SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A-2
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
March 31, 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 May 30, 1997,
was 1,785,312
Total Number of pages for
this 10-Q/A-2 filing: 11
CORPDAL:68368.1 28722-00003
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<PAGE>
<TABLE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<CAPTION>
March 31, December 31,
CURRENT ASSETS: 1997 1996
------------- --------------
<S> <C> <C>
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
============= ===============
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
CURRENT LIABILITIES:
Trade accounts payable and accrued
<S> <C> <C>
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
============== ===============
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the three months ended
March 31,
------------------------------
1997 1996
------------- --------------
NET SERVICE REVENUES:
<S> <C> <C>
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
============= ==============
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the three months ended
March 31,
------------------------------
1997 1996
------------- --------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
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
============= ==============
See notes to consolidated financial statements.
</TABLE>
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<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 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 and Restatement
Certain amounts in the December 31 and March 31, 1996, consolidated
financial statements have been reclassified to conform to the 1997 presentation.
The December 31, 1996 consolidated financial statements have been restated and
reclassified from those previously filed in the 1997 first quarter Form 10-Q.
Such restatement and reclassifications are described in Note 1 to the
consolidated financial statements included in the Company's Form 10-K/A-2 for
the year ended December 31, 1996. Additionally, certain reclassifications have
been made to the previously filed March 31, 1997 consolidated financial
statements.
2. Equipment, Furniture and Leasehold Improvements
<TABLE>
Equipment, furniture and leasehold improvements consist of:
<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.)
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<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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
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.
7. New Accounting Pronouncement
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.
CORPDAL:68368.1 28722-00003
6
<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. Speciality
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 speciality 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 form the Company settling certain prior year delinquent accounts
payable on a discounted basis.
CORPDAL:68368.1 28722-00003
7
<PAGE>
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.
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.
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.
Inflation has not had a significant effect on the Company's operating
results.
CORPDAL:68368.1 28722-00003
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<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
Item 1. LEGAL PROCEEDINGS
Not Applicable.
Item 2. CHANGES IN SECURITIES
Not Applicable.
Item 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Item 5. OTHER INFORMATION
Not Applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1* Diversified Corporate Resources, Inc. Amended and Restated
1996 Nonqualified Stock Option Plan (incorporated by
reference from Exhibit 4.3 to the Registrant's Form S-8
(Reg. No. 333-27867))
* Management Compensation Plan
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.
CORPDAL:68368.1 28722-00003
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<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: July 21, 1997 By: /s/ J. Michael Moore
--------------------------
J. Michael Moore,
Chief Executive Officer
DATE: July 21, 1997 By: /s/ M. Ted Dillard
------------------------
M. Ted Dillard
President and Secretary
CORPDAL:68368.1 28722-00003
EXHIBIT 11.1
<TABLE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
STATEMENT REGARDING EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<CAPTION>
PRIMARY 1997 1996
- ------- ------------ ------------
SHARES OUTSTANDING:
Weighted average number of shares
<S> <C> <C>
outstanding.......................... 1,635,312 1,758,211
Net effect of dilutive stock options
(1).................................. 209,429 -
----------- ------------
Total.................................. 1,844,741 1,758,211
=========== ============
Income before extraordinary item.......... $ 190,872 $ 338,075
=========== ============
Earnings per common share before
extraordinary item................... $ 0.11 $ 0.19
=========== ============
Income from extraordinary item............ $ 43,083 $ -
=========== ============
Earnings per common share from
extraordinary item................... $ 0.02 $ -
=========== ============
Net income................................ $ 233,955 $ 338,075
=========== ============
Net income per common share............... $ 0.13 $ 0.19
=========== ============
FULLY DILUTED
SHARES OUTSTANDING:
Weighted average number of shares
outstanding.......................... 1,635,312 1,758,211
Net effect of dilutive stock options
(1).................................. 215,488 -
----------- ------------
Total.................................. 1,850,800 1,758,211
=========== ============
Income before extraordinary item.......... $ 190,872 $ 338,075
=========== ============
Earnings per common share before
extraordinary item................... $ 0.11 $ 0.19
=========== ============
Income from extraordinary item............ $ 43,083 $ -
=========== ============
Earnings per common share from
extraordinary item................... $ 0.02 $ -
=========== ============
Net income................................ $ 233,955 $ 338,075
=========== ============
Net income per common share............... $ 0.13 $ 0.19
=========== ============
<FN>
(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.
</FN>
</TABLE>
CORPDAL:68368.1 28722-00003
