<PAGE>
UNITED STATES
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, 2000
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 (IRS 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
to be filed 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. /X/Yes / /No
Number of shares of common stock of the registrant outstanding on July 20,
2000 was 2,786,352
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 273,313 $ 847,171
Trade accounts receivable, less allowance for doubtful accounts
of approximately $983,000 and $1,005,000, respectively 13,264,661 9,987,318
Receivables from related parties 276,970 75,263
Prepaid expenses and other current assets 332,393 256,714
Federal income taxes receivable 130,624 148,523
Deferred income taxes 701,607 713,853
------------- ------------
Total current assets 14,979,568 12,028,842
Property and equipment, net 3,559,888 3,342,524
Other assets:
Intangibles, net 9,930,222 6,882,809
Other 213,140 293,574
------------- ------------
$ 28,682,818 $ 22,547,749
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued expenses $ 7,154,030 $ 5,128,069
Short-term borrowings under line of credit - 1,480,000
Current maturities of capital lease obligations 43,500 13,413
Current maturities of long-term debt 1,434,434 1,220,733
------------- ------------
Total current liabilities 8,631,964 7,842,215
Deferred lease rents 113,823 93,528
Deferred income taxes 197,787 93,487
Bank borrowings under revolving credit agreement 3,464,471 -
Long-term maturities of capital lease obligations 155,455 -
Long-term debt, net of current maturities 2,098,819 1,590,757
------------- ------------
Total liabilities 14,662,319 9,619,987
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,
3,364,946 and 3,289,946 shares issued, respectively 336,495 328,995
Additional paid-in capital 12,558,909 12,378,909
Retained earnings 2,987,330 1,999,549
Common stock held in treasury (578,594 and 549,594 shares,
respectively), at cost (1,623,846) (1,541,302)
Receivables from related parties (238,389) (238,389)
------------- ------------
Total stockholders' equity 14,020,499 12,927,762
------------- ------------
$ 28,682,818 $ 22,547,749
============= ============
</TABLE>
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,
---------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net service revenues:
Permanent placement $ 7,934,335 $ 6,734,969 $ 15,734,023 $ 13,216,272
Specialty services 1,832,440 1,761,251 3,741,407 3,636,229
Contract placement 10,544,209 3,207,591 18,404,557 6,528,440
--------------- --------------- --------------- ---------------
20,310,984 11,703,811 37,879,987 23,380,941
Cost of services 15,124,867 8,432,184 27,667,335 16,626,794
--------------- --------------- --------------- ---------------
Gross margin 5,186,117 3,271,627 10,212,652 6,754,147
Selling, general and administrative expenses 3,738,587 2,672,095 7,519,474 5,055,380
Depreciation and amortization expense 426,601 269,031 803,406 537,730
Interest expense, net (185,067) (9,312) (251,127) (16,770)
Other income (expense), net (1,487) - 5,830 -
--------------- --------------- --------------- ---------------
Income from continuing operations before
income taxes and discontinued operations 834,375 321,189 1,644,475 1,144,267
Income tax expense 335,454 134,496 656,694 449,598
--------------- --------------- --------------- ---------------
Income from continuing operations before
discontinued operations 498,921 186,693 987,781 694,669
Discontinued operations, net of income taxes:
Loss from operations of discontinued training
operations (less income tax benefit of $0,
$98,719, $0 and $172,352, respectively) - (136,375) - (261,027)
--------------- --------------- --------------- ---------------
Net income $ 498,921 $ 50,318 $ 987,781 $ 433,642
=============== =============== =============== ===============
Basic earnings per share:
Income from continuing operations $ 0.18 $ 0.07 $ 0.36 $ 0.25
Loss from discontinued operations - (0.05) - (0.09)
--------------- --------------- --------------- ---------------
$ 0.18 $ 0.02 $ 0.36 $ 0.16
=============== =============== =============== ===============
Weighted average common shares outstanding 2,786,352 2,732,166 2,762,429 2,744,157
=============== =============== =============== ===============
Diluted earnings per share:
Income from continuing operations $ 0.18 $ 0.07 $ 0.36 $ 0.25
Loss from discontinued operations - (0.05) - (0.09)
--------------- --------------- --------------- ---------------
$ 0.18 $ 0.02 $ 0.36 $ 0.16
=============== =============== =============== ===============
Weighted average common and common
equivalent shares outstanding 2,787,074 2,764,763 2,763,190 2,777,399
=============== =============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
---------------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 987,781 $ 433,642
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 803,406 571,667
Provision for allowances (28,908) (46,097)
Income tax effect of options exercised - 22,744
Deferred income taxes 116,546 195,384
Accretion of interest on deferred payment
obligations 152,203 73,611
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (1,664,104) (331,397)
Federal income taxes receivable, net 17,899 (85,880)
Deferred lease rents 18,280 14,641
Prepaid expenses and other assets (152,774) (231,723)
Trade accounts payable and accrued expenses 1,118,188 (418,750)
------------ -----------
Cash provided by operating activities 1,368,517 197,842
Cash flows from investing activities:
Capital expenditures (490,495) (638,335)
Deposits (10,548) (2,751)
Business acquisition costs (3,124,412) -
Loans and advances to related parties (201,790) (23,166)
Repayment from related parties 83 24,055
------------ -----------
Cash used in investing activities (3,827,162) (640,197)
Cash flows from financing activities:
Issuance of common stock under stock options - 181,641
Net repayments on line of credit (1,480,000) -
Advances on long-term line of credit borrowings 11,372,102 -
Repayments of long-term line of credit borrowings (7,907,631) -
Repurchase of treasury stock (82,544) (20,025)
Principal payments under capital lease obligations (17,140) (26,299)
------------ -----------
Cash provided by financing activities 1,884,787 135,317
Decrease in cash and cash equivalents (573,858) (307,038)
Cash and cash equivalents at beginning of year 847,171 3,472,990
------------ -----------
Cash and cash equivalents at end of period $ 273,313 $3,165,952
============ ===========
Supplemental cash flow information:
Cash paid for interest $ 155,223 $ -
============ ===========
Cash paid for taxes $ 464,736 $ 257,077
============ ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its wholly owned subsidiaries (the "Company").
The financial information for the three and six months ended June 30, 2000
and 1999, 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, 1999, included in the Company's Annual Report on Form
10-K ("Form 10-K"). Operating results for the three and six months ended June
30, 2000, are not necessarily indicative of the results that may be expected
for the entire year ending December 31, 2000.
All inter-company accounts and transactions have been eliminated in
consolidation.
Certain reclassifications have been made to prior year balances to conform to
the current year presentation.
2. EARNINGS PER SHARE
Basic earnings per share ("EPS") was determined by dividing net income by the
weighted average number of shares of common stock outstanding during the
year. Diluted EPS includes these shares plus common stock equivalents
outstanding during the year. (Common stock equivalents are excluded if the
effects of inclusion are anti-dilutive.)
Following is a reconciliation of the weighted average number of shares
outstanding during the period for basic and diluted EPS:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic 2,786,352 2,732,166 2,762,429 2,744,157
Net effect of dilutive stock options 722 32,597 761 33,242
------------- ------------ ------------ ------------
Diluted 2,787,074 2,764,763 2,763,190 2,777,399
============= ============ ============ ============
Total options and warrants outstanding 668,757 667,257 668,757 667,257
============= ============ ============ ============
Options and warrants not considered
because effects of inclusion would be
anti-dilutive 631,257 277,590 631,257 277,590
============= ============ ============ ============
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- ---------------
<S> <C> <C>
Computer equipment and software $ 3,814,729 $ 3,071,644
Equipment and furniture 1,820,707 1,814,910
Leasehold improvements 399,947 386,589
-------------- ----------------
6,035,383 5,273,143
Less accumulated depreciation and amortization (2,475,495) (1,930,619)
-------------- ----------------
Net property and equipment $ 3,559,888 $ 3,342,524
============== ================
</TABLE>
Depreciation and amortization expense of property and equipment for the three
months ended June 30, 2000 and 1999 was approximately $287,000 and $209,000,
respectively. Depreciation and amortization
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
expense of property and equipment for the six months ended June 30, 2000 and
1999 was approximately $551,000 and $416,000, respectively.
4. INTANGIBLES
Intangibles consist of:
<TABLE>
<CAPTION>
Amortization June 30, December 31,
Period 2000 1999
----------------- ----------------- ----------------
<S> <C> <C> <C>
Non-compete agreements 3 - 5 years $ 150,000 $ 100,000
Goodwill 10 - 20 years 10,346,668 7,097,269
----------------- ----------------
10,496,668 7,197,269
Accumulated amortization (566,446) (314,460)
----------------- ----------------
$ 9,930,222 $ 6,882,809
================= ================
</TABLE>
Amortization of intangibles for the three months ended June 30, 2000 and 1999
was approximately $140,000 and $60,000, respectively. Amortization of
intangibles for the six months ended June 30, 2000 and 1999 was approximately
$252,000 and $122,000, respectively.
5. BUSINESS ACQUISITIONS
DATATEK CORPORATION:
In March, 2000, the Company completed the acquisition of substantially all of
the assets of Datatek Corporation ("Datatek"). The purchase price consisted
of $3,000,000 in cash, which was paid at closing; 75,000 shares of the
Company's common stock valued at $2.50 per share (which was the then market
value at the date the acquisition was announced less a discount for the
restrictive nature of the stock) and four annual installment payments,
payable on January 1 of each of the years 2001 through 2005, in the
anticipated amount of $170,625 each; contingent payments payable annually, on
April 15 of each of the years 2001 through 2005, in an amount equal to
twenty-five percent (25%) of the increased profits, as defined, of the
business acquired from Datatek (increased profits are based upon Datatek's
profits in 1999).
The Company incurred acquisition costs totaling $287,000 in connection with
the acquisition. Following is a summary of the transaction:
<TABLE>
Costs:
<S> <C>
Fair value of net assets acquired $ 829,356
Covenants not to compete 50,000
Goodwill 3,194,481
------------
Total $ 4,073,837
============
Source:
Cash and current liabilities assumed $ 3,316,777
Present value of minimum deferred payments 569,560
Fair value of common stock issued 187,500
------------
Total $ 4,073,837
============
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Datatek acquisition was accounted for under the purchase method. The
results of Datatek are included in the statement of operations beginning
March 6, 2000. Goodwill is being amortized over twenty years utilizing the
straight-line method. The contingent deferred payments will be recorded as
goodwill when earned.
The following unaudited pro forma results of operations for the six months
ended June 30, 2000 have been prepared assuming the Datatek acquisition had
taken place at the beginning of the period. The following unaudited pro forma
results of operations for the six months ended June 30, 1999 have been
prepared assuming the Datatek acquisition and the August 6, 1999 acquisition
of Mountain, Ltd. ("Mountain") had taken place at the beginning of the
period. The results of operations give effect to certain adjustments,
including amortization of intangible assets, interest effects of the
transaction, income taxes and the additional shares of common stock issued in
the transaction. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of results which may occur
in the future.
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Net service revenues: $39,927,769 $35,659,906
Net income from continuing operations
before taxes 1,687,378 1,421,793
Net income from continuing operations 1,013,369 861,184
Net income 1,013,369 600,157
Basic earnings per share:
Net income from continuing operations $ 0.36 $ 0.30
Net income $ 0.36 $ 0.21
Diluted earnings per share:
Net income from continuing operations $ 0.36 $ 0.29
Net income $ 0.36 $ 0.21
</TABLE>
6. LINE OF CREDIT AND DEBT
On May 18, 2000, the Company entered into a three year revolving line of
credit agreement with GE Capital (the "GE facility"). The agreement permits
borrowings up to $15,000,000. Upon the closing of this facility, the Company
borrowed $3,800,000 and repaid in its entirety the outstanding borrowings
under its previous agreement with Compass Bank. The borrowings are
collateralized by the Company's accounts receivable and other assets and are
based upon a borrowing base as defined in the agreement. The agreement also
contains various financial and non-financial covenants, the most restrictive
of which requires the Company to maintain tangible net worth of $3,000,000
and fixed charge coverage, as defined in the agreement, ranging from 1.5 to 1
at June 30, 2000 to 1.65 to 1 as of September 30, 2000. As of June 30, 2000,
the Company was in compliance with all covenants associated with this credit
facility. Outstanding balances bear interest at the bank's index rate which
is defined as the latest prime rate quoted on the last business day of each
calendar month plus 0.125%. Interest is payable monthly and all outstanding
principal and interest is due May 17, 2003. The weighted average interest
rate on the borrowings was 8.74% at June 30, 2000. In accordance with the
terms and provisions of the GE facility agreement, the Company had
approximately $3,300,000 of net borrowing availability at June 30, 2000.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7. CAPITAL LEASE OBLIGATIONS
In April 2000, the Company entered into a capital lease obligation for the
purchase of certain computer equipment totaling $202,682. The following is a
schedule of future minimum payments under this obligation as of June 30, 2000
along with the present value of these payments:
<TABLE>
<S> <C>
2001 $ 68,700
2002 68,700
2003 105,539
------------
242,939
Less amount representing interest (43,984)
------------
Present value of future minimum
lease payments 198,955
Less current maturities (43,500)
------------
$ 155,455
============
</TABLE>
Amortization of assets under capital leases for the quarter ended June 30,
2000 was $5,630 and the unamortized balance at June 30, 2000 was $197,052.
8. 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>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Tax provision at statutory
rate of 35% for continuing
operations $ 291,896 $ 112,416 $ 575,431 $ 400,493
Loss from discontinued
Operations - (98,719) - (172,352)
State income taxes net of
federal income tax benefits 37,720 12,625 81,348 28,435
Other 5,838 9,455 (85) 20,670
---------------- ---------------- ----------------- ---------------
$ 335,454 $ 35,777 $ 656,694 $ 277,246
================ ================ ================= ===============
</TABLE>
The allocation of income taxes (benefit) is:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------- ---------------------------------
2000 1999 2000 1999
------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Continuing operations $335,454 $134,496 $ 656,694 $ 449,598
Discontinued operations - (98,719) - (172,352)
------------ -------------- ------------- ---------------
$335,454 $ 35,777 $ 656,694 $ 277,246
============ ============== ============= ===============
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. RELATED PARTY TRANSACTIONS
During the quarter and six months ended June 30, 2000, the Company advanced
approximately $93,000 and $202,000, respectively, to or for the benefit of
Mr. J. Michael Moore, the Chairman of the Board and Chief Executive Officer
of the Company. In addition, through July 31, 2000, the Company has advanced
an additional $41,000. Such advances primarily related to debt payments and
legal expenses in connection with litigation involving, among others, Donald
R. Ditto Sr. and Ditto Properties Company, (collectively "Ditto"); see
"Commitments and Contingencies" below for more information related to such
lawsuits. All such advances are non interest bearing, are expected to be
collaterallized by assets which are owned by Mr. Moore and which have a
collective value which management of the Company believes to exceed the
amount of these advances, and are expected to be repaid by year end.
10. COMMITMENTS AND CONTINGENCIES
Mr. J. Michael Moore and several of the entities he controls are involved in
litigation with Ditto. The Company is a party to one of such lawsuits and has
filed a claim against Ditto seeking damages and reimbursement of expenses,
alleging that Ditto interfered with Company business transactions and
proposed financing resulting in delays of certain transactions, lost
opportunities, lost profits and other significant losses.
The Company is also involved in certain other litigation and disputes. With
respect to all of these litigation matters, management believes the claims
against the Company are without merit and has concluded that the ultimate
resolution of such will not have a material negative effect on the Company's
consolidated financial position or results of operations.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
11. DISCONTINUED OPERATIONS
In December 1999, the Company sold all of its assets of the Geier Assessment
and Performance Systems, Inc. ("GAPS") to the former owner and managers of
the GAPS operations. GAPS was engaged in developing software for use in
testing and improving the work performance of the Company's employees, and
clients employees.
In December 1999, the Company implemented a plan whereby the Company would
place its remaining training business assets of Train International, Inc.
("Train") for sale. Train has historically provided information technology
training to its clients' employees and the Company's applicant pool on a fee
basis. The Company has had discussions with various entities regarding such
sale. In connection with the plan to dispose of Train by September, 2000, the
Company recorded a loss in December 1999 which included a provision of
$240,000 for estimated operating losses during the period subsequent to
January 1, 2000. The operating losses of $178,369 noted below for the six
months ended June 30, 2000 have been recorded against this reserve.
The results of operations of GAPS and Train have been presented for the six
months ended June 1999 and the results of operations for Train only have been
presented for the six months ended June 2000. The remaining operating assets
and liabilities of GAPS and Train have been presented as discontinued
operations as at June 30, 2000 and 1999, respectively and are summarized
below:
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Net service revenue $ 898,287 $ 795,553
Cost of sales 768,898 545,719
---------------- ----------------
Gross margin 129,389 249,834
Selling, general and administrative expenses 295,210 686,237
Other income (expense) (12,548) 4,557
---------------- ----------------
Loss before income tax benefit (178,369) (431,846)
Income tax benefit 62,429 170,819
---------------- ----------------
Net loss $ (115,940) $ (261,027)
================ ================
Accounts receivable and other current assets $ 333,000 $ 417,000
================ ================
Accounts payable and accrued liabilities $ 139,000 $ 62,000
================ ================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(FISCAL 1999 RESULTS HAVE BEEN RECLASSIFIED FOR THE EFFECTS OF DISCONTINUED
OPERATIONS)
Service revenue summary:
<TABLE>
<CAPTION>
For the Three Months Ended Increase/
June 30, (Decrease)
------------------------------- -------------
2000 vs.
($ in millions) 2000 1999 1999
--------------- ------------ -------------
<S> <C> <C> <C>
Permanent placement $ 7.9 $ 6.7 $ 1.2
Contract placement 10.5 3.2 7.3
Specialty services 1.9 1.8 0.1
--------------- ------------ -------------
Net service revenue $ 20.3 $ 11.7 $ 8.6
=============== ============ =============
</TABLE>
For the quarter ended June 30, 2000, net service revenue increased $8.6
million, or 74%, to $20.3 million as compared to $11.7 million for the
previous year period. As noted in the table above, revenue derived from
contract placements increased $7.3 million. $3.9 million of this increase was
attributable to the inclusion of the results of Mountain, which was acquired
in August 1999, and $3.1 million was attributable to the inclusion of the
results of Datatek, which was acquired in March 2000. Permanent placements
revenue increased $1.2 million, or 18% as a result of increased placements of
information technology employees.
Contract placement and specialty services revenue accounted for 61% of net
service revenue for the quarter ended June 30, 2000. The inclusion of revenue
from the operations of the recently acquired Mountain and Datatek, which are
primarily contract placement operations, accounted for substantially all of
this change. Permanent placement revenues comprised 39%, or the balance of
net service revenue for the quarter ended June 30, 2000. In the previous year
period permanent placement revenues comprised 57% of the net service revenue.
Management expects that this trend towards a greater concentration of net
services revenue being derived from contract placements will continue as the
Company consolidates the operations of the acquired contract placement
entities.
Gross margin increased $1.9 million, or 59%, to $5.2 million for the quarter
ended June 30, 2000 as compared to $3.3 million in the previous year period.
As revenue from contract placements continues to grow as a percentage of
total net service revenue, the Company anticipates the gross margin
percentage will decline from previous years' levels. For the quarter ended
June 30, 2000, as a percentage of net service revenue, the gross margin
percentage amounted to 26%, down two percentage points as compared to the
previous year period gross margin percentage of 28%.
Selling, general and administrative expenses ("SG&A"), excluding depreciation
and amortization, increased $1.0 million, or 37%, to $3.7 million for the
quarter ended June 30, 2000, as compared to $2.7 million in the previous year
period. The inclusion of the operations of Mountain and Datatek accounted for
substantially all of the increase in SG&A. Also included in SG&A for the
quarter ended June 30, 2000 was approximately $0.1 million write-off of
acquisition costs associated with acquisition targets that are not expected
to materialize in the foreseeable future. For the quarter ended June 30,
2000, depreciation and amortization expense amounted to $0.4 million as
compared to $0.3 million in the previous year period. This increase was due
largely to amortization expense related to the Company's acquisitions.
For the quarter ended June 30, 2000, the Company reported net interest
expense of $0.2 million, primarily associated with borrowings on its line of
credit and imputed interest on deferred payment obligations related to the
Company's acquisitions of Texcel, Inc. ("Texcel"), Mountain and Datatek.
Interest expense was insignificant in the previous year period.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
As previously reported, in December 1999, the Company approved a plan to
dispose of Train. The Company subsequently initiated discussions with various
parties regarding such sale. The Company contemplates that any such sale
would include a strategic alliance that would allow the Company to continue
to utilize the services of Train on an outsource basis. Accordingly, fiscal
1999 results of operations reflect treatment of the results of operations for
this segment as discontinued operations. Losses from the operations of
discontinued operations, net of income tax, amounted to $0.1 million in the
quarter ended June 30, 1999. Approximately $30,000 of operating losses
incurred in the quarter ended June 30, 2000 has been recorded against the
reserve established at December 31, 1999.
As a result of the items discussed above, net income for the quarter ended
June 30, 2000 amounted to $0.5 million, up over $0.4 million over the
previous year period.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(FISCAL 1999 RESULTS HAVE BEEN RECLASSIFIED FOR THE EFFECTS OF DISCONTINUED
OPERATIONS)
Service revenue summary:
<TABLE>
<CAPTION>
For the Six Months Ended Increase/
June 30, (Decrease)
------------------------------- -------------
2000 vs.
($ in millions) 2000 1999 1999
--------------- ------------ -------------
<S> <C> <C> <C>
Permanent placement $ 15.7 $ 13.2 $ 2.5
Contract placement 18.4 6.5 11.9
Specialty services 3.8 3.7 0.1
--------------- ------------ -------------
Net service revenue $ 37.9 $ 23.4 $ 14.5
=============== ============ =============
</TABLE>
For the six months ended June 30, 2000, net service revenue increased $14.5
million, or 62%, to $37.9 million as compared to $23.4 million for the
previous year period. As noted in the table above, revenue derived from
contract placements increased $11.9 million. Approximately $7.4 million of
this increase was attributable to the inclusion of the results of Mountain,
which was acquired in August 1999, and $4.0 million was attributable to the
inclusion of the results of Datatek, which was acquired in March 2000.
Permanent placements revenue increased $2.5 million, or 19% as a result of
increased placements of information technology employees on a full time basis.
Contract placement and specialty services revenue accounted for 59% of net
service revenue for the six months ended June 30, 2000. The inclusion of
revenue from the operations of the recently acquired Mountain and Datatek,
which are primarily contract placement operations, accounted for
substantially all of this change. Permanent placement revenues comprised 41%,
or the balance of net service revenue for the six months ended June 30, 2000.
In the previous year period permanent placement revenues comprised 56% of the
net service revenue. Management expects that this trend towards a greater
concentration of net services revenue being derived from contract placements
will continue as the Company consolidates the operations of the acquired
contract placement entities.
Gross margin increased $3.5 million, or 51%, to $10.2 million for the six
months ended June 30, 2000 as compared to $6.7 million in the previous year
period. As revenue from contract placements continues to grow as a percentage
of total net service revenue, the Company anticipates that the gross margin
percentage will decline from previous years levels. For the six months ended
June 30, 2000, as a percentage of net service revenue, the gross margin
percentage amounted to 27%, down two percentage points as compared to the
previous year period gross margin percentage of 29%.
Selling, general and administrative expenses ("SG&A"), excluding depreciation
and amortization, increased $2.5 million, or 49%, to $7.5 million for the six
months ended June 30, 2000, as compared to $5.0 million in the previous year
period. The inclusion of the acquired operations of Mountain and Datatek
accounted for $1.5 million of the increase. Also included in SG&A for the six
months ended June
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
30, 2000 are approximately $0.1 million write-off of acquisition costs
associated with acquisition targets that are not expected to materialize in
the foreseeable future. Management is continuing to evaluate SG&A costs and
intends to achieve synergies later in fiscal year 2000 through the continued
consolidation and integration of back office functions of its recent
acquisitions. For the six months ended June 30, 2000, depreciation and
amortization expense amounted to $0.8 million as compared to $0.5 million in
the previous year period. This increase was due largely to amortization
expense related to the Company's acquisitions.
For the six months ended June 30, 2000, the Company reported net interest
expense of $0.3 million, primarily associated with borrowings on its line of
credit and imputed interest on deferred payment obligations related to the
Company's acquisitions of Texcel, Mountain and Datatek. Interest expense was
insignificant in the previous year period.
As previously reported, in December 1999, the Company approved a plan to
dispose of Train. The Company subsequently entered discussions with various
parties regarding such sale. The Company contemplates that any such sale
would include a strategic alliance that would allow the Company to continue
to utilize the services of Train on an outsource basis. Accordingly, fiscal
1999 results of operations reflect treatment of the results of operations for
this segment as discontinued operations. Losses from the operations of
discontinued operations, net of income tax, amounted to $0.3 million for the
six months ended June 30, 1999. Approximately $0.1 million of operating
losses incurred in the six months ended June 30, 2000 has been recorded
against the reserve established at December 31, 1999.
As a result of the items discussed above, net income for the six months ended
June 30, 2000 amounted to $1.0 million, up $0.6 million over the previous
year period.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2000, net cash flow generated from
operations amounted to $1.4 million. In addition, the Company borrowed a net
$2.0 million under the Company's line of credit facilities. All of these
proceeds combined with $0.6 million of existing cash on hand was used as
follows: (a) $3.1 million to fund acquisitions, (b) $0.1 million to
repurchase Company stock under the Company's stock repurchase program, (c)
$0.5 million for capital expenditures for computer equipment associated with
the upgrade of the Company's computer systems and automation of the back
office, and (d) $0.3 million for other corporate purposes.
As a result of the above mentioned transactions, working capital amounted to
$6.3 million at June 30, 2000, as compared to $4.2 million at December 31,
1999.
As discussed more fully in the footnotes to the financial statements, in May
2000, the Company entered into a three year revolving line of credit
agreement with GE Capital (the "GE facility"). This agreement permits
borrowings of up to $15,000,000 based on availability criteria outlined in
the agreement. At July 31, 2000, net borrowing availability under the credit
facility was approximately $3,000,000, after excluding the reserve for
deferred payment obligations to be paid in the future,. The Company believes
that the GE facility will provide the Company with sufficient liquidity to
fund its internal 2000 growth plans and operations for the foreseeable
future. The Company's internal 2000 growth plans include the expansion and
improvement of its applicant database and back office, and the expansion and
opening of new profit centers in existing cities. Management expects these
items to cost approximately $1,000,000 in fiscal 2000, of which approximately
$500,000 has been spent through June, 2000.
The Company is continually evaluating various financing strategies to be
utilized in expanding its business and to fund future growth and acquisitions.
Inflation has not had a significant effect on the Company's operating results.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
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 within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. 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 (the "Cautionary
Disclosures") 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; the level of
development revenues and expenses; the level of litigation expenses; the
Company's ability to effectively implement an e-commerce strategy; those
factors identified in the Company's Prospectus dated September 30, 1997 as
risk factors; and other factors that affect businesses generally. Subsequent
written and oral "forward-looking" statements attributable to the Company or
persons acting on its behalf are expressly qualified by the Cautionary
Disclosures.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks from fluctuations in interest rates
and the effects of those fluctuations on interest expense on line of credit
borrowings. Assuming interest rates increased by 200 basis points (2%) above
the interest rate at June 30, 2000, on an annualized basis interest expense
would increase by approximately $70,000 on the outstanding line of credit
borrowings of $3.5 million at June 30, 2000.
<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
The annual meeting of shareholders of the Company was held on June 20, 2000.
At this meeting, the shareholders voted to elect the following to serve as
directors of the Company to hold office until the next annual meeting of
shareholders or until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN/WITHHELD NON-VOTES
--- ------- ---------------- ---------
<S> <C> <C> <C> <C>
J. Michael Moore 2,559,035 - 42,490 -
M. Ted Dillard 2,558,835 - 42,690 -
Samuel E. Hunter 2,555,543 - 45,982 -
Deborah A. Farrington 2,555,543 - 45,982 -
A. Clinton Allen 2,555,543 - 45,982 -
</TABLE>
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Loan and Security Agreement Among General Electric Capital
Corporation and Management Alliance Corporation, Information
Systems Consulting Corp., Datatek Consulting Group
Corporation, Texcel Services, Inc. and Mountain, Ltd.
27* Financial Data Schedule
* Filed herewith
B. Reports on Form 8-K
On May 12, 2000, the Company filed with the Securities and Exchange
Commission a report on Form 8-K/A to provide certain historical and pro
forma financial information with respect to the acquisition of Datatek.
<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 10, 2000 By: /s/ J. Michael Moore
-----------------------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
DATE: August 10, 2000 By: /s/ M. Ted Dillard
---------------------------------------
M Ted. Dillard
PRESIDENT AND SECRETARY
DATE: August 10, 2000 By: /s/ Anthony G. Schmeck
-----------------------------------
Anthony G. Schmeck
TREASURER AND CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
