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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 JANUARY 31, 1998
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 January 31, 1998 there were 4,918,514 shares of the Registrant's Common Stock
outstanding.
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PAGE
PART I. FINANCIAL INFORMATION
Item 1: Condensed Financial Statements
Condensed Balance Sheets as of
January 31, 1998 and October 31, 1997 ........................ 3
Condensed Statements of Income for the Three
Months ended January 31, 1998
and 1997 ..................................................... 4
Condensed Statements of Cash Flows for the
Three Months ended January 31, 1998 and 1997 ................. 5
Notes to Condensed Financial Statements ...................... 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction ................................................. 7
Results of Operations ........................................ 7
Financial Condition .......................................... 8
Item 3: Quantitative and Qualitative Disclosures
about Market Risks ........................................... 9
PART II. OTHER INFORMATION
Item 1: Legal Proceedings ............................................ 9
Item 2: Changes in Securities ........................................ 9
Item 3: Defaults Upon Senior Securities .............................. 9
Item 4: Submission of Matters to a Vote of
Security Holders ............................................. 9
Item 5: Other Information ............................................ 9
Item 6: Exhibits and Reports on Form 8-K ............................. 9
SIGNATURES............................................................. 10
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PART I - FINANCIAL INFORMATION
ITEM 1: CONDENSED FINANCIAL STATEMENTS
BUSINESS RESOURCE GROUP
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
JANUARY 31, OCTOBER 31,
1998 1997
----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents .............................. $ -- $ 274
Accounts receivable, net .......................... 13,834 13,764
Inventory ......................................... 2,348 1,398
Prepaids and other current assets ................. 2,169 2,076
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Total current assets ........................... 18,351 17,512
Property and equipment, net .......................... 2,353 2,346
Other assets ......................................... 863 902
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$21,567 $20,760
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft .................................... $ 295 $ --
Accounts payable .................................. 4,190 3,997
Accrued liabilities ............................... 4,232 4,236
Income taxes payable .............................. 95 --
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Total current liabilities ...................... 8,812 8,233
Deferred income tax liability ........................ 75 75
Shareholders' equity:
Preferred stock ................................... -- --
Common stock ...................................... 49 49
Additional paid-in capital ........................ 10,988 10,897
Retained earnings ................................. 1,643 1,506
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Total shareholders' equity ..................... 12,680 12,452
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$21,567 $20,760
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Note: The balance sheet at October 31, 1997 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 INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
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1998 1997
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Net revenues:
Workspace products .......................... $ 15,293 $ 18,448
Workspace services .......................... 2,966 3,813
Vendor commissions .......................... 24 51
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Total net revenues ...................... 18,283 22,312
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Cost of net revenues:
Workspace products .......................... 12,216 14,830
Workspace services .......................... 2,268 2,733
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Total cost of net revenues .............. 14,484 17,563
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Gross profit .................................... 3,799 4,749
Selling, general and administrative expenses .... 3,558 3,904
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Income from operations .......................... 241 845
Net interest income/(expense) ................... (9) 23
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Earnings before income taxes .................... 232 868
Income taxes .................................... 95 359
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Net earnings .................................... $ 137 $ 509
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Net earnings per share:
Basic ....................................... $ .03 $ 0.10
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Diluted ..................................... $ .03 $ 0.10
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See notes to condensed financial statements
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BUSINESS RESOURCE GROUP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
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1998 1997
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OPERATING ACTIVITIES:
Net earnings ....................................................... $ 137 $ 509
Adjustments to reconcile to net cash used by operating activities:
Depreciation and amortization .................................. 165 162
Warrants issued for services ................................... 91 --
Changes in operating assets and liabilities:
Accounts receivable .......................................... (70) (1,046)
Inventory .................................................... (950) 125
Prepaids and other current assets ............................ (93) 23
Accounts payable ............................................. 193 (1,011)
Accrued liabilities .......................................... (4) 160
Income taxes payable ......................................... 95 20
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Net cash used by operating activities ................ (436) (1,058)
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INVESTING ACTIVITIES:
Purchase of property and equipment ................................. (130) (445)
Other assets ....................................................... (3) (20)
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Net cash used by investing activities ....................... (133) (465)
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FINANCING ACTIVITIES:
Bank overdraft ..................................................... 295 536
Repayment of notes payable and capital lease obligations ........... -- (51)
Issuance of common stock ........................................... -- 48
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Net cash provided by financing activities ................... 295 533
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Net decrease in cash and equivalents ................................. (274) (996)
CASH AND EQUIVALENTS BALANCES:
Beginning of period ................................................ 274 1,011
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End of period ...................................................... $ -- $ 15
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Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest ........................................................... $ -- $ 1
======= =======
Income taxes ....................................................... $ -- $ 340
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See notes to 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, 1998 and for the three month
period ended January 31, 1998 and 1997 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, 1997. 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" (SFAS128). The
Company has adopted SFAS 128 in the first quarter of fiscal 1998 and has
restated earnings per share (EPS) data for prior periods to conform with SFAS
128.
SFAS 128 replaces previous 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.
THREE MONTHS ENDED
JANUARY 31,
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1998 1997
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(IN THOUSANDS)
Net earnings.................................. $ 137 $ 509
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Weighted average common shares outstanding ... 4,914 4,863
Common equivalent shares:
Stock options.............................. 16 43
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Total common stock and common
stock equivalents.......................... 4,930 4,906
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Options to purchase 298,202 and 279,613 shares of common stock were outstanding
during the first quarter of fiscal 1998 and 1997, respectively, but were not
included in the computation of diluted EPS
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because the options' exercise price was greater than the average market price of
the common shares.
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 SEC reports 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. Additionally, the results of operations
for the three month period ended January 31, 1998 are not necessarily indicative
of the results to be expected for the full fiscal year. 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 the "Registrant" refer to Business Resource Group.
RESULTS OF OPERATIONS:
NET REVENUES were $18.3 million for the three months ended January 31,
1998, a decrease of $4.0 million from the $22.3 million reported for the three
months ended January 31, 1997. This overall decline in revenues was primarily
attributable to timing differences in quarter over quarter project business with
several large customers, which affected both workspace products and services
revenues. The Company continues to maintain an excellent working relationship
with these customers.
GROSS PROFIT decreased to $3.8 million during the first quarter of
fiscal 1998 from $4.7 million during the same period of fiscal 1997, a $900,000
decrease, while decreasing as a percentage of net revenues to 20.8% during the
first quarter of fiscal 1998 from 21.3% during the same quarter of fiscal 1997.
The decline of $900,000 in gross profit was primarily the result of lower
revenues in the quarter. The decline
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as a percent of revenue was attributable to lower workspace services gross
profit primarily due to lower absorption of overhead costs during the first
quarter of fiscal 1998 as compared to the first quarter of fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE expenses decreased $300,000, or 9%,
to $3.6 million from $3.9 million for the same period of the prior year. As a
percentage of net revenue, expenses increased to 19.5% in the first quarter of
fiscal 1998 from 17.5% in the first quarter of fiscal 1997. The decrease in
spending was primarily attributable to lower levels of sales compensation costs
due to lower revenues. The increase as a percentage of net revenue was
attributable to lower revenues in the first quarter of fiscal 1998 as compared
to fiscal 1997.
INTEREST EXPENSE, net of interest income and the Company's other
expenses, was $9,000 for the three months ended January 31, 1998 as compared to
$23,000 for the same period of fiscal 1997. This decrease was due to lower
average cash balances during the quarter.
FINANCIAL CONDITION:
Working capital at January 31, 1998 was $9.5 million, up slightly from
$9.3 million at October 31, 1997. The current ratio of 2.1 as of January 31,
1998 was equal to the current ratio reported as of January 31, 1997. At January
31, 1998 the Company had a bank overdraft of $295,000 as compared to cash and
equivalents of $274,000 reported January 31, 1997 primarily due to higher
inventories at January 31, 1998. Inventory at January 31, 1998 was $2.3 million,
an increase of $900,000 from the $1.4 million reported at January 31, 1997. The
increase in inventory was primarily due to inventory in transit at the end of
the quarter from suppliers pending delivery to customers.
Investments in property and equipment, which were primarily related to
management information systems hardware, were $130,000 in the three months ended
January 31, 1998.
The Company has a $15.0 million credit facility with a bank which
expires on August 8, 1999 with an option on an additional $1.0 million term
loan. As of January 31, 1998 the Company had no bank borrowings under the
existing credit facility. The Company maintains an irrevocable stand-by letter
of credit in the amount of $3.0 million with a major vendor.
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.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is not currently subject to any significant legal
proceedings. The Company may from time to time be a party to various legal
proceedings arising in the normal course of its business. These actions could
include product liability, employee related issues and disputes with vendors or
customers.
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) Exhibits
Exhibit 3.2: Amended and restated bylaws of Registrant
Exhibit 10.33: Stand by Letter of Credit with Comerica Bank
Exhibit 10.34: Amended Stand by Letter of Credit with Comerica Bank
Exhibit 10.35: Collateral Security Agreement with Teknion, Inc.
Exhibit 27: Financial data schedule
(b) 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: 3/11/98 /s/ John M. Palmer
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John M. Palmer
Vice President and Chief
Financial Officer
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EXHIBIT INDEX
Exhibits
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Exhibit 3.2: Amended and restated bylaws of Registrant
Exhibit 10.33: Stand by Letter of Credit with Comerica Bank
Exhibit 10.34: Amended Stand by Letter of Credit with Comerica Bank
Exhibit 10.35: Collateral Security Agreement with Teknion, Inc.
Exhibit 27: Financial data schedule