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UNITED STATES
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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1565578
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12801 NORTH CENTRAL EXPRESSWAY, SUITE 350
DALLAS, TEXAS 75243
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 458-8500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
COMMON STOCK, $.10 PAR VALUE PER SHARE AMERICAN STOCK EXCHANGE, INC.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
N/A
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in a definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 26, 2001, was approximately $6,644,327, based on the
closing sales price of the registrant's common stock on the American Stock
Exchange on such date. For purposes of this computation, all executive officers,
directors and ten (10%) beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
executive officers, directors and ten (10%) beneficial owners are affiliates. As
of March 26, 2001, 2,811,865 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrants' definitive Proxy Statement pertaining to the 2001 Annual
Meeting of Shareholders (the "Proxy Statement") and filed or to be filed not
later than 120 days after the end of the fiscal year pursuant to Regulation 14A
is incorporated herein by reference into Part III of this report.
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1
PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Diversified Corporate Resources, Inc. (the "Company") is an employment
services firm providing professional and technical personnel on a permanent,
contract and temporary placement basis, positioning itself as a single-source
provider of staffing solutions to meet all the professional/technical/
administrative staffing needs of our clients. Our primary market focus is
staffing services in the following disciplines:
Information Technology
Telecommunications
Engineering / Technical
Accounting / Finance
Professional / Technical Sales
Administrative / Human Resources
The majority of our Company's revenue is generated from placements made in
the information technology ("IT") and telecommunications markets. Our business
strategy revolves around providing professional and technical personnel to
clients throughout North America, and includes several Fortune 500 companies,
which we service through strategically located regional offices. As of March 23,
2001, our Company had offices located in the following locations:
Arizona Phoenix
Colorado Denver
Georgia Atlanta
Idaho Meridian
Illinois Chicago
Maine Portland
Missouri Kansas City and St. Louis
New Jersey Newark
North Carolina Raleigh
Pennsylvania Philadelphia
Tennessee Nashville
Texas Dallas/Fort Worth, Houston and Austin
Virginia Reston
INDUSTRY OVERVIEW
Unemployment remained low in 2000, averaging 4.0% in the fourth quarter,
according to the United States Department of Labor's Bureau of Labor Statistics.
The December labor report indicated that supplementary staffing industry trends
weakened closer to year-end in response to the slowing U.S. economy. According
to the January 30, 2001 issue of the Staffing Industry Report, the general
consensus among economists is that the economy will continue to slow, but labor
will continue to be in short supply. With the continued rapid growth in
technology, we expect the overall shortage of IT workers to persist, driving the
long term need for staffing services such as those provided by our Company.
The IT services industry has undergone and continues to undergo rapid
evolution and growth. "IT" is a term that now encompasses not only computer and
communications systems hardware, but also the personnel who design, manage and
maintain those systems. Growth in the information technology services industry
has been driven by the following factors:
o Businesses' increasing reliance on information technology as a
strategic tool;
o Shifts to distributed computing as businesses move to client/server
environments;
o Integration of telecommunications products with businesses' computer
systems; and,
o Increased growth in e-commerce and web-based business solutions;
2
As businesses attempt to gain competitive advantage through technological
advances, while also striving to keep rising employment costs in control, they
are increasingly seeking employment services firms, like our Company, to provide
information technology professionals, as well as engineering and technical
professionals, for both their permanent and temporary staffing needs.
The rapid changes in technology and the dynamic growth of the
telecommunications industry have resulted in rapidly fluctuating needs for
personnel with highly developed skill sets and specialization. By utilizing
contract and temporary staffing solutions, businesses can minimize their hiring,
employment and termination costs, as well as target highly specialized personnel
for specific projects.
BUSINESS STRATEGY
Our overall objective is to become a nationally recognized leader in
permanent and contract specific personnel solutions for high-end niche
employment markets through a network of offices to serve clients. The key
elements of our business strategy are:
INCREASE MARKET SHARE AND REGIONAL EXPOSURE
Our Company is in the process of furthering its national presence through
the implementation of a regional growth strategy, which we intend to use to
expand service offerings within each of our regional markets. Our recent
regional expansions are summarized as follows:
o Fiscal 2000-Acquired Datatek Corporation located in Phoenix, Arizona
o Fiscal 2000-Opened offices in Nashville, Tennessee and Newark, New
Jersey
o Fiscal 1999-Acquired Mountain, Ltd., located in Portland, Maine
o Fiscal 1998-Acquired Texcel, Inc. and Texcel Technical Services, Inc.,
located in Philadelphia, Pennsylvania
o Fiscal 1998-Opened offices in Denver, Colorado and Reston, Virginia
Datatek Group Corporation ("Datatek") is primarily a contract placement
firm providing consulting and staffing services for the health insurance
industry with expertise in both the private and public sectors of the health
insurance industry. Since 1992, the focus of Datatek or its predecessor has been
on providing a wide variety of services including technical personnel support,
consulting services and project management to its customer base.
Mountain, Ltd. ("Mountain") is a consulting telecommunications engineering
firm. Since 1979, Mountain has maintained a sharp focus within this industry.
Mountain has built an outstanding reputation as a contract services firm for the
established operating telephone companies, or Local Exchange Carriers (LECs).
Mountain also specializes in outside plant and network designs projects, along
with most of the associated technical and support disciplines. Mountain
historically assumes telephone company ("telco") project management assignments,
as well as telco project staffing and interim support staffing responsibilities.
Texcel Services, Inc. ("Texcel") is engaged in both permanent and temporary
placements of technical and professional specialists, primarily in information
technology and engineering/technical disciplines. Texcel or its predecessor has
been in business since 1985. Its market area is concentrated in Southeastern
Pennsylvania, New Jersey and Delaware.
Management Alliance Corporation ("Magic") and Information Systems
Consulting Corporation ("ISCC") have been servicing clients in the Southeast and
Midwest for the past twenty years.
We believe that our growing regional exposure will permit us to better
service those clients with geographically dispersed operations desiring a
single-source provider to provide staffing services solutions. As we continue to
grow and expand our business, we will continue to examine opportunities to
acquire complementary employment services businesses in additional geographic
markets.
PROVIDE AN "e-COMMERCE" INTERNET SOLUTION FOR OUR CLIENTS
We are continuing to aggressively update our "e-COMMERCE" Internet based
recruiting systems to provide our recruiters, and ultimately our customers, with
the most time and cost efficient means of matching staffing needs with the
proper resources. Through the use of our current front office systems and our
national internal database, we continue to amass a significant resource database
of current resumes. In addition, we are continuing to update our front office
software to provide our professional staff of recruiters with faster and more
accurate access to their resource database.
3
PROVIDE "SINGLE-SOURCE" SOLUTIONS FOR OUR CLIENTS
We are committed to a long-term strategy of building and expanding our core
disciplines of IT, engineering/technical, financial/accounting and
professional/technical sales services by providing trained professionals in
evolving areas within these disciplines. In addition, we believe that offering
the full range of contract, permanent and temporary professional personnel
through our national network of offices is as important as offering a variety of
disciplines. We believe that by positioning ourselves as a single-source
national provider of staffing services we will be able to quickly respond to
changes in the market and, to a limited extent, fluctuations in the demand for
staffing services.
FOCUS ON HIGHER MARGIN STAFFING SERVICES DISCIPLINES
Our agencies serve their clients by delivering services across various
disciplines, such as: IT, engineering/technical, financial/accounting and
professional/technical sales, which generally provide higher margins. We plan to
continue to build on our existing strengths by focusing management's time and
resources on higher margin services in markets where the demand for our
Company's services is strong. For example, in 2000, we opened offices in
Nashville, Tennessee and Newark, New Jersey, which focus on the IT and
engineering/technical disciplines.
RECRUIT AND RETAIN HIGHLY QUALIFIED MARKETABLE PROFESSIONALS
Our Company recruits qualified applicants primarily through referrals from
other applicants, newspaper and Internet advertising, our extensive applicant
databases, job fairs, and various other media advertisements. In order to
attract permanent, temporary and contract assignment candidates, our Company
places emphasis upon its ability to provide attractive placement opportunities,
competitive compensation, quality and varied assignments, and scheduling
flexibility. The recruiting of skilled IT, telecommunications,
engineering/technical, financial/accounting and professional/technical sales
professionals is a central challenge for participants in the industry.
Management believes that we have positioned ourselves to address this challenge
in the future with an approach, which includes:
o Aggressive direct marketing to targeted groups, including professional
organizations and industry trade groups;
o Building/enhancing its internal database system, intensifying the
Company's ability to track and manage its applicant database;
o Increased utilization of the World Wide Web, including advertising and
web page development, to attract applicants, and scanning of existing
web based resume job services; and,
o Offering competitive wage and benefit packages.
Our professional personnel qualifying procedures include interviewing,
testing and reference checking. These procedures also enable us to categorize
our professional personnel by preference for job location, hours and work
environment. In order to attract high quality professional employees, we grant
paid vacations, holidays and other benefits for contract and specialty/temporary
employees who work a specified minimum number of hours.
CURRENT BUSINESS ACTIVITIES
As previously noted, our Company operates as a single business segment
providing solutions in the staffing services which can be categorized into
functional lines of permanent placement and contract and specialty placement of
professional personnel. Specified search parameters and goals generally
characterize the permanent placement of professional personnel. The contract and
specialty placement of IT and engineering/technical personnel is generally a
more project specific business. IT and engineering/technical personnel undertake
well-defined projects for time periods generally ranging from four weeks to a
year or more.
4
Through our national network of offices we are able to provide placement
services in the following selected core disciplines:
Information technology:.............. Services include systems design,
programming and network analysis, as
well as consulting, conversions,
software development and information
systems disaster control
Telecommunications:.................. A hybrid between information technology
and engineering/technical, services
include communications systems design,
network analysis, internet
infrastructure, cellular networks, and
global positioning systems
Engineering/Technical:............... Services include process engineering,
industrial engineering and manufacturing
services, as well as software design and
maintenance and related information
technology services. Technical areas
serviced include environmental,
construction, plastics, chemical,
computer hardware, food and metals
Financial/Accounting:................ Services include financial management,
accounting and analysis
Professional/Technical Sales:........ Services include technical sales,
marketing and management personnel
As a part of the placement process, our Company usually enters into written
contracts with clients, specifying the fee arrangements prior to undertaking any
permanent placement services on behalf of such clients. Fees range from 15% to
35% of the first year's annual salary of the newly placed employee. In addition,
we generally offer our clients a 30-day guarantee of permanent professional
placements during which the Company agrees to replace, without additional charge
to the client, any newly placed employee who leaves such job. If we are unable
to replace the employee, we will generally refund the client's fee, or a
prorated portion thereof, depending upon the circumstances.
CONTRACT PLACEMENT AND SPECIALTY SERVICES
Our Company's contract and specialty placement services are also within the
information technology, telecommunications, and engineering/technical
disciplines. Typically, the contract personnel we place provide services
primarily in the following areas: project management, systems analysis,
development and design, product implementation, systems migration and
conversions, technical writing and support documentation, functional support,
technological training, project planning, testing systems and network
administration, hardware, and network and software evaluation services.
Contract placements tend to be project specific and for periods ranging
from one month to a year or more. In these instances, we usually enter into
written contracts with the client. Services are then provided on a time and
materials basis. Our Company provides individualized attention to each of our
clients and develops and designs tailored service programs based on our clients'
unique needs.
Specialty/temporary services, offered as part of our single-source provider
strategy, are provided in virtually all of our service disciplines. Generally,
these are engagements of a shorter nature than those for contract placement. The
services have grown out of demand, primarily from our permanent placement
clients, for temporary employment needs, without incurring the associated costs
of hiring, training, and providing employee benefits. In addition,
temporary-to-permanent placement offers clients the opportunity to make more
informed selections before committing to a permanent hire. Temporary staffing
services opportunities may arise as a direct result of temporary increases in
work volume, special projects, attrition, permanent hire pre-screening, and
leaves of absence, among others.
Specialty/temporary service orders are typically generated as a result of a
referral from our existing permanent placement clients, in addition to our
marketing efforts. The client outlines the particular staffing need and we,
utilizing this information, select an appropriate individual from our database
of available temporary personnel. Clients request specialty/temporary personnel
for periods generally ranging from one day to several weeks. Clients are charged
an hourly rate for temporary personnel and we generally offer them a guarantee
period, during which we will refund the client's payment if the client notifies
us that it was dissatisfied with the employee's performance, and we are unable
to replace the employee. Substantially all specialty/temporary personnel
assigned by our Company are Company employees and we pay all employment costs,
including hourly wages, unemployment taxes, social security taxes and fringe
benefits.
DISCONTINUED OPERATIONS (TRAINING OPERATIONS HELD FOR SALE)
In fiscal 1998, our Company initiated a strategy whereby it began to expand
and improve the training of our applicant pool. This strategy was focused on the
development of our wholly owned subsidiary Train International, Inc. ("Train").
Through Train, the Company offered a wide range of programs to applicants,
clients and independent interested third parties on a fee basis. At December 31,
1999, we approved a plan to sell Train. Effective February 1, 2001, we sold the
Train operations to a company owned by the
5
former manager of Train. The sales price was in the form of a royalty of four
and one-half percent of all training services performed by such company for
three years following the closing of the sale. Our Company intends to continue
to utilize the services of Train on an outsource basis.
Also in December 1999, our Company sold all of the assets of the Geier
Assessment and Performance Systems, Inc. ("GAPS") to the former owners and
managers of the GAPS operations. The sales price was in the form of a $200,000
promissory note, payable over a ten-year time period, and a royalty of four
percent from the sale of our Company's proprietary GAPS software during the life
expectancy of such product.
As a result of the above, the results of operations for fiscal years 2000,
1999 and 1998 for Train and 1999 and 1998 for GAPS have been reflected as
"Discontinued Operations."
CUSTOMERS
We provide personnel and human resources solutions to several Fortune 500
companies and many of the nation's larger companies.
MARKETING
Our Company's marketing efforts are largely implemented at the regional
office level and are focused on higher margin employment markets. Historically,
our staffing services marketing efforts have relied primarily on telephone
solicitation, referrals from other Company offices and, to a lesser extent, on
yellow pages and newspaper advertising, and direct mail. However, client visits
have begun to play a more important role in our staffing services marketing
efforts. To increase its contract placement services, we have actively sought
"approved vendor" status with prospective clients. This process generally
involves a rigorous review of our fitness to meet the staffing demands of
prospective clients and, management believes, creates a marketing advantage for
our Company.
COMPETITION
It is our belief that the availability of qualified candidates, the quality
of service, the scope of geographic service and the price of service are the
principal elements of competition. Availability of qualified applicants is an
especially important facet of competition. Because many candidates pursue other
employment opportunities on a regular basis, it is important that our Company
respond to market conditions affecting applicants. Although we believe that we
compete favorably with respect to these factors, it is likely that competition
will increase, and there can be no assurance that we will remain competitive.
The employment services industry is very competitive and fragmented. There
are limited barriers to entry and new competitors frequently enter the market. A
number of our competitors possess substantially greater resources than our
Company. Additionally, we face substantial competition for potential clients and
for technical and professional personnel from providers of outsourcing services,
systems integration, computer systems consultants, other providers of staffing
services, temporary personnel agencies and search firms, ranging from large
national companies to local employment staffing entities. Large national
companies that offer employment staffing services include Robert Half
International, Computer Horizons, Inc. and Alternative Resources Corporation.
Other firms that our Company competes with include Butler International, Inc.,
General Employment Enterprises, Inc., RCM Technologies, Inc., Professional
Staff, PLC, Comforce Corp., National Technical Systems, Inc., and National
TechTeam, Inc. Local employment staffing entities are typically operator-owned,
and each market generally has one or more significant competitor(s). In
addition, we compete with national clerical and light industrial staffing firms,
such as Spherion Corporation, that also offer temporary staffing services.
National and regional accounting firms also offer certain employment staffing
services. Finally, we face the risk that certain of our current and prospective
clients will decide to provide similar services internally. There can be no
assurance that we will be able to continue to compete effectively with existing
or potential competitors.
The accelerating development of the Internet is viewed by some to be a
threat to the temporary staffing and executive search industry. We believe that
while there are significant advantages to Internet recruiting, and that we must
increase our use of the Internet to remain competitive, we do not expect that
Internet recruiting will completely replace the traditional "brick and mortar"
aspects of recruiting. In fact, we believe that one of the keys to our future
success will be our ability to combine our recruiting experience with the
benefits of high-traffic Internet sites. Accordingly, we are continuing to
develop and implement our e-commerce strategy and we expect to initiate a
program to further utilize the Internet in our recruiting and client servicing
activities. However, there can be no assurances that we will be able to
successfully enhance our Internet strategy.
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 materially adverse effect
on our business. We believe
6
that we are in substantial compliance with all such regulations and possess all
licenses necessary to engage in the placement of permanent personnel in the
jurisdictions in which we do business. Various government agencies have
advocated proposals from time to time to license or regulate the placement of
temporary personnel. We do not believe that such proposals, if enacted, would
have a material adverse effect on our business.
EMPLOYEES
In addition to the non-permanent and contract personnel from time to time
employed by our Company for placement with clients, we had 488 full-time
employees as of December 31, 2000. Of these employees, 374 were personnel
consultants and office managers paid on a commission basis and 114 were
administrative and executive salaried employees. We consider our relations with
our employees to be good.
ITEM 2. PROPERTIES
Our Company and its wholly owned subsidiaries currently lease approximately
67,700 square feet in Dallas, Texas; the terms of such leases and its amendments
range from four years to seven years. We also lease approximately 21,000 square
feet in Houston, Texas; 5,200 square feet in Austin, Texas; 3,600 square feet in
Kansas City, Missouri; 6,400 square feet in Atlanta, Georgia; 5,200 square feet
in Chicago, Illinois; 11,500 square feet in Philadelphia, Pennsylvania; 6,500
square feet in Denver Colorado; 6,300 square feet in Raleigh, North Carolina;
3,500 square feet in Yarmouth, Maine; 1,800 square feet in Phoenix, Arizona;
1,800 square feet in Newark, New Jersey; and 1,500 square feet in Meridian,
Idaho. Such leases generally range from three to seven years. The current cost
of all of our office leases is approximately $2,400,000 per annum.
We believe that all of our present facilities are adequate for our current
needs and that additional space is available for future expansion upon
acceptable terms.
ITEM 3. LEGAL PROCEEDINGS
In 1996, a lawsuit (the "Suit") was filed by Donald Ditto, Sr. and Ditto
Properties Company (collectively, "Ditto") against DCRI LP No. 2, Inc. ("No.
2"), J. Michael Moore, individually, and USFG/DHRG LP No. 1 ("No. 1")
(collectively, the Defendants"). Ditto alleged, among other things, that the
Defendants fraudulently induced Ditto to sell 899,200 shares (the "Shares") of
Common Stock to No. 2, and failed to perform under the related agreements. The
Suit asked for injunctive relief and damages and also had sought to rescind the
sale of the Shares to No. 2. However, summary judgment on the issue of
rescission was granted in favor of the Defendants, and Ditto's rescission claim
was dismissed.
The Company's involvement in the Suit includes the following: (a) the
Company was initially a party to the Suit as a garnishee but is no longer
involved as a garnishee, (b) in 1997, the Company and No. 2 filed claims against
Ditto alleging that Ditto damaged the Company and No. 2 by interfering with
certain of the Company's business activities, and (c) in 2000, Ditto filed
amended pleadings alleging that the Company, along with others, engaged in
tortuous interference with the partnership agreement between Ditto and other
partners of No. 1 and conspired with the Defendants in connection with certain
of the claims that Ditto has made against the Defendants. Ditto's amended
pleadings seek a declaratory judgment that the transfer of the Shares from No. 1
to Ditto prior to the sale to No. 2 was void (essentially seeking rescission)
and allege that the Company is jointly and severally liable to Ditto for
attorneys fees and costs in connection therewith pursuant to the Texas
Declaratory Judgment Act. Alternatively, Ditto's amended pleadings seek damages
against the Company and the Defendant on a joint and several lawsuit in the
amount of 45% of the current value of the Shares, along with the recovery of
attorneys fees and court costs in connection therewith.
The Company has incurred legal expenses on its behalf and has advanced
payments on behalf of the Defendants. The current arrangement between the
Company and the Defendants, in connection with the Suit, is that the Company is
responsible for the legal fees involving the Company, and the Defendants are
responsible for their legal fees and for one-half of the legal fees incurred in
pursuing the claims of both the Company and the Defendants against Ditto.
The Company is involved in other pending or threatened litigation
proceedings but management believes that such proceedings either involve matters
which are not material in amount, or matters to which the Company has
meritorious defense.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
7
PART II
ITEM 5. MARKET PRICE OF REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Our Company's Common Stock has been traded on the American Stock Exchange
under the symbol "HIR" since September 30, 1997. Prior to then it was traded in
the over-the-counter market and listed in pink sheets under the symbol "HIRE".
The following table sets forth the range of high and low sales prices for the
Common Stock as reported on the American Stock Exchange.
2000 1999
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
Quarter Ended:
March 31............................. $3.750 $2.250 $6.875 $ 5.000
June 30.............................. 3.313 2.625 8.125 4.750
September 30......................... 5.500 2.750 5.000 3.250
December 31.......................... 4.500 2.625 3.750 2.375
On March 7, 2000, we issued 75,000 shares of our common stock to the
shareholders of Datatek in connection with our acquisition of substantially all
of the assets of Datatek. The issuance of these shares was not registered under
the Securities Act of 1933, as amended (the "Securities Act"). The issuance of
such shares was exempt from registration pursuant to Section 4(2) of the
Securities Act. Datatek was a closely held company, and the Datatek acquisition
was a privately negotiated transaction without any general solicitation or
advertising in which Datatek and its shareholders were represented by counsel.
The shareholders of Datatek who received our Company's Common Stock represented
to our Company that they were all "sophisticated investors" who were acquiring
Company Common Stock for investment and not with a view towards a public
distribution under the Securities Act and they had access to all material
information relating to our Company that they needed to make an informed
decision with respect to the transaction, and acknowledged there would be
restrictions on transfer of the shares of our Company's Common Stock received in
the transaction.
In November 2000, our Company entered into a contract for consulting and
investor relation services. As part of the consideration for these services, our
Company granted warrants to purchase 15,000 shares of our Company's Common Stock
with an exercise price of $4.00 per share and an expiration date of October 31,
2005. The issuance of these warrants was not registered under the Securities
Act. The contract referred to above was a privately negotiated transaction
without solicitation or advertising with a service provider that was a
"sophisticated investor" within the meaning of the Securities Act and who had
access to all information concerning, our Company that it to make needed an
informed decision with respect to the contract, including the warrants granted
thereunder. The warrants referred to above bear a legend with respect to the
restrictions on transfer of the warrants and the underlying shares of our
Company's Stock to be acquired on execution of the warrants.
In 1999, our Company entered a contract with two individual consultants for
consulting services in connection with our Company's acquisition program. As
part of the consideration for these services, in 2000, our Company issued an
aggregate of 26,662 shares of our Company's Common Stock to these consultants
in connection with the acquisition of Datatek and the acquisition of
Mountain. The issuance of these shares was not registered under the
Securities Act. The issuance was exempt from registration pursuant to Section
4(2) of the Securities Act. The consulting contract referred to above was a
privately negotiated transaction without solicitation or advertising with
consultants who are "sophisticated investors" within the meaning of the
Securities Act and had access to all the information concerning our Company
that it needed to make an informed decision with respect the consulting
contract, our Company and the issuance of these shares. The certificates
evidencing these shares bear a legend with respect to the securities
restrictions on transfer.
In 2000, we issued 5,816 shares of Common Stock to certain employees of our
Company and its subsidiaries. These shares were issued as a discretionary stock
award and not in lieu of compensation or an earned or mandatory bonus payment
and, therefore, such issuance did not constitute a sale of securities under
Section 5 of the Securities Act.
We had approximately 319 holders of record of Common Stock as of December
31, 2000. While we know that a number of beneficial owners of our Common Stock
hold shares in street name, no estimate has been made as to the number of
shareholders owning stock of the Company in street name.
We have not paid any cash dividends on our Common Stock since our
inception. We expect that we will retain all available earnings generated by our
operations for the development and growth of our business and do not anticipate
paying any cash dividends in the foreseeable future. Any future determination as
to dividend policy will be made at the discretion of the Board of Directors of
the Company and will depend on a number of factors, including the future
earnings, capital requirements, financial condition and future prospects of our
Company, and such other factors as the Board of Directors may deem relevant.
8
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and Item 7-"Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
SELECTED FINANCIAL OPERATING RESULTS FOR FISCAL YEARS ENDED DECEMBER 31,
2000 THROUGH 1996:
YEARS ENDED DECEMBER 31, 2000(1) 1999(2) 1998(3)(4) 1997(5) 1996(5)
- ------------------------ ------- ------- ---------- ------- -------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
Operating results:
Net staffing service revenue .......................................... $ 81,005 $ 53,644 $ 41,566 $ 33,812 $ 27,430
Gross margin .......................................................... 20,910 14,951 12,544 10,133 7,755
Income from continuing operations before income taxes and
extraordinary item ................................................. 2,983 2,222 3,224 2,480 1,764
Income from continuing operations ..................................... 1,793 1,368 2,055 2,603 1,539
Loss from discontinued operations, net of income tax benefit........... (81) (1,305) (477) -- --
Income before extraordinary item ...................................... 1,712 63 1,578 2,603 1,539
Extraordinary item, net of income taxes
-- -- -- 57 246
-------- -------- -------- -------- --------
Net income ............................................................ $ 1,712 $ 63 $ 1,578 $ 2,660 $ 1,785
======== ======== ======== ======== ========
Earnings per common share:
Income from continuing operations before discontinued operations and
extraordinary item:
Basic .............................................................. $ 0.64 $ 0.49 $ 0.75 $ 1.33 $ 0.90
Diluted ............................................................ $ 0.64 $ 0.49 $ 0.72 $ 1.25 $ 0.87
Loss from discontinued operations:
Basic .............................................................. $ (0.03) $ (0.47) $ (0.18) -- --
Diluted ............................................................ $ (0.03) $ (0.47) $ (0.17) -- --
Extraordinary item:
Basic .............................................................. -- -- -- $ 0.03 $ 0.15
Diluted ............................................................ -- -- -- $ 0.03 $ 0.14
Net income:
Basic .............................................................. $ 0.61 $ 0.02 $ 0.57 $ 1.36 $ 1.05
Diluted ............................................................ $ 0.61 $ 0.02 $ 0.55 $ 1.28 $ 1.01
Weighted average common shares:
Basic .............................................................. 2,791 2,760 2,752 1,951 1,702
Diluted ............................................................ 2,796 2,778 2,858 2,071 1,763
Financial Position:
Working capital ....................................................... $ 8,383 $ 4,112 $ 6,468 $ 9,455 $ 95
Total assets .......................................................... 31,839 22,548 18,442 15,162 5,204
Short-term debt and current maturities ................................ 1,450 2,714 709 2 520
Long-term debt ........................................................ 7,855 1,591 1,203 66 68
Stockholders' equity .................................................. 14,828 12,928 12,617 11,553 1,188
NOTES TO SELECTED FINANCIAL OPERATING RESULTS DATA:
1. Fiscal 2000 results include the results of Datatek as of March 7, 2000; the
date the Company completed the acquisition.
2. Fiscal 1999 results include the results of Mountain Ltd. as of August 6,
1999; the date the Company completed the acquisition.
3. Fiscal 1998 results include the results of Texcel as of October 8, 1998;
the date the Company completed the acquisition.
4. Fiscal Year 1998 Results of Operations have been reclassified for results
of operations for Train and GAPS, which have been reported as Discontinued
Operations as of December 31, 1999.
5. Income from continuing operations in fiscal years 1997 and 1996 has been
favorably impacted by the change in valuation allowance for deferred tax
assets related primarily to a net operating loss carryforward.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SERVICE REVENUE SUMMARY:
YEAR ENDED DECEMBER 31, INCREASE
----------------------- --------
2000 1999 1998 2000 VS 1999 1999 VS 1998
---- ---- ---- ------------ ------------
(DOLLARS IN MILLIONS)
Permanent placements ......................... $ 31.5 $ 26.8 $ 22.5 $ 4.7 $ 4.3
Contract and Specialty placements ............ 49.5 26.8 19.1 22.7 7.7
------- ------- ------- ------- -------
Total staffing service revenue ............... $ 81.0 $ 53.6 $ 41.6 $ 27.4 $ 12.0
======= ======= ======= ======= =======
2000 COMPARED WITH 1999
For the year ended December 31, 2000, net staffing service revenue
increased approximately $27.4 million, or 51%, to $81.0 million as compared to
$53.6 million for the previous year. The acquisition of Mountain and Datatek
accounted for 36% of the revenue growth while existing operations grew 15%.
Specifically, $9.0 million of the increase resulted from the inclusion of
revenue generated by Mountain, which was acquired in August 1999, through the
anniversary date of the acquisition, an additional $10.4 million of revenue was
generated by the operations of Datatek, which was acquired in March 2000 and
existing operations increased $8.0 million.
Contract and specialty placement revenue accounted for 61% of net service
revenue for fiscal year 2000, as compared to 50% of the revenue for the previous
year. The inclusion of revenue from the recently acquired Mountain and Datatek
operations, which are primarily contract placement operations, accounted for
substantially all of this change. Permanent placement revenues comprised 39% of
net service revenue for fiscal year 2000, as compared to 50% of the revenue for
the previous year. As a percentage of net service revenue, net revenue derived
from contract placements will continue to increase, largely due to our strategic
decision to focus our growth in contract placement through acquisitions.
Gross margin increased as a result of the increase in staffing service
revenue, total gross margin increased approximately $5.9 million, or 40%, to
$20.9 million for fiscal year 2000 as compared to $15.0 million in the previous
year. As a percentage of net staffing service revenue, the gross margin
percentage for fiscal year 2000 was 26%, down two percentage points, as compared
to the previous year. This decrease is largely due to the fact that a
significantly larger percentage of fiscal year 2000 revenue was generated from
contract placements, which have lower margins than permanent placements. As we
continue to increase our contract customer base and contract revenue stream, we
expect that the gross margin will gradually decline several percentage points.
Selling, general and administrative expenses ("SG&A"), excluding
depreciation and amortization, increased $4.3 million, or 38%, to $15.6 million
for fiscal 2000, as compared to $11.3 million in the previous year. Inclusion of
operations of Mountain and Datatek accounted for half of the increase in SG&A.
The remaining increase is due to increased revenue of our existing business.
SG&A, as a percentage of net service revenue, declined two percentage points to
19%, as compared to the previous year period of 21%. For fiscal year 2000,
depreciation and amortization expense amounted to $1.7 million as compared to
$1.2 million in the previous year. This increase is attributable to recent
acquisitions completed by our Company.
For the year ended December 31, 2000, we reported net interest expense of
$0.6 million, primarily associated with borrowings on our line of credit and
interest on deferred payment obligations related to our Company's acquisitions
of Texcel, Mountain and Datatek. Interest expense was $0.1 million in fiscal
year 1999.
Included in other expense for 1999 is the write off of $0.2 million of
goodwill associated with the previously acquired operations of Carter Financial
Services, Inc.
For fiscal 2000, net income from continuing operations amounted to $1.8
million, an increase of $0.4 million from the previous year.
Income tax expense from continuing operations was $1.2 million for fiscal
2000 compared to $0.9 million in the previous year. Our Company's effective tax
rate has remained fairly consistent.
Losses from the operations of discontinued operations and loss on disposal
of discontinued operations, net of income tax benefits, amounted to $0.1 million
in fiscal year 2000, as compared to $1.3 million in the previous year. In 1999
our Company approved a plan to sell our training operation. The sale was
completed in February 2001.
As a result of the items discussed above, net income for 2000 amounted to
approximately $1.7 million, an increase of $1.6
10
million, as compared to the previous year.
1999 COMPARED WITH 1998
(FISCAL 1998 RESULTS HAVE BEEN RECLASSIFIED FOR THE EFFECTS OF DISCONTINUED
OPERATIONS)
For the year ended December 31, 1999, net staffing service revenue
increased approximately $12.0 million, or 29%, to $53.6 million as compared to
$41.6 million for the previous year. Substantially all of this increase was
attributable to the acquisition of Mountain and Texcel as described below.
Specifically, $7.0 million of the increase resulted from the inclusion of a full
year of revenue generated by Texcel, which was acquired in October 1998, and an
additional $5.2 million of revenue was generated by the operations of Mountain,
which was acquired in August 1999. Revenue generated by the other operations of
our staffing business was down slightly as compared to the previous year period,
with increases in some regions being offset by reductions in other regions.
As a percentage of net staffing service revenue, revenues derived from
permanent placements increased $4.3 million, or 19% over the previous year and
comprised 50% of the total staffing revenue for fiscal year 1999, as compared to
54% of the revenue for the previous year. The inclusion of revenue for Texcel
accounted for all of the increase in permanent placement revenue. Contract
placement revenue increased $6.2 million, or 49%, over the previous year and
accounted for 35% of net staffing service revenue for fiscal year 1999, as
compared to 30% of the revenue for the previous year. The inclusion of revenue
from Mountain accounted for $5.2 million, or 84%, of the increase in contract
placement revenue, with the remainder coming from the Company's other
operations. Specialty service revenue increased $1.5 million, or 23%, over the
previous year period and accounted for the remaining 15% of net staffing service
revenue. This increase is attributable to the success of our single-source
provider strategy.
As a result of the increase in staffing service revenue, total gross margin
increased approximately $2.5 million, or 20%, to $15.0 million for fiscal year
1999 as compared to $12.5 million in the previous year. As a percentage of net
staffing service revenue, the gross margin percentage for fiscal year 1999 was
28%, down two percentage points as compared to the previous year. This decrease
is largely due to the fact that a larger percentage of fiscal 1999 period
revenue was generated from contract placements, which have lower margins than
permanent placements. For example, the gross margins of the recently acquired
Mountain are approximately 17% versus the gross margins on permanent placements
which approximate 30%. As we continue to increase our contract customer base and
contract revenue stream, we expect that the gross margin will continue to
gradually decline several percentage points.
Selling, general and administrative expenses ("SG&A"), net of depreciation
and amortization, increased $2.5 million, or 28%, to $11.3 million for fiscal
1999 as compared to $8.8 million in the previous year. A significant portion of
the increase in SG&A was attributed to the inclusion of the operations of Texcel
and Mountain. In addition, we also incurred increased costs associated with the
development of back office support staff and computer systems upgrades, as well
as additional costs associated with employee insurance escalation and increased
rents. Management is continuing to evaluate these increased costs and intends to
achieve synergies in fiscal year 2000 through consolidations and integration of
back office functions of our recent acquisitions. For fiscal year 1999,
depreciation and amortization expense amounted to $1.2 million as compared to
$0.6 million in the previous year. This increase is attributable to recent
acquisitions completed by our Company.
In addition, for fiscal 1999, we reported net interest expense of $0.1
million, primarily associated with borrowings and deferred payment obligations
related to our acquisitions of Texcel and Mountain. We reported interest income
of $0.3 million in the previous year, which arose from the investment of the
proceeds from our 1997 public offering.
Included in other expense for 1999 is the write off of $0.2 million of
goodwill associated with the previously acquired operations of Carter Financial
Services, Inc. as compared to $0.2 million loss from joint venture operations in
1998.
For fiscal 1999, income from continuing operations before income taxes
amounted to $2.2 million, down $1.0 million, as compared to the previous year.
The reduction in income from continuing operations before taxes is the result of
several factors:
(1) greater percentage of the current year revenue being generated from
contract placements and specialty services versus higher margin
permanent placements
(2) increased SG&A costs, as noted above
(3) increased amortization and interest expense from acquisitions.
Income tax expense from continuing operations was approximately $0.9
million for fiscal 1999 as compared to $1.2 million in the previous year. For
1998, income tax expense was favorably reduced 1.4% as a result of a change in
estimate.
11
For fiscal 1999, net income from continuing operations amounted to $1.4
million, down $0.7 million from the previous year.
On December 31, 1999, we approved a plan to sell Train. Effective February
1, 2001, we sold the Train operation to a company owned by the former manager of
Train. The sale price was in the form of royalty of four and one-half percent of
all training services performed by such company for three years following the
closing. Our Company intends to continue to utilize the services of Train on an
outsourcing basis. In addition, in December 1999, we sold all of our assets of
GAPS to the former owners and managers of the GAPS operations. The sales price
was in the form of a $0.2 million promissory note, payable over a ten year time
period, and a royalty of four percent from the sale of our Company's proprietary
GAPS software during the life expectancy of such product. Accordingly, fiscal
1999 and 1998 results of operations reflect treatment of the results of
operations of Train and GAPS as discontinued operations. Losses from the
operations of discontinued operations, net of income tax benefits, amounted to
$0.7 million in fiscal year 1999, as compared to $0.5 million in the previous
year. Additionally, included in the fiscal year 1999 loss on disposal of
discontinued operations is a $0.6 million provision, net of income tax benefit,
for the estimated loss on disposal of Train and GAPS.
As a result of the items discussed above, net income for 1999 amounted to
approximately $63,000 down $1.5 million from the previous year.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2000, net cash flow generated from
operations amounted to $1.2 million. In addition, we borrowed a net $5.2 million
under our line of credit facility. Cash provided by operations and net
borrowings were used as follows: (1) $1.3 million for principal payments under
long-term debt obligations, (2) $3.9 million to finance acquisitions, (3) $0.1
million to repurchase Company stock, and (4) $1.0 million for capital
expenditures for computer equipment associated with the upgrade of our computer
systems and automation of the back office.
As discussed more fully in the footnotes to the financial statements, in
May 2000, we entered into a three-year revolving line of credit agreement with
General Electric Capital Corporation. This agreement permits borrowings of up to
$15,000,000 based on availability criteria outlined in the agreement. At March
26, 2001, net borrowing availability under the credit facility was approximately
$2.7 million after excluding a reserve for a portion of deferred payment
obligations to be paid in 2001.
We are continually evaluating various financing strategies to be utilized
in expanding our business and to fund future growth or acquisitions.
Additionally, we expect that cash flow from operations and our line of credit
agreement will provide adequate liquidity to fund our internal 2001 growth plans
and operations for the foreseeable future.
Inflation has not had a significant effect on our Company's operating
results.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 1998, the FASB issued SFAS No. 133. "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the financial statements and
measure those instruments at fair value. In September 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 133 was
originally effective for all fiscal quarters of years beginning after September
15, 1999. SFAS No. 137 deferred the effective date of SFAS No. 133 to all fiscal
quarters of all years beginning after June 15, 2000. SFAS No. 133 has no impact
upon us as we had no derivative financial instruments as of December 31, 2000.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101") which provides guidelines on revenue
recognition. Management has considered the provisions of SAB 101 and does not
believe SAB has any impact on our consolidated financial statements.
ACTUAL RESULTS MAY DIFFER FROM FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K that are not historical
facts, including, but not limited to, projections or expectations of future
financial or economic performance of our Company, and statements of our
Company's plans and objectives for future operations are "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1993,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended ("the Exchange act") and involve a number of risks and uncertainties.
No assurance can be given that actual results or events will not differ
materially from those projected, estimated, assumed or anticipated in any
such "forward-looking" statements. Important factors (the "Cautionary
Disclosures") that could result in such differences include: general economic
conditions in our Company's markets, including inflation, recession, interest
rates and other economic factors; the availability of qualified personnel;
our Company's ability to successfully integrate acquisitions or joint
ventures with our Company's operations (including the ability to successfully
integrate businesses that may be diverse as to their type, geographic area or
customer base); the level of competition experienced by our Company; our
Company's ability to implement its business strategies and to manage its
12
growth; the level of development revenues and expenses; the level of
litigation expenses; our Company's ability to effectively implement an
e-commerce strategy; those factors identified in our Company's Prospectus
dated September 30, 1997 as risk factors; and other factors that affect
businesses generally. Subsequent written and oral "forward-looking"
statements attributable to our Company, or persons acting on its behalf, are
expressly qualified by the Cautionary Disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our Company is exposed to market risks from fluctuations in interest rates
and the effects of those fluctuations on the earnings of its cash equivalent
short-term investments; as well as interest expense on line of credit
borrowings. Assuming interest rates increased by 200 basis points (2%) above the
interest rate at December 31, 2000, on an annualized basis interest expense
would increase by approximately $132,000 on the outstanding line of credit
borrowings of $6.6 million at December 31, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
See Item 14(a).
13
QUARTERLY RESULTS
Our Company's quarterly operating results have varied in the past and can
be expected to vary in the future. Fluctuations in operating results generally
are caused by a number of factors, including changes in our services mix, the
degree to which we encounter competition in our existing or target markets,
general economic conditions, the volume and timing of orders received during the
period, sales and marketing expenses related to entering new markets, the timing
of new services introduced by our Company or our competitors, and changes in
prices for services offered by our Company or our competitors.
The following table presents selected quarterly financial information for
the periods indicated. This information has been derived from unaudited
consolidated financial statements, which, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information. These operating results are not
necessarily indicative of results for any future period.
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999 2000 2000 2000 2000
---- ---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net service revenues ............... $ 11,678 $ 11,704 $ 14,360 $ 15,902 $ 17,569 $ 20,311 $ 21,604 $ 21,521
Cost of services ................... 8,194 8,433 10,234 11,832 12,542 15,125 15,922 16,506
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin .................... 3,484 3,271 4,126 4,070 5,027 5,186 5,682 5,015
Selling, general and
administrative expenses ......... 2,655 2,943 3,601 3,290 4,158 4,165 4,681 4,296
Other income (expenses) ............ (6) (8) (40) (186) (59) (187) (157) (224)
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing operations
before income tax ............... 823 320 485 594 810 834 844 495
Income tax expense ................. (315) (134) (161) (244) (321) (335) (337) (197)
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing operations .. 508 186 324 350 489 499 507 298
Loss from discontinued operations,
net of tax benefit .............. (125) (136) (139) (905) -- -- (81) --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) .................. $ 383 $ 50 $ 185 $ (555) $ 489 $ 499 $ 426 $ 298
======== ======== ======== ======== ======== ======== ======== ========
Basic earnings per share:
From continuing operations ...... $ 0.18 $ 0.07 $ 0.12 $ 0.13 $ 0.18 $ 0.18 $ 0.18 $ 0.11
Net income (loss) ............... 0.14 0.02 0.07 (0.20) 0.18 0.18 0.15 0.11
Diluted earnings per share:
From continuing operations ...... $ 0.18 $ 0.07 $ 0.12 $ 0.13 $ 0.18 $ 0.18 $ 0.18 $ 0.11
Net income (loss) ............... 0.14 0.02 0.07 (0.20) 0.18 0.18 0.15 0.11
Weighted average shares
outstanding:
Basic ........................... 2,756 2,732 2,772 2,781 2,739 2,786 2,819 2,819
Diluted ......................... 2,790 2,765 2,774 2,781 2,739 2,787 2,830 2,829
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
The information for these items is incorporated by reference to the
definitive proxy statement to be filed by our Company with the Securities and
Exchange Commission pursuant to Regulation 14A under the Exchange Act within 120
days of the close of the fiscal year ended December 31, 2000.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (i) and (ii) Financial Statements and Financial Statement Schedule
Reference is made to the listing on page 17 of all financial statements and
schedules filed as a part of this report.
All other schedules are omitted as they are not applicable or not required,
or because the required information is included in the financial statements on
notes thereto.
(iii) Exhibits
Reference is made to the Index to Exhibits on pages 38 through 40 for a
list of all exhibits filed as part of this report.
(b) Reports on Form 8-K
On March 27, 2001 our Company filed with the Securities and Exchange
Commission, a report on Form 8-K, with respect to the resignation of our
Company's former President, M. Ted Dillard and the severance agreement between
our Company and Mr. Dillard in connection therewith.
15
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.
REGISTRANT
Date: March 30, 2001 By: /s/ J. Michael Moore
--------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER
(PRINCIPAL 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 and on the dates indicated.
Date: March 30, 2001 By: /s/ J. Michael Moore
--------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
Date: March 30, 2001 By: /s/ Anthony G. Schmeck, Jr.
---------------------------
Anthony G. Schmeck, Jr.
Treasurer and Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
Date: March 30, 2001 By: /s/ Deborah A. Farrington
-------------------------
Deborah A. Farrington
Director
Date: March 30, 2001 By: /s/ Samuel E. Hunter
--------------------
Samuel E. Hunter
Director
Date: March 30, 2000 By: /s/ A. Clinton Allen
--------------------
A. Clinton Allen
Director
16
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
PAGE NO.
--------
Report of Independent Accountants......................................... 18
Consolidated Balance Sheets at December 31, 2000 and 1999................. 19
Consolidated Statements of Operations for each of the three years
ended December 31, 2000, 1999 and 1998............................... 20
Consolidated Statements of Stockholders' Equity for each of the
three years ended December 31, 2000, 1999 and 1998................... 21
Consolidated Statements of Cash Flows for each of the three years
ended December 31, 2000, 1999 and 1998............................... 22
Notes to Consolidated Financial Statements................................ 23
Report of Independent Accountants on the Financial Statement Schedule..... 36
Schedule II-Valuation and Qualifying Accounts for each of the three
years ended December 31, 2000, 1999 and 1998......................... 37
17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Diversified Corporate Resources, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Diversified Corporate Resources, Inc. and its subsidiaries as of December 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in United States of America which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
Dallas, Texas
March 30, 2001
18
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ..................................................................... $ 498,952 $ 847,171
Trade accounts receivable, less allowance for doubtful accounts of approximately $1,318,000
and $1,005,000, respectively ............................................................... 15,131,773 9,987,318
Prepaid expenses and other current assets ..................................................... 356,035 256,714
Federal income taxes receivable ............................................................... 260,906 148,523
Deferred income taxes ......................................................................... 853,418 713,853
------------ ------------
Total current assets ....................................................................... 17,101,084 11,953,579
Property and equipment, net ...................................................................... 3,575,722 3,342,524
Other assets:
Intangibles, net .............................................................................. 10,491,850 6,882,809
Receivables from related parties .............................................................. 445,377 75,263
Other ......................................................................................... 224,559 293,574
------------ ------------
$ 31,838,592 $ 22,547,749
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued expenses ................................................... $ 7,269,022 $ 5,128,069
Short-term borrowing under line of credit ..................................................... -- 1,480,000
Current maturities of capital lease obligations ............................................... 78,370 13,413
Current maturities of long-term debt .......................................................... 1,371,136 1,220,733
------------ ------------
Total current liabilities .................................................................. 8,718,528 7,842,215
Deferred lease rents ............................................................................. 45,629 93,528
Deferred income taxes ............................................................................ 390,787 93,487
Borrowings under revolving credit agreement ...................................................... 6,676,038 --
Capital lease obligations, net of current maturities ............................................. 229,671 --
Long-term debt, net of current maturities ........................................................ 949,448 1,590,757
------------ ------------
Total liabilities .......................................................................... 17,010,101 9,619,987
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized, none issued .................... -- --
Common stock, $.10 par value; 10,000,000 shares authorized, 3,397,424 and 3,289,946 shares
issued, respectively ....................................................................... 339,743 328,995
Additional paid-in capital .................................................................... 12,639,047 12,378,909
Retained earnings ............................................................................. 3,711,936 1,999,549
Common stock held in treasury (578,594 and 549,594 shares, respectively), at cost ............. (1,623,846) (1,541,302)
Receivables from related parties .............................................................. (238,389) (238,389)
------------ ------------
Total stockholders' equity ................................................................. 14,828,491 12,927,762
------------ ------------
$ 31,838,592 $ 22,547,749
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998
------------ ------------ ------------
Net service revenues:
Permanent placement ....................................................... $ 31,531,204 $ 26,794,032 $ 22,463,649
Contract placement and specialty services ................................. 49,474,151 26,849,868 19,102,529
------------ ------------ ------------
81,005,355 53,643,900 41,566,178
Cost of services ............................................................. 60,095,124 38,692,929 29,022,379
------------ ------------ ------------
Gross margin ................................................................. 20,910,231 14,950,971 12,543,799
------------ ------------ ------------
Selling, general and administrative expenses:
Selling, general and administrative expenses .............................. 15,564,494 11,282,160 8,772,201
Depreciation and amortization expense ..................................... 1,736,439 1,206,692 616,941
------------ ------------ ------------
17,300,933 12,488,852 9,389,142
------------ ------------ ------------
Other income and (expense) items:
Loss from joint venture operations ........................................ -- -- (223,362)
Interest income (expense), net ............................................ (600,682) (84,599) 283,773
Other, net ................................................................ (25,877) (155,048) 9,019
------------ ------------ ------------
(626,559) (239,647) 69,430
------------ ------------ ------------
Income from continuing operations before income taxes and discontinued
operations ................................................................ 2,982,739 2,222,472 3,224,087
Income tax expense ........................................................... 1,189,352 854,881 1,169,239
------------ ------------ ------------
Income from continuing operations before discontinued operations ............. 1,793,387 1,367,591 2,054,848
Discontinued operations, net of income tax benefits:
Loss from operations of discontinued training operations .................. -- (700,079) (476,983)
Loss on disposal of discontinued training operations ...................... (81,000) (604,699) --
------------ ------------ ------------
Net income ................................................................... $ 1,712,387 $ 62,813 $ 1,577,865
============ ============ ============
Basic earnings per share:
Income from continuing operations ......................................... $ 0.64 $ 0.49 $ 0.75
Loss from discontinued operations ......................................... (0.03) (0.47) (0.18)
------------ ------------ ------------
Net income ............................................................. $ 0.61 $ 0.02 $ 0.57
============ ============ ============
Weighted average common shares outstanding ................................... 2,790,579 2,760,371 2,752,154
============ ============ ============
Diluted earnings per share:
Income from continuing operations ......................................... $ 0.64 $ 0.49 $ 0.72
Loss from discontinued operations ......................................... (0.03) (0.47) (0.17)
------------ ------------ ------------
Net income ............................................................. $ 0.61 $ 0.02 $ 0.55
============ ============ ============
Weighted average common and common equivalent shares outstanding ............. 2,796,315 2,777,606 2,857,577
============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
RECEIVABLES
ADDITIONAL FROM
COMMON PAID-IN RETAINED TREASURY RELATED
STOCK CAPITAL EARNINGS STOCK PARTIES TOTAL
----------- ------------ ------------ ------------ ----------- ------------
BALANCE, December 31, 1997 $ 298,595 $ 11,080,504 $ 358,871 $ (185,175) $ -- $ 11,552,795
Advances to related parties ........... -- -- -- -- (215,223) (215,223)
Tax effect of stock options exercised . -- 105,545 -- -- -- 105,545
Issuance of common stock .............. 19,150 741,850 -- -- -- 761,000
Treasury stock purchase ............... -- -- -- (1,164,690) -- (1,164,690)
Net income ............................ -- -- 1,577,865 -- -- 1,577,865
----------- ------------ ------------ ------------ ----------- ------------
BALANCE, December 31, 1998 ............ 317,745 11,927,899 1,936,736 (1,349,865) (215,223) 12,617,292
Advances to related parties ........... -- -- -- -- (23,166) (23,166)
Tax effect of stock options exercised . -- 22,744 -- -- -- 22,744
Issuance of common stock .............. 14,750 444,766 -- -- -- 459,516
Treasury stock purchase ............... -- -- -- (211,437) -- (211,437)
Net income ............................ -- -- 62,813 -- -- 62,813
Retirement of treasury stock .......... (3,500) (16,500) -- 20,000 -- --
----------- ------------ ------------ ------------ ----------- ------------
BALANCE, December 31, 1999 ............ 328,995 12,378,909 1,999,549 (1,541,302) (238,389) 12,927,762
Issuance of common stock .............. 10,748 260,138 -- -- -- 270,886
Treasury stock purchase ............... -- -- -- (82,544) -- (82,544)
Net income ............................ -- -- 1,712,387 -- -- 1,712,387
----------- ------------ ------------ ------------ ----------- ------------
BALANCE, December 31, 2000 ............ $ 339,743 $ 12,639,047 $ 3,711,936 $ (1,623,846) $ (238,389) $ 14,828,491
=========== ============ ============ ============ =========== ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Cash flow from operating activities:
Net income ...................................................................... $ 1,712,387 $ 62,813 $ 1,577,865
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization ................................................ 1,736,439 1,272,365 636,107
Write off of intangible assets and other ..................................... -- 156,320 --
Loss from disposal of discontinued operations ................................ 81,000 604,699 --
Provision for allowances ..................................................... 305,817 249,637 (38,531)
Equity in loss of joint venture .............................................. -- -- 223,362
Income tax effect of options exercised ....................................... -- 22,744 105,545
Deferred income taxes ........................................................ 211,735 103,667 174,552
Deferred lease rents ......................................................... (49,914) 34,006 6,391
Accretion of interest on deferred payment obligations ........................ 243,011 190,466 36,411
Stock award compensation ..................................................... 16,721 -- --
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable .......................................................... (3,865,941) (1,119,339) (743,561)
Federal income taxes receivable .............................................. (112,383) 51,166 153,342
Prepaid expenses and other current assets .................................... (90,529) (36,698) (200,358)
Other assets ................................................................. (99,032) (154,075) --
Trade accounts payable and accrued expenses .................................. 1,098,181 (375,740) (325,220)
------------ ------------ ------------
Cash provided by operating activities ...................................... 1,187,492 1,062,031 1,605,905
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures ............................................................ (996,419) (1,213,480) (1,845,902)
Business acquisition costs, net of cash acquired ................................ (3,908,083) (3,113,879) (2,198,440)
Other assets .................................................................... (8,823) (6,287) (20,236)
Loans and advances to related parties ........................................... (370,197) (77,058) (256,510)
Repayment from related parties .................................................. 83 31,385 10,305
Net advances to joint venture ................................................... -- -- (373,851)
------------ ------------ ------------
Cash used in investing activities .......................................... (5,283,439) (4,379,319) (4,684,634)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of common stock ........................................................ -- 181,641 190,219
Net repayments on line of credit ................................................ (1,480,000) -- --
Net short-term borrowings ....................................................... -- 1,480,000 --
Advances on long-term line of credit borrowings ................................. 58,997,862 -- --
Repayments of long-term line of credit borrowings ............................... (52,321,824) -- --
Repurchase of treasury stock .................................................... (82,544) (211,437) (1,075,159)
Principal payments under long-term debt obligations ............................. (1,303,477) (758,735) (63,529)
Principal payments under capital lease obligations .............................. (62,289) -- --
------------ ------------ ------------
Cash provided by (used in) financing activities ............................ 3,747,728 691,469 (948,469)
------------ ------------ ------------
Change in cash and cash equivalents ............................................. (348,219) (2,625,819) (4,027,198)
Cash and cash equivalents at beginning of year .................................. 847,171 3,472,990 7,500,188
------------ ------------ ------------
Cash and cash equivalents at end of year ................................... $ 498,952 $ 847,171 $ 3,472,990
============ ============ ============
Supplemental cash flow information:
Cash paid for interest .......................................................... $ 392,000 $ 31,000 $ 11,000
============ ============ ============
Cash paid for taxes ............................................................. $ 1,003,000 $ 322,000 $ 538,000
============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
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 wholly owned subsidiaries (the "Company",
"our", "we" or "us"). All inter-company accounts and transactions have been
eliminated in consolidation.
NATURE OF OPERATIONS
Our Company is a Texas corporation and is engaged, through our
subsidiaries, in the permanent, specialty and contract placement of personnel in
various industries. We currently operate offices in the following locations:
Arizona Phoenix
Colorado Denver
Georgia Atlanta
Idaho Meridian
Illinois Chicago
Maine Portland
Missouri Kansas City and St. Louis
New Jersey Newark
North Carolina Raleigh
Tennessee Nashville
Pennsylvania Philadelphia
Texas Dallas/Fort Worth, Houston and Austin
Virginia Reston
The offices are responsible for marketing to clients, recruitment of
personnel, operations, local advertising, initial customer credit evaluation and
customer cash collection follow-up. Our Company's executive offices, located in
Dallas, Texas, provide centralized training, payroll, final customer credit
evaluation, customer invoicing and collection efforts, as well as certain other
accounting and administrative services for our offices.
REVENUE RECOGNITION AND COST OF SERVICES
Fees for placement of permanent personnel are recognized as income at the
time the applicant accepts employment. A provision is made for estimated losses
in realization of such fees (principally due to applicants not commencing
employment, or not remaining in employment for the guaranteed period). Revenues
from specialty services and contract placements are recognized upon performance
of services. Cost of services consists of expenses for commissions; direct wages
paid to non-permanent personnel, and payroll taxes. Accounts receivable at
December 31, 2000 and 1999 include approximately $459,000 and $585,000,
respectively, of unbilled receivables that were billed in 2001 and 2000,
respectively.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101") which provides guidelines on revenue
recognition. Management has considered the provisions of SAB 101 and does not
believe SAB has any impact on our consolidated financial statements.
CASH AND CASH EQUIVALENTS
Our Company considers all highly liquid investment instruments purchased
with remaining maturities of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 2000 and 1999, our Company's financial instruments
consisted of cash and cash equivalents, notes receivable from related parties,
line of credit borrowings and long-term debt. We believe that the recorded
values of cash and cash equivalents approximate fair value due to the short term
nature of these instruments. We believe that the recorded values of notes
receivable from related parties approximate fair value due to the value of the
collateral for those receivables. We believe that the recorded value of the line
23
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of credit borrowings and long-term debt approximate fair value due to our
Company's ability to obtain such borrowings at comparable interest rates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the individual assets or the related lease terms, if applicable, whichever is
shorter. Upon retirement or sale, the cost and related accumulated depreciation
and amortization are removed from the accounts and any resulting gains or losses
are included in the consolidated statement of operations. Maintenance and repair
costs are charged to expense as incurred. The estimated useful life of each
class of asset is 5 years.
ADVERTISING COSTS
Advertising costs are expensed as incurred. For the years ended December
31, 2000, 1999 and 1998, advertising expenses amounted to approximately
$707,000, $919,000 and $411,000, respectively.
EARNINGS PER SHARE
Basic earnings per share ("EPS") was determined by dividing net income by
the weighted average number of shares of common stock outstanding during the
year. Diluted EPS includes these shares plus common stock equivalents
outstanding during the year. (Common stock equivalents are excluded if the
effects of inclusion are anti-dilutive.)
Following is a reconciliation of the weighted average number of shares
outstanding during the year for basic and diluted EPS:
2000 1999 1998
--------- --------- ---------
Basic ....................................................................................... 2,790,579 2,760,371 2,752,154
Net effect of dilutive stock options ........................................................ 5,736 17,235 105,423
--------- --------- ---------
Diluted ..................................................................................... 2,796,315 2,777,606 2,857,577
========= ========= =========
Options and warrants not considered because effects of inclusion would be anti-dilutive ..... 576,757 185,090 127,590
INCOME TAXES
Our Company presents income taxes pursuant to Statement of Financial
Accounting Standards No. 109. "Accounting for Income Taxes" ("FAS 109"). FAS 109
uses an asset and liability approach to account for income taxes, wherein,
deferred taxes are provided for book and tax basis differences for assets and
liabilities. In the event differences between the financial reporting basis and
the tax basis of our Company's assets and liabilities result in deferred tax
assets, an evaluation of the profitability of being able to realize the future
benefits indicated by such assets is required. A valuation allowance is provided
for a portion or all of the deferred tax assets when there is sufficient
uncertainty regarding our Company's ability to recognize the benefits of the
assets in future years. Our Company and its subsidiaries file a consolidated
federal income tax return.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and the 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.
24
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to conform
to the current year presentation.
INTANGIBLES
Intangibles consist of covenants not to compete and goodwill (excess of
purchase price over fair value of net assets acquired) arising from business
combinations and are being amortized on a straight-line basis over periods
ranging from 3 to 20 years based on their estimated useful lives or contract
terms.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of:
DECEMBER 31,
--------------------------------
2000 1999
----------- -----------
Computer equipment and software ........................... $ 4,294,112 $ 3,071,644
Equipment and furniture ................................... 1,659,888 1,814,910
Leasehold improvements .................................... 411,891 386,589
----------- -----------
6,365,891 5,273,143
Less accumulated depreciation and amortization ............ (2,790,169) (1,930,619)
----------- -----------
Property and equipment, net ............................ $ 3,575,722 $ 3,342,524
=========== ===========
Depreciation and amortization of property and equipment was approximately
$1,196,000, $971,000 and $585,000 for the years ended December 31, 2000, 1999
and 1998, respectively. Amortization of assets under capital leases in 2000,
1999 and 1998 was approximately $68,000, $39,000 and $31,000 and the unamortized
balance was approximately $335,000 at December 31, 2000. These assets are
included in equipment and furniture and computer equipment.
3. INTANGIBLES
Intangibles consist of:
DECEMBER 31,
--------------------------------
AMORTIZATION
PERIOD 2000 1999
------ ---- ----
Non-compete agreements .......................... 3-5 years $ 150,000 $ 100,000
Goodwill ........................................ 20 years 11,197,004 7,097,269
------------ ------------
11,347,004 7,197,269
Accumulated amortization ........................ (855,154) (314,460)
------------ ------------
$ 10,491,850 $ 6,882,809
============ ============
Amortization of intangibles was approximately $541,000, $301,000 and
$51,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The
cost assigned to the non-compete agreements is the amount stated in the purchase
agreements.
25
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Trade accounts payable and accrued expenses consist of:
DECEMBER 31,
-----------------------------
2000 1999
---------- ----------
Trade accounts payable ................................................... $ 181,645 $ 588,140
Accrued expenses ......................................................... 861,022 439,289
Accrued compensation ..................................................... 5,334,334 3,456,995
Accrued payroll expense .................................................. 577,163 193,645
Provision for loss on disposal of discontinued training operation ........ 314,858 450,000
---------- ----------
$7,269,022 $5,128,069
========== ==========
Included in accrued compensation are accrued commissions, contractors'
payroll and management bonuses.
5. LINE OF CREDIT AND LONG-TERM DEBT:
On May 18, 2000, our Company entered into a three year revolving line of
credit agreement with General Electric Capital Corporation (the "GE facility").
The agreement permits borrowings up to $15,000,000. Upon the closing of this
facility, our Company borrowed $3,800,000 and repaid, in its entirety, the
outstanding borrowings under our previous revolving credit facility. The
borrowings are collateralized by our accounts receivable and other assets and
are based upon a borrowing base as defined in the agreement. The agreement also
contains various financial and non-financial covenants, the most restrictive of
which requires our Company to maintain tangible net worth of $3,000,000 and
fixed charge coverage, as defined in the agreement, of 1 to 1 as of December 31,
2000 and to 1.1 to 1 each quarter thereafter. As of December 31, 2000, we were
in compliance with all covenants associated with this credit facility.
Outstanding balances bear interest at the bank's index rate, which is defined as
the latest prime rate quoted on the last business day of each calendar month
plus 0.125%. Interest is payable monthly and all outstanding principal and
interest is due May 17, 2003. The weighted average interest rate on the
borrowings was 9.33% for the year ended December 31, 2000. The interest rate at
December 31, 2000 was 9.5%. As of December 31, 2000, the amounts outstanding
under the revolving line of credit amounted to $6,676,038 and our Company had
approximately $2,100,000 of net borrowing availability at December 31, 2000.
Long-term debt consists of:
DECEMBER 31,
---------------------------
2000 1999
---------- ----------
Present value of minimum deferred payment obligations (discounted at 8%):
Texcel acquisition .................................................................. $ 644,946 $1,273,371
Datatek acquisition ................................................................. 606,281 --
Mountain acquisition ................................................................ 1,069,357 1,538,119
---------- ----------
2,320,584 2,811,490
Less current maturities ................................................................ 1,371,136 1,220,733
---------- ----------
Total long-term debt ................................................................ $ 949,448 $1,590,757
========== ==========
Scheduled maturities of long-term debt as of December 31, 2000 are as follows:
2001 ................................................................................................... $1,371,136
2002 ................................................................................................... 670,598
2003 ................................................................................................... 144,869
2004 ................................................................................................... 133,981
----------
$2,320,584
==========
26
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BUSINESS ACQUISITIONS
TEXCEL, INC. AND TEXCEL TECHNICAL SERVICES, INC.:
On October 8, 1998, our Company completed the acquisition of substantially
all of the assets and assumed certain liabilities of Texcel, Inc. and Texcel
Technical Services, Inc. (collectively "Texcel"). The purchase price consisted
of $1,800,000 in cash; 100,000 shares of our common stock valued at $4.8125 per
share (which was the market value of the stock at the date the acquisition was
announced less a discount for the restrictive nature of the stock); and three
annual deferred payments of $930,000, two of which were paid October 1, 1999 and
2000. The remaining payment is due October 1, 2001. The deferred payment due
October 1, 2001 will be reduced up to $250,000 if certain levels of
profitability are not maintained. Texcel is based in the Philadelphia area and
is engaged in both permanent and temporary placements of technical and
professional specialists, primarily in Pennsylvania, Delaware and New Jersey.
The Texcel acquisition was accounted for under the purchase method. The
results of Texcel are included in the statement of operations beginning October
1, 1998. The contingent portion of the deferred payments paid for 1999 and 2000
were $250,000 and $246,000, respectively, and were recorded as additions to
goodwill.
MOUNTAIN, LTD.:
On August 6, 1999, our Company completed the acquisition of all of the
outstanding stock of Mountain Ltd. ("Mountain"). The purchase price consisted of
approximately $2,430,000 in cash; 75,000 shares of our common stock, valued at
$3.705 per share (which was the market value of the stock at the date the
acquisition was announced less a discount for the restrictive nature of the
stock); and three deferred payments of approximately $1,178,000 each, the first
of which was paid September 30, 2000. The remaining payments are due October 1,
2001 and 2002, respectively. The deferred payments will be reduced up to 50%
each if certain levels of profitability are not maintained. Mountain is based in
the Portland, Maine area and is engaged in contract placements of technical and
professional specialists, primarily in the telecommunications industry
The Mountain acquisition was accounted for under the purchase method. The
results of Mountain are included in the statement of operations beginning August
6, 1999. The contingent deferred payments (approximately $589,000 each) are
recorded as goodwill when earned. The contingent portion of the deferred payment
for fiscal 2000 of approximately $589,000 was earned and was recorded as
additional goodwill.
During 2000, our Company issued 14,664 shares of our Common Stock at $2.50
per share as additional acquisition cost related to the Mountain acquisition.
DATATEK CORPORATION:
In March 2000, our Company completed the acquisition of substantially all
of the assets of Datatek Corporation ("Datatek"). The purchase price consisted
of $3,000,000 in cash, which was paid at closing; 75,000 shares of our common
stock valued at $2.50 per share (which was the market value of the stock at the
date the acquisition was announced less a discount for the restrictive nature of
the stock); and four installment payments, payable on January 1 of each of the
years 2001 through 2004, in the anticipated amount of $170,625 each;
additionally, contingent payments will be payable on April 15 of each of the
years 2001 through 2005, in an amount equal to twenty-five percent (25%) of the
increased profits, as defined, of the business acquired from Datatek.
Our Company incurred acquisition costs totaling $320,000 in connection with
the acquisition, including the issuance of 11,998 shares of the Company's common
stock at $2.50 per share. Following is a summary of the transaction:
Costs:
Fair value of net assets acquired $ 829,356
Covenants not to compete 50,000
Goodwill 3,227,824
----------
Total $4,107,180
==========
Source:
Cash and current liabilities assumed $3,320,125
Present value of deferred payments 569,560
Fair value of common stock issued 217,495
----------
Total $4,107,180
==========
27
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BUSINESS ACQUISITIONS (CONTINUED)
The Datatek acquisition was accounted for under the purchase method. The
results of Datatek are included in the statement of operations beginning March
6, 2000. The contingent payments, if any, will be recorded as goodwill when
paid. The contingent payment due April 15, 2001 will be approximately $36,000.
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED):
The following unaudited pro forma results of operations for 2000 have been
prepared assuming the Datatek acquisition had taken place at the beginning of
the period. The following unaudited pro forma results of operations for 1999
have been prepared assuming the Datatek acquisition and the 1999 acquisition of
Mountain had taken place at the beginning of the period. The results of
operations give effect to certain adjustments, including amortization of
intangible assets, interest effects of the transaction, income taxes and the
additional shares of common stock issued in the transaction. The pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of results which may occur in the future.
DECEMBER 31,
------------
2000 1999
---- ----
Net service revenues .............................................. $83,053,347 $72,797,383
Income from continuing operations before taxes .................... $ 3,026,023 $ 2,799,905
Income from continuing operations ................................. $ 1,819,355 $ 1,714,051
Net income ........................................................ $ 1,738,355 $ 409,273
Basic and diluted earnings per share:
Income from continuing operations .............................. $ 0.65 $ 0.59
Net income ..................................................... $ 0.62 $ 0.14
7. STOCK BASED COMPENSATION
Under provisions of our Company's 1998 and 1996 Amended and Restated
Nonqualified Stock Option Plans (the "Plans"), options to purchase an aggregate
of 800,000 shares of our common stock may be granted to key personnel of the
Company. Options may be granted for a term of up to ten years to purchase common
stock at a price or prices established by the Compensation Committee of the
Board of Directors of the Company or its appointee. The options granted in 2000,
1999, and 1998 vest in varying amounts over periods ranging from three to five
years.
Effective December 9, 1998, a non-employee directors' option plan was
approved. During the year ended December 31, 1999 our Company's three
non-employee directors were granted options to purchase 15,000 shares each at
$5.75, vesting quarterly in 1999, representing the then market value of the
common stock. Under the plan, beginning January 1, 2000, each non-employee
director will be granted options to purchase 12,500 shares on January 1 of each
year they continue to serve. The options will be granted at the then market
value of the common stock and will vest quarterly. The options granted on
January 1, 2000 were granted at $2.875 per share. In connection with the
implementation of this plan, all non-employee directors forfeited all of their
existing options which had not vested as of December 31, 1998.
28
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK BASED COMPENSATION (CONTINUED)
Following is a summary of our stock option activity as of and for the
years ended December 31, 2000, 1999 and 1998:
WEIGHTED NUMBER OF
AVERAGE SHARES OF
EXERCISE UNDERLYING RANGE OF
PRICE OPTIONS EXERCISE PRICES
----- ------- ---------------
Outstanding at December 31, 1997...................... $6.28 495,500 $2.50 to $10.00
Exercisable at December 31, 1997...................... 3.14 223,000 2.50 to 10.00
Granted............................................... 11.00 321,667 4.81 to 12.75
Exercised............................................. 3.06 (91,500) 2.50 to 4.00
Forfeited............................................. 10.54 (73,500) 5.00 to 12.75
Outstanding at December 31, 1998...................... 6.30 652,167 2.50 to 12.75
Exercisable at December 31, 1998...................... 5.93 214,000 2.50 to 12.75
Granted............................................... 4.58 48,000 3.00 to 5.88
Exercised............................................. 2.50 (72,500) 2.50 to 2.50
Forfeited............................................. 8.57 (79,000) 2.50 to 12.75
Outstanding at December 31, 1999...................... 6.33 548,667 3.00 to 12.75
Exercisable at December 31, 1999...................... 6.01 275,867 3.00 to 12.75
Granted............................................... 2.88 74,162 2.88 to 2.88
Exercised............................................. -- -- --
Forfeited............................................. 5.30 (39,500) 3.00 to 5.88
Outstanding at December 31, 2000...................... 5.98 583,329 2.88 to 12.75
Exercisable at December 31, 2000...................... 6.23 491,070 2.88 to 12.75
The following table summarizes information about stock options outstanding at
December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ---------------------------
WEIGHTED
WEIGHTED AVG. AVG. WEIGHTED
NUMBER REMAINING EXERCISE NUMBER AVG. EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTR. LIFE IN YEARS PRICE OUTSTANDING PRICE
- ------------------------ ----------- -------------------- -------- ----------- -------------
$ 2.88 to $ 5.88........ 480,829 3.8 $4.60 393,778 $4.70
$10.00 to $12.75........ 102,500 2.4 $12.42 97,292 $12.40
------- -------
$ 2.88 to $12.75........ 583,329 3.6 $5.98 491,070 $6.23
======= =======
29
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK BASED COMPENSATION (CONTINUED)
SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123") establishes
a fair value basis of accounting for stock based compensation plans. Had the
compensation for our Company's stock based compensation plans been determined
consistent with SFAS 123, our net income would approximate the amounts below:
2000 1999 1998
---- ---- ----
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
SFAS 123 compensation cost $ -- $ 364,549 $ -- $ 317,314 $ -- $ 331,566
APB 25 compensation cost
Net income (loss) ................. 1,712,387 1,347,838 62,813 (254,501) 1,577,865 1,246,299
Basic earnings per share:
Income from continuing
operations .................. $ 0.64 $ 0.51 $ 0.49 $ 0.38 $ 0.75 $ 0.63
Loss from discontinued
operations .................. (0.03) (0.03) (0.47) (0.47) (0.18) (0.18)
Net income ..................... 0.61 0.48 0.02 (0.09) 0.57 0.45
Diluted earnings per share:
Income from continuing
operations .................. $ 0.64 $ 0.51 $ 0.49 $ 0.38 $ 0.72 $ 0.62
Loss from discontinued
operations .................. (0.03) (0.03) (0.47) (0.47) (0.17) (0.18)
Net income ..................... 0.61 0.48 0.02 (0.09) 0.55 0.44
The effects of applying SFAS 123 as disclosed above are not indicative of
future amounts.
The fair value of each stock option granted in 2000, 1999 and 1998 is
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
2000 1999 1998
---- ---- ----
Expected term..................... 4.0 years 5.0 years 4.02 years
Expected dividend yield........... 0.00% 0.00% 0.00%
Expected volatility............... 57.28% 55.32% 60.33%
Risk-free interest rate........... 6.30% 5.33% 5.51%
The weighted-average grant date fair value of options granted during the
years ended December 31, 2000, 1999 and 1998 was $1.52, $2.53 and $5.71,
respectively.
Our Company granted a total of 82,590 stock warrants with an exercise price
of $13.50 to an investment banker for service rendered in connection with our
public offering. These warrants are outstanding and exercisable as of December
31, 2000. The fair value of these stock warrants granted in 1997 was estimated
on the date of grant to be approximately $161,000 using the Black-Scholes
option- pricing model with the following assumptions: an expected term of 2.5
years; an expected dividend yield of 0.00%; an expected stock price volatility
of 40.55%; and a risk-free interest rate of 5.84%.
In November 2000, our Company entered into a contract for consulting and
investor relations. As part of the consideration for these services, our Company
granted 15,000 stock warrants with an exercise price of $4.00 per share. These
warrants are outstanding and exercisable as of December 31, 2000. The fair value
of these warrants was estimated on the date of grant to be $21,000 using the
Black-Scholes option-pricing model with the following assumptions: an expected
term of 2 years; an expected dividend yield of 0.00%; an expected stock price
volatility of 57.28%; and a risk-free interest rate of 6.30%. If this contract
has not been cancelled prior to the anniversary date in November of 2001 and
2002, our Company will grant an additional 15,000 stock warrants each year at an
exercise price of $6.00 per share and $8.00 per share, respectively. All of
these warrants expire five years from the date of grant.
30
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHARE REPURCHASE PROGRAM
In 2000, 1999 and 1998, pursuant to share repurchase programs authorized by
the Board of Directors, as a result of market conditions, our Company reacquired
29,000, 102,913 and 237,700 shares, respectively at an aggregate cost of
approximately $83,000, $211,000 and $1,165,000, respectively. As of March 23,
2001, there were approximately 151,000 additional shares authorized for
repurchase.
9. FEDERAL INCOME TAXES
The income tax provision (benefit) and the amount computed by applying the
federal statutory income tax rate to income before income taxes differs as
follows:
DECEMBER 31,
-----------------------------------------------
2000 1999 1998
----------- ----------- -----------
Tax provision at statutory rate for continuing operations ........ $ 1,043,957 $ 777,862 $ 1,128,430
Loss from discontinued operations ................................ (54,000) (815,946) (271,410)
State income taxes, net of federal income tax benefits ........... 150,758 73,250 84,475
Other ............................................................ (5,363) 3,769 (43,666)
----------- ----------- -----------
$ 1,135,352 $ 38,935 $ 897,829
=========== =========== ===========
The allocation of income taxes (benefit) is:
Continuing operations ............................................ $ 1,189,352 $ 854,881 $ 1,169,239
Discontinued operations .......................................... (54,000) (815,946) (271,410)
----------- ----------- -----------
$ 1,135,352 $ 38,935 $ 897,829
=========== =========== ===========
Current, continuing operations ................................... $ 977,617 $ 751,214 $ 994,687
Deferred, continuing operations .................................. 211,735 103,667 174,552
----------- ----------- -----------
$ 1,189,352 $ 854,881 $ 1,169,239
=========== =========== ===========
Temporary differences which give rise to deferred tax assets and
liabilities, at December 31, 2000 and 1999 are as follows:
2000 1999
-------------------------- --------------------------
DEFERRED DEFERRED TAX DEFERRED DEFERRED TAX
TAX ASSET LIABILITIES TAX ASSET LIABILITIES
--------- ------------ --------- ------------
Current:
Net operating loss carryforward ........................... $149,258 $ -- $163,312 $ --
Reserves and accruals ..................................... 704,160 -- 550,541 --
-------- -------- -------- --------
Subtotal-current ....................................... 853,418 -- 713,853 --
-------- -------- -------- --------
Non - current:
Net operating loss carryforward ........................... -- -- 149,258 --
Other basis differences principally related to
property and equipment and intangibles ................. -- 409,039 -- 280,154
Reserves and accruals ..................................... 18,252 -- 37,409 --
-------- -------- -------- --------
Subtotal non-current ................................... 18,252 409,039 186,667 280,154
-------- -------- -------- --------
Total ........................................................ $871,670 $409,039 $900,520 $280,154
======== ======== ======== ========
Net current .................................................. $853,418 $713,853
======== ========
Net non-current .............................................. $390,787 $ 93,487
======== ========
Federal ...................................................... $765,398 $341,939 $652,764 $ 63,143
State ........................................................ 88,020 48,848 61,089 30,344
-------- -------- -------- --------
Net current .................................................. $853,418 $713,853
======== ========
Net non-current .............................................. $390,787 $ 93,487
======== ========
31
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. FEDERAL INCOME TAXES (CONTINUED)
Our Company has a net operating loss carryforward of approximately $426,000
as of December 31, 2000, which, if unused, expires in 2006 through 2009.
Additionally, due to a more than 50% change in ownership beginning with an April
1991 transaction, our net operating loss carryforward is subject to certain
limitations pursuant to provisions of the Internal Revenue Code.
10. CONCENTRATION OF CREDIT RISK
Our Company maintains cash on deposit in interest bearing accounts, which,
at times, exceed federally insured limits. We have not experienced any losses on
such accounts and believe we are not exposed to any significant credit risk on
cash and cash equivalents.
Net service revenues from one customer represented approximately 13%, 12%
and 14% of total staffing services revenues in 2000, 1999 and 1998,
respectively.
11. RELATED PARTY TRANSACTIONS
During 2000, 1999 and 1998, our Company paid various expenses on behalf of
our Chairman and Chief Executive Officer, J. Michael Moore, ("Mr. Moore") or
various entities that he controls in the amount of approximately $345,000,
$72,000, and $77,000, respectively. Amounts advanced in fiscal 2000 and 1999
bear interest at prime plus 0.125%. The majority of these amounts are related to
litigation associated with a lawsuit with Ditto Properties, Inc. The balance
outstanding at December 31, 2000 of $444,000 was collateralized by a first lien
on 25,000 shares and a subordinated lien position on 694,200 shares of our
common stock held by Mr. Moore or various entities that he controls. The
aggregate principle balance of the loans to Mr. Moore or various entities that
he controls that are collateralized by the senior liens on those 694,200 shares
was $1,786,000 at December 31, 2000. The 25,000 shares of our common stock are
also pledged to our Company as collateral for a note purchase agreement with
Compass Bank.
Our Company and Mr. Moore have agreed to, among other things, that no
additional uncollateralized advances to Mr. Moore will be made. Additionally,
our Company and Mr. Moore have agreed to payment terms of the principle and
interest due associated with such advances.
On January 12, 1999, we entered into (a) a note purchase agreement (the
"Agreement") with Compass Bank (the "Bank"), and DCRI LP No. 2, Inc., a Texas
corporation (the "Borrower"), which is principally owned by Mr. Moore, pursuant
to which our Company agreed to purchase from the Bank, in the event of a default
by the Borrower and Mr. Moore (as guarantor), the following: (i) two promissory
notes (collectively the "Notes") executed by the Borrower payable to the Bank in
the principal amount of $500,000 and (ii) all instruments collateralizing
repayment of the Notes, including without limitation, a pledge agreement related
to 165,000 shares of our common stock which are owned by the Borrower as
collateral for the Notes, and (b) a bank transaction agreement (the "Related
Agreement") with the Borrower and Mr. Moore, which obligated the Borrower and/
or Mr. Moore to (i) pledge to our Company an additional 50,000 shares
(subsequently reduced to 25,000 shares) of the common stock to collateralize our
Company under the terms of both the Agreement and the Related Agreement, (ii)
pay our Company for entering into the Agreement by conveying to our Company
5,000 shares of common stock which are owned by the Borrower, and (iii) waive
the right of Mr. Moore to exercise options to purchase, at $2.50 per share,
5,000 shares of common stock pursuant to options previously granted to Mr. Moore
by our Company. The proceeds from the loans evidenced by the Notes have been
partially advanced by the Bank and have been used in part to fund Mr. Moore's
purchase, at $2.50 per share (for an aggregate amount of $181,250), of 72,500
shares of common stock pursuant to exercising stock options previously granted
to him by our Company. The aforementioned transactions have been approved by
both the Board of Directors and the Audit Committee of the Board of Directors of
our Company. In connection with the exercise of the options, our Company loaned
Mr. Moore approximately $23,000 to cover his income tax liability associated
with this transaction. Such amounts are classified as receivable from related
parties in our consolidated balance sheet and have been deducted from
stockholders' equity.
During 1998, we advanced Mr. Moore $20,000, which was evidenced by a note
bearing interest at 8%. This note was repaid in 1999.
More-O Corporation ("More-O"), of which Mr. Moore and Samuel E. Hunter, a
director of our Company, are minority shareholders, paid us $20,000 and $15,000
for the sub-lease of office space in 2000 and 1999, respectively. More-O also
paid Train-International approximately $2,000 for training services provided to
certain of More-O's clients in 1999.
On July 17, 1998, M. Ted Dillard ("Mr. Dillard"), our Company's President
until March 14, 2001 (See Note 17, Subsequent Events), exercised options to
purchase 84,000 shares of our Company's common stock for an aggregate purchase
price of $257,250.
32
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
The purchase price was paid with 7,500 shares (acquired in 1997) of our common
stock valued at $89,500 (based upon the closing price of our common stock on
July 16, 1998), and the remainder was paid in cash. In connection with this
transaction we loaned Mr. Dillard approximately $149,000, which was subsequently
reduced to approximately $90,000 (the "Tax Loan") to cover his income tax
liability associated with the transaction. The Tax Loan bears interest at the
applicable federal rate, the interest is payable quarterly, is collateralized by
20,000 shares of our common stock and is due July 17, 2003. In addition, on
October 12, 1998, our Board of Directors approved a loan to Mr. Dillard of
approximately $125,000 (the "Company Loan"). The Company Loan bears interest at
8%, which interest is payable quarterly, is collateralized by 43,400 shares of
our common stock and is due July 17, 2003. The Tax Loan and the Company loan are
classified as receivables from related party in our consolidated balance sheet
and have been deducted from stockholders' equity.
Ms. Deborah Farrington, a non-employee director of our Company is paid a
monthly fee of $4,000 pursuant to a consultant agreement with our Company.
Pursuant to this agreement, Ms. Farrington is compensated for identifying
potential acquisition candidates on behalf of our Company. During the years
ended December 31, 2000, 1999 and 1998, Ms. Farrington was paid $48,000, $48,000
and $43,000, respectfully in connection with this agreement. Additionally, in
connection with the acquisition of Texcel during 1998 we paid Ms. Farrington
$50,000.
Interest income from related parties amounted to approximately $18,000,
$16,000, and $7,200 in fiscal 2000, 1999 and 1998, respectively.
12. EMPLOYEE BENEFIT PLAN
In 1993, our Company implemented a 401(K) plan for the benefit of its
employees. Company contributions to the plan in 2000, 1999 and 1998 totaled
approximately $119,000, $119,000, and $72,000, respectively. Beginning in
January 1998 our Company's matching contributions are used to purchase our
Company's common stock.
13. COMMITMENTS AND CONTINGENCIES
Operating Leases
Our Company rents office space under various operating leases. Certain of
the leases have escalating rent payments. Our Company is liable for the future
minimum lease payments for the periods subsequent to December 31, 2000 as
follows:
YEAR AMOUNT
---- ------
2001 .................................................... $2,211,953
2002 .................................................... 1,969,037
2003 .................................................... 854,488
2004 .................................................... 99,704
2005 .................................................... 18,064
----------
Total ................................................... $5,153,246
==========
Rent expense was approximately $2,368,000, $2,267,000 and $1,637,000 for
the years ended December 31, 2000, 1999 and 1998, respectively.
In 1996, a lawsuit (the "Suit") was filed by Donald Ditto, Sr. and
Ditto Properties Company (collectively, "Ditto") against DCRI LP No. 2,
Inc. ("No. 2"), J. Michael Moore, individually, and USFG/DHRG LP No.
1 ("No. 1") (collectively, the Defendants"). Ditto alleged, among other
things, that the Defendants fraudulently induced Ditto to sell 899,200
shares (the "Shares") of Common Stock to No. 2, and failed to perform under
the related agreements. The Suit asked for injunctive relief and damages
and also had sought to rescind the sale of the Shares to No. 2. However,
summary judgment on the issue of rescission was granted in favor of the
Defendants, and Ditto's rescission claim was dismissed.
The Company's involvement in the Suit includes the following: (a) the
Company was initially a party to the Suit as a garnishee but is no longer
involved as a garnishee, (b) in 1997, the Company and No. 2 filed claims against
Ditto alleging that Ditto damaged the Company and No. 2 by interfering with
certain of the Company's business activities, and (c) in 2000, Ditto filed
33
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
amended pleadings alleging that the Company, along with others, engaged in
tortuous interference with the partnership agreement between Ditto and other
partners of No. 1 and conspired with the Defendants in connection with certain
of the claims that Ditto has made against the Defendants. Ditto's amended
pleadings seek a declaratory judgment that the transfer of the Shares from No. 1
to Ditto prior to the sale to No. 2 was void (essentially seeking rescission)
and allege that the Company is jointly and severally liable to Ditto for
attorneys fees and costs in connection therewith pursuant to the Texas
Declaratory Judgment Act. Alternatively, Ditto's amended pleadings seek damages
against the Company and the Defendant on a joint and several lawsuit in the
amount of 45% of the current value of the Shares, along with the recovery of
attorneys fees and court costs in connection therewith.
The Company has incurred legal expenses on its behalf and has advanced
payments on behalf of the Defendants. The current arrangement between the
Company and the Defendants, in connection with the Suit, is that the Company
is responsible for the legal fees involving the Company, and the Defendants
are responsible for their legal fees and for one-half of the legal fees
incurred in pursuing the claims of both the Company and the Defendants
against Ditto. As discussed in Note 11 "Related Party Transactions", our
Company has a subordinated lien position on certain shares discussed above.
In the event the courts rule against the Defendants, the value of the
collateral supporting the amounts owed by Mr. Moore, to our Company, may be
impaired.
Our Company is also involved in certain other litigation and disputes not
previously noted. With respect to the aforementioned matters, management
believes the claims against us are without merit and has concluded that the
ultimate resolution of such will not have a material effect on our consolidated
financial position or results of operations.
14. JOINT VENTURE OPERATIONS
During January 1995, we entered into a joint venture agreement with Carter
Financial Services, Inc., ("CFSI") for the purpose of primarily providing
personnel services to certain businesses requiring minority suppliers. We
provided CFSI with substantially all of its personnel and contract labor on a
subcontractor basis at cost. Laurie Moore, the wife of J. Michael Moore, the
Chief Executive Officer and Chairman of the Board of the Company, owned 49% of
CFSI. On August 15, 1996, the majority shareholder of CFSI purchased the 49%
ownership interest of Ms. Moore, pursuant to a transaction which was made
effective retroactive to January 1, 1995. Ms. Moore received no monetary gain on
her investment in CFSI or on this transaction. Through December 31, 1998, we had
a 49% ownership interest in the joint venture and were allocated 65% of the net
income or loss resulting from the joint venture operations.
Effective January 20, 1999, the joint venture was terminated and we
acquired substantially all of the assets including an additional 35% income
interest in the Atlanta and Chicago operations and assumed certain liabilities
of the joint venture. No gain or loss was recognized on the termination.
At December 31, 1999, our Company wrote off $156,000 of previously
capitalized goodwill related to this joint venture. Such amounts have been
reflected in other expenses in the consolidated statement of operations.
15. NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with the acquisition of Alliance Training Centers in 1998,
our Company incurred deferred payment obligations totaling $75,000, the present
value of which was approximately $67,000. Additionally, we assumed certain
capital lease obligations for the lease of computer equipment with a gross
commitment of approximately $110,000, the present value of which were
approximately $101,000.
In connection with a partial cashless exercise of stock options on July 17,
1998, our Company received 7,500 shares of its common stock valued at $89,500.
In connection with the Texcel acquisition in 1998, our Company incurred
deferred payment obligations of $2,040,000, the present value of which was
approximately $1,752,000, and issued 100,000 shares of common stock valued at
$481,250.
In connection with the Mountain acquisition in 1999, our Company incurred
deferred payment obligations of $1,770,000, the present value of which was
approximately $1,481,000, and issued 75,000 shares of common stock valued at
$278,000.
In connection with the Datatek acquisition in 2000, our Company
incurred deferred payment obligations of $683,000, the present value of which
was approximately $570,000 and issued 75,000 shares of common stock valued at
$187,500.
34
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED)
In 2000, our Company incurred capital lease obligations totaling
approximately $355,000 to finance the purchase of computer equipment.
Additionally, in 2000, our Company issued 26,662 shares of common stock
valued at $66,645 as acquisition costs related to the Mountain and Datatek
acquisitions
16. DISCONTINUED OPERATIONS
In December 1999, our Company sold all of the assets of the Geier
Assessment and Performance Systems, Inc. (GAPS) to the former owner and managers
of the GAPS operations. GAPS was engaged in developing software for use in
testing and improving the work performance of our employees, and clients'
employees. The sales price was in the form of a $200,000 promissory note,
payable over a ten year time period, and a royalty of four percent from the sale
of certain GAPS proprietary software. We recognized a loss on disposal of
$394,000 (before income tax benefits of $152,000), including an allowance for
the full amount of the promissory note, on the sale of GAPS in December 1999.
On December 31, 1999, our Company's Board of Directors approved a plan
whereby we would place our remaining training business assets (Train) for sale.
Train has historically provided information technology training to our clients'
employees and our applicant pool on a fee basis. In connection with the plan to
dispose of Train, our Company recorded, in 1999, a loss of $589,000 (before
income tax benefits of $226,000), which included a provision for estimated
operating losses through the date of disposal. In 2000, we recorded an
additional loss of $135,000 (before income tax benefits of $54,000) for
additional estimated losses. The loss before income taxes for the year ended
December 31, 2000 of approximately $287,000 was recorded against these estimated
loss reserves.
Effective February 1, 2001, our Company sold the operations of Train to a
company owned by the former manager of Train. The sale price is in the form of a
royalty of four and one-half percent of all training services performed by such
company for three years following the close. No gain or loss was recognized on
the sale.
The results of operations and remaining operating assets and liabilities of
GAPS and Train have been presented as discontinued operations and are summarized
below:
Results of operations for discontinued operations are as follows:
2000 1999
---- ----
Net service revenue .................................. $ 1,869,260 $ 1,498,945
Cost of sales ........................................ 1,571,271 1,295,113
----------- -----------
Gross margin ...................................... 297,989 203,832
Selling, general and administrative expenses ......... 559,227 1,327,589
Other income and (expenses) .......................... (26,210) (13,944)
----------- -----------
Loss before income taxes ............................. (287,448) (1,137,701)
Income tax benefit ................................... 106,146 437,622
----------- -----------
Net loss ............................................. $ (181,302) $ (700,079)
=========== ===========
Accounts receivable and other ........................ $ 319,000 $ 260,000
=========== ===========
Accounts payable and accrued expenses ................ $ 140,000 $ 241,000
=========== ===========
17. SUBSEQUENT EVENTS.
On March 14, 2001, upon the resignation of our President, Mr. Dillard, our
Company and Mr. Dillard entered into a Severance Agreement and Mutual Release
("Severance Agreement"). The Severance Agreement, among other things, calls for:
a) severance to Mr. Dillard of $210,000 payable in twenty-four equal
semi-monthly installments beginning March 15, 2001; b) accelerated vesting of
options to purchase 5,556 shares of our Company's Common Stock that were due to
vest on March 31, 2001; c) extension of the time that Mr. Dillard may exercise
any of his vested stock options until December 31, 2002 (subject to the
provisions of the plans under which such options were granted); and d) extension
of the maturity date of the Company Loan from October 12, 2001 until July 17,
2003. The total cost to our company of the Severance Agreement is approximately
$250,000 and will be expensed in the first quarter of 2001.
35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Diversified Corporate Resources, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated March 30, 2001, appearing in the 2000 Annual Report on Form 10-K of
Diversified Corporate Resources, Inc., also included an audit of the financial
statement schedule listed in the accompanying index. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
March 30, 2001
36
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED
DECEMBER 31, 2000, 1999 AND 1998
BALANCE PROVISIONS
BALANCE AT ACQUIRED CHARGED PROVISIONS
BEGINNING THROUGH TO COSTS & CHARGED TO
OF PERIOD ACQUISITIONS EXPENSES REVENUES (1) DEDUCTIONS
--------- ------------ -------- ------------ ----------
For the Year Ended December 31, 1998:
Trade accounts receivable allowances ...................... $ 536,000 $ 236,000 $ 111,000 $2,390,000 $2,539,000
For the Year Ended December 31, 1999:
Trade accounts receivable allowances ...................... $ 734,000 $ 21,000 $ 333,000 $3,131,000 $3,214,000
Reserve for estimated losses from discontinued operations . $ -- $ -- $ 450,000 $ -- $ --
For the Year Ended December 31, 2000:
Trade accounts receivable allowances ...................... $1,005,000 $ 8,000 $ 567,000 $3,930,000 $4,192,000
Reserve for estimated losses from discontinued operations . $ 450,000 $ -- $ 135,000 $ -- $ 270,000
BALANCE AT
END OF PERIOD
-------------
For the Year Ended December 31, 1998:
Trade accounts receivable allowances ...................... $ 734,000
For the Year Ended December 31, 1999:
Trade accounts receivable allowances ...................... $1,005,000
Reserve for estimated losses from discontinued operations . $ 450,000
For the Year Ended December 31, 2000:
Trade accounts receivable allowances ...................... $1,318,000
Reserve for estimated losses from discontinued operations . $ 315,000
(1) Estimated reduction in revenues for applicants who accepted employment, but
did not start work or did not remain in employment for the guaranteed
period.
37
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NUMBER
- ------- -----------
2.1 Asset Purchase Agreement, dated as of October 7, 1998, between our
Company, DCRI Acquisition Corporation, Texcel, Inc., Texcel Technical
Services, Inc., Thomas W. Rinaldi, Gary E. Kane, Paul J. Cornely and
Deborah A. Jan Francisco; (schedules have been omitted pursuant to
Regulation S-K 601(b)(2)). (Incorporated by reference to Exhibit 2.1 of
our Company's Form 8-K filed on October 21, 1998.)
2.2 Purchase Agreement, by and between our Company and the Shareholders of
MOUNTAIN, LTD.(TM)(The schedules have been omitted pursuant to
Regulation S-K 601(b) (2). (Incorporated by reference from Exhibit 10.3
to our Company's Form 10Q filed on August 16, 1999)
2.3 Purchase Agreement, dated as of March 6, 2000, by and among Diversified
Corporate Resources, Inc., Datatek Consulting Group Corporation,
Datatek Corporation, Julia L. Wesley and Michael P. Connolly. (The
Schedules have been omitted pursuant to Regulation S-K 601 (b)(2).
(Incorporated by reference from Exhibit 2.1 to our Company's Form 8K
filed on March 7, 2000)
2.4 Asset Purchase Agreement, dated as of February 1, 2001, by and among
our Company, Train International, Inc., JCAP, Inc. and Christine L.
Ploof. (The schedules have been omitted pursuant to Regulation S-K
601(b)(2))*
3.1 Articles of Incorporation of our Company as amended (Incorporated by
reference from Exhibit 3(a) to our Company's Registration Statement on
Form S-18 (Reg. No. 33-760 FW))
3.2 Bylaws of our Company (Incorporated by reference from Exhibit 3(b) to
our Company's Registration Statement on Form S-18 (Reg. No. 33-760 FW))
3.3 Amendment No. 1 to Bylaws of our Company (Incorporated by reference to
Exhibit 3.4 of our Company's Form 10Q filed on May 15, 1998)
3.4 Amendment No. 2 to Bylaws of our Company (Incorporated by reference to
Exhibit 3.1 of our Company's Form 10Q filed on November 16, 1998)
3.5 Amendment No. 3 to Bylaws of our Company (Incorporated by reference to
Exhibit 3.4 of our Company's Form 10K filed on March 30, 1999)
3.6 Amendment No. 4 to Bylaws of our Company*
4.1 Form of Certificate of Designation for Designating Series A Junior
Participating Preferred Stock, $.10 par value (Incorporated by
reference to Exhibit A of Exhibit 4.1 of our Company's Form 8-K filed
on May 8, 1998)
4.2 Rights Agreement, dated as of May 1, 1998, between our Company and
Harris Trust and Savings Bank which includes the form of Certificate of
Designation for Designating Series A Junior Participating Preferred
Stock, $.10 par value, as Exhibit A, the form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Series A Junior
Participating Preferred Stock as Exhibit C. (Incorporated by reference
to Exhibit 4.1 of our Company's Form 8-K filed on May 8, 1998)
4.3 Form of Common Stock Warrant (Incorporated by reference from Exhibit
1.2 to our Company's Amendment No. 1 to our Company's Registration
Statement on Form S-1 (Reg. No. 333-31825))
4.4 Amended and Restated 1996 Nonqualified Stock Option Plan of our
Company, effective as of December 28, 1996 (Incorporated by reference
from Exhibit 10(z)(21) to our Company's Form 10-K for the year ended
December 31, 1996)
4.5 Amendment No. 1 to our Company's Amended and Restated 1996 Nonqualified
Stock Option Plan (Incorporated by reference to Exhibit 10.5 of our
Company's Form 10Q filed on May 15, 1998)+
4.6 1998 Nonqualified Stock Option Plan, effective as of January 1, 1998
(Incorporated by reference to Exhibit 10.14 of our Company's Form 10Q
filed on May 15, 1998)+
4.7 1998 Non-employee Director Stock Option Plan, effective as of December
9, 1998 (Incorporated by reference to Exhibit 4.7 of our Company's Form
10K filed on March 30, 1999)+
4.8 First Amendment to Rights Agreement (Incorporated by reference from
Exhibit 10.5 to our Company's Form 10Q filed on August 16, 1999)
10.1 Stock Option Agreement between our Company and J. Michael Moore,
executed May 15, 1997 (Incorporated by reference from Exhibit 4.10 to
our Company's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)+
10.2 Stock Option Agreement between our Company and M. Ted Dillard, executed
May 15, 1997 (Incorporated by reference from Exhibit 4.10 to our
Company's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)+
10.3 First Amendment to Amended and Restated Stock Option Agreement between
our Company and J. Michael Moore effective September 30, 1998
(Incorporated by reference to Exhibit 10.4 of our Company's Form 10K
filed on March 30, 1999)+
10.4 First Amendment to Amended and Restated Stock Option Agreement between
our Company and M. Ted Dillard effective September 30, 1998
(Incorporated by reference to Exhibit 10.5 of our Company's Form 10K
filed on March 30, 1999)+
10.5 Stock Option Agreement between our Company and J. Michael Moore
effective as of April 29, 1998 (Incorporated by reference to Exhibit
10.6 of our Company's Form 10K filed on March 30, 1999)+
38
10.6 Stock Option Agreement between our Company and M. Ted Dillard effective
as of April 29, 1998 (Incorporated by reference to Exhibit 10.7 of our
Company's Form 10K filed on March 30, 1999)+
10.7 Amendment to Stock Option Agreement (Pricing Amendment) for J. Michael
Moore effective as of October 23, 1998 (Incorporated by reference to
Exhibit 10.9 of our Company's Form 10K filed on March 30, 1999)++
10.8 Amendment to Stock Option Agreement (Pricing Amendment) for M. Ted
Dillard effective as of October 23, 1998 (Incorporated by reference to
Exhibit 10.10 of our Company's Form 10K filed on March 30, 1999)+
10.9 Stock Option Agreement between our Company and Samuel E. Hunter,
executed May 15, 1997 (Incorporated by reference from Exhibit 4.10 to
our Company's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)+
10.10 First Amendment to Stock Option Agreement between our Company and
Samuel E. Hunter, effective March 20, 1998 (Incorporated by reference
to Exhibit 10.13 of our Company's Form 10Q filed on May 15, 1998)+
10.11 Stock Option Agreement between our Company and Deborah A. Farrington,
effective November 13, 1997 (Incorporated by reference to Exhibit 10.12
of our Company's Form 10Q filed on May 15, 1998)+
10.12 Stock Option Agreement (1998) Re: Hunter between our Company and Samuel
E. Hunter effective as of April 29, 1998 (Incorporated by reference to
Exhibit 10.16 of our Company's Form 10K filed on March 30, 1999)+
10.13 Stock Option Agreement (1998) Re: Farrington between our Company and
Deborah A. Farrington effective as of April 29, 1998 (Incorporated by
reference to Exhibit 10.17 of our Company's Form 10K filed on March 30,
1999)+
10.14 Stock Option Agreement (1998) Re: Allen between our Company and A.
Clinton Allen effective as of April 29, 1998 (Incorporated by reference
to Exhibit 10.18 of our Company's Form 10K filed on March 30, 1999)+
10.15 Partial Option Termination Agreement Re: Hunter between our Company and
Samuel E. Hunter effective December 9, 1998 (Incorporated by reference
to Exhibit 10.19 of our Company's Form 10K filed on March 30, 1999)+
10.16 Partial Option Termination Agreement Re: Farrington between our Company
and Deborah A. Farrington effective December 9, 1998 (Incorporated by
reference to Exhibit 10.20 of our Company's Form 10K filed on March 30,
1999)+
10.17 Partial Option Termination Agreement Re: Allen between our Company and
A. Clinton Allen effective December 9, 1998 (Incorporated by reference
to Exhibit 10.21 of our Company's Form 10K filed on March 30, 1999)+
10.18 Directors Option Agreement Re: Hunter between our Company and Samuel E.
Hunter effective as of December 9, 1998 (Incorporated by reference to
Exhibit 10.22 of our Company's Form 10K filed on March 30, 1999)+
10.19 Directors Option Agreement Re: Farrington between our Company and
Deborah A. Farrington effective as of December 9, 1998 (Incorporated by
reference to Exhibit 10.23 of our Company's Form 10K filed on March 30,
1999)+
10.20 Directors Option Agreement Re: Allen between our Company and A. Clinton
Allen effective as of December 9, 1998 (Incorporated by reference to
Exhibit 10.24 of our Company's Form 10K filed on March 30, 1999)+
10.21 Form of Stock Option granted to certain employees of our Company,
effective November 13, 1997 (Incorporated by reference to Exhibit 10.10
of our Company's Form 10Q filed on May 15, 1998)+
10.22 Form of Stock Option Agreements, dated as of October 8, 1998, between
our Company and certain non-shareholder employees of DCRI Acquisition
Corporation (Incorporated by reference to Exhibit 10.2 of our Company's
Form 8-K filed on October 21, 1998)+
10.23 Employment Contract between our Company and J. Michael Moore, effective
June 15, 2000 (Incorporated by reference from Exhibit 10.2 to our
Company's Form 10-Q for the quarter ended September 30, 2000)+
10.24 Employment Contract between our Company and M. Ted Dillard, effective
June 15, 2000 (Incorporated by reference from Exhibit 10.21 to our
Company's Form 10-Q for the quarter ended September 30, 2000)+
10.25 Employment Agreement entered into effective as of September 20, 1999
between our Company and Anthony G. Schmeck (Incorporated by reference
to Exhibit 10.22 of our Company's Form 10Q filed on November 13, 2000)+
10.26 Standard Form Office Lease between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited and Lafarge Corporation dated February 26,
1993 (Incorporated by reference from Exhibit 10.17 to our Company's
Amendment No. 1 to our Company's Registration Statement on Form S-1
(Reg. No. 333-31825))
10.27 First Amendment to the Office Lease between Zell/Merrill Lynch Real
Estate Opportunity Partners Limited and Lafarge Corporation dated
February 20, 1995 (Incorporated by reference from Exhibit 10.18 to our
Company's Amendment No. 1 to our Company's Registration Statement on
Form S-1 (Reg. No. 333-31825))
10.28 Second Amendment to the Office Lease between Zell/Merrill Lynch Real
Estate Opportunity Partners Limited and Lafarge Corporation dated
February 22, 1995 (Incorporated by reference from Exhibit 10.19 to our
Company's Amendment No. 1 to our Company's Registration Statement on
Form S-1 (Reg. No. 333-31825))
10.29 Third Amendment to the Office Lease between Zell/Merrill Lynch Real
Estate Opportunity Partners Limited and Lafarge Corporation dated
November 3, 1995 (Incorporated by reference from Exhibit 10.20 to our
Company's Amendment No. 1 to our Company's Registration Statement on
Form S-1 (Reg. No. 333-31825))
10.30 Fourth Amendment to the Office Lease between Zell/Merrill Lynch Real
Estate Opportunity Partners Limited and Lafarge Corporation dated
October 24, 1996 (Incorporated by reference from Exhibit 10.21 to our
Company's Amendment No. 1 to our Company's Registration Statement on
Form S-1 (Reg. No. 333-31825))
10.31 Fifth Amendment to the Office Lease between Zell/Merrill Lynch Real
Estate Opportunity Partners Limited and Lafarge Corporation dated
January 7, 1997 (Incorporated by reference from Exhibit 10.22 to our
Company's Amendment No. 1 to our Company's Registration Statement on
Form S-1 (Reg. No. 333-31825))
10.32 Note Receivable dated June 22, 1998, between our Company and J. Michael
Moore (Incorporated by reference to Exhibit 10.2 of our Company's Form
10Q filed on August 13, 1998)
39
10.33 Note Receivable effective July 17, 1998, between our Company and M. Ted
Dillard (Incorporated by reference to Exhibit 10.3 of the Company's
Form 10Q filed on November 16, 1998)
10.34 Note Receivable effective July 17, 1998, between our Company and M. Ted
Dillard (Incorporated by reference to Exhibit 10.4 of our Company's
Form 10Q filed on November 16, 1998)
10.35 Security Agreement effective July 17, 1998, between our Company and M.
Ted Dillard (Incorporated by reference to Exhibit 10.5 of our Company's
Form 10Q filed on November 16, 1998)
10.36 Security Agreement effective October 12, 1998, between our Company and
M. Ted Dillard (Incorporated by reference to Exhibit 10.6 of our
Company's Form 10Q filed on November 16, 1998)
10.37 Consulting Agreement effective May 12, 1998 between our Company and
Deborah A. Farrington (Incorporated by reference to exhibit 10.7 of our
Company's Form 10Q filed on November 16, 1998)
10.38 Note Purchase Agreement dated as of January 12, 1999 among our Company,
Compass Bank and DCRI LP No. 2 Inc. (Incorporated by reference to
Exhibit 10.1 of our Company's Form 8-K filed on January 28, 1999)
10.39 Pledge Agreement dated as of January 12, 1999 between Compass Bank and
DCRI LP No. 2, Inc. (Incorporated by reference to Exhibit 10.2 of our
Company's Form 8-K filed on January 28, 1999)
10.40 Bank Transaction Agreement dated as of January 12, 1999 among our
Company, DCRI LP No. 2, Inc. and J. Michael Moore (Incorporated by
reference to Exhibit 10.3 of our Company's Form 8-K filed on January
28, 1999)
10.41 Loan and Security Agreement, by and between Management Alliance
Corporation, Information Systems Consulting Corporation, Datatek
Consulting Group Corporation, Texcel Services Inc. and Mountain Ltd.
and General Electric Capital Corporation (Incorporated by reference
from Exhibit 10.1 to our Company's Form 10Q filed on August 10, 2000).
10.42 Severance and Mutual Release, by and between our Company and M. Ted
Dillard (Incorporated by reference to Exhibit 10.1 of our Company's
Form 8-K filed on March 27, 2001)+
10.43 Security Agreement effective September 18, 2000, between our Company
and J. Michael Moore*
10.44 Amendment No. 1 to Security Agreement effective March 30, 2001, between
our Company, J. Michael Moore and DCRI L.P. No. 2, Inc.*
10.45 Agreement effective March 30, 2001 between our Company, J. Michael
Moore and DCRI L.P. No. 2, Inc.*
21 List of Subsidiaries*
23.1 Consent of PricewaterhouseCoopers LLP*
(* Filed herewith)
(+ Compensation plan, benefit plan or employment contract or arrangement)
40