt............................... (21,834) (21,603)
--------- ---------
Total long-term debt.................................................... $ 68,157 $ 90,048
--------- ---------
--------- ---------
</TABLE>

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.

Approximately $95,000 in obligations assumed by third party purchasers
during 1991 were recorded by the Company as part of the foreclosure upon and
repossession of assets previously owned by the Company. The obligations included
a $70,000 mortgage note payable that is collateralized by a first lien on
certain real estate included in other noncurrent assets.

The aggregate maturities of long-term debt as of December 31, 1996, are as
follows:

<TABLE>
<S> <C>
1997.................................................................. $ 21,834
1998.................................................................. 2,026
1999.................................................................. 2,238
2000.................................................................. 2,473
2001.................................................................. 2,732
2002 and thereafter................................................... 58,688
---------
$ 89,991
---------
---------
</TABLE>

F-13
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY:

Pursuant to the terms of two purchase agreements, the Company was 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 a portion of these shares
to various lenders to collateralize certain debts. 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. At
December 31, 1996, 112,349 shares of common stock of the former officers and
directors has been conveyed to the Company.

In October, 1995, options 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, President, 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); (ii) became vested
as to an additional 3,000 shares (9,000 shares in the aggregate) each quarter
commencing November, 1995 (the balance became fully vested at December 31, 1996
as described below); (b) vesting was 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 the earlier of (i) six calendar months from the date on which
optionee's continuous involvement with the Company is terminated for any reason
other than as 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). Pursuant to a Board of Directors meeting on
December 27, 1996, the Board of Directors unanimously approved the immediate
vesting of all of the aforementioned options effective December 31, 1996.
Subsequent to December 31, 1996, J. Michael Moore, M. Ted Dillard and Donald A.
Bailey exercised their stock options.

Under provisions of the Company's 1996 Amended and Restated Nonqualified
Stock Option Plan (the "Plan"), options to purchase an aggregate of 450,000
shares of the Company's common stock may be granted to key personnel of the
Company. Options may be granted for a term of up to ten years to purchase common
stock at a price or prices established by the Compensation Committee of the
Board of Directors of the Company or its appointee.

In December 1996, options to purchase 30,000 shares of common stock were
granted under the Plan to Mr. Bailey. Subsequent to December 31, 1996, Samuel E.
Hunter, an individual recently named as a member of the Board of Directors of
the Company, was also granted options under the Plan to purchase 30,000 shares
of Common Stock. The terms and conditions of these options are as follows: (a)
each of the optionees will become vested as to their option shares on a prorata
quarterly basis commencing January 1, 1997 and ending on December 31, 1999; (b)
prior to such options becoming vested, vesting is contingent upon the optionee's
continued involvement as a 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

F-14
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY: (CONTINUED)
number of shares to which the optionee is vested, subject to certain conditions;
(d) the option price for options exercised is $3.00, $4.00 and $5.00 per share
for options vesting in 1997, 1998 and 1999, respectively; (e) subject to earlier
termination as herein provided, vested options (i) may be exercised at any time
prior to termination, and (ii) must be exercised prior to December 31, 2001; and
(f) if an optionee ceases to be a director of the Company, the options then
vested as to such optionee must be exercised within the earlier of (i) six
calendar months from the date on which optionee's continuous involvement with
the Company is terminated for any reason other than death or disability, (ii)
twelve calendar months from the date on which optionee's continuous involvement
with the Company is terminated due to death or disability, or (iii) December 31,
2001.

In December 1996, the Board of Directors of the Company approved the
issuance of stock options to Messrs. Moore and Dillard pursuant to the Plan
under which Messrs. Moore and Dillard have the right to purchase, respectively,
155,000 and 105,000 shares of common stock at varying prices subject to the
following conditions: (a) effective as of December 31, 1996, Mr. Moore became
vested as to 77,500 shares and Mr. Dillard became vested as to 52,500 shares;
(b) Mr. Moore will become vested as to an additional 46,500 shares and 31,000
shares, respectively, on December 31, 1997 and 1998; (c) Mr. Dillard will become
vested as to an additional 31,500 shares and 21,000 shares, respectively, on
December 31, 1997 and 1998; (d) prior to the options becoming vested, vesting is
contingent upon the optionee's continued involvement as an officer or director
of the Company; (e) the per share exercise price for options becoming vested in
1996, 1997 and 1998 are, respectively, $2.50, $4.00 and the lesser of $8.00 or
the price per share if the Company effectuates a public offering of its Common
Stock subsequent to the date hereof and prior to December 31, 1998; (f) subject
to earlier termination as herein provided, vested options (i) may be exercised
at any time or times prior to termination, and (ii) must be exercised prior to
December 31, 2001; and (g) if an optionee ceases to be an officer and director
of the Company, the options then vested as to such optionee must be exercised
within the earlier of (i) six calendar months from the date on which optionee's
continuous involvement with the Company is terminated for any reason other than
due to death or disability, (ii) twelve calendar months from the date on which
optionee's continuous involvement with the Company is terminated due to death or
disability, or (iii) December 31, 2001.

The following is a summary of the Company's stock options as of December 31,
1995.

<TABLE>
<CAPTION>
NUMBER OF RANGE
WEIGHTED SHARES OF OF
AVERAGE UNDERLYING EXERCISE
EXERCISE PRICE OPTIONS PRICES
--------------- ----------- -----------
<S> <C> <C> <C>
Outstanding at beginning of year............................................ $ -- -- $ --
Granted at a premium........................................................ .50 150,000 .50
-----------
Outstanding at end of year.................................................. .50 150,000 .50
-----------
-----------
Exercisable at December 31, 1995............................................ .50 45,000 .50
-----------
-----------
</TABLE>

F-15
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY: (CONTINUED)
The following is a summary of the Company's stock options as of December 31,
1996.

<TABLE>
<CAPTION>
NUMBER OF RANGE
WEIGHTED SHARES OF OF
AVERAGE UNDERLYING EXERCISE
EXERCISE PRICE OPTIONS PRICES
--------------- ----------- ----------------
<S> <C> <C> <C>
Outstanding at beginning of year.................................... $ .50 150,000 $ .50 to $ .50
Granted at a premium................................................ 4.04 290,000 2.50 to 8.00
-----------
Outstanding at end of year.......................................... 2.84 440,000 .50 to 8.00
-----------
-----------
Exercisable at December 31, 1996.................................... 1.43 280,000 .50 to 2.50
-----------
-----------
</TABLE>

No options were forfeited, expired or exercised in 1995 or 1996.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" ("SFAS 123") establishes a fair value basis of accounting
for stock based compensation plans. Had the compensation cost for the Company's
employee stock based compensation plans been determined consistent with SFAS
123, the Company's net income would approximate the amounts below:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- ------------------------
<S> <C> <C> <C> <C>
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------ ------------ ----------- -----------
SFAS 123 compensation cost.................................. $ -- $ 254,863 $ -- $ 11,730
APB 25 compensation cost.................................... $ -- $ -- $ -- $ --
Net income.................................................. $ 1,784,937 $ 1,530,074 $ 460,683 $ 448,953
Primary earnings per share:
Income before extraordinary item.......................... $ .84 $ .70 $ .16 $ .16
Extraordinary item........................................ .14 $ .14 $ .10 $ .10
------------ ------------ ----------- -----------
Primary earnings per share.................................. $ .98 $ .84 $ .26 $ .26
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Fully diluted earnings per share:
Income before extraordinary item.......................... $ .83 $ .69 $ .16 $ .16
Extraordinary item........................................ .13 .13 .10 .10
------------ ------------ ----------- -----------
Fully diluted earnings per share............................ $ .96 $ .82 $ .26 $ .26
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>

The effects of applying SFAS 123 as disclosed above are not indicative of
future amounts. SFAS 123 does not apply to awards prior to 1995, and the Company
anticipates making awards in the future under its stock based employee
compensation plan.

The fair value of each stock option granted and the resultant compensation
cost is estimated on the date of grant using the minimum value method of option
pricing with the following weighted-average assumptions for grants in 1996;
dividend yield of 0.0%; expected volatility of 184.11%; risk-free interest rates
are different for each grant and range from 5.71% to 6.09%; and the expected
lives of 2.5 to 4 years based on the vesting schedules of the options for the
1996 options.

The weighted-average grant date fair value of options granted during the
year ended December 31, 1996 was $2.82 and $.20 during the year ended December
31, 1995.

F-16
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVE. WEIGHTED
REMAINING AVE.
RANGE OF EXERCISE NUMBER CONTR. LIFE EXERCISE NUMBER WEIGHTED AVE.
PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE EXERCISE PRICE
- ------------------------------------------------- ----------- ------------- ----------- ----------- ---------------
$ .50 - $2.50 280,000 4.37 $ 1.43 280,000 $ 1.43
$2.51 - $5.00 108,000 5.00 4.00 -- --
$5.01 - $8.00 52,000 5.00 8.00 -- --
--- -----------
$ .50 - $8.00 440,000 4.60 $ 2.84 280,000 $ 1.43
--- -----------
--- -----------
</TABLE>

In 1996, the Company entered into an agreement with a consultant (who is not
otherwise affiliated with the Company) which provides for payment to the
consultant of (a) a placement fee of 0.1% of the amount of all long-term debt
(other than collateralized, bank indebtedness) or equity capital raised by the
Company during the period of the agreement and (b) an acquisition fee of 0.5% of
the purchase price of any business acquired by the Company during the period of
the agreement, provided that the consultant supplies the lead or provides due
diligence relating to such acquisition. This agreement includes provisions
related to the grant of stock options to the consultant, but no options have
been granted because the Board of Directors of the Company did not approve the
grant of such options. This agreement may be canceled by either party upon 30
days notice.

8. FEDERAL INCOME TAXES:

The income tax provision and the amount computed by applying the federal
statutory income tax rate to income before income taxes differs as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ---------
Tax provision at statutory rate................................................ $ 684,619 $ 156,632 $ 76,322
Utilization of net operating loss carryforward................................. (589,200) (156,632) (76,322)
Change in valuation allowance exclusive of utilization of net operating loss
carryforward................................................................. (19,400) -- --
Other.......................................................................... (7,834) -- --
Alternative minimum tax........................................................ 28,105 -- --
State income taxes of $200,544, net of federal income tax benefit of $68,185... 132,359 60,054 --
---------- ---------- ---------
Total...................................................................... $ 228,649 $ 60,054 $ --
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

F-17
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. FEDERAL INCOME TAXES: (CONTINUED)

<TABLE>
<CAPTION>
The allocation of income taxes is:
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operations........................................................ $ 224,774 $ 60,054 $ --
Extraordinary item................................................ 3,875 -- --
--------- --------- ---------
Total......................................................... $ 228,649 $ 60,054 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>

The components of the Company's deferred tax asset are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Net operating loss carryforward................................. $ 849,300 $ 1,438,500
Allowance for doubtful accounts................................. 167,900 142,000
Self insured medical reserve.................................... 54,100 44,600
Other........................................................... (15,600) 39,200
------------- -------------
Gross deferred tax asset........................................ 1,055,700 1,664,300
Valuation allowance............................................. $ (1,055,700) $ (1,664,300)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>

The Company's valuation allowance decreased approximately $609,000, $112,000
and $75,000 during the years ended December 31, 1996, 1995 and 1994,
respectively. The Company has a net operating loss carryforward of approximately
$2,498,000 as of December 31, 1996, which, if unused, expires in 2006 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,
1996, was approximately $336,000. An additional $467,000 will become available
annually through 2001.

9. DEBT RESTRUCTURING:

During the years ended December 31, 1996, 1995 and 1994, the Company settled
certain delinquent trade accounts payable on a discounted basis as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Gain on debt restructuring, net of income taxes.............................. $ 246,125 $ 174,811 $ 208,212
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

10. RELATED PARTY TRANSACTIONS:

The Company leased approximately 2,000 square feet for approximately $2,000
per month from United States Funding Group, Inc. ("USFG") through January 1996,
which was used as its principal offices. USFG is wholly owned by J. Michael
Moore, Chairman of the Board and Chief Executive Officer of the Company. Rent
expense was approximately $1,300 and $19,900 in 1996 and 1995, respectively, on
this lease.

F-18
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. RELATED PARTY TRANSACTIONS: (CONTINUED)
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. USFG was the
managing partner in USFG Ltd. 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. As of December 31, 1995, these loans were repaid in
full.

See Note 2 regarding the sale of RNG capital stock and Note 7 regarding
purchase agreements with two former officers and directors of the Company.

In January of 1996, the Company 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 was evidenced by a
promissory note bearing interest at the rate of 1% per month on the unpaid
balance due in monthly installments. In addition, a 10% loan origination and
administration fee was charged. As of March 31, 1997, this note has been paid in
full.

During 1995, the Company advanced a total of $37,000 to former officers of
its wholly owned subsidiary companies. During 1996, an additional advance of
$4,000 was made. These advances are reflected in prepaid expenses and other
current assets in the balance sheet at December 31, 1995. The balance of $41,000
was written off when the former officer left the Company during 1996.

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. Laurie Moore, the wife of
J. Michael Moore, the Chief Executive Officer and Chairman of the Board of the
Company, was a minority shareholder of CFS, Inc. until her interest was
purchased by the majority shareholder of CFS, Inc. in 1996, which was made
effective retroactive to January 1, 1995. (See Note 13 Joint Venture Operations,
for more information.)

The Company had approximately $41,000 payable to related parties, including
certain former directors and officers, included in trade accounts payable and
accrued expenses at December 31, 1996.

During 1996 and 1995, the Company paid various expenses on behalf of Mr.
Moore or various entities that he controls in the amount of approximately
$160,000 and $25,000, respectively. As these amounts are to be repaid by Mr.
Moore, they have been recorded as receivables. Of the $160,000 in 1996,
approximately $105,000 (which represents approximately 50% of the total legal
expense) relates to litigation defense associated with a lawsuit with Ditto
Properties, Inc., in connection with the Company being named therein as
garnishee. (See "The Company--Legal Proceedings.") With respect to the $105,000,
Mr. Moore has executed a non-interest bearing promissory note to the Company
which has a six month maturity and is expected to be repaid during 1997. The
balance of the $160,000 consists of approximately $24,000 of advances and
approximately $31,000 of interest bearing notes. These notes bear interest at
10% and require monthly principal and interest payments over 36 months. None of
these receivables are collaterized. The $105,000 note and the $24,000 of
advances are reported as receivables from related party in the Stockholders'
Equity section of the Consolidated Balance Sheet. The $31,000 of notes are
included in notes receivable-related party.

F-19
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. RELATED PARTY TRANSACTIONS: (CONTINUED)
Interest income from related parties amounted to approximately $5,500 in
1996, approximately $1,300 in 1995 and approximately $2,600 in 1994. Interest
expense incurred on related parties borrowings amounted to approximately $10,700
in 1995 and approximately $7,200 in 1994.

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, and to date, no
contributions have been made. 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 under various operating leases. Certain of
the leases have escalating rent payments. The Company is liable for the future
minimum lease payments for the periods subsequent to December 31, 1996, as
follows:

<TABLE>
<S> <C>
1997............................................................ $1,185,027
1998............................................................ 1,170,877
1999............................................................ 1,017,465
2000............................................................ 872,759
2001............................................................ 825,537
2002 and thereafter............................................. 907,660
---------
Future minimum lease payments................................... $5,979,325
---------
---------
</TABLE>

The aggregate amount of past due rental payments owed by the Company to one
of its landlords was approximately $31,000 as of December 31, 1996, which is
included in accrued expenses. The Company has previously negotiated with this
landlord and plans to settle this obligation during renegotiation of the lease
when it expires. Such amount is reflected in the 1997 future minimum lease
payments set forth in the table above. Rent expense was approximately
$1,027,000, $894,000 and $897,000 for the years ended December 31, 1996, 1995,
and 1994, respectively.

EMPLOYMENT AGREEMENTS

As of December 31, 1996, the Company had entered into employment contracts
with certain key employees.

The Board of Directors of the Company approved employment agreements with
both J. Michael Moore, Chairman of the Board and Chief Executive Officer of the
Company, and M. Ted Dillard, President, Secretary and Treasurer of the Company,
the terms of which are as follows: (a) annual compensation of $150,000 for Mr.
Moore and $125,000 for Mr. Dillard; (b) a term of three years with the
possibility of renewal unless terminated; (c) the right to participate in any
and all retirement plans and fringe benefit programs which the Company now has
in effect or may hereafter adopt.

F-20
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Subsequent to December 31, 1996, the Company formed EMSR, Inc. (formerly a
branch of the Company) as a wholly-owned subsidiary of the Company. Management
has entered into a preliminary agreement with Scott Higby, the President of
EMSR, Inc., for an equity arrangement pursuant to which Mr. Higby will be
granted stock options that will vest over a four year period. The option calls
for a nominal exercise price whereby Mr. Higby may exercise options granting him
up to 25% of the stock of EMSR, Inc. on a prorata basis over a four year period.

CONTINGENCIES

The Company is named as a garnishee in a lawsuit against the majority
shareholder, which the Company believes is without merit. As the result of an
Agreed Temporary Order dated October 24,1996, the Company was non-suited in this
matter. The Company has filed a separate lawsuit against the plaintiff seeking
damages and reimbursement of expense, alleging that plaintiffs interfered with
Company business transactions and proposed financings resulting in delays of
certain transactions, lost opportunities, lost profits and other significant
losses. Additionally, the Company has been named in a lawsuit filed by two
former employees claiming damages in excess of $29 million each for breach of
contract and various other allegations. The Company has filed a third party
petition against one of these plaintiffs and a counterclaim against the other
plaintiff. The Company is also involved in certain other litigation and disputes
not previously noted. With respect to all the aforementioned matters, management
believes they are without merit and has concluded that the ultimate resolution
of such 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 primarily providing personnel services to
certain businesses requiring minority suppliers. 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 substantially all of
its personnel and contract labor on a subcontractor basis at cost. Laurie Moore,
the wife of J. Michael Moore, the Chief Executive Officer and Chairman of the
Board of the Company, owned 49% of CFS, Inc. On August 15,1996, the majority
shareholder of CFS, Inc. purchased the 49% ownership interest of Ms. Moore,
pursuant to a transaction which was made effective retroactive to January 1,
1995. Ms. Moore received no monetary gain on her investment in CFS, Inc. or on
this transaction. 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.

F-21
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. JOINT VENTURE OPERATIONS: (CONTINUED)
The following is summarized audited financial information on the joint
venture:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
<S> <C> <C>
1996 1995
----------- ----------
Current assets....................................................... $ 112,539 $ 77,596
Non-current assets................................................... 36,965 1,000
Current liabilities.................................................. 36,822 --
Non-current liabilities.............................................. 324,203 151,174
Net sales............................................................ 288,087 317,367
Gross margin (loss).................................................. (23,617) 10,858
Net loss............................................................. (138,943) (73,577)
</TABLE>

F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of
Diversified Corporate Resources, Inc.:

Our report on the consolidated financial statements of Diversified Corporate
Resources, Inc. and subsidiaries as of and for the year ended December 31, 1996
is included on page F-2 of this Form S-1. In connection with our audit of such
financial statements, we have also audited the related financial statement
schedule for the year ended December 31, 1996 listed in the index on page F-1 of
this Form S-1.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
May 30, 1997

F-23
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
BAD DEBT
PROVISIONS
BALANCE AT CHARGED TO PROVISIONS BALANCE AT
BEGINNING OF COSTS & CHARGED TO END OF
DESCRIPTION PERIOD EXPENSES REVENUES DEDUCTIONS PERIOD
- ------------------------------------------- ------------ ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1994:
Trade accounts receivable allowances..... $ 164,000 $ 116,000 $ 803,000(1) $ 878,000 $ 205,000
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
Valuation allowance for deferred tax
assets................................. $ 1,851,494 $ -- $ -- $ 75,354 $ 1,776,140
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------

For the year Ended December 31, 1995:
Trade accounts receivable allowances..... $ 205,000 $ 116,000 $ 1,028,000(1) $ 937,000 $ 412,000
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
Valuation allowance for deferred tax
assets................................. $ 1,776,140 $ -- $ -- $ 111,840 $ 1,664,300
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------

For the Year Ended December 31, 1996:
Trade accounts receivable allowances..... $ 412,000 $ 165,000 $ 1,256,000(1) $ 1,339,000 $ 494,000
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
Valuation allowance for deferred tax
assets................................. $ 1,664,300 $ -- $ -- $ 608,600 $ 1,055,700
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
</TABLE>

- ------------------------

(1) Estimated reduction in revenues for applicants who accepted employment, but
did not start work or did not remain in employment for the guaranteed
period.

F-24
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:

Cash and cash equivalents.......................................................... $ 489,430 $ 612,512
Trade accounts receivable, less allowances of approximately
$486,000 and $494,000, respectively.............................................. 3,643,828 3,387,138
Notes receivable-related party..................................................... 9,645 9,326
Prepaid expenses and other current assets.......................................... 110,695 34,443
------------ ------------
TOTAL CURRENT ASSETS........................................................... 4,253,598 4,043,419

EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET.................................................................. 1,032,178 807,997

OTHER ASSETS:
Investment in and advances to joint venture........................................ 210,305 152,905
Notes receivable-related party..................................................... 19,210 21,690
Other.............................................................................. 210,232 177,879
------------ ------------
$ 5,725,523 $5,203,890
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Trade accounts payable and accrued expenses........................................ $ 3,514,318 $3,329,616
Book overdraft..................................................................... -- 98,158
Borrowing under factoring and loan agreements...................................... 526,056 400,682
Other short-term debt.............................................................. 182,459 97,652
Current maturities of long-term debt............................................... 16,880 21,834
------------ ------------
TOTAL CURRENT LIABILITIES...................................................... 4,239,713 3,947,942

DEFERRED LEASE RENTS................................................................. 12,064 --

LONG-TERM DEBT....................................................................... 67,669 68,157

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

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................................................................ (2,067,153) (2,301,108)

Common stock held in treasury (245,849 shares at cost)............................. (185,175) (185,175)

Receivables from related party..................................................... (144,862) (129,193)
------------ ------------

TOTAL STOCKHOLDERS' EQUITY..................................................... 1,406,077 1,187,791
------------ ------------

$ 5,725,523 $5,203,890
------------ ------------
------------ ------------
</TABLE>

See notes to consolidated financial statements.

F-25
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
NET SERVICE REVENUES:
Permanent placement................................................................. $ 3,680,408 $ 2,777,261
Specialty services.................................................................. 1,875,772 1,557,402
Contract placement.................................................................. 1,722,418 1,879,336
------------ ------------
7,278,598 6,213,999
COST OF SERVICES...................................................................... 5,194,671 4,449,656
------------ ------------
GROSS MARGIN.......................................................................... 2,083,927 1,764,343
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......................................... (1,886,757) (1,283,041)
OTHER INCOME (EXPENSES):
Loss from joint venture operations.................................................. (11,212) (34,368)
Interest expense, net............................................................... (70,525) (69,017)
Other, net.......................................................................... 32,758 10,179
------------ ------------
(48,979) (93,206)
------------ ------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM..................................... 148,191 388,096
INCOME TAXES-current benefit (provision).............................................. 42,681 (50,021)
------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM...................................................... 190,872 338,075
EXTRAORDINARY ITEM--gain on debt restructuring........................................ 43,083 --
------------ ------------
NET INCOME............................................................................ $ 233,955 $ 338,075
------------ ------------
------------ ------------
PRIMARY EARNINGS PER SHARE:
Income before extraordinary item.................................................... $ .11 $ .19
Extraordinary item.................................................................. .02 --
------------ ------------
Total........................................................................... $ .13 $ .19
------------ ------------
------------ ------------
Weighted average common and common equivalent shares outstanding...................... 1,844,741 1,758,211
------------ ------------
------------ ------------
FULLY DILUTED EARNINGS PER SHARE:
Income before extraordinary item.................................................... $ .11 $ .19
Extraordinary item.................................................................. .02 --
------------ ------------
Total........................................................................... $ .13 $ .19
------------ ------------
------------ ------------
Weighted average common and common equivalent shares outstanding...................... 1,850,800 1,758,211
------------ ------------
------------ ------------
</TABLE>

See notes to consolidated financial statements.

F-26
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
MARCH 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income............................................................................ $ 233,955 $ 338,075
Adjustments to reconcile net income to cash provided by operating activities:
Extraordinary item.................................................................. (43,083) --
Depreciation and amortization....................................................... 61,911 44,652
Provision for allowances............................................................ (7,849) (64,410)
Equity in loss of joint venture..................................................... 11,212 34,368
Write-down of long-lived assets..................................................... -- 37,462
Deferred lease rents................................................................ 12,064 (15,759)
Changes in operating assets and liabilities:
Accounts receivable................................................................. (248,841) (683,211)
Prepaid expenses and other current assets........................................... (76,252) (5,357)
Other assets........................................................................ -- 11,273
Trade accounts payable and accrued expenses......................................... 227,785 416,412
----------- -----------
Cash provided by operating activities............................................. 170,902 113,505

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................. (286,092) (102,281)
Deposits.............................................................................. 500 (7,004)
Loans and advances to related parties................................................. (15,669) (25,000)
Repayment from related parties........................................................ 2,161 9,942
Net advances to joint venture......................................................... (68,612) 2,198
----------- -----------
Cash used in investing activities................................................. (367,712) (122,145)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under other short-term debt................................................. 84,807 --
Increase in borrowings under factoring and loan arrangements.......................... 125,374 87,816
Principal payments under long-term debt obligations................................... (5,442) (10,346)
Book overdraft........................................................................ (98,158) (73,069)
Other................................................................................. (32,853) --
----------- -----------
Cash provided by financing activities............................................. 73,728 4,401
----------- -----------
Decrease in cash and cash equivalents........................................... (123,082) (4,239)
Cash and cash equivalents at beginning of year.................................. 612,512 6,239
----------- -----------
Cash and cash equivalents at end of period...................................... $ 489,430 $ 2,000
----------- -----------
----------- -----------
</TABLE>

See notes to consolidated financial statements.

F-27
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

1. BASIS OF PRESENTATION

The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its subsidiaries (the "Company"), all of which are
wholly owned. The financial information for the three months ended March 31,
1997 and 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, 1996, included in the Company's annual report on Form 10-K.
Operating results for the three months ended March 31, 1997, are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1997.

RECLASSIFICATIONS

Certain amounts in the December 31 and March 31, 1996, consolidated
financial statements have been reclassified to conform to the 1997 presentation.

2. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS

Equipment, furniture and leasehold improvements consist of:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Computer equipment............................................... $ 881,343 $ 673,699
Office equipment and furniture................................... 761,529 697,947
Leasehold improvements........................................... 117,651 102,785
------------ ------------
1,760,523 1,474,431
Less accumulated depreciation and amortization................... (728,345) (666,434)
------------ ------------
$ 1,032,178 $ 807,997
------------ ------------
------------ ------------
</TABLE>

3. ACCOUNTS RECEIVABLE FROM RELATED PARTY

During the first quarter of 1997, the Company paid various expenses on
behalf of J. Michael Moore or various entities which he controls amounting to
approximately $16,000. Mr. Moore is the Chairman of the Board and Chief
Executive Officer of the Company. The $16,000 is included in receivables from
related party shown in the Stockholders' Equity section of the Consolidated
Balance Sheet. Of this amount, approximately $10,000 is related to the
litigation defense associated with a lawsuit with Ditto Properties, Inc., in
connection with the Company being named therein as garnishee. (See Part 1, Item
3, Legal Proceedings, in the Company's Form 10-K for the year ended December 31,
1996.)

F-28
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

4. INCOME TAXES

The income tax (provision) benefit and the amount computed by applying the
federal statutory income tax rate to income before income taxes differs as
follows:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1997 1996
---------- -----------
<S> <C> <C>
Tax provision (at statutory rate).................................... ($ 79,545) ($ 114,946)
Utilization of net operating loss carryforwards...................... 79,545 114,946
Alternative minimum tax.............................................. -- --
State income tax (expense) benefit................................... 42,681 (50,021)
---------- -----------
Total............................................................ $ 42,681 ($ 50,021)
---------- -----------
---------- -----------
</TABLE>

5. OTHER SHORT-TERM DEBT

On August 26, 1996, the Company entered into a $300,000 line of credit
agreement for the purchase of fixed assets. Interest is payable monthly at prime
plus 2.5% and the fixed assets financed and certain subordinated accounts
receivable are pledged as collateral. The line of credit of approximately
$182,000 at March 31, 1997, will convert into long-term debt upon $300,000 being
advanced, depending on the Company's continued relationship with the lender. The
long-term debt will have a five year term and bear interest monthly at prime
plus 2.5%.

6. CONTINGENCIES

7. NEW ACCOUNTING PRONOUNCEMENT

F-29
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

7. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED)
(iii) revising the contingent share provision and the supplemental EPS data
requirements. Statement 128 also requires dual presentation of basic and diluted
EPS on the face of the income statement, as well as a reconciliation of the
numerator and denominator used in the two computations of EPS. Basic EPS is
defined by Statement 128 as net income from continuing operations divided by the
average number of common shares outstanding without the consideration of common
stock equivalents which may be dilutive to EPS. The Company's current
methodology for computing its fully diluted EPS will not change in future
periods as a result of its adoption of Statement 128.

F-30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

------------------------

TABLE OF CONTENTS
------------------------

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................
Risk Factors...................................
The Company....................................
Use of Proceeds................................
Capitalization.................................
Price Range of Common Stock....................
Dividend Policy................................
Selected Financial Data........................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................
Business.......................................
Management.....................................
Certain Relationships and Related
Transactions.................................
Principal and Selling Shareholders.............
Shares Eligible for Future Sale................
Description of Capital Stock...................
Underwriting...................................
Legal Matters..................................
Experts........................................
Additional Information.........................
Index to Financial Statements.................. F-1
</TABLE>

------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OF
SOLICITATION IS NOT QUALIFIED TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.

SHARES
[LOGO]
DIVERSIFIED CORPORATE
RESOURCES, INC.
COMMON STOCK

---------------------

PROSPECTUS

---------------------

CRUTTENDEN ROTH
INCORPORATED
, 1997

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $
NASD filing fee................................................... $
Nasdaq National Market listing fee................................ $
Printing and engraving costs...................................... $ *
Legal fees and expenses........................................... $ *
Accounting fees and expenses...................................... $ *
Blue Sky fees and expenses........................................ $ *
Registrar and Transfer Agent's fees............................... $ *
Miscellaneous..................................................... $ *
---------
Total......................................................... $ *
---------
---------
</TABLE>

- ------------------------

* To be provided by amendment

The Company will pay all of such expenses to be incurred in connection with
the issuance and distribution of the securities registered hereby.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY FOR
MONETARY DAMAGES

(a) The Articles of Incorporation of the Registrant, together with its
Bylaws, provide that the Registrant shall indemnify officers and directors, and
may indemnify its other employees and agents, to the fullest extent permitted by
law. The laws of the State of Texas permit, and in some cases require,
corporations to indemnify officers, directors, agents and employees who are or
have been a party to or are threatened to be made a party to litigation against
judgments, fines, settlements and reasonable expenses under certain
circumstances.

(b) The Registrant has also adopted provisions in its Articles of
Incorporation that limit the liability of its directors and officers to the
fullest extent permitted by the laws of the State of Texas. Under the
Registrant's Articles of Incorporation, and as permitted by the laws of the
State of Texas, a director or officer is not liable to the Registrant or its
shareholders for damages for breach of fiduciary duty. Such limitation of
liability does not affect liability for (i) breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (iii) any transaction from which the director derived an improper personal
benefit, or (iv) the payment of any unlawful distribution.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth information as , 1997 regarding all sales
of unregistered securities of the Registrant during the past three years. In
connection with each of these transactions, the shares were sold to a limited
number of persons, such persons were provided access to all relevant information
regarding the Registrant and/or represented to the Registrant that they were
"sophisticated" investors, and such persons represented to the Registrant that
the shares were purchased for investment purposes only and not with a view
toward distribution. Each such issuance was made in reliance on Section 4(2) of
the Securities Act of 1933, as amended.

II-1
<PAGE>
(1) Issuance of Stock Options to J. Michael Moore, M. Ted Dillard, and
Donald A. Bailey, for the purchase by each of 50,000 shares of Common Stock,
pursuant to Stock Option Agreements dated December 1, 1995.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<C> <S>
1 Form of Underwriting Agreement*

2 Agreement and Plan of Merger (incorporated by reference from Exhibit 2(a) to the
Registrant's Registration Statement on Form S-18 (Reg. No. 33-760 FW))

3.1 Articles of Incorporation of the Registrant as amended (incorporated by reference
from Exhibit 3(a) to the Registrant's Registration Statement on Form S-18 (Reg. No.
33-760 FW))

3.2 Amended and Restated By-laws of the Registrant (incorporated by reference from
Exhibit 3(b) to the Registrant's Registration Statement on Form S-18 (Reg. No.
33-760 FW))

4.1 Form of certificate for the Common Stock of the Registrant (incorporated by
reference from Exhibit to the Registrant's Registration Statement on Form S-18
(Reg. No. 33-760 FW))

5.1 Opinion of Jenkens & Gilchrist, a Professional Corporation*

10.1 Employment Contract Agreement entered into June 9, 1995, between Management Alliance
Corporation, a wholly-owned subsidiary of the Registrant, and Anthony J. Bruno,
Chicago, Illinois, an employee (incorporated by reference from Exhibit 10(z)(iii) to
the Registrant's Form 10-K for the year ended December 31, 1994)

10.2 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and J.
Michael Moore, executed December 1, 1995 (incorporated by reference from Exhibit
10(z)(iv)to the Registrant's Form 10-K for the year ended December 31, 1995)

10.3 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and M.
Ted Dillard, executed December 1, 1995 (incorporated by reference from Exhibit
10(z)(v) to the Registrant's Form 10-K for the year ended December 31, 1995)

10.4 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and
Donald A. Bailey, executed December 1, 1995 (incorporated by reference from Exhibit
10(z)(vi) to the Registrant's Form 10-K for the year ended December 31, 1995)

10.5 Loan Agreement by and between Information Systems Consulting Corp. (a wholly-owned
subsidiary of the Company) and Concord Growth Corp. executed August 26, 1996
(incorporated by reference from Exhibit 10(z)(vii) to the Registrant's Form 10-K for
the year ended December 31, 1996)

10.6 Amendment to Loan Agreement by and between Information Systems Consulting Corp. and
Concord Growth Corp (incorporated by reference from Exhibit 10(z)(viii) to the
Registrant's Form 10-K for the year ended December 31, 1996)

10.7 General Continuing Guaranty of Preferred Funding Corporation in favor of Concord
Growth Corporation (incorporated by reference from Exhibit 10(z)(ix) to the
Registrant's Form 10-K for the year ended December 31, 1996)

10.8 General Continuing Guaranty of the Company in favor of Concord Growth Corporation
(incorporated by reference from Exhibit 10(z)(x) to the Registrant's Form 10-K for
the year ended December 31, 1996)

10.9 General Continuing Guaranty of Management Alliance Corporation in favor of Concord
Growth Corporation (incorporated by reference from Exhibit 10(z)(xi) to the
Registrant's Form 10-K for the year ended December 31, 1996)

10.10 The Registrant's Amended and Restated 1996 Nonqualified Stock Option Plan, effective
as of December 27, 1996 (incorporated by reference from Exhibit 10(z)(xii) to the
Registrant's Form 10-K for the year ended December 31, 1996)
</TABLE>

II-2
<PAGE>
<TABLE>
<C> <S>
10.11 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and J.
Michael Moore, executed May 15, 1997 (incorporated by reference from Exhibit 4.10 to
the Registrant's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)

10.12 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and M.
Ted Dillard, executed May 15, 1997 (incorporated by reference from Exhibit 4.8 to
the Registrant's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)

10.13 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and
Donald A. Bailey, executed May 15, 1997 (incorporated by reference from Exhibit 4.7
to the Registrant's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)

10.14 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and
Samuel E. Hunter, executed May 15, 1997 (incorporated by reference from Exhibit 4.9
to the Registrant's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)

10.15 Employment Contract by and between Diversified Corporate Resources, Inc. and J.
Michael Moore, executed April 10, 1997 (incorporated by reference from Exhibit
10(z)(xviii) to the Registrant's Form 10-K for the year ended December 31, 1996)

10.16 Employment Contract by and between Diversified Corporate Resources, Inc. and M. Ted
Dillard, executed April 10, 1997 (incorporated by reference from Exhibit
10(z)(xviii) to the Registrant's Form 10-K for the year ended December 31, 1996)

11 Statement re computation of per share earnings*

21 List of Subsidiaries (incorporated by reference from Exhibit 21 to the Registrant's
Form 10-K for the year ended December 31, 1996)

23.1 Consent of Coopers & Lybrand, L.L.P.

23.2 Consent of Weaver & Tidwell, L.L.P.

23.3 Consent of Jenkens & Gilchrist, a Professional Corporation (included in Exhibit 5)*

24 Power of Attorney (included on signature page of this Registration Statement)

27 Financial Data Schedule
</TABLE>

- ------------------------

* To be filed by amendment.

(B) FINANCIAL STATEMENT SCHEDULES

Not applicable.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction

II-3
<PAGE>
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 22 day of July, 1997.

DIVERSIFIED CORPORATE RESOURCES, INC.

BY: /S/ J. MICHAEL MOORE
-----------------------------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER

Each individual whose signature appears below hereby designates and appoints
J. Michael Moore and M. Ted Dillard, acting jointly, as such person's true and
lawful attorneys-in-fact and agents (the "Attorneys-in-Fact") with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as either
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorneys-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------

/s/ J. MICHAEL MOORE Chairman and Chief
- ------------------------------ Executive Officer July 22, 1997
J. Michael Moore

/s/ M. TED DILLARD President, Secretary,
- ------------------------------ Treasurer and Director July 22, 1997
M. Ted Dillard

/s/ DOUGLAS G. FURRA Chief Financial Officer and
- ------------------------------ Principal Financial Officer July 22, 1997
Douglas G. Furra

/s/ DONALD A. BAILEY Director
- ------------------------------ July 22, 1997
Donald A. Bailey

/s/ SAMUEL E. HUNTER Director
- ------------------------------ July 22, 1997
Samuel E. Hunter

II-5

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1 of our
reports dated May 30, 1997, on our audit of the consolidated financial
statements and financial statement schedule of Diversified Corporate
Resources, Inc. and Subsidiaries. We also consent to the references to our
firm under the captions "Experts."

Coopers & Lybrand L.L.P.

Dallas, Texas
July 22, 1997

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the use in this registration statement of Diversified Corporate
Resources, Inc. on Form S-1 of our report dated April 9, 1996, appearing in
the Prospectus, which is part of this registration statement, and to the
reference to us under the heading "Experts" in such Prospectus.

WEAVER AND TIDWELL, L.L.P.

Dallas, Texas
July 22, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DIVERSIFIED CORPORATE RESOURCES, INC. AND
SUBSIDIARIES AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND FOR THE
YEAR ENDED DECEMBER 31, 1996.
</LEGEND>
<CIK> 0000779226
<NAME> DIVERSIFIED CORPORATE RESOURCES, INC.

<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 489,430 612,512
<SECURITIES> 0 0
<RECEIVABLES> 4,129,828 3,881,138
<ALLOWANCES> 486,000 494,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,253,598 4,043,419
<PP&E> 1,760,523 1,474,431
<DEPRECIATION> 728,345 666,434
<TOTAL-ASSETS> 5,725,523 5,203,890
<CURRENT-LIABILITIES> 4,239,713 3,947,942
<BONDS> 67,669 68,157
0 0
0 0
<COMMON> 188,116 188,116
<OTHER-SE> 1,217,961 999,675
<TOTAL-LIABILITY-AND-EQUITY> 5,725,523 5,203,890
<SALES> 7,278,598 27,430,288
<TOTAL-REVENUES> 7,278,598 27,430,288
<CGS> 5,194,671 19,675,352
<TOTAL-COSTS> 7,081,428 25,378,344
<OTHER-EXPENSES> (21,546) 53,031
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 70,525 235,327
<INCOME-PRETAX> 148,191 1,763,586
<INCOME-TAX> (42,681) 224,774
<INCOME-CONTINUING> 190,872 1,538,812
<DISCONTINUED> 0 0
<EXTRAORDINARY> 43,083 246,125
<CHANGES> 0 0
<NET-INCOME> 233,955 1,784,937
<EPS-PRIMARY> .13 .98
<EPS-DILUTED> .13 .96

</TABLE>