1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1997
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)
CALIFORNIA 77-0150337
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification No.)
2150 NORTH FIRST STREET, SUITE 101
SAN JOSE, CA 95131
(Address of principal executive offices)
(408) 441-3700
(Registrant's telephone number, including area code)
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 such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes ________No
At January 31, 1997 there were 4,871,063 shares of the Registrant's common
stock outstanding.
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BUSINESS RESOURCE GROUP
FORM 10-Q
QUARTER ENDED JANUARY 31, 1997
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1: Condensed Financial Statements
Condensed Balance Sheets at
January 31, 1997 and October 31, 1996 .......................... 3
Condensed Statements of Income for the Three
Months ended January 31, 1997 and 1996 ......................... 4
Condensed Statements of Cash Flows for the
Three Months ended January 31, 1997 and 1996 ................... 5
Notes to Condensed Financial Statements ........................ 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations .................................................. 7
PART II: OTHER INFORMATION
Item 1: Legal Proceedings .............................................. 9
Item 2: Changes in Securities - none
Item 3: Defaults Upon Senior Securities - none
Item 4: Submission of Matters to a Vote of
Security Holders - none
Item 5: Other Information - none
Item 6: Exhibits and Reports on Form 8-K ............................... 10
SIGNATURES ..................................................................... 10
EXHIBITS ....................................................................... 11
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BUSINESS RESOURCE GROUP
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
JANUARY 31, OCTOBER 31,
1997 1996
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents ............ $ 15 $ 1,011
Accounts receivable, net ........ 17,168 16,122
Inventory ....................... 849 974
Prepaids and other current assets 1,365 1,387
------- -------
Total current assets ......... 19,397 19,494
Property and equipment, net ......... 2,342 2,017
Other assets ........................ 1,027 1,049
------- -------
$22,766 $22,560
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft .................. $ 1,012 $ 476
Accounts payable ................ 4,926 5,935
Accrued liabilities ............. 3,030 2,908
Income taxes payable ............ 51 --
Notes payable and capital
lease obligations ............... 61 112
------- -------
Total current liabilities .... 9,080 9,431
Deferred income taxes ............... 127 127
Shareholders' equity:
Preferred stock ................. -- --
Common stock .................... 49 49
Additional paid-in capital ...... 10,733 10,685
Retained earnings ............... 2,777 2,268
------- -------
Total shareholders' equity ... 13,559 13,002
------- -------
$22,766 $22,560
======= =======
See notes to condensed financial statements.
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BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
1997 1996
---- ----
Net revenues:
Workspace products $18,448 $12,835
Workspace services 3,813 1,549
Vendor commissions 51 119
------- -------
Total net revenues 22,312 14,503
------- -------
Cost of net revenues:
Workspace products 14,830 10,362
Workspace services 2,733 1,073
------- -------
Total cost of net revenues 17,563 11,435
------- -------
Gross profit 4,749 3,068
Selling, general and
administrative expenses 3,904 2,431
------- -------
Income from operations 845 637
Interest income - net 23 55
------- -------
Income before income taxes 868 692
Provision for income taxes 359 286
------- -------
Net income $ 509 $ 406
======= =======
Net income per common and
common equivalent share $ .10 $ .08
======= =======
Shares used in computation 4,906 4,830
======= =======
See notes to condensed financial statements.
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BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 509 $ 406
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization ..................... 162 87
Changes in operating assets and liabilities:
Accounts receivable ............................ (1,046) (2,343)
Inventory ...................................... 125 (78)
Prepaids and other current assets .............. 22 (582)
Accounts payable ............................... (1,009) 1,697
Accrued liabilities ............................ 122 49
Income taxes payable ........................... 51 247
------- -------
Net cash used by operating activities ................ (1,064) (517)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .................. (445) (339)
Cash paid for acquisitions ........................... -- (300)
Other assets ......................................... (20) (80)
------- -------
Net cash used by investing activities ................ (465) (719)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft ............................. 536 (651)
Repayment of notes payable & capital lease obligations (51) (94)
Issuance of common stock ............................. 48 --
------- -------
Net cash provided (used) by financing activities ..... 533 (745)
------- -------
NET DECREASE IN CASH AND EQUIVALENTS ..................... (996) (1,981)
CASH AND EQUIVALENTS:
Beginning of period .................................. 1,011 (5,326)
------- -------
End of period ..................................... $ 15 $ 3,345
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................. $ 1 $ 10
======= =======
Income taxes ......................................... $ 340 $ --
======= =======
Cash flow for acquisitions:
Tangible assets acquired ............................. $ -- $ 333
Intangible assets acquired ........................... -- 255
Liabilities assumed .................................. -- (288)
------- -------
Cash paid for acquisitions ........................... $ -- $ 300
======= =======
See notes to condensed financial statements.
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BUSINESS RESOURCE GROUP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The financial information as of January 31, 1997 and for the three
month periods ended January 31, 1997 and 1996 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, 1996. 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.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION:
Except for the historical information contained in this Quarterly
Report on Form 10-Q, the matters discussed herein are forward-looking statements
that are subject to certain risks and uncertainties that could cause the actual
results to differ materially from those projected. Factors that could cause
actual results to differ materially include the timely availability, delivery
and acceptance of new products and services, 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 SEC reports and
press releases, copies of which are available from the Company upon request.
Additionally, the results of operations for the three month period ended January
31, 1997 is not necessarily indicative of the results to be expected for the
full fiscal year. Operating results are subject to the successful close of large
project business and related vendor lead times. The Company's revenues are
generally the result of a consultative selling process and the precise timing of
the issuance of customer purchase orders is often contingent upon customer site
development and move-in schedules. In order to minimize risk of procurement
errors and obsolete inventory, the Company generally does not issue vendor
purchase orders until final product configurations are documented in a formal
customer purchase order. As a result, the short-term timing of product delivery
can be impacted, which in turn may affect the specific quarter in which revenue
is recognized on particular projects. Vendor delivery lead times also affect
product availability and the resulting time at which the Company delivers
product and recognizes revenue; lead times for many of the products sold by the
Company average 4 to 12 weeks. Consequently, these factors can affect quarter to
quarter results. The Company assumes no obligation to update any forward-looking
statements contained herein.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1996.
Net revenues were $22.3 million for the three months ended January 31,
1997, an increase of 54% from $14.5 million for the three months ended January
31, 1996. Increases in product revenue ($5.6 million or 44%) and service revenue
($2.3 million or 146%) more than offset the decline in vendor commissions
($68,000 or 57%). The overall increase in revenue was primarily the result of
new large project business from both new and existing customers (including Cisco
Systems, S3, National Semiconductor, PointCast, World Savings, Sony and Edify),
the addition of six new sales people (up 13% over the prior year to 52) and
revenue generated by the Company's southwestern United States and Texas regional
business units acquired in September 1995 and January 1996, respectively ($4.1
million, including large projects from Titan Insurance, CompUSA and The
Department of Energy).
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Cisco Systems and National Semiconductor, which historically have been
significant customers of the Company, contributed $8.1 million or 36% of total
revenue, up from $4.2 million or 29% of total revenue in the comparable period
in fiscal 1996. Cisco Systems alone represented approximately 37% of the
Company's revenues for the fiscal year ended October 31, 1996 and approximately
33% for the first fiscal quarter ended January 31, 1997. While the Company
maintains an excellent working relationship with Cisco Systems, the Company has
been advised that business uncertainty in the computer networking market
generally may cause Cisco to reduce its rate of orders for the Company's
products in the current quarter as well as in future quarters. In the event of
any such reduction, there can be no assurance that the Company's overall
financial results will not be materially and adversely affected.
Service revenue increased due to increases in installation, delivery
services and workspace management services. Such increases contributed to the
increase in service revenue as a percentage of total revenue, which rose to 17%
from 11% in the first quarter of 1996.
Commission revenue declined as most vendors have discontinued their
policies of billing customers directly and only paying a commission to the
Company.
Gross profit increased to $4.7 million during the the first fiscal
quarter of 1997 from $3.1 million during the same period of fiscal 1996, a 55%
increase, while remaining constant, at 21%, as a percentage of net revenues. The
impact of higher product margins (20% in the first quarter of fiscal 1997 versus
19% in the same period of fiscal 1996) offset a decline in service margins from
31% in the first quarter of 1996 to 28% in the first quarter of 1997. The
decrease in service margin was due to a service mix shift to lower margin
volume-related delivery services and underabsorption of overhead in the
Company's developing regional workspace management services and installation
businesses.
Selling, general and administrative expenses increased 61% to $3.9
million for the three months ended January 31, 1997 from $2.4 million for the
same period of the prior fiscal year. As a percentage of net revenues, expenses
increased from 17% in the first quarter of fiscal 1996 to 18% in the first
quarter of fiscal 1997. The increase in spending was primarily attributable to
increased sales commissions relating to higher revenue levels, the addition and
expansion of operations in the Company's new business unit in Texas, the
expansion of operations in Arizona and San Jose, the continued building of the
Company's business system infrastructure, and the hiring of key management
personnel.
Interest and other income, net of interest expense, totaled $23,000 for
the three months ended January 31, 1997 versus $55,000 for the same period of
fiscal 1996. The decrease was due to lower cash balances, the result of the
Company investing its cash in normal business activities.
The Company's effective tax rate was 41.4% for both periods reported.
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LIQUIDITY AND CAPITAL RESOURCES:
Working capital at January 31, 1997 was $10.3 million, up slightly from
$10.1 million at October 31, 1996.
During the three months ended January 31, 1997, net cash used by
operating activities was $1.1 million, primarily representing net income of
$509,000, a decrease in inventory of $125,000 and an increase in accrued
liabilities of $122,000, offset by increases in accounts receivable of $1.0
million and decreases in accounts payable of $1.0 million. Accounts receivable
increased as a result of increased revenue and the timing of such revenue during
the quarter ended January 31, 1997, reflecting in particular a relatively large
percentage of sales during the final month of the quarter. Accounts payable
decreased due to the accleration of vendor payments to take advantage of
available vendor discounts. Net cash used in investing activities was $465,000
primarily representing the purchase of property and equipment for $445,000. Net
cash provided by financing activities was $533,000, representing the change in
bank overdraft of $536,000, the issuance of common stock for the Company's
employee stock purchase plan of $48,000, offset by repayments of capital lease
obligations and notes payable of $51,000.
As of January 31, 1997 the Company had no borrowings against its $8
million credit facility.
The Company presently 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 and its planned expansion/acquisition strategy for the foreseeable
future.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On January 24,1997 Neil A. Armstrong filed a complaint against the
Company, one of its vendors and another third party in the United States
District Court for the Northern District of California. In general, this
complaint asserts claims for the alleged unauthorized use of the name and images
of Mr. Armstrong. Although no assurances can be given as to the results of this
case, based on its present status, management does not believe that such results
will have a material adverse effect on the Company's financial condition or
results of operations.
ITEM 2: CHANGES IN SECURITIES - NONE
ITEM 3: DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5: OTHER INFORMATION - NONE
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.2 Amended and Restated Bylaws of Registrant
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the three months ended January 31, 1997.
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.
BUSINESS RESOURCE GROUP
Registrant
Date: 3/13/97 /s/P. Steven Melman
------------------- ----------------------------------
P. Steven Melman
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
Exhibit
No. Document
3.2 Amended and Restated Bylaws of Registrant
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule