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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 JULY 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
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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) 325-3200
(Registrant's Telephone Number, Including Area Code)
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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
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At July 31, 1997 there were 4,913,712 shares of the Registrant's Common Stock
outstanding.
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PART I. FINANCIAL INFORMATION PAGE
Item 1: Condensed Financial Statements
Condensed Balance Sheets
July 31, 1997 and October 31, 1996 ............. 3
Condensed Statements of Operations for the Three
Months and Nine Months ended July 31, 1997
and 1996 ....................................... 4
Condensed Statements of Cash Flows for the
Nine Months ended July 31, 1997 and 1996 ....... 5
Notes to Condensed Financial Statements ........ 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operation
Introduction ................................... 7
Results of Operations .......................... 7
Liquidity and Capital Resources ................ 10
Item 3: Quantitative and Qualitative Disclosures
about Market Risks ............................. 11
PART II. OTHER INFORMATION
Item 1: Legal Proceedings .............................. 11
Item 2: Changes in Securities .......................... 11
Item 3: Defaults Upon Senior Securities ................ 11
Item 4: Submission of Matters to a Vote of
Security Holders ............................... 11
Item 5: Other Information .............................. 11
Item 6: Exhibits and Reports on Form 8-K ............... 12
SIGNATURES ................................................ 13
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS:
BUSINESS RESOURCE GROUP
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
JULY 31, OCTOBER 31,
1997 1996
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(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents $ 1,926 $ 1,011
Accounts receivable, net 10,303 16,122
Inventory 1,247 974
Prepaids and other current assets 1,416 1,387
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Total current assets 14,892 19,494
Property and equipment, net 2,540 2,017
Other assets 944 1,049
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$18,376 $22,560
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $-- $ 476
Accounts payable 2,579 5,935
Accrued liabilities 2,418 2,877
Income taxes payable -- 31
Current portion of notes payable and
capital lease obligations 15 112
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Total current liabilities 5,012 9,431
Deferred income tax liability 127 127
Shareholders' equity:
Preferred stock -- --
Common stock 49 49
Additional paid-in-capital 10,878 10,685
Retained earnings 2,310 2,268
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Total shareholders' equity 13,237 13,002
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$18,376 $22,560
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Note: The balance sheet at October 31, 1996 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed financial statements.
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BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
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1997 1996 1997 1996
-------- -------- -------- --------
Net revenues:
Workspace products $ 9,541 $ 18,495 $ 46,540 $ 49,623
Workspace services 3,301 2,766 11,045 6,580
Vendor commissions 42 79 137 280
-------- -------- -------- --------
Total net revenues $ 12,884 $ 21,340 $ 57,722 $ 56,483
-------- -------- -------- --------
Cost of net revenues:
Workspace products 7,910 15,039 37,511 40,504
Workspace services 2,487 2,002 8,053 4,760
-------- -------- -------- --------
Total cost of net revenues 10,397 17,041 45,564 45,264
-------- -------- -------- --------
Gross profit 2,487 4,299 12,158 11,219
Selling, general and
administrative expenses 3,968 3,597 11,894 9,006
Other operating expenses 276 -- 276 --
-------- -------- -------- --------
Total operating expenses 4,244 3,597 12,170 9,006
-------- -------- -------- --------
Income / (loss) from operations (1,757) 702 (12) 2,213
Interest income - net 49 13 83 94
-------- -------- -------- --------
Income / (loss) before income taxes (1,708) 715 71 2,307
Provision / (benefit) for income taxes (707) 296 29 955
-------- -------- -------- --------
Net income / (loss) $ (1,001) $ 419 $ 42 $ 1,352
======== ======== ======== ========
Net income / (loss) per common
and common equivalent share $ (0.20) $ 0.09 $ 0.01 $ 0.28
======== ======== ======== ========
Shares used in computation 4,904 4,914 4,894 4,864
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See notes to condensed financial statements.
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BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS ENDED
JULY 31,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42 $ 1,352
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 541 257
Changes in operating assets and liabilities:
Accounts receivable 5,819 (5,895)
Inventory (273) (99)
Prepaids and other current assets (29) (498)
Accounts payable (3,356) 496
Accrued liabilities (459) 1,094
Income taxes payable (31) 245
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Net cash provided (used) by operating activities 2,254 (3,048)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (938) (1,166)
Cash paid for acquisitions -- (300)
Other assets (21) (47)
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Net cash used by investing activities (959) (1,513)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft (476) 11
Repayment of notes payable & capital lease obligations (97) (236)
Issuance of common stock 193 128
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Net cash used by financing activities (380) (97)
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NET INCREASE (DECREASE) IN CASH 915 (4,658)
CASH AND EQUIVALENTS:
Beginning of period 1,011 5,326
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End of period $ 1,926 $ 668
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1 $ 29
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Income taxes $ 471 $ 670
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Noncash investing transactions:
Sale of distribution rights for note receivable $ -- $ 177
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Cash flow for acquisitions:
Tangible assets acquired $ -- $ 333
Intangible assets acquired $ -- $ 255
Liabilities assumed $ -- $ (288)
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Cash paid for acquisitions $ -- $ 300
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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 July 31, 1997 and for the three and
nine month periods ended July 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.
NOTE 2. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The Company is required to adopt SFAS 128 in the first quarter of
fiscal 1998 and will restate at that time earnings per share (EPS) data for
prior periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic 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.
If SFAS 128 had been in effect during the current and prior year
periods, basic EPS would have been a loss per share of $.20 for the period
ending July 31, 1997 and earnings per share of $.09 for the quarter ending July
31, 1996. Diluted EPS under SFAS 128 would not have been significantly different
than primary EPS currently reported for the periods.
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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 and nine month periods
ended July 31, 1997 are 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 JULY 31, 1997 COMPARED TO THREE MONTHS ENDED JULY 31, 1996.
Net revenues were $12.9 million for the three months ended July 31,
1997, a decrease of 39.4% from $21.3 million for the three months ended July 31,
1996. Decreases in product revenue ($9.0 million or 48.6%) and vendor commission
($37,000 or 46.8%) offset an increase in service revenue ($535,000 or 19.3%).
The overall decrease in revenue was primarily the result of a decrease in
purchases of the Company's products by Cisco Systems from $10.5 million in the
three months ended July 31, 1996 to $1.5 million in the three months ended July
31, 1997. Slightly offsetting the decline in business from Cisco Systems, during
the quarter ended July 31, 1997 the Company received new large project business
from both new and existing customers (including Versant Technologies, Sony,
Infoseek, National Semiconductor and World
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Savings). Also contributing to the Company's results for the third fiscal
quarter of 1997 was an aggregate increase of $662,000 in product revenue
generated primarily from projects by the Company's Texas Division for Bank One
and Abbott Diagnostics Division. This contribution was offset by a reduction in
revenue from the Southwest Division of $153,000.
During the three months ended July 31, 1997 Cisco Systems and National
Semiconductor, which historically have been significant customers of the
Company, contributed an aggregate of $2.0 million or 15.5% of total revenue,
down from $11.3 million or 53.1% of total revenue in the comparable period in
1996. Cisco represented approximately 11.6% of the Company's revenue for
the quarter ended July 31, 1997. The Company maintains an excellent working
relationship with Cisco Systems and expects Cisco Systems to continue to order
product. However, the order rate will be below historical levels due to the
uncertainty in the computer networking market. There can also be no assurance
that the Company's financial results for future quarters will not be materially
and adversely affected should there be any continued reduction in orders.
Service revenue increased 17.9% during the quarter ended July 31, 1997
to $3.3 million from $2.8 million in the quarter ended July 31, 1996 due to
increases in delivery and workspace management services. Such increases along
with the lower overall revenue base contributed to the increase in service
revenue as a percentage of total revenue, which rose to 25.6% of total revenue
during the quarter ended July 31, 1997, compared to 13.1% during the quarter
ended July 31, 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 decreased to $2.5 million during the third fiscal quarter
of 1997 from $4.3 million during the same period of fiscal 1996, a 41.9%
decrease, while decreasing as a percentage of net revenues to 19.4% during the
third fiscal quarter of 1997 from 20.2% during the same fiscal quarter of 1996.
This decrease was attributable to a $390,000 negative impact of the Department
of Energy Project in Las Vegas, Nevada due to cost overruns. Service margins
also decreased as a percentage of service revenue, to 24.7% in the third quarter
of 1997 from 27.6% in the third quarter of 1996. The decrease was due to the
underabsorption of overhead in the Company's installation services group.
Selling, general and administrative expenses increased 11.1% to $4.0
million from $3.6 million for the same period of the prior year. As a percentage
of net revenue, expenses increased to 31.0% in the third quarter of fiscal 1997
from 16.9% in the third quarter of fiscal 1996. The large increase in percentage
of net revenue can be attributed to a lower revenue base from period to period.
The increase in spending was primarily attributable to the continued expansion
of our Texas, Arizona and San Jose operations, particularly in the areas of
sales and project management personnel, the continued building of
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the Company's business systems and wide-area-network infrastructure, and the
hiring of key management personnel.
In the third quarter of 1997, the Company incurred other operating
expenses of $276,000 mainly for the closure of sales offices in Tucson, Arizona
and Las Vegas, Nevada.
Interest income, net of interest expense and the Company's other
expenses, totaled $49,000 for the three months ended July 31, 1997 versus
interest income, net of interest expense, of $13,000 for the same period of
fiscal 1996.
The Company used a tax rate of 41.4% for both periods reported.
NINE MONTHS ENDED JULY 31, 1997 COMPARED TO NINE MONTHS ENDED JULY 31, 1996.
Net revenues were $57.7 million for the nine months ended July 31,
1997, an increase of 2.2% from $56.5 million for the nine months ended July 31,
1996. Decreases in product revenue ($3.1 million or 6.2%) and commission revenue
of ($143,000 or 51.1%), were offset by an increase in service revenue of ($4.4
million or 66.7%). The overall decrease in revenue was primarily the result of a
decrease of sales to Cisco Systems and National Semiconductor, with combined
revenue of $21.4 million for the nine months ended July 31, 1997, down from
$25.4 million for the same period of 1996. The Company did however have new
large project business from both new and existing customers (including S3, Sony,
HMT Technologies, Network Appliance, Duplan, Versant Technologies, Infoseek,
World Savings, Legato and Varilease Corporation which combined accounted for
approximately $11.7 million in net revenues), and revenue generated by the
Company's Southwestern United States and Texas regional business units ($10.8
million, including large projects from Comp USA, Gadzooks, Titan, Department of
Energy, Motorola, BABN Technologies and Triwest Healthcare Alliance. As noted
above, the Company maintains an excellent working relationship with Cisco
Systems and expects Cisco Systems to continue to order product. However, the
order rate will be below historical levels due to the uncertainty in the
computer networking market. There can also be no assurance that the Company's
financial results for the future quarters will not be materially and adversely
affected should there be any continued reduction in orders.
The increase in service revenue in the first nine months of fiscal 1997
as compared to the year earlier period was primarily attributable to increases
in delivery services, installation and workspace management services.
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 $12.2 million for the first nine months of
fiscal 1997 from $11.2 million during the same period a year ago, an 8.9%
increase. As a percentage of net revenues, gross profit increased
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from 19.9% for the first nine months of fiscal 1996 to 21.1% during the same
period of fiscal 1997. The impact of higher product margin (19.4% in the first
nine months of fiscal 1997 versus 18.4% in the same period of fiscal 1996)
offset by lower service margin (27.0% in the first nine months of fiscal 1997
versus 27.7% in the same period of fiscal 1996) and lower commission revenue
($137,000 in the first nine months of 1997 versus $280,000 in the same period of
fiscal 1996) accounted for the increase in gross profit.
Selling, general and administrative expenses increased 32.2% to $11.9
million for the nine months ended July 31, 1997 from $9.0 million for the same
period of the prior year. As a percentage of net revenue selling, general and
administrative expenses increased from 15.9% for the first nine months of fiscal
1996 to 20.6% for the first nine months of fiscal 1997. The increase in spending
is primarily attributable to increased sales commissions relating to the
addition and expansion of operations in the Company's Texas, Arizona and San
Jose business units, the continued building of the Company's business systems
infrastructure, and the hiring of key management personnel.
In the third quarter of 1997, the Company incurred other operating
expenses of $276,000 mainly for the closure of sales offices in Tucson, Arizona
and Las Vegas, Nevada.
Interest income, net of interest expense totaled $83,000 for the nine
months ended July 31, 1997 versus interest income, net of interest expense of
$94,000 for the same period of fiscal 1996. The decrease was due to lower
average cash balances experienced during the nine month period.
The Company used a tax rate of 41.4% for both periods reported.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at July 31, 1997 was $9.9 million, down slightly from
$10.1 million at October 31, 1996.
In the nine months ended July 31, 1997 the Company generated $2.3
million in cash from operations compared to using $3.0 million in cash from
operations in the first nine months ended July 31, 1996. Cash generated from
operations in the first nine months of 1997 included non-cash charges of
$541,000 relating to depreciation and amortization. In addition, positive cash
flows from operations were due to net income of $42,000 and a decrease in
accounts receivable of $5.8 million. These positive cash flows from operations
were partially offset by decreases of $3.4 million and $459,000 in accounts
payable and accrued liabilities, respectively, and an increase in inventory of
$273,000.
Net cash used in investing activities was $959,000 in the first nine
months ended July 31, 1997 primarily resulting from the purchase of property and
equipment for $938,000.
Net cash used in financing activities in the first nine months of 1997
was $380,000. The primary financing activity during this period
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was the payback of the Company's bank overdraft of $476,000 offset by the
issuance of common stock under the Company's 1995 Employee Stock Purchase Plan
(which generated $193,000 in cash).
The Company's $8.0 million credit facility expired in September 1997 and
was replaced with a new $15.0 million credit facility with an option on a $1.0
million term loan. As of July 31, 1997 the Company had no bank borrowings 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
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 asserted claims for the alleged unauthorized use of the name and
images of Mr. Armstrong. The parties in this case have reached an oral agreement
to settle all claims. The Company is in the process of reducing this settlement
to writing, pursuant to which all claims against the Company will be dismissed
with prejudice. The terms of the proposed settlement will have no material
impact on the Company's financial results or results of operations.
ITEM 2: CHANGES IN SECURITIES
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
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.29: Revolving Credit Loan and Security Agreement between
the Company and Comerica Bank dated August 8, 1997.
(b) Exhibit 11.1: Computation of Net Income Per Share
(c) Exhibit 27: Financial data schedule
(d) Reports on Form 8-K
None
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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
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Registrant
Date: 9/12/97 /s/ Charles J. Winter
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Charles J. Winter
President and
Chief Executive Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
Exhibit Description
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10.29 Revolving Credit Loan and Security Agreement between
the Company and Comerica Bank dated August 8, 1997.
11.1 Computation of Net Income Per Share
27 Financial data schedule
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