<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1565578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 NORTH CENTRAL EXPRESSWAY
SUITE 350
DALLAS, TEXAS 75243
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 458-8500
Former name, former address and former fiscal year if changed since last report:
Indicate by check mark whether registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares of common stock of the registrant outstanding on June 30,
1997, was 1,785,312.
Total Number of pages for
this 10-Q filing: 16
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
JUNE 30, DECEMBER 31,
CURRENT ASSETS: 1997 1996
---------- ------------
Cash and cash equivalents $ 271,753 $ 612,512
Trade accounts receivable, less allowance
for doubtful accounts of approximately
$452,000 and $494,000, respectively 4,362,695 3,387,138
Notes receivable-related party 9,886 9,326
Prepaid expenses and other current assets 95,281 34,443
---------- -----------
TOTAL CURRENT ASSETS 4,739,615 4,043,419
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET 1,173,216 807,997
OTHER ASSETS:
Investment in and advances to joint venture 216,774 152,905
Notes receivable-related party 16,666 21,690
Other 416,656 177,879
---------- -----------
$6,562,927 $5,203,890
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses $3,804,608 $3,329,616
Book overdraft 28,801 98,158
Borrowings under factoring and loan agreements 360,841 400,682
Other short-term debt 241,901 97,652
Current maturities of long-term debt 6,928 21,834
---------- -----------
TOTAL CURRENT LIABILITIES 4,443,079 3,947,942
DEFERRED LEASE RENTS 24,946 -
LONG TERM DEBT 67,172 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, 2,031,161 and 1,881,161 shares
issued, respectively 203,116 188,116
Additional paid-in capital 3,675,151 3,615,151
Accumulated deficit (1,424,229) (2,301,108)
Common stock held in treasury (245,849
shares at cost) (185,175) (185,175)
Receivables from related party (241,133) (129,193)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,027,730 1,187,791
---------- -----------
$6,562,927 $5,203,890
---------- -----------
---------- -----------
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ------------------------
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SERVICE REVENUES
Permanent placement $4,300,835 $3,184,203 $7,981,243 $5,961,464
Specialty services 1,994,926 1,807,098 3,870,698 3,364,500
Contract placement 2,078,175 1,822,149 3,800,593 3,701,485
----------- ---------- ---------- ----------
8,373,936 6,813,450 15,652,534 13,027,449
COST OF SERVICES 5,773,844 4,800,511 10,968,514 9,250,167
----------- ---------- ---------- ----------
GROSS MARGIN 2,600,092 2,012,939 4,684,020 3,777,282
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (1,790,511) (1,423,634) (3,717,190) (2,706,675)
OTHER INCOME (EXPENSES):
Loss from joint venture operations (8,277) (25,717) (19,488) (60,085)
Interest expense, net (43,528) (62,672) (74,131) (131,689)
Other, net 21,187 12,196 53,943 22,375
----------- ---------- ---------- ----------
(30,618) (76,193) (39,676) (169,399)
----------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 778,963 513,112 927,154 901,208
INCOME TAXES, current provision 136,039 61,861 93,358 111,882
----------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 642,924 451,251 833,796 789,326
EXTRAORDINARY ITEM, gain on debt
restructuring, net - - 43,083 -
----------- ---------- ---------- ----------
NET INCOME $ 642,924 $ 451,251 $ 876,879 $ 789,326
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
PRIMARY EARNINGS PER SHARE:
Income before extraordinary item $ .35 $ .24 $ .46 $ .43
Extraordinary item - - .02 -
----------- ---------- ---------- ----------
TOTAL $ .35 $ .24 $ .48 $ .43
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,817,049 1,853,064 1,828,141 1,853,064
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
FULLY DILUTED EARNINGS PER SHARE:
Income before extraordinary item $ .34 $ .24 $ .45 $ .43
Extraordinary item - - .02 -
----------- ---------- ---------- ----------
TOTAL $ .34 $ .24 $ .47 $ .43
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,883,354 1,853,064 1,879,336 1,853,064
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1996
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 876,879 $ 789,326
Adjustments to reconcile net income to cash
provided by operating activities:
Extraordinary item (43,083) -
Depreciation and amortization 136,960 93,838
Other 6,882 -
Provision for allowances (41,834) (18,814)
Equity in loss of joint venture 19,488 60,085
Write-down of long-lived assets 37,462
Deferred lease rents 24,946 (31,519)
Changes in operating assets and liabilities:
Accounts receivable (933,723) (1,135,913)
Prepaid expenses and other current assets (60,838) (75,012)
Other assets (696) 3,330
Trade accounts payable and accrued expenses 518,075 761,414
---------- -----------
Cash provided by operating activities 503,056 484,197
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (509,061) (210,633)
Deposits 500 (2,540)
Loans and advances to related parties (111,940) (25,000)
Repayment from related parties 4,464 9,029
Net advances to joint venture (83,357) (18,435)
---------- -----------
Cash used in investing activities (699,394) (247,579)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock under option agreements 75,000 -
Proceeds from other short-term debt 144,249 -
(Decrease) increase in borrowings under
factoring and loan arrangements (39,841) 102,808
Principal payments under long-term debt
obligations (15,891) (15,810)
Book overdraft (69,357) (129,235)
Deferred offering costs (238,581) -
---------- -----------
Cash used in financing activities (144,421) (42,237)
---------- -----------
(Decrease) increase in cash and
cash equivalents (340,759) 194,381
Cash and cash equivalents at
beginning of year 612,512 6,239
---------- -----------
Cash and cash equivalents at
end of period $ 271,753 $ 200,620
---------- -----------
---------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 87,094 $ 136,365
---------- -----------
---------- -----------
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 and
six months ended June 30, 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 periods.
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 as amended ("Form 10-K"). Operating
results for the three and six months ended June 30, 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 June 30, 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:
JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
Computer equipment $1,040,909 $ 673,699
Office equipment and furniture 580,476 697,947
Leasehold improvements 126,133 102,785
---------- ----------
1,747,518 1,474,431
Less accumulated depreciation and
amortization (574,302) (666,434)
---------- ----------
$1,173,216 $ 807,997
---------- ----------
---------- ----------
3. ACCOUNTS RECEIVABLE FROM RELATED PARTY
During the three and six months ended June 30, 1997, the Company paid
various expenses on behalf of J. Michael Moore or various entities which he
controls amounting to approximately $96,000 and $112,000, respectively. Mr.
Moore is the Chairman of the Board and Chief Executive Officer of the
Company. These amounts are included in receivables from related party shown
in the Stockholders' Equity section of the Consolidated Balance Sheet. Of
these amounts, approximately $90,000 and $100,000, respectively, 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.)
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. 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:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ------------------------
1997 1996 1997 1996
----------- ---------- ---------- ----------
Tax provision (at
statutory rate) ($272,637) ($174,458) ($324,504) ($306,411)
Utilization of net
operating loss
carryforwards 272,637 174,458 324,504 306,411
Alternative minimum tax (10,850) (18,655) (10,850) (18,655)
State income tax expense (125,189) (43,206) (82,508) (93,227)
----------- ---------- ---------- ----------
Total ($136,039) ($ 61,861) ($93,358) ($111,882)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
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 subsidiary accounts
receivable are pledged as collateral. The line of credit of approximately
$242,000 at June 30, 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
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 expenses, 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 for
the fair market value of certain shares of common stock of certain
subsidiaries of the Company as well as other damages 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.
7. NEW ACCOUNTING PRONOUNCEMENTS
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
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
and Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Preliminary analysis of
these new standards by the Company indicates that the standards will not have
a material impact on the Company. The standards are effective for financial
statements for fiscal years beginning after December 15, 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1996
NET SERVICE REVENUES. Net service revenues increased approximately $1.6
million or 22.9% to $8.4 million in the second quarter of 1997, compared to
$6.8 million for the comparable 1996 quarter. Permanent placement revenues
increased approximately $1.1 million or 35.1% to $4.3 million for the quarter
ended June 30, 1997, compared to $3.2 million for the comparable 1996
quarter. Specialty service revenues increased approximately $188,000 or
10.4% to $2.0 million for the second quarter of 1997, compared to $1.8
million for the comparable 1996 quarter. Contract placement revenues
increased approximately $256,000 or 14.1% to $2.1 million in the second
quarter of 1997, compared to $1.8 million for the comparable 1996 quarter.
The increases in net service revenues were primarily attributable to the
Company's continued focus on high-end niche employment markets such as the
information technology and engineering/technical disciplines.
GROSS MARGIN. Gross margin increased approximately $587,000 or 29.2% to
$2.6 million in the second quarter of 1997, compared to $2.0 million for the
comparable 1996 quarter. Gross margin as a percentage of net service
revenues increased to approximately 31.0% in the second quarter of 1997
compared to approximately 29.5% in the comparable period in 1996. The
increase in gross margin was primarily due to an increase in permanent
placement revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $367,000 or 25.8% to $1.8
million in the second quarter of 1997, compared to $1.4 million for the
comparable 1996 quarter. Selling, general and administrative expenses as a
percentage of net service revenues increased to approximately 21.4% in the
second quarter of 1997 from approximately 20.9% in the comparable 1996
quarter. The increase was primarily the result of increased expenses on the
Company's back office to support the growth in sales and an increase in
litigation expenses. Included in these increases were increases in
litigation expenses of approximately $116,000 and approximately $41,000 for
the establishment of the Company's training facilities.
OTHER EXPENSES. Other expenses declined approximately $46,000 to $31,000 in
the second quarter of 1997, compared to approximately $76,000 in the
comparable 1996 quarter. The decrease in expenses was the result of a
decrease in the loss from joint venture operations and a decrease in interest
expense as a result of the lower cost of funds.
INCOME TAXES. Income tax expense increased approximately $74,000 to
$136,000 for the second quarter of 1997, compared to approximately $62,000
for the comparable 1996 quarter.
NET INCOME. Net income increased approximately $192,000 or 42.5% to
approximately $643,000 in the second quarter of 1997 as compared to
approximately $451,000 in 1996.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NET SERVICE REVENUES. Net service revenues increased approximately $2.6
million or 20.2% to $15.7 million in the first six months of 1997, compared
to $13.0 million for the comparable 1996 period. Permanent placement
revenues increased approximately $2.0 million or 33.9% to $8.0 million for
the six months ended June 30, 1997, compared to $6.0 million for the
comparable 1996 period. Specialty service revenues increased approximately
$506,000 or 15.0% to $3.9 million for the first six months of 1997, compared
to $3.4 million for the comparable 1996 period. Contract
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
placement revenues increased approximately $99,000 or 2.7% to $3.8 million in
the first six months of 1997, compared to $3.7 million for the comparable
1996 period. The increase in net service revenues were primarily
attributable to the Company's continued focus on high margin, high-end niche
employment markets, such as the information technology and engineering
technical disciplines.
GROSS MARGIN. Gross margin increased approximately $907,000 or 24.0% to
$4.7 million in the first six months of 1997, compared to $3.8 million for
the comparable 1996 period. Gross margin as a percentage of net service
revenues increased to approximately 29.9% in the first six months of 1997
compared to approximately 29.0% in the comparable period in 1996, primarily
due to an increase in permanent placement revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $1.0 million or 37.3% to $3.7
million in the first six months of 1997, compared to $2.7 million for the
comparable 1996 period. Selling, general and administrative expenses as a
percentage of net service revenues increased to approximately 23.7% in the
first six months of 1997 from approximately 20.8% in the comparable 1996
period. The increase was primarily the result of increased expenses 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 $225,000,
provision for uncollectible accounts of approximately $185,000 and
approximately $76,000 for the establishment of the Company's training
facilities.
OTHER EXPENSES. Other expenses declined approximately $130,000 to $40,000
in the first six months of 1997, compared to approximately $170,000 in the
comparable 1996 period. The decrease in expenses was the result of a
decrease in the loss from joint venture operations, a decrease in interest
expense as a result of the lower cost of funds and the collection of a
receivable, previously written off, associated with a prior year sale of
assets.
INCOME TAXES. Income tax expense decreased approximately $19,000 to $93,000
in the first six months of 1997, compared to approximately $112,000 for the
comparable 1996 period. This decrease 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 six months of 1997
resulted from the Company settling certain prior year delinquent accounts
payable on a discounted basis.
NET INCOME. Net income increased approximately $88,000 or 11.1% to
approximately $877,000 in the first six months of 1997, compared to
approximately $789,000 in the comparable 1996 period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately $297,000 at June 30, 1997, compared to
working capital of approximately $95,000 at December 31, 1996. The increase
in working capital of approximately $202,000 during the first six months of
1997 was primarily due to the profitable operations of the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION - CONTINUED
Cash flow provided by operating activities of approximately $503,000
resulted primarily from the profitable operations of the Company during the
first six months of 1997. The Company made capital expenditures of
approximately $509,000 during the first six months of 1997, of which $144,000
was financed on a line of credit, primarily to improve its computer systems,
data base operations, and back office operations. The Company decreased its
factored accounts receivable borrowings by $40,000 during the first six
months 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 the first six months of
1997, and 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 $1.1 million in accounts receivable at June 30,
1997. All eligible receivables are pledged as collateral. Interest is
payable monthly at prime plus 2.5% (11% at June 30, 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 June 30, 1997, borrowings under
the line of credit amounted to approximately $226,000. 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.
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% (11% at June 30, 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 $242,000 under
this line of credit is reflected in other short-term debt in the Consolidated
Balance Sheet at June 30, 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 cash flow from operations will
provide adequate liquidity to fund its operations for at least the next 12
months.
Inflation has not had a significant effect on the Company's operating
results.
RECENT ACCOUNTING PRONOUNCEMENTS
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
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
and Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Preliminary analysis of
these new standards by the Company indicates that the standards will not have
a material impact on the Company. The standards are effective for financial
statements for fiscal years beginning after December 15, 1997.
ACTUAL RESULTS MAY DIFFER FROM FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q 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 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 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
affect businesses generally.
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
In September, 1996, a lawsuit (the "Suit") was filed by Ditto Properties
Company ("Ditto Properties"), whose manager is a business associate of J.
Michael Moore, against the USFG-DHRG L.P. No. 2, Inc. (the "Controlling
Shareholder"), J. Michael Moore individually and USFG-DHRG #1 Ltd.
(collectively, the "Defendants").
The Suit alleges, among other things, that the Defendants fraudulently
induced Ditto Properties to sell 899,200 shares (the "Shares") of Common
Stock to the Controlling Shareholder and failed to perform under the related
Stock Purchase Agreement dated March 26, 1993 (the "Stock Purchase
Agreement"). The Suit asks for injunctive relief and damages but also had
sought to rescind the Stock Purchase Agreement. However, summary judgment on
the issue of rescission was granted in favor of the Controlling Shareholder
and Ditto Properties' rescission claim was dismissed on June 2, 1997.
Because the Company believes that the Suit has interfered with certain of
the Company's business activities, the Company filed a separate lawsuit
against Ditto Properties on October 7, 1996. This lawsuit seeks in excess of
$100 million in damages and the reimbursement of certain expenses.
The Company has incurred legal expenses on its own behalf and on behalf
of the Defendants in an effort to prevent potential adverse impact of the
Suit on the Company. The Controlling Shareholder and Mr. Moore have entered
into an agreement with the Company pursuant to which Mr. Moore has agreed to
reimburse any legal fees and expenses deemed personal in nature by the Board
of Directors. The Board of Directors determined that approximately 50% of
such legal fees paid through October 24, 1996, should be reimbursed by the
Controlling Shareholder and that all of such fees after that date should be
reimbursed to the Company.
Pursuant to the terms of an agreed order entered by the court in the
Suit, 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 a loan made by Imperial Bank to the Controlling Shareholder.
In September, 1996, a lawsuit was filed in Texas State Court, in Dallas
County, by Billie Jean Tapp ("Ms. Tapp"), since joined by Gary K. Steeds ("Mr.
Steeds") 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).
In their lawsuit, Ms. Tapp and Mr. Steeds (former employees of the
Company) each allege 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 pursuant to a vesting schedule set forth in such
agreement, and certain other alleged agreements. They allege damages for the
fair market value of such shares in which they were vested and other damages
for breach of contract, conspiracy and tortious conduct, as well as
mismanagement, misappropriation of corporate assets and self-dealing by
Company officers and directors. The Company denies the existence of any such
contractual relationship, believes that Ms. Tapp's and Mr. Steeds' claims are
without merit, has filed an answer and counterclaim against Ms. Tapp and a
third party petition against Mr. Steeds and is vigorously defending the
lawsuit. In addition, the
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES - CONTINUED
Company believes that even if any such contractual relationship existed,
based upon the vesting schedule set forth in such agreements, any potential
damages of Ms. Tapp and Mr. Steeds would not have a material adverse effect
on the Company. The Company has moved to dismiss certain of Ms. Tapp's and
Mr. Steeds' claims on summary judgment.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Subsequent to June 30, 1997, the annual meeting of shareholders (the
"Annual Meeting") was held on August 12, 1997. At the meeting the
shareholders voted to elect J. Michael Moore, M. Ted Dillard, Donald A.
Bailey and Samuel E. Hunter to serve as directors of the Company to hold
office until the next annual meeting of shareholders or until their
respective successors are duly elected and qualified. The results of the
vote were as follows:
FOR AGAINST ABSTAIN
1,036,162 -0- 1,652
The shareholders voted to adopt and ratify the Board's adoption of the
Company's Amended and Restated 1996 Nonqualified Stock Option Plan. The
results of the vote were as follows:
FOR AGAINST ABSTAIN
991,026 5,658 41,130
The shareholders voted to ratify the appointment of Coopers & Lybrand
L.L.P. as independent auditors for the 1997 fiscal year. The results of the
vote were as follows:
FOR AGAINST ABSTAIN
1,037,814 -0- -0-
Prior to the Annual Meeting, the Company's Board of Directors determined,
in consultation with its investment bankers, that it was in the best
interests of the Company to withdraw the proposal discussed in the Company's
Proxy Statement to amend the Company's Articles of Incorporation to effect a
forward stock-split of the Company's common stock. It was therefore
withdrawn prior to the Annual Meeting.
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES - CONTINUED
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
11.1 Statement Regarding Computation of Per Share Earnings included
herein.
b. REPORTS ON FORM 8-K
On April 25, 1997, the Company filed a Form 8-K announcing the
termination of Weaver & Tidwell L.L.P. as the Company's independent
accounting firm as of April 18, 1997, and the engagement of Coopers & Lybrand
L.L.P. as the Company's independent accounting firm as of April 22, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIVERSIFIED CORPORATE RESOURCES, INC.
Registrant
DATE: August 14, 1997 By: /s/ J. Michael Moore
------------------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER
DATE: August 14, 1997 By: /s/ M. Ted Dillard
------------------------------
M. Ted Dillard
PRESIDENT AND SECRETARY
DATE: August 14, 1997 By: /s/ Douglas G. Furra
------------------------------
Douglas G. Furra
CHIEF FINANCIAL OFFICER
<PAGE>
EXHIBIT 11.1
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
STATEMENT REGARDING EARNINGS PER SHARE
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
PRIMARY 1997 1996 1997 1996
---- ---- ---- ----
SHARES OUTSTANDING:
Weighted average number of
shares outstanding 1,747,812 1,742,047 1,699,598 1,742,047
Net effect of dilutive stock
options (1) 69,237 111,017 128,543 111,017
---------- ---------- ---------- ----------
1,817,049 1,853,064 1,828,141 1,853,064
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income before extraordinary item $ 642,924 $ 451,251 $ 833,796 $ 789,326
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per common share
before extraordinary item $ 0.35 $ 0.24 $ 0.46 $ 0.43
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income from extraordinary item $ - $ - $ 43,083 $ -
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per common share
from extraordinary item $ - $ - $ 0.02 $ -
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income $ 642,924 $ 451,251 $ 876,879 $ 789,326
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share $ 0.35 $ 0.24 $ 0.48 $ 0.43
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
FULLY DILUTED
SHARE OUTSTANDING:
Weighted average number of
shares outstanding 1,747,812 1,742,047 1,699,598 1,742,047
Net effect of dilutive stock
options (1) 135,542 111,017 179,738 111,017
---------- ---------- ---------- ----------
1,883,354 1,853,064 1,879,336 1,853,064
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income before extraordinary item $ 642,924 $ 451,251 $ 833,796 $ 789,326
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per common share
before extraordinary item $ 0.34 $ 0.24 $ 0.45 $ 0.43
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income from extraordinary item $ - $ - $ 43,083 $ -
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per common share
from extraordinary item $ - $ - $ 0.02 $ -
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income $ 642,924 $ 451,251 $ 876,879 $ 789,326
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share $ 0.34 $ 0.24 $ 0.47 $ 0.43
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(1) The effects of dilutive stock options are based upon the treasury
stock method using average market price during the period for primary
amounts, and the higher of average market price or the market price at the
end of the period for fully diluted amounts.
<TABLE> <S> <C>
<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 SIX MONTHS ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 271,753
<SECURITIES> 0
<RECEIVABLES> 4,814,695
<ALLOWANCES> 452,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,739,615
<PP&E> 1,747,518
<DEPRECIATION> 574,302
<TOTAL-ASSETS> 6,562,927
<CURRENT-LIABILITIES> 4,443,073
<BONDS> 67,172
0
0
<COMMON> 203,116
<OTHER-SE> 1,824,614
<TOTAL-LIABILITY-AND-EQUITY> 6,562,927
<SALES> 15,652,534
<TOTAL-REVENUES> 15,652,534
<CGS> 10,968,514
<TOTAL-COSTS> 14,685,704
<OTHER-EXPENSES> (34,455)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,131
<INCOME-PRETAX> 927,154
<INCOME-TAX> 93,358
<INCOME-CONTINUING> 833,796
<DISCONTINUED> 0
<EXTRAORDINARY> 43,083
<CHANGES> 0
<NET-INCOME> 876,879
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.47
</TABLE>
