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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1565578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 N. CENTRAL EXPRESSWAY, SUITE 350 75243
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 458-8500
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS: NAME OF
EXCHANGE ON WHICH REGISTERED:
COMMON STOCK, PAR VALUE $.10 PER SHARE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The Registrant had requested in writing that the Securities and Exchange
Commission (the "Commission") waive the Registrant's obligation to file
certain pro forma financial statement information not filed with its Form 8-K
dated February 22, 1994, reporting the repossession of certain assets. The
Commission did not waive the Company's obligation to file the required
information but has taken a no-action position against the Registrant. See
Note 2 of the Registrant's Consolidated Financial Statements for more
information.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 31, 1996, was $81,070.
Number of shares of common stock of the registrant outstanding on March 31,
1996 was 1,758,211.
PART I
ITEM 1. BUSINESS
GENERAL
Diversified Corporate Resources, Inc. (the "Company") is a Texas corporation
which was incorporated in 1977 under the name of Diversified Human Resources
Group, Inc.; the Company changed its name in 1994. The Company had
historically been engaged in the full-time (regular) and temporary placement
of personnel until the sale of substantially all of the Company's assets in
1991. Due to foreclosures by the Company in 1992 and 1993 on certain assets
pledged as security pursuant to various promissory notes related to the sale
of assets by the Company (see discussion below related to the disposition of
the Company's personnel placement operations), the Company is once again
engaged in regular employment and temporary placement of personnel in various
industries, and the contract placement services industry.
All references in this Form 10-K to the Company include its wholly-owned
subsidiaries. A list of such subsidiaries is filed as an exhibit to this Form
10-K.
SALES OF SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS IN 1991
SALE OF ASSETS
During the period from September 3, 1991 to September 19, 1991, the Company
consummated four separate transactions (the "Purchase Agreements") relating to
the sale of its operating divisions. Taken as a whole, the Purchase
Agreements involved the sale of substantially all of the Company's assets.
In consideration of the Company's agreement to sell its divisions to the
various purchasers as aforesaid described, the purchasers involved (i)
executed various interest bearing promissory notes which were payable to the
Company over periods of three to six years; (ii) assumed various liabilities
and obligations of the Company in connection with the purchased operations;
and (iii) agreed to pay the Company a monthly royalty fee for six years equal
to percentages of the purchased gross revenues over specified amounts of the
respective divisions. Collection of the royalty fees and notes receivable,
and the discharge of liabilities assumed, was dependent upon the successful
operations of the businesses sold.
Due to the failure of the entities which purchased assets of the Company
pursuant to the Purchase Agreements, the Company effectuated foreclosure
proceedings to repossess many of the assets previously sold by the Company. A
discussion of such repossessions is set forth hereinafter in Item 1 of this
Form 10-K.
REPOSSESSION OF DIVERSIFIED AND CONTRACT PLACEMENT SERVICES DIVISIONS
In 1993, the Company formed Management Alliance Corporation ("MAC") and
Information Systems Consulting Corp. ("ISC"), two wholly-owned subsidiary
corporations, to operate the employment placement service businesses (the
"Employment Placement Business") which had been sold by the Company in 1991.
In connection with the foreclosure of these business activities, the Company
elected to retain certain executives, including Gary K. Steeds, a former
officer and director of the Company.
At this time, the Company has no intention of reselling the Employment
Placement Business assets. However, there is no certainty that the Company
will not do so, in whole or in part, in the future.
CURRENT BUSINESS ACTIVITIES
FULL-TIME (REGULAR) PROFESSIONAL PLACEMENT SERVICES
Through MAC, the Company is currently engaged in providing permanent
placement services in Dallas, Houston and Austin, Texas, Atlanta, Georgia, Los
Angeles, California and Chicago, Illinois. The Company offers employment
services for a variety of job classifications in the engineering/technical,
computer/data processing, accounting/financial, and administrative/general
areas.
The Company maintains extensive files of qualified applicants based upon
advertising, recruitment referral and reference checking procedures. Upon
receiving an order from a client, the Company attempts to match the
specifications required by the client with qualified applicants and to arrange
interviews between the client and applicants. In certain cases, the Company
markets a highly qualified applicant to a client even when no specific order
has been received. If the client offers a position to the applicant and the
applicant accepts, the Company is entitled to a fee for these services.
Fees range from 15% to 35% of the first year's annual salary. Although these
fees are usually paid by the employer, in certain instances such fees are
paid by the newly placed employee.
The Company usually enters into written contracts with clients specifying its
fee arrangements prior to undertaking any placement services on behalf of such
clients. The Company sometimes offers its clients a thirty day guarantee of
professional placements during which the Company agrees to replace, without
additional charge to the client, any newly placed employee who leaves such
job. If the Company is unable to replace the employee, it may refund the
client's fee or a prorated portion thereof depending upon the circumstances.
The Company has branch offices in a number of cities which are responsible
for marketing to clients, recruitment of personnel, operations, local
advertising, credit and collections. The Company's executive offices provides
centralized training, payroll, collections and certain accounting and
administrative services for the local offices.
TEMPORARY PLACEMENT SERVICES
In addition to permanent professional placement services, the Company also
provides temporary placement services to its client base through its existing
offices. Businesses have expanded their use of temporary personnel to fill
employment needs without incurring the associated costs of hiring, training or
providing employee benefits. Personnel needs which can be filled by temporary
employees are primarily caused by vacation, illness, resignation, increases in
work volume and the need to staff special projects. The Company provides
temporary personnel for accounting, secretarial, clerical, word processing,
engineering and data processing.
The Company's temporary placement services are typically initiated by a
client's telephone call to the local Company office or the result of marketing
efforts. The Company obtains from the client a description of the order and
uses this information to select an appropriate individual from the office's
list of available temporary personnel. Clients request temporary personnel for
periods generally ranging from one day to several weeks. The Company generally
receives notice of the assignment from thirty minutes to three days in
advance. On the day of the assignment, the Company verifies both the prompt
arrival of the employee and the employee's performance. The Company charges
clients an hourly rate for temporary personnel and generally absorbs all
employment costs including hourly wages, unemployment taxes, social security
taxes and fringe benefits. The Company generally offers clients a guarantee
period during which the Company will refund the client's money if the client
notifies the Company that it is dissatisfied with the employee's performance,
and the Company is unable to replace the employee.
The Company screens its temporary personnel based on interviewing, testing
and reference checking procedures. These procedures also enable the Company to
categorize its temporary personnel by preference for job location, hours and
work environment. In order to attract high quality temporary employees, the
Company grants paid vacations, holidays and other benefits for temporary
employees who work a specified minimum number of hours for the Company.
Temporary employees are usually registered with more than one temporary
placement firm at any time.
MEDICAL PLACEMENT BUSINESS
During late 1993, the Company activated operations (the "Medical Placement
Business") in both Dallas, Texas, and Atlanta, Georgia, to engage in the area
of recruiting physicians; such operations were being conducted under the names
of Legacy Healthcare Resources and Nova Healthcare Resources. In the process
of developing the medical market, including primary care and allied health,
the Company is actively seeking an individual with extensive background in the
healthcare recruitment industry to run its Medical Placement Business.
Due in large part to start-up costs and problems associated with these
operations, the Company's Medical Placement Business incurred losses of
$242,000 and $579,000 in 1995 and 1994, respectively. During the last quarter
of 1994, the Company closed the Atlanta office of this operation and in doing
so, significantly reduced its operating losses.
CONTRACT PLACEMENT SERVICES
Through ISC, a wholly-owned subsidiary, the Company is currently engaged in
the contract placement business to offer additional services to clients in the
data management services areas. The Company provides contract placement
services for contract programmers, systems analysts and other data processing
personnel. Clients will request contract placement personnel for assignments
that last anywhere from four weeks to a year.
MARKETING AND RECRUITING
The Company's marketing efforts are largely implemented at the local office
level and are directed both at obtaining job orders from existing and
prospective clients and recruiting qualified applicants. In marketing its
permanent placement services to clients, the Company relies primarily on
telephone solicitation, referrals from other Company offices and, to a lesser
extent, on direct mail, yellow pages and newspaper advertising.
The Company recruits qualified applicants primarily through referrals from
other applicants and through newspaper advertising, on site data base, and
advertisement. During periods of low unemployment, the Company experiences
greater difficulty in obtaining applicants for permanent placement. On the
other hand, the number of persons seeking temporary employment has increased
irrespective of economic cycles because of changes in the demographics of the
work force and general increases in cost of living which has resulted in a
need for an increased number of two-income households. In addition, applicants
for permanent placement are frequently willing to accept temporary employment
during their search for permanent positions.
FINANCIAL SERVICES
The Company initially formed Preferred Funding Corporation ("PFC"), a wholly-
owned subsidiary, in 1994 for the purpose of providing financing to MAC, one
of its subsidiary companies. MAC has previously borrowed funds from third
party factoring sources. By providing funds equal to 85% of certain accounts
receivable of MAC, management of the Company hopes to significantly reduce
MAC's cost of funds (which are high because MAC is paying standard factoring
rates) thereby improve the Company's consolidated operating performance.
While PFC has a limited capital base, which it has obtained from advances from
the Company, the Company hopes to increase PFC's working capital by borrowing
funds at lower rates than competitive factoring rates. If successful in doing
so, PFC expects to be able to seek factoring arrangements from unaffiliated
concerns. On a consolidated basis to date, the operation of PFC has not
lowered the Company's total cost of borrowed funds.
JOINT VENTURE OPERATIONS
The Company has a joint venture agreement with a third party for the purpose
of providing personnel services to certain businesses requiring minority
suppliers and to others (see Item 13 of this Form 10-K for more information
related to this arrangement and to the affiliated relationships involved).
The Company recorded a $48,000 loss from this arrangement in 1995.
FRANCHISE DEVELOPMENT
During the first quarter of 1995, the Company began to explore the
possibility of franchising some of its operational models in order to expand
its marketing areas, expand its current client base and increase revenues from
secondary markets. The Company engaged outside consultants and assigned key
members of its management team to research and further develop this concept.
After extensive review by the consultants and management during the fourth
quarter of 1995, the Company has decided to abandon the franchise concept.
COMPETITION
The personnel services industry is highly competitive with clients generally
using more than one personnel employment firm to satisfy their personnel
placement requirements. In the regular employment placement market and for the
types of services and range of salaries in which the Company participates, the
Company competes with several local and regional firms and, to a lesser
extent, a few national firms. The Company believes that it is one of the
larger local firms in the permanent placement market in the Dallas and
Houston areas.
The Company is engaged in the temporary services business through its
existing permanent placement offices. The principal competitive factors in
the personnel services industry are the availability and quality of permanent
job applicants and temporary personnel, the skill level and reputation of
employees, the level of service provided by local offices and, to varying
degrees, the price of such services.
The Company believes that its ability to offer both temporary and regular
employment placement services in multiple markets and its experience in each
area enhance its competitive positions. The Company's managers provide
extensive training and continuing education programs for its personnel
consultants which the Company also believes enhances its competitive position.
REGULATION
Most states require permanent placement firms to be licensed in order to
conduct business. Such licenses may be revoked upon material noncompliance
with state regulations. Any such revocations would have a material adverse
effect on the business of the Company. The Company believes that it is in
substantial compliance with all such regulations and possesses all licenses
necessary to engage in the placement of permanent personnel in the
jurisdictions in which it does business. Various government agencies have
advocated proposals from time to time to license or regulate the placement of
temporary personnel. The Company does not believe that such proposals, if
enacted, would have a material adverse effect on its business.
EMPLOYEES
In addition to the temporary and contract personnel from time to time
employed by the Company for placement with clients, the Company had
approximately 260 full-time permanent employees as of December 31, 1995. Of
these employees, approximately 225 were personnel consultants and office
managers paid on a commission basis and approximately 35 were administrative
and executive salaried employees. The Company considers its relations with
its employees to be good.
ITEM 2. PROPERTIES
The Company and its wholly-owned subsidiaries currently lease approximately
41,600 square feet in one building in Dallas, Texas; the terms of these leases
range from four years to seven years.
The Company, through its branch offices in other cities, leases approximately
17,000 square feet in Houston, Texas, 1,000 square feet in Austin, Texas,
2,000 square feet in Kansas City, Missouri, 600 square feet in Los Angeles,
California, 10,000 square feet in Atlanta, Georgia and 3,000 square feet in
Chicago, Illinois. Such leases generally range from three to five years.
The cost of all of the Company's office leases is approximately $894,000 per
annum.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than legal
proceedings in the ordinary course of business related to the Company's
Employment Placement Business. The Company does not believe that these
proceedings will have a material adverse effect upon the business or financial
condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET PRICE OF REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been traded in the over-the-counter market
under the NASDAQ symbol HIRE since November 21, 1985. During the second
quarter of the year ended December 31, 1991, the Company was delisted by
NASDAQ when the book value of its stock fell below the minimum amounts
required for listing on that quotation system. The Company's Common Stock is
currently traded over-the-counter and listed in the pink sheets. The prices
for the Company's stock, which were obtained from a market maker for the
Company's stock, are set forth below. Such prices are as follows:
PERIOD HIGH
LOW
1994
1st Quarter ........................................$ .13 $ .13
2nd Quarter ....................................... .25 .13
3rd Quarter ....................................... .25 .13
4th Quarter ....................................... .13 .13
1995
1st Quarter .........................................$ .13 $ .13
2nd Quarter ........................................ .13 .13
3rd Quarter ........................................ .25 .25
4th Quarter ........................................ .25 .25
The Company had approximately 200 holders of record of Common Stock as of
March 31, 1996. The Company knows that a number of beneficial owners of its
Common Stock hold shares in street name.
The Company has not paid any cash dividends on its Common Stock since its
inception. In June, 1989, 168,261 shares of the Company's Common Stock were
distributed as a stock dividend to the Company's stockholders of record on
May 22, 1989. This dividend was in the nature of a stock split and did not
represent any "value" to shareholders. The Board of Directors of the Company
does not anticipate payment of any cash dividends on its Common Stock in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Effective July 31, 1991, the Company sold all of its operating divisions.
Because such transactions resulted in the elimination of substantially all
operating assets and related business operations, the financial statements for
1993, 1992 and 1991 reflect the effects of such sold assets. Therefore, no
separate disclosure regarding discontinued operations has been presented.
However, as a result of several foreclosure proceedings in 1993 and early
1994, the Company once again operates wholly-owned subsidiaries involved in
the employment placement business.
YEAR ENDED DECEMBER 31,
STATEMENT OF OPERATIONS DATA 1995 1994 1993 1992 1991
(in Thousands, except per share data)
Net Service Revenues $19,358 $15,233 $ 1,667 $ - $14,634
Income from operating entities 2,277 1,527 158 - 292
Income (loss) before income
taxes (benefit) and
extraordinary credit 286 16 1,529 (910) (1,896)
Income (loss) before
extraordinary credit 286 16 1,529 (910) (1,896)
Net income (loss) 461 224 1,601 (841) (1,896)
Income (loss) per common share:
Before extraordinary credit .16 .01 .87 (.52) (1.08)
Net income (loss) .26 .13 .91 (.48) (1.08)
No cash dividends have been declared by the Company during the five years
ended December 31, 1995.
BALANCE SHEET DATA 1995 1994 1993 1992 1991
(End of Period):
Working Capital $ (1,060) $ (1,142) $ (880) $ (1,239) $ (1,309)
Total assets 3,070 2,563 1,514 562 327
Short-term debt 22 102 355 371 366
Long-term debt 90 113 157 121 13
Stockholders' equity
Capital deficiency (452) (913) (1,137) (2,738) (1,897)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
Total revenues and cost of services were $19.4 million and $17.1 million,
respectively, for the year ended December 31, 1995; and $15.2 million and
$13.7 million, respectively, for the year ended December 31, 1994. The
increase in revenues and related cost and expenses during 1995 resulted from
an increase in regular placements, temporary placements and contract labor as
compared to 1994.
General and administrative expenses increased approximately $236,000 in 1995
compared to 1994. The increase is primarily related to an increase in payroll
expenses in the employment placement business service business (the
"Employment Placement Business").
In 1995, the Company recorded an approximate $17,000 gain on sale of assets
held for sale compared to an approximate $14,000 loss in 1994. The gain
resulted from collections on receivables retained from the Temporary Assets,
which operations were closed during 1993.
In 1995, the Company recognized a $23,000 gain on foreclosure of assets
compared to a gain of $133,000 in 1994. These gains resulted primarily from
settlement of liabilities assumed and paid by the third party purchasers of
the Company's assets.
As a result of joint venture operations, the Company experienced a loss of
$48,000. The joint venture was formed in January of 1995 for the purpose of
providing personnel services to certain businesses requiring minority
suppliers and to others.
Interest expense increased $96,000 in 1995 as compared to 1994, which is the
result of an increase in factored accounts receivable of the Employment
Placement Business.
The Company booked $175,000 and $208,000 in the years ended December 31,
1995 and 1994, respectively, as an extraordinary item from gain on debt
restructuring, net of income tax, which is the result of settling certain
prior year liabilities on a discounted basis.
As a result of these factors, the Company booked $461,000 in net income for
the year ended December 31, 1995, as compared to $224,000 in net income for
the year ended December 31, 1994.
1994 COMPARED TO 1993
As more fully discussed in Item 1 hereof and in Note 3 in the Notes to
Consolidated Financial Statements made a part hereof, the Company currently
operates certain of the offices of its Employment Placement Business, as a
result of a foreclosure transaction beginning in December 1993 and concluding
in January, 1994. Accordingly, the Company's Consolidated Statement of
Operations for the year ended December 31, 1994, includes income from the
operations of the repossessed Employment Placement Business for the entire
year. Therefore, income from divisional operations for 1994 and 1993 is not
comparable.
Total revenues and cost of services were $15.2 million and $13.7 million,
respectively, for the year ended December 31, 1994; and $1.7 million and $1.5
million, respectively, for the year ended December 31, 1993. The increase in
revenues and related cost and expenses during 1994 as compared to 1993
resulted from the growth in the operations of the Employment Placement
Business during the entire year ended December 31, 1994, as compared to only
one month during 1993.
General and administrative expenses increased approximately $914,000 in 1994
as compared to 1993. The increase is primarily related to operating the
Employment Placement Business during the entire year during 1994 compared to
only one month during 1993.
During late 1993, the Company activated its medical placement business
(the"Medical Placement Business"). Due in large part to start-up costs and
problems associated therewith, these operations incurred losses of
approximately $579,000 during the year ended December 31, 1994.
In 1994, the Company recorded a $14,000 loss in connection with assets held
for sale; such loss resulted from the Company recognizing its contingent
liability in connection with a $50,000 loan made by a former controlling
shareholder of the Company to Veritas, Inc., a 1991 purchaser of certain of
the Company's assets. The $50,000 note is partially offset by a $35,000 gain
representing collections on receivables retained from the Temporary Assets,
which operations were closed during 1993.
Due to the abovementioned foreclosure transactions, the Company recognized a
$133,000 and $1,947,000 gain on the foreclosure of assets in 1994 and 1993,
respectively. The gain resulted primarily from collections on the purchase
notes and from Company liabilities assumed and paid by the third party
purchasers of the Company's assets.
Interest expense increased approximately $101,000, which is the result of an
increase in charges relating to factored accounts receivable of the Employment
Placement Business.
The Company has booked $208,000 and $72,000 in the years ended December 31,
1994 and 1993, respectively, as an extraordinary item from gain on debt
restructuring, net of income tax, which is the result of settling certain
prior year liabilities on a discounted basis.
As a result of these factors, the Company booked $224,000 in net income for
the year ended December 31, 1994, compared to $1,601,000 net income for the
year ended December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was a $1,060,000 deficit at December 31, 1995, compared with
a $1,142,000 deficit at December 31, 1994. This deficit decrease of
approximately $82,000 during 1995 was largely attributed to an increase in
accounts receivable and a reduction in current maturities of long-term debt,
partially offset by an increase in accounts payable.
Cash flow provided by operating activities of $308,000 resulted primarily
from the profitable operations of the Employment Placement Business, offset in
part by a corresponding increase in accounts receivable and a provision for
losses in accounts receivable.
Net cash used in investing activities of $312,000 resulted from capital
expenditures made by the Company during 1995. The Company retired $83,000 in
debt during 1995, and utilized approximately $111,000 of proceeds from
factored accounts receivable to fund the operations of the Employment
Placement Business during the year ended December 31, 1995.
The impact of inflation has not had a significant effect on the Company's
operating results.
During 1993, the Company formed Management Alliance Corporation ("MAC") and
Information Systems Consulting Corp. ("ISC"), two wholly-owned subsidiary
corporations, to operate the Employment Placement Business which were operated
previously by purchasers of Company assets prior to the foreclosure action
taken by the Company beginning in December 1993 and concluding in January
1994. The Company's future success is now substantially dependent on the
Employment Placement Business operations.
During the second and third quarters of 1995, the Company opened a new
district office in Chicago, Illinois. This office will provide employment
placement services to prospective clients in the region. Management believes
that this operation will contribute significantly to future growth and profits
in the Employment Placement Business.
Also, during 1995, the Company entered into a long-term lease commitment for
approximately 41,600 square feet of office space, at a favorable market rate,
in Dallas, Texas. This office space is currently the corporate headquarters
for the Company, and houses several of the Company's agency operations.
Presently, the Company's only major source of income relates to the
operations of its Employment Placement Business. However, management of the
Company anticipates that the cash flow of its wholly-owned subsidiaries (a)
will provide adequate liquidity to fund its future operations, and enable the
Company to reduce its current payables and factoring lines, and (b) will
result in positive shareholders' equity at December 31, 1996.
In addition, at December 31, 1995, the Company had accrued approximately
$250,000 relating to a settlement agreement with a landlord. Management
believes that the terms of the Company's settlement agreement with the
landlord involved will be satisfied by October, 1996. Satisfaction of these
terms will relieve the Company of the obligation to pay the full amount of the
accrued expense involved and will enable the Company to report an
extraordinary gain related thereto in the fourth quarter of 1996.
Although the Company significantly lowered its cost of funds in 1995 through
negotiations with its factoring sources, the Company is presently seeking
alternative sources of funds to be utilized in expanding the Employment
Placement Business to fund future growth or acquisitions.
The Company is currently evaluating the possibility of expanding its
Employment Placement Business in 1996 through acquisitions, joint venture
operations, the development of training center operations to assist in
increasing the number of potential applicants, and enhancing its data base
services to facilitate employee placements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following table sets forth certain information concerning the
members of the Board of Directors of the Company as of December 31, 1995:
Year First
Elected Director
Name and Address Age Principal Occupation Term Expires
J. Michael Moore 49 Chairman of the Board and Chief 1991 1996
12801 N. Central Expy., Suite 350 Executive Officer of the Company
Dallas, Texas 75243
Donald A. Bailey 53 President of Human Resources 1991 1996
2351 W. Northwest Hwy., Suite 3100 Corporation
Dallas, Texas 75220
M. Ted Dillard 43 Chief Financial Officer, Secretary 1991 1996
12801 N. Central Expy., Suite 350 and Treasurer of the Company
Dallas, Texas 75243
SEE ITEM 12 OF THIS FORM 10-K FOR INFORMATION CONCERNING OWNERSHIP OF THE
COMPANY'S SECURITIES BY THE DIRECTORS OF THE COMPANY.
J. Michael Moore was elected to the Board of Directors of the Company on May
1, 1991. He has been President and Chief Executive Officer of United States
Funding Group, Inc. a Texas corporation ("USFG"), since 1986 (USFG has been
involved in acquiring, from the Resolution Trust Corporation and the Federal
Deposit Insurance Corporation, real estate and notes secured primarily by real
estate, located within the United States). Mr. Moore is the sole shareholder
of USFG-DHRG L.P. No. 2, Inc., a Texas corporation which owns the controlling
interest in the Company's Common Stock.
Donald A. Bailey was elected as director of the Company on May 1, 1991.
Since January, 1990, Mr. Bailey has been engaged in a variety of business
enterprises. From January 1, 1993 until January 27, 1994, Mr. Bailey was
acting President of the Company. Since September, 1993, Mr. Bailey has been
President of Human Resources Corporation, an employee leasing concern.
M. Ted Dillard was elected to the Board of Directors of the Company in
August, 1991, and has been Chief Financial Officer, Secretary and Treasurer of
the Company since January, 1994, and Controller of the Company since June,
1990. Mr. Dillard is also President of Preferred Funding Corporation, a
wholly-owned subsidiary of the Company. Mr. Dillard is a Certified Public
Accountant, Certified Management Accountant and Certified Financial Planner.
During 1995, there were two meetings of the Board of Directors of the
Company. Mr. Moore, Mr. Bailey and Mr. Dillard attended both of these
meetings.
OFFICERS
The table below sets forth information as of December 31, 1995, as to the
Company's executive officers and executive employees.
NAME AGE POSITION
J. Michael Moore 49 Chairman of the Board and
Chief Executive Officer
M. Ted Dillard 43 Chief Financial Officer, Secretary and
Treasurer
See discussion above under "Directors" for more information concerning each
of these officers.
Effective October 1, 1995, Gary K. Steeds was appointed an operating officer
and no longer serves as acting President of Management Alliance Corporation
("MAC") and Information Systems Consulting Corp. ("ISC"), two of the
Company's wholly-owned subsidiaries. Also, Billie J. Tapp resigned as Senior
Vice-President of MAC and ISC effective January, 1995.
ITEM 11. EXECUTIVE COMPENSATION
REMUNERATION. The following table sets forth the aggregate cash
compensation paid by the Company for the year ended December 31, 1995, to each
of the executive officers of the Company whose aggregate cash compensation
exceeded $60,000, and to all executive officers as a group:
NAME OF INDIVIDUAL OR Capacities Cash
NUMBER OF PERSONS IN GROUP in Which Served Compensation
J. Michael Moore Chairman of the Board and $ 87,000
Chief Executive Officer
M. Ted Dillard Chief Financial Officer and $ 78,000
Secretary and Treasurer
Gary K. Steeds Former Acting President $ 93,100
Executive Officers as a Group $258,100
(3 persons)
Effective October, 1995, each outside member of the Board of Directors is to
be paid $1,000 for each directors meeting attended,. Board members who are
employees of the Company will continue to be paid $500 for each directors
meeting attended. During 1995, a majority of such director fees were accrued,
but not paid.
STOCK OPTIONS. Two subsidiaries of the Company, MAC and ISC, contemplate
granting Gary K. Steeds the right to earn shares of the common stock of the
two subsidiaries based upon achievement of certain performance goals and
continued employment with the Company. In addition, it is anticipated that
other employees of MAC and ISC could be entitled to earn equity ownership
interests in MAC and ISC based upon achievement of certain performance goals
and continued tenure with the two entities involved.
In October, 1995, the option to purchase 50,000 shares of Common Stock
(150,000 shares in the aggregate) were granted to each of the following: J.
Michael Moore, the Chairman of the Board and Chief Executive Officer of the
Company, M. Ted Dillard, Chief Financial Officer, Secretary, Treasurer, and
director of the Company, and Donald A. Bailey, a director of the Company. The
terms and conditions of each of these options are as follows: (a) each of
the optionees (i) were immediately vested as to 15,000 shares (45,000 shares
in the aggregate), and (ii) will become vested as to an additional 3,000
shares (9,000 shares in the aggregate) per quarter (commencing November, 1995)
until such time as they are fully vested as to 50,000 shares each, (b) prior
to options becoming vested, vesting is contingent upon the optionee's
continued involvement as an officer or director of the Company, (c) at such
time as an optionee becomes vested with respect to shares of Common Stock,
such optionee may thereafter purchase the number of shares to which the
optionee is vested, subject to certain conditions, (d) the option price for
options exercised is $.50 per share, (e) subject to earlier termination as
herein provided, vested options (i) may be exercised at any time or times
within five years from the date of vesting, and (ii) must be exercised prior
to the expiration of five years from the date of vesting, and (f) if an
optionee ceases to be an officer or director of the Company the options then
vested as to such optionee must be exercised within (i) six calendar months
from the date on which optionee's continuous involvement with the Company is
terminated for any reason other than as provided in subsections (ii) and (iii)
below, (ii) twelve calendar months from the date on which optionee's
continuous involvement with the Company is terminated due to death, total
disability or retirement at age 65, (iii) three months from the date of
termination of employment of optionee by the Company for cause, or (iv)
October 31, 2000 (five years from the date of authorization of these options).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the number of
shares of Common Stock of the Company beneficially owned, as of March 31,
1996, by certain officers and directors of the Company and others. At March
31, 1996, the Company had issued and outstanding 1,758,211 shares of Common
Stock. As far as is known to management and except as shown below, no person
beneficially owns more than five percent of the outstanding Common Stock of
the Company.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1)(2) CLASS (2)
USFG-DHRG L.P. No. 2, Inc. 899,200 47.1%
12801 N. Central Expy., #260
Dallas, Texas 75243
J. Michael Moore 949,200 49.7%
12801 N. Central Expy., #350
Dallas, Texas 75243
Gary K. Steeds 178,350 9.3%
12801 N. Central Expy., #350
Dallas, Texas 75243
Donald R. Ditto, Sr. 125,000 6.6%
Route 2, Box 21633
Winnsboro, Texas 75494
Donald A. Bailey 82,100 4.3%
M. Ted Dillard 50,000 2.6%
All officers and directors 1,259,650 66.0%
as a group (3 persons)
Except as otherwise indicated, all shares are owned directly and the
beneficial owner has sole voting and sole investment power. With respect to
899,200 shares of the shares shown to be owned by J. Michael Moore, Mr. Moore
has shared voting and shared investment power as to these shares due to his
ownership of all of the capital stock of USFG-DHRG L.P. No. 2, Inc. (the
"Controlling Shareholder").
(2) For purposes of calculating the percent of class owned, the shares of
stock which are subject to stock options shall be deemed outstanding to the
extent that each person has the right to acquire shares through the exercise
of any options. The above table reflects the vesting of 50,000 shares each
(150,000 shares in the aggregate) beneficially owned by J. Michael Moore, M.
Ted Dillard and Donald A. Bailey, as of March 31, 1996.
(3) These shares are actually owned by the Controlling Shareholder. Mr.
Moore is deemed to be the beneficial owner of these shares since he owns all
of the capital stock of the Controlling Shareholder.
(4) Pursuant to the terms of a 1991 purchase agreement for the sale of
assets by the Company, Mr. Steeds agreed to deliver these shares to the
Company. Gary K. Steeds granted to J. Michael Moore the proxy and voting
rights to these shares as part of the purchase agreement. None of these
shares are included in the shares shown to be beneficially owned by Mr. Moore.
(5) Such shares were acquired from Frank S. Otey III in 1994 and James F.
West Jr. and Alice Marie West in 1995. Mr. Donald R. Ditto, Sr. was a limited
partner in a partnership that was a former controlling shareholder of the
Company.
In April of 1991, USFG-DHRG #1, Ltd., a Texas limited partnership (the
"Partnership"), acquired ownership of 899,200 shares (the "Shares") of Common
Stock of the Company. On March 26, 1993, the Partnership conveyed ownership
of the Shares to Ditto Properties Co., a Texas partnership ("Ditto"), and
Ditto immediately thereafter conveyed ownership of the Shares to USFG-DHRG
L.P. No. 2, Inc., a Texas corporation (the "Controlling Shareholder"); the
sole shareholder of the Controlling Shareholder is J. Michael Moore, the
Chairman of the Board and Chief Executive Officer of the Company.
As a result of the foregoing, both the Controlling Shareholder and Mr. Moore
should be considered a control person of the Company. For more information
concerning the aforesaid transaction involving the Partnership and Ditto, see
the Schedule 13D, dated March 26, 1993, filed by Ditto with the Securities and
Exchange Commission (the "SEC"). For more information concerning the aforesaid
transaction involving Ditto and the Controlling Shareholder, see the Schedule
13D, also dated March 26, 1993, filed by the Controlling Shareholder with the
SEC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has previously entered into related party transactions which
were still in effect in 1995. Such transactions are as follows:
1. USFG-DHRG #1, Ltd. ("USFG Ltd.") loaned $175,000 to the Company in 1991
as evidenced by an unsecured promissory note. During 1992, the Company paid
$75,500 of this obligation, but also borrowed an additional $50,000 from USFG
Ltd. These obligations bore interest at 10% per annum, were initially payable
November 3, 1992, and then due upon demand. In January, 1993, the Company
borrowed an additional $100,000 from USFG Ltd., and then, subsequently repaid
$135,000 of such loans during 1993. In 1994 and 1995, the Company repaid
$100,000 and $14,500 of such loans, respectively. At December 31, 1995, the
Company has repaid all loans to USFG Ltd.
2. Since June 1993, the Company has leased approximately 2,000 sq. ft. of
office space for approximately $2,000 per month from United States Funding
Group, Inc. ("USFG"). USFG is wholly-owned by J. Michael Moore, Chairman of
the Board and Chief Executive Officer of the Company. USFG is also the general
partner of USFG Ltd. The lease is scheduled to expire June 30, 1996. The
Company considers the terms of this lease to be comparable to terms it would
have if the space involved was being leased from an unaffiliated third party.
During 1995, the Company paid various expenses on behalf of USFG and Mr.
Moore. The Company has offset these related party loans with amounts due to
USFG and Mr. Moore for purchases of office furniture and equipment. As of
December 31, 1995, the balance remaining is approximately $6,200. It is
expected that this amount will be settled or paid in full during 1996.
3. In March, 1993, USFG Ltd. assigned to Ditto Properties, Inc., formerly a
controlling stockholder of the Company (for more information in this regard,
see Item 12 of this Form 10-K), an account receivable of $249,000 in the form
of the obligations payable to USFG Ltd. as described in paragraph 1 of this
Item 13.
4. In December, 1992, the Company foreclosed upon certain assets owned by
Veritas, Inc. ("Veritas"). A former officer and director, and a former
significant shareholder of the Company, had guaranteed certain of the
obligations of Veritas to the Company. In November, 1992, a former
controlling shareholder of the Company loaned $50,000 to Veritas. As Veritas
is currently in bankruptcy proceedings and the Company was contingently liable
for this obligation, the Company booked a note payable at December 31, 1994,
to reflect this obligation. This obligation plus accrued interest has been
paid in full as of the date of this report.
5. In January, 1993, the Company modified certain obligations payable to
the Company by entities controlled by Gary K. Steeds, a former officer and
director of the Company. In January 1994, the Company foreclosed upon the
assets of these entities and operates these assets through wholly-owned
subsidiaries (for more information regarding these transactions, see Item 1 of
this Form 10-K).
6. CFS, Inc. (the "Supplier") is an entity which is providing services to
the Company in the form of assisting the Company in its efforts (a) to obtain
business to provide personnel to entities purchasing notes and other assets
from governmental agencies, and (b) to locate individuals to become personnel
of the Company for such purposes. The Supplier is a minority operated
corporation, which because of its status, supplies services to clients
requiring a certain portion of its business to be allocated to minority owned
and operated vendors. The Company provides personnel and contract labor to
the Supplier on a subcontractor basis. Laurie Moore, the wife of J. Michael
Moore, the Chief Executive Officer and Chairman of the Board of the Company,
owns 49% of the Supplier. During 1995, the Company paid approximately $46,000
to the minority owner of the Supplier. The Company believes that the rates
charged by the Supplier are competitive and fair to the Company. In addition,
during January, 1995, MAC, a wholly-owned subsidiary of the Company, entered
into a Joint Venture Agreement with the Supplier, for the purpose of providing
personnel services to certain businesses requiring minority suppliers and to
others. The Company believes that the terms of this Joint Venture Agreement
are competitive and fair to the Company. The Company has recorded a $48,000
loss from joint venture operations for the year ended December 31, 1995.
7. In January of 1996, the Company, through its wholly-owned subsidiary,
Preferred Funding Corporation, loaned $25,000 to United States Funding Group
Oil and Gas, Inc., an entity owned by J. Michael Moore, Chairman of the Board
and Chief Executive Officer of the Company. Such loan is evidenced by a
promissory note with interest at the rate of 1% per month on the unpaid
balance. In addition, a 10% loan origination and administration fee was
charged by the Company. Payments on the loan are scheduled on a monthly basis
with a minimum payment of $2,000 plus interest due on the last day of each
month. As of March 31, 1996, all required payments have been made on a timely
basis.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (i) and (ii) Financial Statements and Schedules.
Reference is made to the listing on page 19 of all financial statements and
schedules filed as a part of this report.
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the financial
statements or notes thereto.
(iii) Exhibits
Reference is made to the Index to Exhibits on pages 38 through 41 for a list
of all exhibits filed as part of this report.
(b) Reports on Form 8-K.
Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 15, 1996 By: /S/ J. MICHAEL MOORE
J. Michael Moore
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
/S/ J. MICHAEL MOORE Chairman and Chief Executive Officer
J. Michael Moore
/S/ M. TED DILLARD Chief Financial Officer, Secretary,
M. Ted Dillard Treasurer and Director
(Principal Financial and Accounting
Officer)
/S/ DONALD A. BAILEY Director
Donald A. Bailey
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGE NO.
Independent Auditor's Report 20
Consolidated Balance Sheets - December 31, 1995 and 1994 21
Consolidated Statements of Operations -
Years Ended December 31, 1995, 1994, and 1993 22
Consolidated Statements of Stockholders' Equity
(Capital Deficiency) - Years Ended
December 31, 1995, 1994, and 1993 23
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994,
and 1993 24
Notes to Consolidated Financial Statements 26
Schedule II - Valuation and Qualifying Accounts - Years Ended December 31,
1995, 1994, and 1993 37
All other schedules have been omitted because they are either not applicable
or the information required by the schedule is included in the financial
statements or the notes thereto.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Diversified Human Resources Group, Inc.
Dallas, Texas
WEAVER AND TIDWELL, L.L.P.
Dallas, Texas
April 9, 1996
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
CURRENT ASSETS: 1995 1994
Cash and cash equivalents $ 69,627 $ 45,780
Accounts receivable, less allowance for doubtful accounts
of approximately $412,000 and $205,000, respectively 2,140,623 1,874,754
Refundable federal taxes - 225
Notes receivable (Note 3) 13,052 25,363
Prepaid expenses and other current assets 96,806 157,153
TOTAL CURRENT ASSETS 2,320,108 2,103,275
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET (Note 4) 467,043 286,829
OTHER ASSETS:
Investment in and advances to joint venture (Note 13) 103,838 -
Notes receivable (Note 3) - 11,533
Other 179,153 161,243
$3,070,142 $2,562,880
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 5) $3,358,163 $3,143,107
Current maturities of long-term debt (including $14,500
to majority shareholder in 1994) (Note 6) 21,603 101,822
TOTAL CURRENT LIABILITIES 3,379,766 3,244,929
DEFERRED LEASE RENTS 52,531 117,597
LONG TERM DEBT (Note 6) 90,048 113,240
COMMITMENTS AND CONTINGENCIES (Notes 3 and 12)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) (Notes 2 and 7):
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued - -
Common stock, $.10 par value; 10,000,000 shares
authorized, 1,881,161 shares issued 188,116 188,116
Additional paid-in capital 3,615,151 3,615,151
Accumulated deficit (4,086,045) (4,546,728)
Common stock held in treasury (122,950 shares), at cost (169,425) (169,425)
TOTAL STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) (452,203) (912,886)
$3,070,142 $2,562,880
See notes to consolidated financial statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
1995 1994 1993
NET SERVICE REVENUES
Regular Placements $9,124,545 $7,471,318 $ 838,888
Temporary 4,209,685 2,879,143 277,045
Contract Labor 6,023,655 4,882,253 551,389
19,357,885 15,232,714 1,667,322
COST AND EXPENSES (Note 3) 17,080,688 13,705,898 1,508,993
INCOME FROM OPERATING ENTITIES 2,277,197 1,526,816 158,329
GENERAL AND ADMINISTRATIVE EXPENSES (1,808,474) (1,572,763) (658,400)
OTHER INCOME (EXPENSES):
Gain (loss) on sale of assets held for sale, 16,784 (14,397) 58,581
net
Gain on foreclosure of division assets 22,815 133,000 1,946,534
Loss from joint venture operations (47,826) - -
Interest expense, net (237,111) (140,916) (39,691)
Other, net 62,487 84,524 63,589
(182,851) 62,211 2,029,013
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (Note 8) 285,872 16,264 1,528,942
INCOME TAXES, net of tax benefit from utilization
of net operating loss carry forward - - -
INCOME BEFORE EXTRAORDINARY ITEM 285,872 16,264 1,528,942
EXTRAORDINARY ITEM - gain on troubled debt
restructuring, net of income tax (Note 9) 174,811 208,212 71,750
NET INCOME $ 460,683 $ 224,476 $1,600,692
INCOME PER SHARE:
Income before extraordinary item $ .16 $ .01 $ .87
Extraordinary item .10 .12 .04
INCOME PER SHARE $ .26 $ .13 $ .91
See notes to consolidated financial statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Additional
Common paid-in Accumulated Treasury
Stock Capital Deficit Stock Total
BALANCE, January 1, 1993 $ 188,116 $ 3,615,151 $ (6,371,896) $ (169,425) $(2,738,054)
Net income ..................... - - 1,600,692 - 1,600,692
BALANCE, December 31, 1993 188,116 3,615,151 (4,771,204) (169,425) (1,137,362)
Net income - - 224,476 - 224,476
BALANCE, December 31, 1994 188,116 3,615,151 (4,546,728) (169,425) (912,886)
Net income - - 460,683 - 460,683
BALANCE, December 31, 1995 $ 188,116 $ 3,615,151 $ (4,086,045) $(169,425) $ (452,203)
See notes to consolidated financial statements.
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 460,683 $ 224,476 $1,600,692
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation 132,182 86,026 10,767
Provision for losses on accounts 207,363 41,000 163,711
receivable
Increase in accounts receivable (473,232) (898,070) (1,181,396)
(Increase) decrease in receivables from
net assets foreclosed - 236,973 (236,973)
Other changes in net assets held for sale - - 184,126
(Increase) decrease in refundable federal - 30,779 (31,004)
income taxes
Increase in prepaid expenses and other (78,291) (154,802) (1,167)
current assets
Increase in other assets (6,377) (112,811) (38,769)
Increase in fixed assets from foreclosure - (177,884) -
Increase in accounts payable and accrued 104,419 805,221 454,080
expenses
Increase (decrease) in deferred lease (65,066) (80,273) 197,870
rents
Decrease in obligations resulting from
settlement - (217,150) -
agreements
Equity in loss of joint venture 47,336 - -
Increase in debt from net assets - - 95,075
repossessed
Decrease in deferred interest income - - (681,505)
Obligations written off in restructuring (20,634) - -
Other, decreases in deferred gain - sales
of operating divisions - - (902,264)
Net cash provided by (used in) 308,383 (216,515) (366,757)
operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections on notes receivable
- operating divisions - - 123,793
Proceeds from the sale of net assets held - - 269,200
for sale
Capital expenditures (312,396) (157,014) (8,514)
Net cash provided by (used in) (312,396) (157,014) 384,479
investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal collections on notes receivable
- operating divisions - 10,000 100,000
Issuance of notes payable - 50,000 -
Repayment of short-term debt (64,500) (110,000) (135,000)
Increase in proceeds from factored 110,637 396,931 140,082
receivables
Principal payments under long-term debt
obligations to others (18,277) (30,397) (40,364)
Net cash provided by financing 27,860 316,534 64,718
activities
Net increase (decrease) in cash and cash
equivalents 23,847 (56,995) 82,440
Cash and cash equivalents at beginning of 45,780 102,775 20,335
year
Cash and cash equivalents at end of year $ 69,627 $ 45,780 $ 102,775
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for interest $ 264,000 $ 163,000 $ 7,702
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED FROM PREVIOUS PAGE)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
In conjunction with the prior year sales of the Company's operating divisions,
and the subsequent foreclosures, the transactions produced the following
accounting effects.
YEAR ENDED DECEMBER 31,
1995 1994 1993
Write down of the notes receivable from the $ $ $(4,799,069)
purchasers - -
Write-off of accounts receivable - - - (159,292)
contractual agreements
Net assets held for sale - - 171,177
Reverse deferred interest income - - 1,141,236
Deferred lease rents returned - - (197,870)
Accounting effects of gain on foreclosure - - (1,903,325)
entries
Other - - 16,620
Decrease in deferred gain from sales of - - (5,730,523)
operating divisions
(Increase) decrease:
Accounts receivable - contractual agreements - - 151,157
Current notes receivable - operating - - 243,960
divisions
Long-term notes receivable - operating - - 4,556,935
divisions
Increase (decrease) in deferred gain, net of
receivables from purchasers $ $ $ (778,471)
- -
See notes to consolidated financial statements.
25
13
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its subsidiaries (the "Company"). All
intercompany accounts and transactions have been eliminated in consolidation.
The Company's Consolidated Statement of Operations for the year ended
December 31, 1993 includes income from the operations of the repossessed Power
Placement Assets from May 1993 until December, 1993, when the Company sold the
corporation owning such assets, and income from the operations of the
repossessed employment placement service business (the "Employment Placement
Business") for the month of December, 1993. (See discussion in Note 3.)
NATURE OF OPERATIONS
Diversified Corporate Resources, Inc. (the "Company") is a Texas corporation.
The Company, through its wholly-owned subsidiaries, is engaged in the full-
time (regular) and temporary placement of personnel in various industries, and
the contract placement services industry. The Company operates branch offices
in a number of cities which are responsible for marketing to clients,
recruitment of personnel, operations, local advertising, credit and
collections. The Company's executive offices provide centralized training,
payroll, collections and certain accounting and administrative services for
the branch offices.
REVENUE RECOGNITION
During 1993, and until the repossession of the Employment Placement Business
in January, 1994, the cost recovery method of accounting was being used for
recognition of income from sales of the operating divisions until such time as
the liabilities assumed by the purchasers of the operating divisions had been
satisfied and a collection history on the notes receivable had provided an
expectation that the gain from such sales would be reasonably assured (see
Note 3).
Fees for placement of full-time (regular) personnel are recognized as income
at the time the applicants accept employment. Provision is made for estimated
losses in realization (principally due to applicants not commencing employment
or not remaining in employment for the guaranteed period). Revenue from
temporary personnel placements is recognized upon performance of services.
Cost of services consists of expenses for the operation of agencies
(principally commissions, direct wages paid to temporary personnel, payroll
taxes and rent) and a provision for uncollectible accounts (approximately
$116,000 in both 1995 and 1994). Accounts receivable at December 31, 1995 and
1994, includes approximately $36,000 of unbilled receivables which will be
billed during 1996 and $133,000 of unbilled receivables that were billed in
1995, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes certificates of deposits of approximately
$31,000 at December 31, 1994. The Company considers all highly liquid
investment instruments purchased with remaining maturities of three months or
less to be cash equivalents for purposes of the consolidated statements of
cash flows.
DEPRECIATION AND AMORTIZATION
Equipment, furniture, and leasehold improvements are recorded at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the individual assets (which range from three to
seven years) or the related lease terms, if applicable, whichever is shorter.
Intangible assets are amortized on the straight-line method over their
estimated useful lives which range from three to ten years.
LEASES
Capital leases are recorded at the inception of the lease at the lower of the
discounted present value of future minimum lease payments or the fair value of
the asset.
Rent expense on operating leases is recorded on a straight-line basis over
the terms of the leases.
INCOME TAXES
During 1993, the Company changed its method of accounting for income taxes to
conform to the provisions of Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes". Accordingly, income taxes are provided for
the tax effects of transactions reported in the financial statements and
consist of taxes currently payable plus deferred taxes related primarily to
differences between the basis of installment sales, property and equipment and
accounts receivable for financial and income tax reporting. The deferred
taxes represent the future tax return consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled.
Previously, the Company provided deferred taxes resulting from timing
differences between financial and taxable income. Under the new method,
however, an asset and liability approach is used in accounting for income
taxes. There was no cumulative effect (to January 1, 1993) of the change in
accounting principle.
INCOME PER SHARE
Income per share was determined by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding (common stock equivalents are excluded if the effects of inclusion
are antidilutive). The weighted average number of shares outstanding for the
years ended December 31, 1995, 1994, and 1993 were 1,758,211.
RECLASSIFICATIONS
Certain amounts previously reported in the 1994 and 1993 financial statements
have been reclassified for comparative purposes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ACCOUNTING PRONOUNCEMENTS
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," was issued. The statement must be adopted by the Company
in the first quarter of 1996. Under provisions of the statement, impairments,
measured using fair market value, are recognized whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not
be recoverable and the future undiscounted cash flows attributable to the
asset are less than its carrying value. The statement is not expected to have
a material impact on the Company's results of operations or financial
position.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
In October 1995, SFAS No. 123, "Stock Based Compensation," was issued. This
statement will require the Company to choose between two different methods of
accounting for stock options. The statement defines a fair-value-based method
of accounting for stock options but allows an entity to continue to measure
compensation cost for stock options using the accounting prescribed by APB
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Use of
the APB 25 accounting method results in no compensation cost being recognized
if options are granted at an exercise price at the current market value of the
stock. The Company will continue to use the intrinsic value method under APB
25 but will be required by SFAS 123 to make pro forma disclosure of net income
and earnings per share as if the fair value method had been applied in its
1996 financial statements.
OTHER
The Company had requested that the Securities and Exchange Commission
(the"Commission") waive the Company's obligation to file certain financial
statements and information not filed with the Company's Form 8-K dated
February 22, 1994, reporting the repossession of the Employment Placement
Business. The Commission did not waive the Company's obligations to comply
with the provisions of Form 8-K, and the Commissions' rules and regulations
related thereto, but has taken a no-action position against the Company which
is based solely on failure to file the required audited historical financial
statements and pro forma financial information.
Further, until the Company has filed the required audited financial
statements (a) registration statements of the Company under the Securities Act
of 1993 will not be declared effective, and (b) offerings may not be made by
the Company pursuant to effective registration statements, or pursuant to
Rules 505 and 506 of Regulation D where any purchasers are not accredited
investors under Rule 501(a) of the Regulation. The foregoing restriction will
not apply to sales of securities pursuant to Rule 144.
2. FINANCIAL CONDITION:
In December of 1992, both Management Alliance Group Corp., formerly Financial
Recruiters, Inc. ("MAGC"), and Gary K. Steeds, Inc. ("GKS") sought protection
from their respective creditors under the federal bankruptcy laws. As more
fully described below, in order to protect the Company's assets, the Company
was able to obtain the necessary court approval to allow the Company to
foreclose upon the accounts receivable and certain other assets pledged to the
Company by MAGC and GKS. The Company foreclosed upon these assets on January
3, 1994.
The Company formed Management Alliance Corporation ("MAC") and Information
Systems Consulting Corp. ("ISC"), two wholly-owned subsidiary corporations, to
operate the employment placement service businesses (the "Employment Placement
Business") which were operated by MAGC and GKS prior to the aforesaid
foreclosure action taken by the Company. The Company is substantially
dependent on the success of the Employment Placement Business operations. As
a result of foreclosure transactions, the Company has recorded a $23,000,
$133,000 and $1,947,000 gain on the foreclosure of divisional assets for the
years ended December 31, 1995, 1994 and 1993, respectively.
During 1995 and 1994 the Employment Placement Business core operations
experienced profitable growth. However, during late 1993, MAC activated its
medical placement business, primarily in the area of physician search. The
offices of this operation were then located in Dallas, Texas and Atlanta,
Georgia. Due in large part to start-up costs and problems associated
therewith, these operations, Legacy Healthcare Resources and Nova Healthcare
Resources, incurred losses of approximately $242,000 and $579,000 during the
years ended December 31, 1995 and 1994, respectively. During the fourth
quarter of 1994, the Atlanta office of this operation was closed and expenses
were reduced significantly. However, management continues to evaluate the
prospects of further developing the medical placement field.
At December 31, 1995, the Company had a total capital deficiency of $452,000
and a working capital deficit of $1,060,000.
In addition, at December 31, 1995, the Company had accrued approximately
$250,000 relating to a settlement agreement with a landlord. Management
believes that the terms of the Company's settlement agreement with the
landlord involved will be satisfied by October, 1996. Satisfaction of these
terms will relieve the Company of the obligation to pay the full amount of
this accrued expense and will enable the Company to report an extraordinary
gain related thereto in the fourth quarter of 1996.
Although the Company significantly lowered its cost of funds in 1995 through
negotiations with its factoring sources, the Company is presently seeking
alternative sources of funds to be utilized in expanding the Employment
Placement Business to fund future growth or acquisitions.
The Company is currently evaluating the possibility of expanding its
Employment Placement Business in 1996 through acquisitions, joint venture
operations, the development of training center operations to assist in
increasing the number of potential applicants, and enhancing its data base
services to facilitate employee placements.
Although management anticipates that the operations of its wholly-owned
subsidiaries (a) will provide adequate cash flow to in 1996 to fund the
Company's continuing operations, and to enable the Company to reduce its
current payables and factoring lines, and (b) result in positive shareholders'
equity at December 31, 1996, there is no guarantee the above actions can be
successfully implemented.
3. SALE AND REPOSSESSION OF ASSETS:
GENERAL
In May, 1993, the Company repossessed from one of the purchasers of Company
assets most of the assets (the "Power Placement Assets") previously sold by
the Company to such purchaser.
Pursuant to an agreement dated December 16, 1993 and after operating the
Power Placement Assets since May, 1993, the Company sold the capital stock of
Recruiters Network Group, Inc. ("RNG"), a wholly-owned subsidiary of the
Company formed to operate these assets, to Donald A. Bailey ("Bailey"), then
acting President of and a Director of the Company. As part of the purchase
agreement, Bailey provided funding to enable RNG to reimburse the Company for
RNG payroll costs, RNG issued a $40,000 promissory note payable to the Company
(secured by RNG stock, RNG assets and personally guaranteed by Bailey), RNG
issued a $15,000 promissory note payable to a former landlord of the Company
and guaranteed by Bailey, and $57,400 was paid to the Company in the form of
one or more affiliates of Bailey releasing the Company from certain
obligations and liabilities payable by the Company to Bailey. These
promissory notes are reflected as notes receivable in the balance sheets at
December 31, 1994 and 1993, respectively. Prior to the sale, the Company had
considered closing RNG due to recurring operating losses during 1993. As of
the date of this report the $40,000 promissory note has been paid in full, and
all note payments due pursuant to the above mentioned $15,000 promissory note
have been made in a timely manner.
In December of 1992, another purchaser of Company assets caused both
Management Alliance Group Corp., formerly named Financial Recruiters, Inc.
("MAGC") and Gary K. Steeds, Inc. ("GKS") to seek protection from their
respective creditors under the federal bankruptcy laws.
In 1993, the Company was able to obtain the necessary court approval to allow
the Company to foreclose upon the accounts receivable and certain other assets
of MAGC and GKS. The Company foreclosed upon MAGC and GKS assets on January
3, 1994. During December, 1993, the Company formed Management Alliance
Corporation ("MAC") and Information Systems Consulting Corp. ("ISC"), two
wholly-owned subsidiary corporations, to operate the employment placement
service businesses (the "Employment Placement Business") which MAGC and GKS
operated prior to the aforesaid foreclosure action taken by the Company. The
Company is substantially dependent on the success of the Employment Placement
Business operations.
FINANCIAL INFORMATION
The Company's Consolidated Statement of Operations includes income from the
operation of the repossessed Power Placement Assets from May 1993 until the
sale of capital stock in December 1993, and income from the operation of the
repossessed Employment Placement Business for the years ended December 31,
1995 and 1994, and for the month of December, 1993.
Cost of services and agency expenses consist of expenses for the operation of
agencies (principally commissions, direct wages paid to temporary personnel,
payroll taxes, and rent) and a provision for uncollectible accounts
(approximately $116,000 in both 1995 and 1994).
During the years ended December 31, 1995, 1994 and 1993, and due to the
various foreclosure transactions described above, management has recognized a
$23,000, $133,000 and $1,947,000 gain, respectively, on the foreclosure of
divisional assets which primarily represents deferred income from note
payments and Company liabilities assumed and paid by the third party
purchasers of the Company's divisional assets.
The following table sets forth the net book value of the MAGC and GKS assets
foreclosed upon and repossessed by the Company on January 3, 1994:
Information
MANAGEMENT Systems
ALLIANCE Consulting
CORPORATION Corp. Corporate TOTAL
Accounts receivable $ 267,186 $ 228,510 $ 1,505 $ 497,201
Receivables from affiliates 143,955 183,273 - 327,228
Equipment, furniture and
leasehold improvements, net 99,839 62,386 15,659 177,884
Other assets 26,282 - 87,462 113,744
Accounts payable, office reserves, accrued rents and
expenses, notes and capital lease obligations
(387,780) (311,101) (128,250) (827,131)
Net Book Value $ 149,482 $ 163,068 $ (23,624) $ 288,926
The net book value of the MAGC and GKS assets repossessed at January 3, 1994,
is reflected in the gain on foreclosure of divisional assets in the
Consolidated Statement of Operations for the years ended December 31, 1995 and
1994.
4. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS:
Equipment, furniture and leasehold improvements consist of:
DECEMBER 31,
1995 1994
Office equipment and furniture $ 944,717 $ 632,321
Less accumulated depreciation and amortization (477,674) (345,492)
$ 467,043 $ 286,829
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of:
DECEMBER 31,
1995 1994
Accounts payable $ 727,866 $ 820,562
Accrued compensation 1,031,434 1,053,698
Accrued payroll taxes 178,704 186,123
Factored accounts receivable liability 647,650 537,013
Cash overdraft 192,624 377,129
Other 579,885 168,582
$ 3,358,163 $ 3,143,107
The Company has entered into factoring arrangements involving advances on its
outstanding accounts receivable for a fee ranging from 2% to 7%, based on the
number of days the receivable is outstanding. The maximum amount of factored
accounts receivable liability outstanding was approximately $762,000, $650,000
and $140,000 during 1995, 1994 and 1993, respectively. The proceeds from
factored accounts receivable were used to fund the operations of the
Employment Placement Business during the years ended December 31, 1995 and
1994, and for the month of December, 1993.
6. LONG-TERM DEBT:
DECEMBER 31,
1995 1994
Long-term debt consists of:
Non-interest bearing note due to the Federal Deposit
Insurance Corporation with quarterly installments of $ 40,000 $ 55,000
$5,000 due July 1997
10% note payable due January 13, 1991 - 9,166
Adjustable rate (approximately 10%) mortgage note due in
monthly installments through June, 2013 71,651 73,240
10% demand note payable to USFG-DHRG #1 Ltd., formerly a
majority shareholder, initially due November 3, 1992 - 14,500
Non-interest bearing note payable to former controlling
shareholder where Company is contingently liable - 50,000
Other notes payable with interest rates ranging from 10%
to 11% and varying maturities through November, 1994 - 11,467
Capital lease obligations - 1,689
111,651 215,062
Less current maturities of long-term debt (21,603) (101,822)
Total long-term debt $ 90,048 $ 113,240
APPROXIMATELY $95,000 IN OBLIGATIONS ASSUMED BY THIRD PARTY PURCHASERS
DURING 1991, WAS RECORDED BY THE COMPANY AS PART OF THE FORECLOSURE UPON AND
REPOSSESSION OF ASSETS PREVIOUSLY OWNED BY THE COMPANY. THE OBLIGATIONS
INCLUDE A $71,700 MORTGAGE NOTE PAYABLE THAT IS COLLATERALIZED BY A FIRST LIEN
ON REAL ESTATE, HAVING A NET BOOK VALUE OF $87,500.
DURING THE YEAR ENDED DECEMBER 31, 1994, THE COMPANY SETTLED A 9% ADJUSTABLE
RATE NOTE PAYABLE TO THE FDIC AND A 10% PROMISSORY NOTE ALSO DUE TO THE FDIC
IN NOVEMBER, 1993, FOR $5,000 DOWN AND A NON-INTEREST BEARING NOTE FOR $60,000
PAYABLE IN $5,000 QUARTERLY INSTALLMENTS.
THE COMPANY HAS WRITTEN OFF THE 10% NOTE PAYABLE DUE JANUARY 13, 1991, AND
OTHER NOTES WITH VARYING INTEREST RATES AND MATURITIES THROUGH NOVEMBER, 1994,
TOTALING APPROXIMATELY $20,600 AT DECEMBER 31, 1995. THE AMOUNTS WERE IN
DISPUTE AND NO LEGAL CLAIMS HAVE BEEN BROUGHT AGAINST THE COMPANY WITHIN THE
TIME STATUTES.
IN NOVEMBER, 1992, A FORMER CONTROLLING SHAREHOLDER OF THE COMPANY LOANED
$50,000 TO VERITAS, INC., A FORMER PURCHASER OF COMPANY ASSETS. VERITAS, INC.
IS CURRENTLY IN BANKRUPTCY PROCEEDINGS. THE COMPANY WAS CONTINGENTLY LIABLE
FOR THIS OBLIGATION, AND RECORDED A $50,000 NOTE DUE TO THIS SHAREHOLDER AT
DECEMBER 31, 1994. THIS NOTE WAS PAID IN FULL BY DECEMBER 31, 1995.
THE AGGREGATE MATURITIES OF LONG-TERM DEBT AS OF DECEMBER 31, 1995, ARE AS
FOLLOWS:
Total
1996 $ 21,603
1997 21,809
1998 1,999
1999 2,209
2000 2,441
2001 and thereafter 61,590
$ 111,651
7. STOCKHOLDERS' EQUITY:
Pursuant to the terms of two purchase agreements, the Company is to
receive 27,499 and 278,352 shares, respectively, of the Company's common stock
from two former officers and directors of the Company in connection with these
agreements. A former officer and director had pledged certain shares to
various lenders to secure certain debts, which are currently in default. As a
result of a breach of certain pledge agreements operating in favor of the
Federal Deposit Insurance Corporation ("FDIC"), the FDIC foreclosed on a total
of 100,000 shares of the Company's common stock. At December 31, 1995, none
of the common stock of the former officers and directors has been conveyed to
the Company.
In October, 1995, the option to purchase 50,000 shares of Common Stock
(150,000 shares in the aggregate) were granted to each of the following: J.
Michael Moore, the Chairman of the Board and Chief Executive Officer of the
Company, M. Ted Dillard, Chief Financial Officer, Secretary, Treasurer, and
director of the Company, and Donald A. Bailey, a director of the Company. The
terms and conditions of each of these options are as follows: (a) each of
the optionees (i) were immediately vested as to 15,000 shares (45,000 shares
in the aggregate), and (ii) will become vested as to an additional 3,000
shares (9,000 shares in the aggregate) per quarter (commencing November, 1995)
until such time as they are fully vested as to 50,000 shares each, (b) prior
to options becoming vested, vesting is contingent upon the optionee's
continued involvement as an officer or director of the Company, (c) at such
time as an optionee becomes vested with respect to shares of Common Stock,
such optionee may thereafter purchase the number of shares to which the
optionee is vested, subject to certain conditions, (d) the option price for
options exercised is $.50 per share, (e) subject to earlier termination as
herein provided, vested options (i) may be exercised at any time or times
within five years from the date of vesting, and (ii) must be exercised prior
to the expiration of five years from the date of vesting, and (f) if an
optionee ceases to be an officer or director of the Company the options then
vested as to such optionee must be exercised within (i) six calendar months
from the date on which optionee's continuous involvement with the Company is
terminated for any reason other than as provided in subsections (ii) and (iii)
below, (ii) twelve calendar months from the date on which optionee's
continuous involvement with the Company is terminated due to death, total
disability or retirement at age 65, (iii) three months from the date of
termination of employment of optionee by the Company for cause, or (iv)
October 31, 2000 (five years from the date of authorization of these options).
The earnings per share calculation does not include the above mentioned
stock options because they would have an antidilutive effect on the
calculation.
8. FEDERAL INCOME TAXES:
The Company incurred no income tax expense in any of the years in the three-
year period ended December 31, 1995. The income tax provision and the amount
computed by applying the federal statutory income tax rate to income (loss)
before income taxes differs as follows:
DECEMBER 31,
1995 1994 1993
Tax provision (benefit at statutory rate) $156,632 $ 76,322 $544,235
Net operating loss carried forward to future (156,632) (76,322) (544,235)
periods
Other - - -
$ - $ - $ -
THE COMPONENTS OF THE COMPANY'S DEFERRED TAX ASSET (LIABILITY) ARE AS
FOLLOWS:
DECEMBER 31,
1995 1994
Net operating loss carryforward $1,483,100 $ 1,659,200
Allowance for doubtful accounts 142,000 70,000
Other 39,200 46,940
Gross deferred tax asset 1.664,300 1,776,140
Valuation allowance (1,664,300) (1,776,140)
$ - $ -
THE COMPANY'S VALUATION ALLOWANCE DECREASED $111,840 AND $75,354 DURING THE
YEARS ENDED DECEMBER 31, 1995 AND 1994, RESPECTIVELY.
THE COMPANY HAS A NET OPERATING LOSS CARRYFORWARD OF APPROXIMATELY
$4,360,000 AS OF DECEMBER 31, 1995, WHICH, IF UNUSED, EXPIRES IN 2002 THROUGH
2008. HOWEVER, DUE TO A MORE THAN 50% CHANGE IN OWNERSHIP BEGINNING WITH AN
APRIL 1991 TRANSACTION, THE COMPANY'S NET OPERATING LOSS CARRYFORWARD IS
SUBJECT TO CERTAIN LIMITATIONS PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE
CODE. THE AMOUNT OF THE COMPANY'S NET OPERATING LOSS AVAILABLE FOR USE AS OF
DECEMBER 31, 1995, WAS APPROXIMATELY $1,600,000. AN ADDITIONAL $466,600 WILL
BECOME AVAILABLE ANNUALLY THROUGH 2001.
9. TROUBLED DEBT RESTRUCTURING:
During the years ended December 31, 1995, 1994 and 1993, the Company settled
certain delinquent accounts payable on a discounted basis as follows:
DECEMBER
31,
1995 1994 1993
Gain on Troubled Debt Restructuring .......$174,811 $208,212 $ 71,750
10. RELATED PARTY TRANSACTIONS:
Pursuant to an agreement dated December 16, 1993 and after operating the
Power Placement Assets since May, 1993, the Company sold the capital stock of
Recruiters Network Group, Inc. ("RNG"), a wholly-owned subsidiary of the
Company formed to operate these assets, to an officer and director of the
Company. As part of the purchase agreement the officer and director provided
funding to enable RNG to reimburse the Company for RNG payroll costs, RNG
issued a $40,000 promissory note payable to the Company (secured by RNG stock,
RNG assets and personally guaranteed by the officer and director), RNG issued
a $15,000 promissory note payable to a former landlord of the Company and
guaranteed by the officer and director, and $57,400 was paid to the Company in
the form of the officer and a director releasing the Company from certain
obligations and liabilities payable by the Company to this officer and
director.
Pursuant to the terms of the purchase agreements for the sale of assets by
the Company, the Company is to receive 27,499 and 278,352 shares,
respectively, of the Company's common stock from two former officers and
directors of the Company in connection with these agreements. A former
officer and director had pledged certain shares to various lenders to secure
certain debts, which are currently in default. As a result of a breach of
certain pledge agreements operating in favor of the Federal Deposit Insurance
Corporation ("FDIC"), the FDIC foreclosed on a total of 100,000 shares of the
Company's common stock. At December 31, 1995, none of the common stock of the
former officers and directors has been conveyed to the Company.
During 1991, USFG-DHRG #1, Ltd. ("USFG Ltd."), then the controlling
stockholder of the Company, loaned the Company $175,000 on a one-year, 10%
note, due November 3, 1992, to be used in the operations of the business. The
Company made principal payments of $75,500 during 1992, and borrowed from USFG
Ltd. an additional $50,000 during the year. During 1993, the Company borrowed
from USFG Ltd. an additional $100,000, and repaid $135,000. During 1994 and
1995, the Company repaid $100,000 and $14,500, respectively, of such loan. In
addition, the Company leased approximately 1,400 square feet from United
States Funding Group, Inc., ("USFG") the general partner of USFG Ltd., for
$1,250 per month under a lease that expired July 31, 1992; and currently
leases approximately 2,000 square feet for approximately $2,000 per month from
this related party, used as its principal offices. USFG is wholly owned by J.
Michael Moore, Chairman of the Board and Chief Executive Officer of the
Company.
During 1995, the Company paid various expenses on behalf of USFG and Mr.
Moore. The Company has offset these related party loans with amounts due to
USFG and Mr. Moore for purchases of office furniture and equipment. As of
December 31, 1995, the balance remaining is approximately $6,200. It is
expected that this amount will be settled or paid in full during 1996.
In January of 1996, Preferred Funding Corporation, loaned $25,000 to United
States Funding Group Oil and Gas, Inc., an entity wholly-owned by Mr. Moore,
Chairman of the Board and Chief Executive Officer of the Company. Such loan
is evidenced by a promissory note bearing interest at the rate of 1% per month
on the unpaid balance. In addition, a 10% loan origination and administration
fee was charged. Payments on the loan are scheduled on a monthly basis with a
minimum payment of $2,000 plus interest due on the last day of each month. As
of March 31, 1996, all required payments have been made on a timely basis.
In November, 1992, a former controlling shareholder of the Company loaned
$50,000 to Veritas, Inc., a former purchaser of Company assets. Veritas, Inc.
is currently in bankruptcy proceedings. The Company was liable for this
obligation, and had recorded a $50,000 note due to this shareholder at
December 31, 1994. As of the date of this report, this note plus accrued
interest has been paid in full.
During 1995 and 1994, the Company advanced a total of $37,000 and $29,000 to
former officers of its wholly-owned subsidiary companies. These advances are
reflected in prepaid expenses and other current assets in the balance sheet at
December 31, 1994.
11. EMPLOYEE BENEFIT PLANS:
During the year ended December 31, 1991, the Company adopted the Diversified
Human Resources Group, Inc. Employees' Stock Ownership Plan ("ESOP"). Due to
the financial difficulties incurred by the Company during the year ended
December 31, 1991, an initial contribution was not made to the ESOP.
Management is currently evaluating the possibility of initiating the ESOP or
some other form of stock ownership plan for certain of its employees.
12. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company rents office space for its Employment Placement Business
agencies under various operating leases. The Company is liable for the future
minimum lease payments for the periods subsequent to December 31, 1995, as
follows:
Operating
LEASES
1996 $ 1,001,118
1997 910,577
1998 869,305
1999 746,952
2000 663,981
2001 and thereafter 1,280,833
Less sublease income -
Future minimum lease payments $ 5,472,766
The Company has engaged in negotiations with many of its lessors to
negotiate payouts over time of various amounts of past due rent owed by the
Company as a result of its inability to make certain monthly rental payments
during prior periods, which inability was caused by the financial difficulties
the Company experienced prior to and during those periods. The aggregate
amount of past due rental payments owed by the Company under all of the
occupied leases was approximately $31,000 as of December 31, 1995, which is
reflected in the 1996 future minimum lease payments in the table above.
Rent expense was approximately $894,000, $897,000 and $170,000 for the years
ended December 31, 1995, 1994, and 1993, respectively.
EMPLOYMENT AGREEMENTS
The Company had entered into employment contracts with certain key officers
in connection with the Employment Placement Business at December 31, 1995.
At December 31, 1995, the Company has entered into preliminary discussions
with certain key employees for equity arrangements involving the operations
they manage in the Employment Placement Business.
OTHER CONTINGENCIES
The Company is involved in certain other litigation and disputes not
previously noted. Management believes such claims are without merit or are
adequately covered by insurance and has concluded that the ultimate resolution
of such disputes will not have a material effect on the Company's consolidated
financial statements.
13. JOINT VENTURE OPERATIONS:
During January, 1995, the Company entered into a joint venture agreement
with CFS, Inc., for the purpose of providing personnel services to certain
businesses requiring minority suppliers and to others. CFS, Inc. is a
minority operated corporation, which because of its status, supplies services
to clients requiring a certain portion of its business to be allocated to
minority owned and operated vendors. The Company provides CFS, Inc. with
personnel and contract labor on a subcontractor basis. Laurie Moore, the wife
of J. Michael Moore, the Chief Executive Officer and Chairman of the Board of
the Company, owns 49% of CFS, Inc. The Company has a 49% ownership interest
in the joint venture and is allocated 65% of the net income or loss resulting
from the joint venture operations. The joint venture had assets of $79,000
and liabilities of $151,000 owed to the Company at December 31, 1995. The
joint venture recorded a net loss for the year of $74,000. Accordingly, the
Company recognized a $48,000 loss from joint venture operations in the
Consolidated Statement of Operations for the year ended December 31, 1995.
14
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ADDITIONS
BALANCE AT Charged to Charged to Balance at
BEGINNING OF costs & other end of
DESCRIPTION PERIOD expenses accounts Deductions period
For the Year Ended December 31,
1993: $ - $ 46,000 $ 118,000 $ - $164,000
Allowance for doubtful accounts
Valuation allowance for
deferred taxes $ - $ - $1,851,494 $ - $1,851,494
For the Year Ended December 31,
1994: $ 164,000 $ 116,000 $ 803,000 $ 878,000 $ 205,000
Allowance for doubtful accounts
Valuation allowance for
deferred taxes $1,851,494 $ - $ - $ 75,354 $1,776,140
Allowance for doubtful accounts
(1) Estimated reduction in sales for applicants who accepted employment, but
did not start work or did not remain in employment for the guaranteed period.
15
INDEX TO EXHIBITS
EXHIBIT
2(a) Agreement and Plan of Merger. (1)
3(a) Articles of Incorporation of the Registrant as amended. (1)
3(b) Amended and Restated By-laws of the Registrant. (1)
10(a) Agreement dated December 14, 1992 between the Registrant and Veritas,
Inc., a Texas corporation. (2)
10(b) Agreement dated March 11, 1993 between TNI, Inc., a wholly owned
subsidiary of the Registrant, and First In Temporaries, Inc., a Florida
corporation. (2)
10(c) Agreement dated March 12, 1993 between TNI, Inc., a wholly owned
subsidiary of the Registrant, and Nesco Service Company, a Delaware general
partnership. (2)
10(d) Agreement dated as of April 5, 1993 between TNI, Inc., a wholly owned
subsidiary of the Registrant, and Shear Healthcare Resources, Inc., a Florida
corporation. (2)
10(e) Agreement dated April 1, 1993 between TNI, Inc., a wholly owned
subsidiary of the Registrant, and Management Alliance Group Corp., a Texas
corporation. (2)
10(f) Foreclosure Agreement dated May 3, 1993 between the Company, Power
Placement Corporation, a Texas corporation, P&E Group, Inc., a Texas
corporation, and Cary Tobolka, an individual. (2)
10(g) Employment Contract Agreement executed April 21, 1994 between
Management Alliance Corporation and Information Systems Consulting Crop,
wholly-owned Texas subsidiaries of the Registrant, and Gary K. Steeds, Dallas,
Texas, an employee. (6)
10(h) Employment Contract Agreement effective December 1, 1993 between
Management Alliance Corporation and Information Systems Consulting Corp,
wholly-owned Texas subsidiaries of the Registrant, and Billie J. Tapp, Dallas,
Texas, an employee. (6)
10(i) Interim Employment Contract Agreement effective December 1, 1993
between Management Alliance Corporation and Information Systems Consulting
Corp., wholly-owned Texas subsidiaries of the Registrant, and Gary K. Steeds,
Dallas, Texas, an employee. (6)
10(j) Item not used.
10(k) Settlement Agreement by and between the Registrant and Bailey/Appel/DH
Group. (3)
10(l) Option Agreement by and between the Registrant and Bailey/Appel/DH
Group. (3)
10(m) Joint and Mutual Release by and between the Registrant and
Bailey/Appel/DH Group. (3)
10(n) The Diversified Human Resources Group, Inc. Employees' Stock
Ownership Plan. (3)
16
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT
10(o) Settlement and Sale of Stock by and between Registrant and D. Joy
Perkins. (3)
STOCK OPTION, CONSULTING AND RELEASE AGREEMENT by and between
Registrant and D. Joy Perkins, dated December 4, 1990.
RESIGNATION AGREEMENT by and between Registrant and Perkins, dated
December 4, 1990.
OPTION AGREEMENT by and between Registrant and Perkins, dated
December 4, 1990.
STOCK PLEDGE AGREEMENT by Registrant in favor of Perkins, dated
December 4, 1990.
$35,000 PROMISSORY NOTE made payable to Registrant from Perkins,
dated December 4, 1990, paid in full by transfer of Registrant's Common Stock
pursuant to Option Agreement.
$104,425 PROMISSORY NOTE made payable to Perkins from Registrant,
dated January 3, 1991.
STOCK PLEDGE AGREEMENT by and between Registrant and Perkins,
dated January 3, 1991.
CONSULTING AGREEMENT by and between Registrant and Perkins, dated
December 4, 1990.
JOINT AND MUTUAL RELEASE by and between Registrant and Perkins,
dated December 4, 1990.
NONSOLICITATION AND NONDISCLOSURE AGREEMENT by and between
Registrant and Perkins, dated December 4, 1990. (1)
10(p) Amendment No. 1 to the Diversified Human Resources Group, Inc.
nonqualified Stock Option Agreement. (3)
10(q) Settlement Agreement and Joint and Mutual Release entered into by the
Registrant, the Directors of the Registrant, William M. Brothers, an
individual, and Southwest Securities Incorporated, a Texas Corporation, dated
May 1, 1991. (4)
10(r) Option Agreement and Amendment to Option Agreement by and between the
Registrant and three former directors, dated April 30, 1991 and June 5, 1991,
respectively. (4)
10(s) Agreement for transfer of medical insurance plan sponsorship and plan
assets dated February 1, 1992. (4)
10(t) Agreement for transfer of 401(k) plan sponsorship and plan assets dated
April 27, 1992. (4)
10(u) First Asset Purchase Agreement dated August 29, 1991, entered into by
the Registrant and Veritas, Inc., a Texas corporation. (4)
10(v) Second Asset Purchase Agreement dated September 3, 1991, entered into
by the Registrant and P&E Group, Inc., a Texas Corporation. (4)
17
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT
10(w) Third Asset Purchase Agreement dated August 28, 1991, entered into by
the Registrant and Financial Recruiters, Inc., a Texas corporation. (4)
10(x) Fourth Asset Purchase Agreement dated September 19, 1991, entered into
by the Registrant and Gary K. Steeds, Inc., a Texas corporation. (4)
10(y) Tri-Party Agreement dated January 4, 1994, entered into by the
Registrant and Management Alliance Corporation and Information Systems
Consulting Corp., Texas corporations, that are wholly-owned subsidiaries of
the Registrant. (5)
10(z) Agreement dated December 29, 1993, entered into by the Registrant,
Recruiters Network Group, Inc., a Texas corporation, and Donald A. Bailey,
acting President and director of the Registrant (5).
10(z)(i) Joint Venture Agreement dated April 20, 1995, entered into by
Management Alliance Corporation, Texas corporation that is a wholly-owned
subsidiary of the Registrant, and CFS, Inc., a minority owned business. (7)
10(z)(ii) Contract Agreement for Franchise Packaging and Market Plan dated
April 21, 1995, entered into by Management Alliance Corporation, a Texas
corporation that is a wholly-owned subsidiary of the Registrant, and the
Research Market Center, owned by an individual. (7)
10(z)(iii) Employment Contract Agreement entered into June 9, 1995, between
Management Alliance Corporation, a wholly-owned subsidiary of the Registrant,
and Anthony J. Bruno, Chicago, Illinois, an employee.(7)
10(z)(iv) Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and J. Michael Moore, executed December 1, 1995.(8)
10(z)(v) Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and M. Ted Dillard, executed December 1, 1995.(8)
10(z)(vi) Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and Donald A. Bailey, executed December 1, 1995.(8)
17(a) Resignation of Director-Employment Termination Agreement by and
between Registrant
and D. Joy Perkins, dated December 4, 1990. (3)
22 List of Subsidiaries. (8)
(1) Filed as an exhibit of corresponding number to Registration Statement No.
33-760 FW on Form S-18 and incorporated herein by reference.
(2) Filed as an exhibit to Form 8-K dated March 26, 1993, and incorporated
herein by reference.
(3) Filed as an exhibit of corresponding number in Form 10-K for the year
ended December 31, 1990, and incorporated herein by reference.
(4) Filed as an exhibit of corresponding number in Form 10-K for the year
ended December 31, 1991, and incorporated herein by reference.
INDEX TO EXHIBITS (CONTINUED)
(5) Filed as an exhibit to Form 8K for January 4, 1994, and incorporated
herein by reference.
(6) Filed as an exhibit of corresponding number in Form 10-K for the year
ended December 31, 1993, and incorporated herein by reference.
(7) Filed as an exhibit of corresponding number in Form 10-K for the year
ended December 31,1994, and incorporated herein by reference.
(8) Filed herewith.
18
EXHIBIT 22
SUBSIDIARIES
Diversified Human Resources Group, Inc. Texas
DHRG Northeast, Inc. Texas
DHRG of California, Inc. Texas
Healthcare Resources, Inc. Florida
Power Industry Personnel, Inc. Connecticut
Power & Electronics Personnel, Inc. California
Power Services, Inc. South Carolina
Pacific Power Services, Inc. Washington
Western Power Services Washington
Northeast Power & Electronics New York
Mid-Atlantic Power Services Virginia
Technical Careers of Pennsylvania Pennsylvania
Western Technical Careers, Inc. Arizona
TNI, Inc. Texas
Recruiters Network Group, Inc. Texas
Management Alliance Corporation Texas
Information Systems Consulting Corp. Texas
Preferred Funding Corporation Texas
Management Alliance Group
of Independent Consultants, Inc. Texas
All of the above listed companies are wholly owned
subsidiaries.
EXHIBIT 28(A)
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
19
BOARD OF DIRECTORS
J. MICHAEL MOORE
Chairman and Chief Executive Officer
President, United States Funding
Group, Inc.
Dallas, Texas
DONALD A. BAILEY
President, Human Resources
Corporation
Dallas, Texas
M. TED DILLARD
Chief Financial Officer,
Secretary and Treasurer
OFFICERS
J. MICHAEL MOORE
Chief Executive Officer
M. TED DILLARD
Chief Financial Officer,
Secretary and Treasurer
SHAREHOLDER INFORMATION
CORPORATE OFFICE
12801 N. Central Expressway
Suite 350
Dallas, Texas 75243
214-458-8500
FAX #214-458-2317
COMMON STOCK LISTING
Traded over-the-counter and quoted
by the National Quotation Bureau.
Symbol: HIRE
LEGAL COUNSEL
True & Sewell
8080 Central, 9th Floor
Dallas, Texas
INDEPENDENT AUDITORS
Weaver and Tidwell, L.L.P.
Dallas, Texas
REGISTRAR & TRANSFER AGENT
Key Services Corporation
c/o KeyCorp Shareholder Services
Dallas, Texas
FORM 10-K
A copy of the Company's 1995 Annual
Report on Form 10-K as
filed with the Securities and
Exchange Commission may be obtained
without charge upon written request
to:
Chief Financial Officer
Diversified
Corporate Resources, Inc.
12801
N. Central Expressway
Suite 350
Dallas,
Texas 75243
1