UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the period ended January 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 0-26208
BUSINESS RESOURCE GROUP
(Exact name of Registrant as specified in its Charter)
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California
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77-0150337
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification Number)
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2150 North First Street, Suite 101
San Jose, California 95131
(Address of Principal Executive Offices including Zip Code)
(408) 325-3200
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year if changed
since last report)
Indicate by check mark whether the registrant (1) 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 reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
At January 31, 2000 there were 5,250,663 shares of the Registrant's Common Stock
outstanding.
BUSINESS RESOURCE GROUP
FORM 10-Q
INDEX
PART I. Financial Information
Item 1. Financial statements
Condensed Consolidated Balance Sheets as of
January 31, 2000 and October 31, 1999
Condensed Consolidated Statements of Operations for the three months
ended January 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the
three months ended January 31, 2000 and 1999
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Results of Operations
Year 2000
Liquidity and Capital Resources
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. Other Information
Item 1: Legal Proceedings
Item 2: Changes in Securities and Use of Proceeds
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
Signatures
PART I -- FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
BUSINESS RESOURCE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
January 31, October 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and equivalents............... $1,745 $479
Accounts receivable, net........... 18,413 18,026
Inventories........................ 12,934 20,080
Prepaids and other current assets.. 4,612 3,251
------------ ------------
Total current assets........... 37,704 41,836
Property and equipment, net.............. 3,881 3,609
Other assets............................. 7,042 5,368
------------ ------------
Total assets $48,627 $50,813
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit..................... $7,477 $9,165
Accounts payable................... 10,343 15,119
Accrued liabilities................ 6,115 5,690
Income taxes payable............... 1,245 615
Current portion of long-term debt.. 1,409 1,060
------------ ------------
Total current liabilities...... 26,589 31,649
Long-term debt........................... 3,135 1,552
Deferred lease liability................. 100 98
Deferred income tax liability............ 59 59
Shareholders' equity:
Common stock....................... 52 52
Additional paid in capital......... 11,942 11,719
Retained earnings.................. 6,750 5,684
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Total shareholders' equity..... 18,744 17,455
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Total liabilities and shareholders' equity $48,627 $50,813
============ ============
The October 31, 1999 amounts are derived from the Company's audited financial
statements. See notes to conolidated financial statements.
BUSINESS RESOURCE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
January 31,
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2000 1999
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Net revenues:
Workspace products............... $33,718 $21,348
Workspace services............... 6,991 4,669
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Total net revenues 40,709 26,017
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Cost of net revenues:
Workspace products............... 26,438 17,173
Workspace services............... 4,683 3,471
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Total cost of net revenues.. 31,121 20,644
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Gross profit....................... 9,588 5,373
Selling, general and
administrative expenses.......... 7,518 4,621
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Income from operations 2,070 752
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Interest and other expense, net. 254 136
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Income before income tax........... 1,816 616
Provision for income taxes......... 750 255
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Net income......................... $1,066 $361
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Net earnings per share:
Basic........................ $0.20 $0.07
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Diluted...................... $0.19 $0.07
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See notes to condensed consolidated financial statements.
BUSINESS RESOURCE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three Months Ended
January 31,
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2000 1999
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OPERATING ACTIVITIES:
Net earnings....................................... $1,066 $361
Adjustments to reconcile to net cash used
by operating activities:
Depreciation and amortization................... 393 275
Gain on sale of property and equipment.......... -- (2)
Deferred Lease 2 --
Changes in operating assets and liabilities:
Accounts receivable......................... 2,695 (1,602)
Inventory................................... 6,576 (3,117)
Prepaids and other current assets........... (1,019) 478
Accounts payable............................ (6,430) (1,191)
Accrued liabilities......................... (557) (674)
Income taxes payable........................ 630 (100)
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Net cash provided (used) by
operating activities.................. 3,356 (5,572)
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INVESTING ACTIVITIES:
Purchase of property and equipment................. (192) (319)
Proceeds from sale of property and equipment....... -- 2
Cash paid for acquisition.......................... (2,071) --
Other assets....................................... 318 --
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Net cash used by investing activities.... (1,945) (317)
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FINANCING ACTIVITIES:
Issuance of note................................... 2,100 --
Repayment of notes payable and capital lease obligations (530) --
Borrowings (repayments) against line of credit-net. (1,781) 5,854
Issuance of common stock, net...................... 66 20
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Net cash provided (used) by financing activities (145) 5,874
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Increase (decrease) in cash and equivalents......... 1,266 (15)
CASH AND EQUIVALENTS BALANCES:
Beginning of period................................ 479 412
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End of period...................................... 1,745 397
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................ $220 $105
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Income taxes.................................... $645 $269
========== ==========
See notes to condensed consolidated financial statements.
BUSINESS RESOURCE GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation and Significant Accounting Policies
The financial information as of January 31, 2000, and for the three
months ended January 31, 2000 and 1999, respectively, is unaudited. In the opinion of
management, such information reflects all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation of the results of
such periods. The accompanying condensed financial statements should be read together
with the audited financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended October 31, 1999. The financial
statements have been prepared in accordance with the regulations of the Securities and
Exchange Commission, but omit certain information and footnote disclosure necessary to
present the statements in accordance with generally accepted accounting principles.
Note 2. Basic and Diluted Share Information
Basic Earnings Per Share ("EPS") excludes dilution and is computed by dividing net
income by the weighted average of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock.
Three Months Ended
January 31,
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2000 1999
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(in thousands)
Net income ........................ $1,066 $361
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Weighted average common shares
outstanding .................... 5,232 5,032
Common equivalent shares:
Stock options .............. 379 80
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Total common stock and common
stock equivalents .............. 5,611 5,112
========= =========
Options to purchase 85,000 and 155,100 shares of common stock were outstanding
during the first quarter of the Company's fiscal years 2000 and 1999, respectively, but were
not included in the computation of diluted EPS for such quarters because the exercise
price of outstanding options was greater than the average fair market value of
common shares.
Note 3. Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Total comprehensive
income is comprised of net income and all changes to shareholders' equity, except
those related to investments by and distributions to owners. Other comprehensive
income typically includes foreign currency translation adjustments, unrealized gain or
loss on investments, minimum pension liabilities, and changes in the market value of
futures contracts. The Company's comprehensive income is equal to its reported net
income for all periods presented.
Note 4. Segment Reporting
The Company has adopted SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information, which establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products, services,
geographic areas and major customers. Operating segments are defined as components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. By this definition, the Company has two
operating segments, workspace products and workspace services. Workspace products
include new office furniture systems, seating, storage and filing cabinets, desks and
casegoods, and refurbished office furniture systems. Workspace service offerings
include workspace products installation, facilities strategic planning, facilities
planning outsourcing, facilities automation services, design management and move
management.
The Company does not analyze these segments below the gross profit line. Segment
assets are not presented as all assets of the Company are commingled and are not
available by segment.
Information about segments (in thousands):
Three Months Ended
January 31,
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2000 1999
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(in thousands)
Revenues(1):
Workspace products .............. $33,718 $21,348
Workspace services .............. 6,991 4,669
Consolidated net revenues ......... --------- ---------
$40,709 $26,017
========= =========
Gross profit(1):
Workspace products .............. $7,280 $4,175
Workspace services .............. 2,308 1,198
Consolidated gross profit ......... --------- ---------
$9,588 $5,373
========= =========
(1) The presentation of revenues and gross profit is consistent with the Company's
internal presentation of financial information to management.
Note 5. Derivatives
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which defines derivatives, requires all derivatives be carried at fair
value, and provides for hedging accounting when certain conditions are met, was
issued. The Company will adopt this statement November 1, 2000. The Company has not
yet fully assessed the effect of this statement
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction:
The matters discussed herein include forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to
certain risks and uncertainties that could cause the actual results to differ
materially from those projected. Such forward-looking statements include, without
limitation, statements relating to the Company's future revenue, gross margins,
operating expenses, management's plans and objectives for the Company's future
operations and the sufficiency of financial resources to support future operations and
expenditures. Factors that could cause actual results to differ materially include,
but are not limited to, the timely availability, delivery and acceptance of new
products and services, the continued strength of sales to Cisco Systems, Inc. (one of
the Company's principal customers), the impact of competitive products and pricing,
the management of growth and acquisitions, and other risks detailed below and included
from time to time in the Company's other reports filed with the Securities and
Exchange Commission and press releases, copies of which are available from the Company
upon request. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. The Company undertakes no
obligation to release publicly the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events.
References made in this Quarterly Report on Form 10-Q to the "Company" or
"Registrant" refer to Business Resource Group.
Results of Operations (three months ended January 31, 2000):
Net revenues were $40.7 million for the three months ended January 31, 2000 as
compared to $26.0 million reported for the three months ended January 31, 1999, an
increase of $14.7 million, or 57%. Product revenues for the three months ended January
31, 2000 were $33.7 million, an increase of $12.4 million, or 58%, from product
revenues of $21.3 million reported for the three months ended January 31, 1999. The
higher product revenues in the first quarter of fiscal 2000 were primarily due to
incremental revenues of $6.2 million from acquisitions, increased revenues from Cisco
Systems, Inc. of $5.1 million and increased revenues from other new and existing
customers of $1.1 million. Service revenues for the first quarter of fiscal 2000 were
$7.0 million, an increase of $2.3 million, or 49%, from service revenues of $4.7
million reported in the same quarter of fiscal 1999. The higher service revenues
reflect increased product-related services as a result of higher product revenues.
Gross profit for the first quarter of fiscal 2000 was $9.6 million, or 23.6% of
revenues, as compared to $5.4 million, or 20.7% of revenues, for the comparable
quarter of fiscal 1999. As a percentage of net revenues, gross profits from product
revenues were 21.6% for the quarter ended January 31, 2000 as compared to 19.6% for
the first quarter ended January 31, 1999. The higher product gross profit percentage
was primarily due to a change in sales mix with a higher percentage of revenues in the
quarter from our higher margin refurbishment operations. Gross profits for the first
quarter of fiscal 2000 from service revenues were 33.0% as compared to 25.7% for the
first quarter ended January 31, 1999. The improved services gross profits were the
result of favorable absorption of installation overhead costs as a result of increased
installation services revenues during the quarter, in addition to sales mix with a
higher percentage of revenues in the quarter from higher margin facilities services.
Selling, general and administrative expenses were $7.5 million, or 18.5% of revenues,
for the first quarter of fiscal 2000 as compared to $4.6 million, or 17.8% of
revenues, for the first quarter of fiscal 1999. Selling, general and administrative
expenses increased over the first quarter of fiscal 1999 primarily due to incremental
expenses of $1.9 million resulting from the Company's acquisitions.
Interest and other expense, net was $254,000 for the three months ended January 31,
2000 as compared to $136,000 for the same period of fiscal 1999. The increased
expense was due to a higher average outstanding balance on the Company's line of
credit during the Fiscal 2000 first quarter as compared to the Fiscal 1999 first
quarter, primarily as a result of the Company's acquisitions.
Liquidity and Capital Resources:
Working capital at January 31, 2000 was $11.1 million, a $0.9 million increase over
the working capital of $10.2 million at October 31, 1999. At January 31, 2000, the
Company had net borrowings of $12.0 million as compared to $11.8 million reported
October 31, 1999. Inventories at January 31, 2000 were $12.9 million, a decrease of
$7.2 million over the $20.1 million reported at October 31, 1999. The decrease in
inventories resulted from a reduction of in-transit inventories in the amount of $7.3
million from October 31,1999. Prepaids and other current assets at January 31, 2000
were $4.6 million, an increase of $1.3 million over the $3.3 million reported at
October 31, 1999. The increase in prepaids and other current assets was primarily due
to increases in prepaid income taxes and vendor deposits. Other assets at January 31,
2000 were $7.0 million, an increase of $1.6 million over the $5.4 million reported at
October 31, 1999. The increase in other assets was due primarily to goodwill related
to the Company's acquisition of Baquet-Patirjak, Inc. (Baquet Pastirjak). Accounts
payable at January 31, 2000 were $10.3 million, a decrease of $4.8 million over the
$15.1 million reported at October 31, 1999. The decrease in payables reflects the
lower in-transit inventories at the end of the quarter.
Net cash used in investing activities during the three months ended January 31, 2000
was $1.9 million and resulted from the Company's acquisition of Baquet-Pastirjak and
purchases of property and equipment.
The Company has an $18.7 million credit facility with a bank which expires on February
15, 2001. The facility is comprised of a $15.0 million line of credit and a $3.7
million acquisition loan facility. However, the Company maintains an irrevocable
stand-by letter of credit in the amount of $3.0 million against this facility. As of
January 31, 2000 the company had bank borrowings of $10.4 million under the existing
credit facility.
The Company believes existing cash, together with cash generated from operations and
the Company's available borrowing capacity will provide sufficient funds to meet the
Company's anticipated working capital requirements for the foreseeable future.
Year 2000
The Company's overall goal was and remains to be prepared for the year 2000, meaning
that critical systems, devices, applications or business relationships have been
evaluated and are expected to be suitable for continued use into and beyond the year
2000, or when contingency plans are put into place. The Company's assessments to date
of the impact of the year 2000 upon its critical systems, devices, applications or
business relationships have not identified any material issues with respect to their
ability to function appropriately. The Company continues to monitor and assess any
potential impact. If, as a result of ongoing assessment, a business function is
determined to be at risk, contingency plans will be developed on an as needed basis.
Based on assessment efforts to date, the Company does not believe that the year 2000
issue will have a material adverse effect on its financial condition or results of
operations. The Company's beliefs and expectations, however, are based on certain
assumptions and expectations that ultimately may prove to be inaccurate.
Even though the date is now past January 1, 2000, and the Company has not experienced
any immediate adverse impact from the transition to the Year 2000, it can not provide
assurance that its suppliers and customers have not been affected in a manner that is
not yet apparent. As a result the Company will continue to monitor its Year 2000
compliance and that of its suppliers and customers.
Costs: The Company estimates that the total cost of replacing its information systems
and achieving year 2000 readiness for its internal systems and equipment will range
from $1.7 to $2.0 million, of which $1.7 million has been incurred by January 31,
2000. Based on its current estimates and information currently available, the Company
does not anticipate that the costs associated with this project will have a material
adverse affect on the Company's consolidated financial position, results of operations
or cash flows in future periods. The Company's aggregate cost estimate does not
include time and costs that may be incurred by the Company as a result of the failure
of any third parties, including suppliers, to be prepared for the year 2000 or costs
to implement any contingency plans.
Based upon assessments to date, the Company believes the most reasonably likely worst
case scenario would be the possible malfunction of personal computer equipment or non-
system critical applications software. In the event of such malfunction the Company
would replace the equipment or software.
Item 3: Quantitative and Qualitative Disclosures about Market Risks
The Company is exposed to interest rate risk primarily through its borrowing
activities. The Company has not used derivative financial instruments to hedge such
risks. There is inherent roll-over risk for borrowings as they mature and are renewed
at current market rates. The extent of this risk is not quantifiable or predictable
because of the variability of future interest rates and business financing
requirements. A hypothetical 100 basis point increase in market interest rates from
levels at January 31, 2000 would not materially affect the Company's future earnings,
the fair value of its borrowings, or its cash flows.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
The Company is not a party to any lawsuit or proceeding which, in
the opinion of management, is likely to have a material adverse effect on
the Company. The Company may from time to time be a party to various
legal proceedings arising in the normal course of its business.
Item 2: Changes in Securities and Use of Proceeds
Not applicable
Item 3: Defaults upon Senior Securities
Not applicable
Item 4: Submission of Matters to a Vote of Security Holders
Not applicable
Item 5: Other information
Not applicable
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 27: Financial data schedule
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K dated November 23, 1999
related to the acquisition of Baquet-Pastirjak, Inc., a California corporation.
BUSINESS RESOURCE GROUP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 10, 2000
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John M. Palmer
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Vice President, Chief
Operating Officer and Chief
Financial Officer
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(Principal Financial
and Accounting Officer)
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