U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
-----------------------
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
-------------- -----------------
Commission file number 0-22600
--------------
EMPLOYEE SOLUTIONS, INC.
- - --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Arizona 86-0676898
- - ------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer identification No.)
Incorporation or Organization)
2929 E. Camelback Road, Suite 220, Phoenix, Arizona 85016
- - --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
602-955-5556
- - --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Indicate by check mark whether the registrant: (1) 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. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 after the distribution of securities under a plan confirmed
by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 15,212,211 Common Shares, no
-----------------------------
par value, were outstanding as of May 6, 1996.
- - ----------------------------------------------
<PAGE>
EMPLOYEE SOLUTIONS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996 (Unaudited) and
December 31, 1995 (Audited).....................................................................................3
Unaudited Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1995......................................................................4
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the Three Months Ended March 31, 1996................................................................5
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995.....................................................................6
Notes to Unaudited Consolidated Financial Statements............................................................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................................23
Item 6. Exhibits and Reports on Form 8-K...............................................................................23
SIGNATURES.......................................................................................................................23
</TABLE>
2
<PAGE>
EMPLOYEE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, 1996 December 31,1995
-------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................................................$ 18,441,521 $ 14,028,898
Restricted cash................................................................... 2,523,088 2,742,380
Accounts receivable, net.......................................................... 12,295,055 7,844,854
Notes receivable, including related parties....................................... 471,238 107,322
Prepaid expenses and deposits..................................................... 719,879 379,352
Deferred income taxes............................................................. 359,582 334,255
-------------- ------------
Total Current Assets............................................................. 34,810,363 25,437,061
Property and equipment, net.......................................................... 720,180 439,579
Other assets, net.................................................................... 15,095,248 10,963,012
-------------- ------------
Total Assets.....................................................................$ 50,625,791 $ 36,839,652
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft.................................................................... $2,451,431 $ 3,751,757
Accrued salaries, wages and payroll taxes......................................... 9,317,040 6,680,862
Accrued workers' compensation and health insurance................................ 2,815,909 2,463,012
Accrued pension contributions..................................................... 28,688 130,984
Accounts payable.................................................................. 615,580 982,738
Income taxes payable.............................................................. 1,565,739 2,206,978
Other accrued expenses............................................................ 1,144,956 631,554
-------------- ------------
Total Current Liabilities........................................................ 17,939,343 16,847,885
-------------- ------------
Deferred income taxes............................................................... 43,000 48,913
-------------- ------------
Commitments and Contingencies
Stockholders' Equity:
Class A convertible preferred stock, non-voting, no par value, 10,000,000
shares authorized, 0 shares in 1996 and 0 shares in 1995
issued and outstanding.......................................................... -- --
Common stock, no par value, 20,000,000 shares authorized, and
15,142,211 shares issued and outstanding in 1996,
13,373,598 shares issued and 13,326,136 shares
outstanding in 1995............................................................. 25,954,866 15,937,789
Retained earnings................................................................. 6,688,582 4,336,493
Treasury stock, -0- shares of common stock in 1996 and 47,462 shares
in 1995, at cost............................................................... -- (331,428)
-------------- ------------
Total Stockholders' Equity....................................................... 32,643,448 19,942,854
-------------- ------------
Total Liabilities and Stockholders' Equity.......................................$ 50,625,791 $ 36,839,652
============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
EMPLOYEE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Revenues ................................... $ 73,934,030 $ 28,799,883
Cost of revenues ........................... 66,265,114 26,973,775
------------ ------------
Gross profit ............................... 7,668,916 1,826,108
Selling, general and administrative expenses 3,546,561 1,290,232
Depreciation and amortization ............. 319,927 71,512
------------ ------------
Income from operations ............ 3,802,428 464,364
Other income (expenses):
Interest income .......................... 186,990 39,111
Interest expense ......................... (2,827) (2,103)
Minority interest ........................ -- 51,144
------------ ------------
184,163 88,152
------------ ------------
Income before
provision for income taxes ............... 3,986,591 552,516
Income tax provision ....................... 1,634,502 242,829
------------ ------------
Net income ........................ $ 2,352,089 $ 309,687
============ ============
Net income per common
and common equivalent shares
outstanding:
-Primary ................................ $ .15 $ .03
-Fully diluted .......................... $ .15 $ .03
============ ============
Weighted average number of common
and common equivalent shares outstanding
-Primary ................................ 16,024,276 10,550,974
-Fully diluted .......................... 16,131,415 10,550,974
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
EMPLOYEE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Preferred Common Retained Treasury Stockholders'
Stock Stock Earnings Stock Equity
----- ----- -------- ----- ------
<S> <C> <C> <C> <C> <C>
BALANCE at December 31, 1995 .................. $ -- $ 15,937,789 $ 4,336,493 $ (331,428) $ 19,942,854
Issuance of 124,075 shares of common stock
in connection with exercise of
stock options ............................. -- 468,305 -- -- 468,305
Exercise of Warrants to 1,368,000
shares of common stock ................... -- 6,300,000 -- -- 6,300,000
Issuance of 324,000 shares in connection with
aquisition of Employee Solutions-East, Inc.
(Note 4) .................................. -- 3,580,200 -- -- 3,580,200
Cancellation of treasury stock ................ -- (331,428) -- 331,428 --
Net Income .................................... -- -- 2,352,089 -- 2,352,089
--------- ------------ ------------ ------------ ------------
BALANCE at March 31, 1996 ..................... $ -- $ 25,954,866 $ 6,688,582 $ -- $ 32,643,448
========= ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
EMPLOYEE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers .......................... $ 69,952,188 $ 27,024,207
Cash paid to suppliers and employees .................. (68,073,956) (26,592,048)
Interest received ..................................... 185,463 20,946
Interest paid ......................................... (1,756) (2,103)
Income taxes paid, net of refunds ..................... (2,271,015) (451,050)
------------ ------------
Net cash used by operating activities .......... (209,076) (48)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .................... (324,926) (42,682)
Business acquisitions ................................. (632,013) --
Cash invested in restricted accounts .................. 219,292 (516,455)
Disbursements for loans to related parties ............ (79,342) (22,564)
Received from collection of loans to related parties .. 9,500 83,124
Increase in deferred acquisition and
deferred startup costs .............................. (18,818) (14,739)
------------ ------------
Net cash used in investing activities .... (826,307) (513,316)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock ........................... 6,768,306 --
Cash overdraft ........................................ (1,300,326) --
Proceeds from paid in capital ......................... 18,944 --
Increase in deferred offering and registration costs .. (38,918) (10,223)
------------ ------------
Net cash provided by (used in) financing activities 5,448,006 (10,223)
------------ ------------
Net increase (decrease) in cash and cash equivalents ....... 4,412,623 (523,587)
CASH AND CASH EQUIVALENTS, beginning of period ............. 14,028,898 1,947,645
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ................... $ 18,441,521 $ 1,424,058
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
EMPLOYEE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income ....................................... $ 2,352,089 $ 309,687
------------ -----------
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization ................ 319,926 71,512
Minority interest ............................ -- (51,144)
Increase in accounts receivable, net ......... (4,010,602) (1,805,406)
Increase in prepaid expenses and deposits .... (334,682) (54,934)
Increase in deferred income tax assets ....... (25,327) (53,191)
Increase (decrease) in accounts payable ...... (486,571) 137,168
Decrease in accrued pension contributions .... (102,297) (19,190)
Increase in accrued salaries, wages and
payroll taxes .............................. 2,154,920 1,433,168
Decrease in income taxes payable ............. (605,285) (136,687)
Increase in accrued workers'
compensation and health insurance .... 352,897 112,847
Increase in other accrued expenses ........... 181,769 62,898
Decrease in deferred income
tax liabilities ............................ (5,913) (6,776)
------------ -----------
(2,561,165) (309,735)
------------ -----------
Net cash used in operating activities $ (209,076) $ (48)
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
EMPLOYEE SOLUTIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1: BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements of Employee
Solutions, Inc. (together with its subsidiaries, the "Company") have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. In the opinion of management the consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary in order to make the consolidated financial statements
not misleading. Results of operations for the three month period ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended December 31, 1995.
NOTE 2: NET INCOME PER SHARE
--------------------
The Company used the modified treasury stock method prescribed by Accounting
Principles Board Opinion No. 15 to compute net income per share for the three
months ended March 31, 1995 since the number of warrants and options outstanding
was in excess of 20% of common shares issued and outstanding. In the first
quarter of 1996, the Company did not use the modified treasury stock method
since the number of warrants and options outstanding was less than 20% of common
shares issued and outstanding. The computation of adjusted net income and
weighted average common and common equivalent shares used in the calculation of
net income per common and common equivalent share is as follows:
Three Months Ended March 31,
----------------------------
1996 1995
----------------------------------------------------------------------------
Primary Fully Primary Fully
Diluted Diluted
----------------------------------------------------------------------------
Weighted average of
common shares
outstanding 14,968,415 14,968,415 8,020,974 8,020,974
Weighted average
Class A preferred
stock assumed
converted N/A N/A 2,530,000 2,530,000
Dilutive effect of
options and warrants
outstanding
1,055,861 1,163,000 N/A N/A
------------ ---------- --------- ---------
Weighted average of
common and common
equivalent shares 16,024,276 16,131,415 10,550,974 10,550,974
============ ========== ========== ==========
8
<PAGE>
Three Months Ended March 31,
----------------------------
1996 1995
--------------------------------------------------------------------------
Primary Fully Primary Fully
Diluted Diluted
--------------------------------------------------------------------------
Net income $2,352,089 $2,352,089 $ 309,687 $ 309,687
Adjustment to net
income (5,943) (5,943) -- --
---------- --------- --------- ----------
Adjusted net income
for purposes of the
income per common and
common equivalent
share calculation
$2,346,146 $2,346,146 $ 309,687 $ 309,687
========== ========== ========= =========
Net income per common
and common equivalent
share $ .15 $ .15 $ .03 $ .03
========== ========== ========= =========
As of March 31, 1996, the Company had approximately 100,000 common stock
purchase warrants and 1,274,267 stock options outstanding.
NOTE 3: CONTINGENCY
-----------
The Company has received a letter from the Arizona Department of Economic
Security indicating that the Company has been assigned a higher state
unemployment tax rate for calendar year 1994 than the Company believes it is
entitled to. In consultation with legal counsel the Company believes that based
on Arizona Revised Statutes it is entitled to the lower rate. If it was
ultimately determined that the higher rate applies, the Company would owe
$500,000 (before interest and the income tax effect) more than is reflected in
the Company's March 31, 1996 and December 31, 1995, financial statements. As of
March 31, 1996, the compounded interest totaled approximately $95,000. The
Company would be required to record these amounts as an additional expense and
liability if, at any time in the future, it became apparent that it was probable
that the Company would not prevail in this matter.
The Company was named as a defendant in a lawsuit filed by M & M Building
Services, Inc. in the Superior Court of Arizona, Maricopa County, in March 1996
challenging the manner in which the Company billed plaintiff for payroll taxes.
The complaint alleges improper billing practices and other causes of action and
seeks unspecified damages. The suit purports to be brought as a class action,
although no class action certification has yet been sought. The Company intends
to defend the matter vigorously.
With the exception of the foregoing action, the Company is not a party to any
material pending legal proceedings other than ordinary routine litigation
incidental to its business that the Company believes would not have a material
adverse effect on its financial condition or results of operations.
9
<PAGE>
NOTE 4: ACQUISITION OF EMPLOYEE SOLUTIONS-EAST, INC. ("ESEI")
-----------------------------------------------------
Effective January 1, 1996, the Company acquired the remaining 99% equity
interest in ESEI. The base purchase price consists of 324,000 shares of the
Company's unregistered common stock, including certain registration rights as to
these shares, valued as of the effective date of the transaction at $11.05 per
share ($17.00 less a 35% discount for the lack of marketability of the
unregistered shares) for a total purchase price of $3.6 million plus acquisition
costs of $94,000. Excess of purchase price over net assets acquired was
$3,624,000, which has been recorded as goodwill. The former 99% equity owner
serves as ESEI's president pursuant to an employment agreement which, as
amended, provides for the payment of commissions based on employee-leasing
business placed through ESEI after the effective date of acquisition. ESEI's
president had previously received options to acquire 200,000 shares of the
Company's common stock at an exercise price of $4.25 per share (the fair market
value on the date of grant) which expire through November 10, 2004, and which,
among other terms and conditions, become exercisable in November 1999 subject to
continued employment. ESEI's president was elected to the Company's board of
directors in 1995 and has served as its vice president of sales since April
1995, and continues to serve the Company in these capacities following
completion of the acquisition.
NOTE 5: Acquisition of Pokagon Office Services, Inc.
--------------------------------------------
The Company has completed the acquisition of Pokagon Office Services, Inc.
(subsequently renamed Employee Solutions of Ohio, Inc. ("ESO")) effective
January 1, 1996. ESO had revenues of $5,304,000 during the three months ended
March 31, 1996.
NOTE 6: UNAUDITED PRO FORMA FINANCIAL INFORMATION
-----------------------------------------
As discussed in Form 10-K for the year ended December 31, 1995, the Company
completed the acquisition of the principal assets of Hazar, Inc. and certain of
its subsidiaries through ESI America, Inc. ("ESI America") on October 2, 1995.
The following unaudited pro forma combined financial data gives effect to the
combined historical results of operations of the Company and ESI America for the
quarter ended March 31, 1995, and assumed that the acquisition had been
effective as of the beginning of the period.
The pro forma information is not indicative of the actual results which would
have occurred had the acquisition been consummated at the beginning of such
period or of future consolidated operations of the Company and accordingly, does
not reflect results that would occur from a change in management and planned
restructuring of the operations of ESI America. The pro forma financial
information is based on the purchase method of accounting and reflects
adjustments to eliminate nonrecurring general, administrative and other
expenses, to amortize the excess purchase price over the underlying value of net
assets acquired and to adjust income taxes for the pro forma adjustments.
10
<PAGE>
March 31, 1995
--------------
Total revenues $ 59,439,000
Net loss $ (1,119,000)
Net income (loss) per common and common
equivalent share
-Primary $ (0.11)
-Fully diluted $ (0.11)
Weighted average number of common and
common equivalent shares outstanding
-Primary 10,550,974
-Fully diluted 10,550,974
NOTE 7: SUBSEQUENT EVENT--ACQUISITION OF EMPLOYER SOURCES, INC.
-------------------------------------------------------
On May 13, 1996, the Company announced that it has exercised its option to
acquire the assets of Employer Sources, Inc. (formerly LMS), a California based
employee leasing company with approximately 1,350 leased employees as of March
31, 1996, and current expected annualized revenue of approximately $20.0
million. The option exercise price is $400,000.
LMS is a subsidiary of Hazar, Inc. The Company acquired the principal assets of
Hazar in October 1995. At the same time, the Company acquired an option to
purchase the assets of LMS and, pursuant to a management agreement, commenced
managing LMS' business.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Company's Consolidated Financial Statements
and the Notes thereto appearing elsewhere herein and in the Company's Report on
Form 10-K for the year ended December 31, 1995. Historical results are not
necessarily indicative of trends in operating results for any future period.
Except for the historical information contained herein, the discussion in
this Form 10-Q contains or may contain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Item 1 --
Business" and "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Company's Form 10-K for the year
ended December 31, 1995 as well as those factors discussed elsewhere herein or
in any document incorporated herein by reference.
Results of Operations--Three Months Ended March 31, 1996 Compared to Three
Months Ended March 31, 1995.
Percent
1996 Change 1995
---- ------ ----
Revenues $73,934,030 157% $28,799,883
Cost of revenues 66,265,114 150% 26,973,775
Gross profit 7,668,916 320% 1,826,108
Selling, general and administrative 3,546,561 175% 1,290,232
Depreciation and amortization 319,927 347% 71,512
Interest income 186,990 378% 39,111
Net income 2,352,089 660% 309,687
Net income for the three months ended March 31, 1996 was $2,352,089 or $0.15
per fully diluted share, reflecting significant growth from first quarter 1995
net income of $309,687 or $0.03 per fully diluted share. Revenues of $73,934,030
for the three months ended March 31, 1996 were 157% higher than the same period
in 1995. The growth results from the integration of the acquisitions of Hazar,
Inc. and certain of its subsidiaries ("Hazar"), and the acquisition of Pokagon
Office Services, Inc. (subsequently renamed Employee Solutions of Ohio, Inc.
("ESO")), the growth in the Company's risk management/workers' compensation
program, the success of direct sales and marketing efforts of Employee
Solutions-East, Inc. ("ESEI"), and the efficient administration of existing
business.
Revenues
Revenues increased from $28,799,883 for the three months ended March 31,
1995 to $73,934,030 for the three months ended March 31, 1996, a 157% increase.
The increase in revenues was partially due to sales from the
12
<PAGE>
Company's expanded sales force through ESEI. In addition, the acquisitions of
Hazar, effective October 2, 1995, and ESO, effective January 1, 1996 accounted
for revenues of $29.8 million and $5.3 million in the quarter ended March 31,
1996, respectively. The number of leased employees increased from approximately
4,600 at March 31, 1995 to approximately 13,300 at March 31, 1996. In 1995, the
Company commenced placing risk management/workers' compensation services to
clients which are not employee-leasing clients of the Company. As of March 31,
1996, the Company provided risk management/workers' compensation services to
approximately 17,000 non-leased employees compared to none at March 31, 1995.
The significant components of revenues are payments received from customers for
gross salaries and wages paid to leased employees and the Company's service fee
which includes, but is not limited to, related payroll charges, risk
management/workers' compensation services, health care benefits, and retirement
benefits, as well as payments received from stand alone risk management/workers'
compensation clients.
Cost of revenues
Cost of revenues, which primarily includes salaries and wages paid to
leased employees, related payroll taxes, health care and workers' compensation
insurance costs and retirement benefit costs, increased 150% from $26,973,775 in
the three months ended March 31, 1995 to $66,265,114 in the three months ended
March 31, 1996. This increase is primarily due to the increase in the Company's
business as explained in the paragraph above. Workers' compensation costs
decreased on a per leased employee basis during the three months ended March 31,
1996 compared to 1995 due to the Company's ability to execute effectively its
risk management programs which include on-site safety programs, active claims
management and efficient execution of claims processing. In addition, the new
program utilizes the Company's captive offshore insurance subsidiary, Camelback
Insurance, Ltd. ("Camelback"), which was activated in May 1995.
Gross profit
The Company's gross profit margin increased from 6.3% in the three
months ended March 31, 1995 to 10.4% in the three months ended March 31, 1996.
This increase primarily was attributable to an increase in risk
management/workers' compensation services related to non-leased employees. Gross
profit margin on revenues derived from risk management/workers' compensation
services provided to non-leased employees tends to be significantly higher than
gross profit margin on revenues derived from the Company's employee leasing
clients because the gross profit margin calculation with respect to employee
leasing clients includes significant (and substantially offsetting) revenue and
expense items relating to payroll and payroll-related costs associated with the
leased employees. The margin is affected in significant part by the mix of
revenues derived from employee leasing clients and clients for which the Company
provides only risk management/workers' compensation services. The level of gross
profit margin reported for the three months ended March 31, 1996 may not be
sustainable in future periods.
Selling, general and administrative
Selling, general and administrative expenses increased by $2,256,329 or
175% from $1,290,232 for the three months ended March 31, 1995 to $3,546,561 for
the three months ended March 31, 1996. Factors contributing to the increase in
selling, general and administrative expenses in the first quarter
13
<PAGE>
1996 over 1995 are the integration of the Hazar and ESO operations, the
acquisition by the Company of the remaining 99% interest in ESEI effective
January 1, 1996 an increase from 49 corporate employees at March 31, 1995 to
approximately 120 at March 31, 1996, resulting in a significant increase in
personnel costs, and the expansion of the Company's office space. These factors
which caused increases in selling, general and administrative expenses were
partially mitigated by improved systems utilization and economies of scale
achieved within the Company's operations. The Company's general liability
insurance costs have increased due in part to the added corporate staff, and
increased costs for directors and officers liability insurance. Commission
expenses increased in the three month period ended March 31, 1996 compared to
1995 given the increase in revenues discussed above. Selling, general and
administrative expenses are expected to continue to increase to meet the needs
of new business. The most extensive growth in selling, general and
administrative expenses is expected in the area of risk management/workers'
compensation services.
Depreciation and amortization
Depreciation and amortization represented depreciation of property and
equipment and amortization of organizational costs, customer lists and goodwill
in the three months ended March 31, 1996 and 1995. The increase was due
primarily to depreciation of new phone and computer systems and goodwill
amortization resulting from the acquisitions of Hazar, ESO, and ESEI.
Interest income
Interest income increased from $39,111 for the three months ended March
31, 1995 to $186,990 for the three months ended March 31, 1996, primarily due to
interest earned on both the restricted cash held for the future payment of
workers' compensation claims at Camelback and cash held at the corporate level
raised through the exercise of common stock purchase warrants and through
operations.
Effective tax rate
The effective tax rate for the year 1996 is estimated to be 41.0%
compared with 42.6% for 1995. The Company's estimated effective tax rate for
financial reporting purposes for 1996 is based on estimates of the following
items that are not deductible for tax purposes:(a) amortization of certain
goodwill, and (b) one-half of the per diem allowance relating to meals paid to
truck drivers. The tax rate used in each quarter is an estimate of the Company's
effective tax rate for the calendar year. The estimated decrease in the
effective tax rate in 1996 over 1995 results from expected decreases in the
proportion of non-deductible goodwill to income before taxes, and through
efforts by the Company to relieve itself of the tax burden of per diem
allowances.
14
<PAGE>
Liquidity and Capital Resources
The Company defines liquidity as the ability to mobilize cash. The
Company's primary sources of cash have been from operations and financing
activities. In the three month periods ended March 31, 1996 and 1995, cash used
in operating activities was $209,076 and $48, respectively. Operating cash flows
are derived from customers for leasing services rendered by the Company and for
risk management/workers' compensation services provided to non-leased employees.
Payments from leasing customers typically are received on or within a few days
of the date on which payroll checks are delivered to customers, and cover the
cost of the payroll, payroll taxes, insurance, other benefit costs and the
Company's administration fee. Risk management/workers' compensation services are
billed in accordance with individual policies. The revenues of risk
management/workers' compensation services are expected to cover the costs of
insured losses and selling, general and administrative expenses related to these
programs, though no assurance of such can be provided.
In the three month periods ended March 31, 1996 and 1995, cash provided
by (used in) financing activities was $5,448,006 and $(10,223), respectively.
Cash flows from financing activities during the three months ended March 31,
1996 resulted from the sale of the Company's Common Stock upon exercise of
warrants and options. Cash raised from financing activities will be directed by
management to meet the increasing reserve and capital requirements of Camelback,
to finance future acquisitions subject to identification of suitable candidates,
and for general corporate purposes.
At March 31, 1996 and December 31, 1995, the Company had cash and cash
equivalents of $18,441,521 and $14,028,898, respectively. Cash and cash
equivalents are invested in high investment grade instruments with maturities of
less than 90 days. The Company also maintains cash reserves at its captive
insurance company, Camelback Insurance, Ltd. ("Camelback"), as required by
Reliance (see below for further discussion of Reliance). At March 31, 1996 and
December 31, 1995, approximately $4.3 million and $4.5 million of the above cash
and cash equivalents, respectively, was on deposit at Camelback of which $2.5
and $2.7 million respectively was held in trust as restricted cash. At March 31,
1996 and December 31, 1995, the Company had working capital of $16,876,385 and
$8,589,176, respectively.
Management expects that 1996 capital expenditures will exceed those
incurred in 1995 to meet the continued technological needs of the Company's
growing base of both leased and non-leased employees.
Effective June 1, 1995, the Company is conducting substantially all of
its risk management/workers' compensation services program through Camelback in
coordination with Reliance. Under the Reliance program, policies are issued
which provide first dollar workers' compensation coverage to the Company, its
subsidiaries and the clients for which the Company is responsible to provide
workers' compensation insurance coverage. While the insurance policies provide
first dollar coverage, the Company has entered into agreements with Reliance
under which Camelback is responsible for the first $250,000 of each workers'
compensation claim with no aggregate to limit its liability. On September 19,
1995, the Company executed a Guarantee and Indemnification to Reliance National
Risk Specialists, a division of Reliance
15
<PAGE>
Insurance Company, which guarantees substantially all of the obligations of
Camelback to Reliance. Individual workers' compensation claims in excess of
$250,000 and up to the statutory limits of the states where the Company operates
are the responsibility of Reliance. Employers liability coverage is provided
under the Reliance program with a limit of $1,000,000. The Company also carries
umbrella coverage with a limit of $25,000,000 that includes insurance coverage
for employers liability. While the retention of the first $250,000 of individual
workers' compensation claims and the capital requirements resulting from the
establishment of a captive insurance subsidiary are intended to enhance
profitability, these actions increase the Company's exposure to risk from
workers' compensation claims. To reduce the Company's exposure to certain types
of claims that would fall into the $250,000 retention, effective March 29, 1995,
the Company secured Accidental Death & Dismemberment insurance from the Federal
Insurance Company (Chubb) with a limit of $250,000 for certain categories of
serious claims.
The Company's arrangements with Reliance require it to make various
payments to Reliance throughout the term of the arrangements. The payments
include funds for taxes, fees and other expenses, plus funds set aside to pay
claims (including expected claims for the life of the policy period). In April,
1996, the Company sent approximately $9.0 million in funds to Reliance of which
approximately $3.5 million will be ceded to Camelback and placed into the trust
account for payment of future claims. Reliance will cede the remaining funds to
Camelback, net of certain administrative fees, which will remain unrestricted
and available to the Company for use in the ordinary course. The increase in
amount of funds due Camelback is a direct result of the Company's expanded
leasing programs and increased risk management/workers' compensation programs to
non-leased employees. Amounts payable to Reliance are subject to adjustment
(potentially in materially adverse amounts) depending upon claims experience,
numbers of employees and individual state taxes and assessments.
Though the Company's program with Reliance commenced on June 1, 1995,
the Company and Reliance currently are in the process of finalizing certain
remaining terms of the program, including issues relating to the Company's cash
flow requirements under the program. While the Company does not anticipate that
it will be materially adversely affected by the outcome of the negotiations with
respect to these points, there can be no assurance that this will be the case.
The Company would be materially adversely affected by a termination of its
arrangements with Reliance or nonrenewal of the arrangements upon their
expiration in May 1996. Assuming continued growth of the Company's leasing
services business and risk management/workers' compensation services program,
the Company anticipates that it will be required under its arrangements with
Reliance to set aside increasing amounts of funds for payment of claims and
related administrative costs should its arrangements with Reliance be renewed.
Under Bermuda law, Camelback must maintain statutory capital and
surplus in an amount equal to at least 20% of the net premiums written through
the Company's fronting arrangements, provided that the percentage requirement is
reduced to 10% at such time as annualized premium volume reaches $6,000,000.
Bermuda law also regulates the circumstances under which Camelback would be
permitted to loan funds to its parent company. In the future, these factors may
limit the ability of the Company to execute its planned growth strategy
16
<PAGE>
and may limit the ability of Camelback to transfer funds to its parent company
(whether via dividend or otherwise).
As of March 31, 1996, the Company did not have any outstanding loans or
lines of credit.
On October 2, 1995 the Company completed the acquisition of the
principal assets of Hazar for approximately $7.0 million plus acquisition costs
of approximately $480,000, payable in cash and by the assumption of certain
liabilities. The Company acquired Hazar through ESI America, Inc. ("ESI
America") its newly formed wholly owned subsidiary. Until fully paid, the cash
portion of the purchase price is payable on an ongoing basis from the operating
cash flow derived from the acquired assets, with a final payment due 18 months
after closing if the purchase price exceeds the sum of the cash flow payments
and assumed liabilities. Hazar was a staff leasing company which, together with
some of its subsidiaries, has been operating under the protection of the federal
bankruptcy laws. Certain of the acquired assets (located primarily in
Massachusetts) were subject to certain tax liens at the time of closing. The
Company has obtained a discharge of such liens conditioned upon its compliance
with the Hazar purchase agreement.
On March 18, 1996, the Company signed a letter of intent to acquire the
assets of Ashlin Transportation Services, Inc. ("Ashlin"), an Indiana-based
employee-leasing company specializing in the transportation industry. The
Company has been providing risk management/workers' compensation services to
Ashlin since February 1996. If completed, the acquisition would add
approximately 1,200 leased employees and annualized revenues of approximately
$48.0 million, to the Company's operations. Completion of the acquisition is
subject to customary conditions, including preparation of definitive
documentation and removal of certain liens affecting the assets.
On May 13, 1996, the Company announced that it has exercised its option
to acquire the assets of Employer Sources, Inc. (formerly LMS), a California
based employee leasing company with approximately 1,350 leased employees as of
March 31, 1996, and current expected annualized revenue of approximately $20.0
million. The option exercise price is $400,000.
LMS is a subsidiary of Hazar, Inc. The Company acquired the principal assets
of Hazar in October 1995. At the same time, the Company acquired an option to
purchase the assets of LMS and, pursuant to a management agreement, commenced
managing LMS' business.
Management believes that cash generated from ongoing operations and the
funds received from recent warrant exercises will satisfy the anticipated cash
requirements of the Company's current operations over the next 12 months, though
there can be no assurance that this will be the case. The Company's ability to
continue funding its planned operations beyond the next 12 months is dependent
upon its ability to generate sufficient cash flow to meet its obligations on a
timely basis, or to obtain additional funds through equity or debt financing, or
from other sources of financing, as may be required.
17
<PAGE>
Outlook: Issues and Risks
The Company believes that future growth opportunities in revenues and
profits remain available. However, the following issues and risks, among others
(including those discussed elsewhere herein), should also be considered in
evaluating its outlook.
Management of Rapid Growth. The Company's success will, in part, be
dependent upon its ability to manage growth effectively. Since its formation,
the Company has experienced rapid growth, which potentially places strains on
the Company's management and personnel resources and systems. As part of its
business strategy, the Company intends to pursue the continuation of this growth
through means such as further development of its sales and marketing
capabilities and acquisitions. The Company is unable to predict whether or when
any prospective acquisition candidate will become available or the likelihood
that any acquisition will be completed. The Company competes for acquisition and
expansion opportunities with many entities which may have substantially greater
resources. There can be no assurance that the Company will be able to identify
suitable acquisition candidates, complete acquisitions, integrate acquired
businesses into its operations, or expand into new markets. Once integrated,
acquisitions may not achieve comparable levels of revenues, profitability or
productivity as the existing businesses of the Company or otherwise perform as
expected.
A substantial portion of the Company's historical and anticipated
growth is attributable to its risk management/workers' compensation insurance
services program. The potential risks associated with rapid growth in this area
include lack of experience relating to new geographic markets and industries
served, lack of experienced and trained personnel, and the need to upgrade
operating systems.
While management believes that significant growth can be achieved in
the future, no assurance can be made that historical growth rates are
sustainable. The Company recently established sales programs including a joint
venture with a national insurance wholesaler targeted at potential clients
through which it would provide risk management/workers' compensation services to
non-leased employees, though there can be no assurance as to the rate at which
such clients will be added. The growth of the program currently is substantially
dependent upon the efforts of the wholesaler, and the prospects for the program
will be materially adversely affected if the wholesaler's participation is
ineffective or withdrawn. Part of the Company's strategy is to convert new risk
management/workers' compensation services clients into employee leasing clients
when appropriate. No assurance can be made as to the potential success of this
strategy.
Dependence on Reliance. The Company believes that its risk
management/workers' compensation services program has been and will continue to
be the key competitive factor in its growth and profitability. Effective for a
one-year term commencing June 1, 1995, the Company's risk management/workers'
compensation services program is being conducted in coordination with Reliance.
Though the Company's program with Reliance commenced on June 1, 1995, the
Company and Reliance currently are in the process of finalizing certain
remaining terms of the program, including issues relating to the Company's cash
flow requirements under the program. While the Company does not anticipate
18
<PAGE>
that it will be materially adversely affected by the outcome of the negotiations
with respect to these points, there can be no assurance that this will be the
case. The Company would be materially adversely affected by a termination of its
arrangements with Reliance or by a failure to finalize the current negotiations
successfully, or by a failure to accomplish a renewal of its relationship with
Reliance on satisfactory terms upon expiration of the current program in May
1996.
Adequacy of Loss Reserves. Under its workers' compensation arrangements
with Reliance, the Company is responsible for the first $250,000 of each
workers' compensation claim with no aggregate to limit the Company's liability.
Under its health insurance arrangements with Nationwide Life Insurance Company,
and John Alden Life Insurance Company ("Alden") the Company is responsible for
the first $100,000 and $75,000 per covered individual per year, respectively.
The Company's aggregate liability limit is based upon a formula tied to
anticipated claims. The reserves for losses and loss adjustment expenses
established by the Company with respect to its workers' compensation and health
insurance programs are estimates of amounts needed to pay reported and
unreported claims and related loss adjustment expenses based on facts and
circumstances then known, including industry data and historical experience.
However, the establishment of appropriate reserves is an inherently uncertain
process, and there can be no assurance that the Company's ultimate liability
will not materially exceed its loss and loss adjustment expense reserves. This
uncertainty is compounded in the Company's case by its rapid growth and limited
experience. If the Company's reserves should be inadequate, the Company will be
required to increase reserves or corresponding loss payments with a
corresponding reduction in the Company's net income in the period in which the
deficiency is identified. Losses in any particular period may be severe.
Fluctuations in Quarterly Operating Results. The Company's revenues
have generally increased on a quarter to quarter basis, though there can be no
assurance this trend can be maintained. Leasing revenues in the fourth quarter
of each year include the effects of bonus payrolls of leased employees, which
are higher in December of each year. Gross profit margin relating to leasing
revenues generally improves from quarter to quarter within a year, with the
first quarter generally the least favorable and the fourth quarter the most
favorable. Employment related taxes are based on the cumulative earnings of
individual employees up to a specified wage level. Therefore, these expenses
tend to decline over the course of the year. Since the Company's revenues for an
individual client are generally earned and collected at a relatively constant
rate throughout each year, payment of such unemployment tax obligations has an
impact on the Company's working capital and results of operations during the
first three months of each year. Other factors affecting the primary components
of direct cost have enhanced or mitigated this tendency. Examples of these
factors include the effects of trends in medical and workers' compensation
claims, adjustments to benefit plans, and other factors. See "Adequacy of Loss
Reserves," above.
The Company's gross profit margin percentage is also materially
affected by the mix of revenues attributable to employee leasing clients and
clients to which the Company provides risk management/workers' compensation
services, and the mix of such business if subject to variation from quarter to
quarter. Gross profit margin percentage on revenues derived from risk
management/workers' compensation services provided to non-leased employees
19
<PAGE>
tends to be significantly higher than gross profit margin percentage on revenues
derived from the Company's employee-leasing clients because the gross profit
margin percentage calculation with respect to employee leasing clients includes
significant (and substantially offsetting) revenue and expense items relating to
payroll and payroll-related costs associated with the leased employees.
Quarterly results are also subject to fluctuation depending upon such factors as
the timing of acquisitions, new contracts and contract terminations.
Government Regulation. The Company is regulated by numerous federal
laws relating to labor, tax and employment matters. Generally, these laws
prohibit race, age, sex, disability and religious discrimination, mandate safety
regulations in the workplace, set minimum wage rates and regulate employee
benefits. Because many of these laws were enacted prior to the development of
non-traditional employment relationships, such as employee leasing services,
many of these laws do not specifically address the obligations and
responsibilities of non-traditional employers. As a result, interpretive issues
concerning the definition of the term "employer" in various federal laws have
arisen pertaining to the employment relationship. Unfavorable resolution of
these issues could have a material adverse effect on the Company's results of
operations or financial condition. Compliance with these laws and regulations is
time consuming and expensive. The Company's standard form of agreement provides
that the client company is responsible for compliance with employment and
employment-related laws and regulations, and that the parties are obligated to
indemnify each other against breaches of the agreement. However, some legal
uncertainty exists with respect to the potential scope of the Company's
liability in the event of violations by its clients of employment,
discrimination and other laws.
The IRS has formed a Market Segment Study Group to examine whether
professional employment organizations, including employee-leasing firms such as
the Company, are the employers of leased employees under the Code provisions
applicable to employee benefit plans and consequently are able to offer to
leased employees benefit plans that qualify for favorable tax treatment. The
Market Segment Study Group is also examining whether client company owners are
employees of professional employment organizations under Code provisions
applicable to employee benefit plans. The loss of tax-qualified status for
401(k) or various other benefit plans maintained by the Company could materially
adversely affect the Company.
The Company is subject to regulation by local and state agencies
pertaining to a wide variety of labor related laws. As is the case with federal
regulations discussed above, many of these regulations were developed prior to
the emergence of the employee leasing industry and do not specifically address
non-traditional employers. While many states do not explicitly regulate employee
leasing companies, 15 states have passed laws that have licensing or
registration requirements and at least four states are considering such
regulation. Such laws vary from state to state but generally provide for
monitoring the fiscal responsibility of employee-leasing firms. There can be no
assurance that the Company will be able to satisfy licensing requirements or
other applicable regulations of any particular state from time to time.
Government Regulation Relating to Workers' Compensation Program.
Camelback is subject to the insurance laws and regulations of Bermuda, which
20
<PAGE>
generally are designed to protect the interests of policyholders, as opposed to
the interests of shareholders. Such laws and regulations, among other things,
relate to capital and surplus levels, levels of dividends payable by
subsidiaries to their parent companies, financial disclosure, reserve
requirements, investment parameters and premium rates. In general, the
regulatory authorities in Bermuda have broad administrative authority over
Bermuda-domiciled insurers. Among other requirements and limitations, Bermuda
law requires that Camelback must maintain statutory capital and surplus in an
amount equal to at least 20% of the net premiums written through the Company's
fronting arrangements, provided that the percentage requirement is reduced to
10% at such time as premium volume reaches at least $6 million. The Company is
subject to additional requirements pursuant to its arrangements with Reliance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Bermuda also places certain
limitations upon the transfer of statutory capital and surplus from Camelback to
its parent company (whether via dividend or otherwise), and regulates the
circumstances under which Camelback is permitted to loan funds to its parent
company.
The Company's risk management/workers' compensation services program is
conducted via "fronting" arrangements with Reliance. The National Association of
Insurance Commissioners ("NAIC") recently adopted a model act concerning
"fronting" arrangements. No determination can be made as to whether, or in what
form, such act may ultimately be adopted by any state. The model act requires
reporting and prior approval of reinsurance transactions relating to these
arrangements, and limits the amount of premiums that can be written under
certain circumstances. At this stage, the Company is unable to predict whether
the model act will affect its relationships with Reliance.
State regulation requires licensing of any individual or entity
soliciting the sale of workers' compensation insurance within that state.
Licenses may be residential or non-residential and for both individuals and
entities. The Company has formed ESI Risk Management Agency, Inc. ("RMA") in
1995, to address state regulation and licensing issues and act as the Company's
sales and marketing arm for stand-alone risk management/workers' compensation
services. Although RMA is not required to be licensed in any state since it is
not directly soliciting the sale of workers' compensation insurance, RMA has
voluntarily undertaken to become licensed in all 50 states and the District of
Columbia. Currently, RMA is applying for and has received some state licenses.
Health Care Reform Proposals. Various proposals for national health
care reform have been under discussion in recent years, including proposals to
extend mandatory health insurance benefits to virtually all classes of
employees. Certain reform proposals have called for the inclusion of workers'
compensation coverage in the reform package. While the Company is unable to
predict whether or in what form health care reform will be enacted, aspects of
such reform, if enacted, may have an adverse effect upon the Company's medical
and workers' compensation insurance programs.
Legal Uncertainties. There are many legal uncertainties about employee
leasing, such as the extent of the leasing company's liability for violations of
employment and discrimination laws. The Company may be subject to liability for
violations of these or other laws even if it does not participate in such
violations. The Company's form of client service agreement establishes the
21
<PAGE>
contractual division of responsibilities between the Company and its clients for
various personnel management matters, including compliance with and liability
under various governmental regulations. However, because the Company acts as a
co-employer, the Company may be subject to liability for violations of these or
other laws despite these contractual provisions and even if it does not
participate in such violations. Although the client generally is required to
indemnify the Company for any liability attributable to the conduct of the
client, the Company may not be able to collect on such a contractual
indemnification claim and thus may be responsible for satisfying such
liabilities. In addition, employees of the client may be deemed to be agents of
the Company, subjecting the Company to liability for the actions of such
employees.
Economic Uncertainties. State unemployment taxes and workers'
compensation expense are, in part, determined by the Company's claims
experience. Inflationary pressures on health care costs have been significant in
the last several years. Claims experience also greatly impacts the Company's
health insurance rates and claims cost from year to year. Should the Company
experience a large increase in claims activity for unemployment, workers'
compensation and/or health care, then costs in these areas would increase.
Increased claims under partially self-insured and large deductible plans would
immediately impact negatively on the Company's earnings, while such increases in
fully-insured plans would raise the cost of such insurance at renewal. The
Company would then have to determine how much of such increases to pass on to
subscribers and leased employees. The Company may then have difficulty competing
with the leasing companies that offer lower rates to clients. The Company has
obtained accidental death and dismemberment insurance in an amount up to
$250,000 per claim to limit its exposure to certain categories of serious
claims.
The Company has received a letter from The Arizona Department of
Economic Security indicating that the Company has been assigned a higher state
unemployment tax rate for the year ended December 31, 1994 than the Company
believes it is entitled to. In consultation with legal counsel the Company
believes that based on Arizona Revised Statutes it is entitled to the lower
rate. The Company recorded expenses in 1994 based on the lower rate. If it were
ultimately determined that the higher rate applies, the Company would owe
approximately $500,000 (before interest) more than is reflected in the Company's
March 31, 1996 financial statements. As of March 31, 1996, the compounded
interest on such amount totaled approximately $95,000. The Company would be
required to record these amounts as an additional expense and liability if, at
any time in the future, it became apparent that it was probable that the Company
would not prevail in this matter.
Credit Risks. The Company conducts only a limited credit investigation
prior to accepting most new clients and thus may encounter collection problems
which would adversely affect its cash flow. The nature of the Company's business
is such that a small number of client credit failures would have an adverse
effect on its business and financial condition.
Inflation. Fees charged to the Company's clients under the Company's
workers' compensation insurance program and partially self-insured medical
insurance program are established before the amounts of losses and loss
22
<PAGE>
adjustment expenses, or the extent to which inflation may affect such amounts,
are known. While the Company attempts to anticipate the potential impact of
inflation in establishing its fees and reserves, actual inflation may be greater
than anticipated.
OTHER INFORMATION - PART II
Item 1. Legal Proceedings
- - -------------------------
The Company was named as a defendant in a lawsuit filed by M & M
Building Services, Inc. in the Superior Court of the State of Arizona, Maricopa
County, in March 1996 challenging the manner in which the Company billed
plaintiff for payroll taxes. The complaint alleges improper billing practices
and other causes of action and seeks unspecified damages and injunctive relief.
The suit purports to be brought as a class action, although no class action
certification has yet been sought. The Company intends to defend the matter
vigorously.
With the exception of the foregoing action, the Company is not a party
to any material pending legal proceedings other than ordinary routine litigation
incidental to its business that the Company believes would not have a material
adverse effect on its financial condition or results of operations.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
--------
27 Finacial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
SIGNATURES
In accordance with the requirements of The Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMPLOYEE SOLUTIONS, INC.
Date: May 14, 1996
------------ /s/ Marvin D. Brody
-------------------
Marvin D. Brody
Chief Executive Officer
/s/ Morris C. Aaron
-------------------
Morris C. Aaron
Chief Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996 AND IS
QUALFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-Q
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 18,441,521
<SECURITIES> 0
<RECEIVABLES> 12,766,243
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,810,363
<PP&E> 720,180
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,625,791
<CURRENT-LIABILITIES> 17,939,343
<BONDS> 0
0
0
<COMMON> 25,954,866
<OTHER-SE> 6,688,582
<TOTAL-LIABILITY-AND-EQUITY> 50,625,791
<SALES> 0
<TOTAL-REVENUES> 73,934,030
<CGS> 0
<TOTAL-COSTS> 66,265,114
<OTHER-EXPENSES> 3,866,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,827
<INCOME-PRETAX> 3,986,591
<INCOME-TAX> 1,634,502
<INCOME-CONTINUING> 2,352,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,352,089
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
