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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2001
COMMISSION FILE NUMBER 0-21202
FIRSTWAVE TECHNOLOGIES, INC.
7372 GEORGIA 58-1588291
(Primary Std. Ind. (State of incorporation) (IRS Employer
Classification Code #) Identification #)
2859 PACES FERRY ROAD, SUITE 1000
ATLANTA, GEORGIA 30339
(Address of principal executive offices)
(770-431-1200)
(Telephone number of registrant)
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.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of May 14, 2001
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Common Stock, no par value 6,300,841 Shares
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FIRSTWAVE TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
INDEX
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - December 31, 2000 and March 31, 2001 3
Consolidated Statement of Operations - For the Three Months Ended
March 31, 2000 and March 31, 2001 4
Consolidated Statement of Changes in Shareholders' Equity -
For the Three Months Ended March 31, 2001 5
Consolidated Statement of Cash Flows - For the Three Months Ended
March 31, 2000 and March 31, 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
DEC 31, MAR 31,
2000 2001
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(UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 1,281 $ 557
RESTRICTED CASH 2,200 2,200
INVESTMENT SECURITIES, HELD TO MATURITY 0 300
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $287 AND $307, RESPECTIVELY 1,774 1,170
PREPAID EXPENSES AND OTHER ASSETS 444 404
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TOTAL CURRENT ASSETS 5,699 4,631
PROPERTY AND EQUIPMENT, NET 717 577
SOFTWARE DEVELOPMENT COSTS, NET 2,580 2,527
GOODWILL 311 268
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$ 9,307 $ 8,003
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 679 $ 392
DEFERRED REVENUE 1,047 908
ACCRUED EMPLOYEE COMPENSATION AND BENEFITS 216 175
BORROWINGS 2,836 3,176
DIVIDENDS PAYABLE 113 97
OTHER ACCRUED LIABILITIES 188 150
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TOTAL CURRENT LIABILITIES 5,079 4,898
REDEEMABLE PREFERRED STOCK 1,702 1,702
SHAREHOLDERS' EQUITY 2,526 1,403
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$ 9,307 $ 8,003
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
MAR 31, MAR 31,
2000 2001
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NET REVENUES
SOFTWARE $ 737 $ 132
SERVICES 672 750
MAINTENANCE 1,094 703
OTHER 66 28
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2,569 1,613
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COST AND EXPENSES
COST OF REVENUES
SOFTWARE 295 284
SERVICES 637 469
MAINTENANCE 430 272
OTHER 64 18
SALES AND MARKETING 963 791
PRODUCT DEVELOPMENT 242 195
GENERAL AND ADMINISTRATIVE 731 663
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3,362 2,692
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OPERATING LOSS (793) (1,079)
INTEREST INCOME/(EXPENSE) 43 (30)
GAIN/(LOSS) ON INVESTMENTS 0 (12)
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LOSS BEFORE INCOME TAXES (750) (1,121)
INCOME TAXES (20) 0
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NET LOSS $ (770) $ (1,121)
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DIVIDENDS ON PREFERRED STOCK (45) (38)
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NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS $ (815) $ (1,159)
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BASIC AND DILUTED
NET LOSS PER SHARE $ (0.14) $ (0.18)
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BASIC AND DILUTED WEIGHTED
AVERAGE SHARES OUTSTANDING 5,752 6,294
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2001
ACCUMULATED
COMMON STOCK ADD'L COMPRE- OTHER
-------------------- PAID-IN HENSIVE COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL LOSS LOSS DEFICIT TOTAL
--------- ------ -------- ------- ------------- ----------- -------
BALANCE AT DECEMBER 31, 2000 6,288,472 $ 12 $ 22,587 $ 0 $ (28) $(20,045) $ 2,526
EXERCISE OF COMMON STOCK OPTIONS 1,700 3 3
EMPLOYEE STOCK PLAN PURCHASES 4,822 4 4
COMPREHENSIVE LOSS:
NET LOSS (1,121) (1,121) (1,121)
UNREALIZED LOSS ON INVESTMENT
SECURITIES (4) (4) (4)
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (5) (5) (5)
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ACCUMULATED COMPREHENSIVE LOSS (1,130)
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--------- ---- -------- ----- -------- -------
BALANCE AT MARCH 31, 2001 6,294,994 $ 12 $ 22,594 $ (37) $(21,166) $ 1,403
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
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MAR 31, 2000 MAR 31, 2001
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CASH FLOWS USED IN OPERATING ACTIVITIES $ (47) $ (517)
CASH FLOWS FROM INVESTING ACTIVITIES
SOFTWARE DEVELOPMENT COSTS (500) (224)
PURCHASES OF PROPERTY AND EQUIPMENT (77) (21)
PURCHASE OF INVESTMENT SECURITIES (493) (711)
PROCEEDS FROM SALE/MATURITY OF INVESTMENT SECURITIES 1,646 395
LOSS ON INVESTMENT SECURITIES 0 12
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NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES 576 (549)
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CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM EMPLOYEE STOCK PURCHASE PLAN 1 4
PAYMENT OF DIVIDENDS ON PREFERRED STOCK (123) (16)
PROCEEDS FROM BORROWINGS 0 750
REPAYMENT OF BORROWINGS 0 (410)
EXERCISE OF COMMON STOCK OPTIONS 192 3
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NET CASH PROVIDED BY FINANCING ACTIVITIES 70 331
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 1 11
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INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 600 (724)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,029 1,281
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,629 $ 557
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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CASH PAID FOR INCOME TAXES $ 20 $ 0
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CASH PAID FOR INTEREST $ 0 $ 60
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
A. BASIS OF PRESENTATION
Firstwave Technologies, Inc. (the "Company") is a provider of Internet
customer relationship management solutions. The Firstwave eCRM
(Internet-based Customer Relationship Management) Suite is an
integrated, Internet-based suite of applications created to fulfill and
manage the e-business relationship needs of a company in the areas of
sales, marketing, and support.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, the consolidated financial
statements do not include all of the information and footnotes required
by generally accepted accounting principles and should be read in
conjunction with the consolidated financial statements contained in the
Company's Form 10-K for the period ended December 31, 2000. In the
opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of
the consolidated financial statements have been included.
The consolidated financial statements include the accounts of Firstwave
Technologies, Inc. and its wholly owned subsidiary Firstwave
Technologies UK, Ltd. All significant intercompany transactions and
balances have been eliminated in consolidation.
B. ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from software product sales is recognized upon shipment of the
product when the Company has a signed contract, the fees are fixed and
determinable, no significant obligations remain and collection of the
resulting receivable is probable. The Company accrues for estimated
warranty costs at the time it recognizes revenue. Services revenue is
recognized as services are performed. Maintenance revenue is recognized
on a pro rata basis over the term of the maintenance agreements.
International revenues are primarily generated by Firstwave UK and
independent distributors who offer licenses of the Company's products
in specific geographic areas. Under the terms of the Company's
international distributor agreements, international distributors
collect license fees and maintenance revenues on behalf of the Company,
and generally remit 50% to 60% of standard license fees and maintenance
revenues they produce. The Company recognizes international sales at
the gross license amount, with the amount paid to the distributors
reflected as a selling expense. The Company's international maintenance
fees are reflected as maintenance revenues, with the amount retained by
distributors shown as a cost of maintenance revenue.
Revenues from nonmonetary exchanges are recorded at the fair value of
the products and services provided or received, whichever is more
clearly evident.
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Advanced billings for services and maintenance contracts are recorded
as deferred revenue on the Company's balance sheet, with revenue
recognized as the services are performed and on a pro-rata basis for
maintenance.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic net loss per common share is based on the weighted average number
of shares of common stock outstanding during the period. Stock options
and convertible preferred stock would have been included in the diluted
earnings per share calculation had they not been antidilutive. Net loss
applicable to common shareholders includes a charge for dividends
related to the Company's outstanding preferred stock.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's international subsidiary are
translated into U.S. dollars at current exchange rates, except for
revenues and expenses, which are translated at average exchange rates
during each reporting period. Currency transaction gains or losses,
which are included in the results of operations, are insignificant for
all periods presented. Net exchange gains or losses resulting from the
translation of assets and liabilities are included as a component of
accumulated other comprehensive income in shareholders' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts 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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates impairment of long-lived assets whenever events
or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset,
an impairment loss would be recognized. Measurement of an impairment
loss for long-lived assets would be based on the fair value of the
asset.
SEGMENT REPORTING
Management believes that it has only a single segment consisting of
software sales with related services and support. The information
presented in the consolidated statement of operations reflects the
revenues and costs associated with this segment that management uses to
make operating decisions and assess performance.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
and for hedging activities. The Company adopted SFAS 133 effective
January 1, 2001 and it did not have a material impact on the
consolidated financial statements.
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C. BORROWINGS
On February 12, 2001 the Company executed a promissory note with its
President and Chief Executive Officer in the amount of $750,000. The
note bears interest at 9% and is payable in full with interest on
January 15, 2002. The note is secured by a junior lien on all of the
Company's assets, subordinate to the Company's bank line of credit.
D. SUBSEQUENT EVENTS
On April 5, 2001, the Company liquidated its $1,500,000 US Treasury
bill and paid off the related $1,500,000 line of credit.
On April 16, 2001, the Company liquidated its $700,000 certificate of
deposit and paid off the related $700,000 promissory note.
On May 8, 2001, the Company paid off the remaining balance on its
revolving line of credit and the agreement was terminated. On May 8,
2001 the Company signed a term sheet with the same commercial bank for
a line of credit for up to $500,000 based on the Company's eligible
accounts receivable, as defined in the agreement. Said line of credit
will expire one year from execution, bear interest at 1.85% per month,
and be secured by the assets of the Company.
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ITEM 2.
FIRSTWAVE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Firstwave Technologies, Inc. provides Internet-based customer relationship
management (eCRM) solutions. The Company is based in Atlanta, Georgia with an
office located in London, England. Firstwave offers powerful applications that
optimize the sales, marketing and customer service functions through a series of
solutions. The Company supports three product lines: Firstwave eCRM,
Takecontrol(R), and Firstwave for Unix.
RESULTS OF OPERATIONS
Total revenues decreased 37.2% from $2,569,000 in the first quarter of 2000 to
$1,613,000 in the first quarter of 2001. Software revenues decreased 82.1% from
$737,000 in the first quarter of 2000 to $132,000 in the first quarter of 2001
due to decreased sales. As a percentage of total revenues, international license
revenues decreased from 17.6% in the first quarter of 2000 to 7.1% in the first
quarter of 2001.
Services revenues increased 11.6% from $672,000 in the first quarter of 2000 to
$750,000 in the first quarter of 2001. The increase in services revenues is due
primarily to increased services engagements by the UK operation.
Maintenance revenues decreased 35.7% from $1,094,000 in the first quarter of
2000 to $703,000 in the first quarter of 2001. Maintenance revenues are the
result of renewal agreements from previous software license sales and
implementation of new agreements from software license sales. The decrease is
primarily due to a decrease in the Company's Takecontrol installed base of
systems covered under maintenance agreements.
Cost of software revenues decreased 3.7% from $295,000 in the first quarter of
2000 to $284,000 in the first quarter of 2001. The decrease is the result of
decreased third party software costs consistent with lower software revenue,
offset by increased amortization of capitalized software associated with the
Firstwave eRM product line. Cost of software revenues include costs of third
party software, amortization of capitalized software costs, media costs, and
documentation materials.
Cost of revenues for services decreased 26.4% from $637,000 in the first quarter
of 2000 to $469,000 in the first quarter of 2001 due to decreased payroll and
related costs. Cost of revenues for maintenance decreased 36.7% from $430,000 in
the first quarter of 2000 to $272,000 in the first quarter of 2001. The decrease
in cost of maintenance is primarily due to decreased cost of international
maintenance consistent with decreased international maintenance revenue.
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Sales and marketing expense decreased 17.9% from $963,000 in the first quarter
of 2000 to $791,000 in the first quarter of 2001. The decreases are due to
changes in the Company's marketing strategy.
The Company's product innovation and development expenditures, which includes
amounts capitalized, decreased 43.5% from $742,000 in the first quarter of 2000
to $419,000 in the first quarter of 2001. The decrease is primarily due to
decreased contract services expense. Software development costs capitalized
during the three months ended March 31, 2000 and 2001 were $500,000 and $224,000
respectively.
General and administrative expenses decreased 9.3% from $731,000 in the first
quarter of 2000 to $663,000 in the first quarter of 2001 due to a decrease in
personnel and personnel related costs.
Net interest income decreased 169.8% from $43,000 net interest income in the
first quarter of 2000 to $30,000 net interest expense in the first quarter of
2001 due to the decrease in invested cash balances and increased level of
borrowings.
The net loss applicable to common shareholders includes a charge for dividends
related to the Company's outstanding convertible preferred stock. The amounts
for first quarter 2000 and first quarter 2001 were $45,000 and $38,000,
respectively.
The above factors combined to result in a 42.2% increase in net loss from
$815,000 in the first quarter of 2000 to a net loss applicable to common
shareholders of $1,159,000 in the first quarter of 2001, and a net loss per
share of $0.14 for the first quarter of 2000 compared to a net loss per share of
$0.18 for the first quarter of 2001.
BALANCE SHEET
Net accounts receivable decreased 34.0% from $1,774,000 at December 31, 2000 to
$1,170,000 at March 31, 2001 due to collection of outstanding receivables and
decreased billings consistent with lower revenues. Property and equipment
decreased 19.5% from $717,000 at December 31, 2000 to $577,000 at March 31,
2001, due to year to date depreciation offset by additional fixed asset
purchases. Accounts payable decreased 42.3% from $679,000 to $392,000 due to
vendor payments made during the first quarter and decreased marketing expenses
during the first quarter. Deferred revenue decreased 13.2% from $1,047,000 at
December 31, 2000 to $908,000 at March 31, 2001 primarily due to the recognition
of three months of maintenance revenues related to annual contracts billed in
advance at year end.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, the balance of cash, cash equivalents and investments was
$857,000. compared to $1,281,000 at December 31, 2000. The Company has
implemented several measures in an effort to reduce the Company's expenses and
to help the Company preserve cash. In addition, the Company is actively pursuing
additional long-term equity and/or debt financing.
The Company's future capital requirements will depend on many factors, including
its ability to increase revenue levels and reduce costs of operations to
generate positive cash flows, as well
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as the timing and extent of spending to support product development efforts and
expansion of sales and marketing, and market acceptance of the Company's
products. As a result, it will likely be necessary for the Company to raise
additional capital. Although the Company has historically been able to satisfy
its cash requirements, there can be no assurance that efforts to obtain
sufficient financing for operations will be successful in the future. The
Company's future capital needs will be highly dependent upon the Company's
ability to control expenses and generate additional software license revenues,
and any projections of future cash needs and cash flows are subject to
substantial uncertainty. The ability to raise additional capital may be
negatively impacted in the event the Company does not maintain Nasdaq listing
requirements. If the Company is unable to obtain the necessary additional
capital, it may be required to reduce the scope of planned product development
and sales and marketing efforts, as well as reduce the size of current staff,
all of which could have a material adverse effect on its business, financial
condition, and the Company's ability to reduce losses or generate profits.
On February 12, 2001 the Company executed a promissory note with its President
and Chief Executive Officer in the amount of $750,000. The note bears interest
at 9% and is payable in full with interest on January 15, 2002. The note is
secured by a junior lien on all of the Company's assets, subordinate to the
Company's bank line of credit.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
None
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
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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.
FIRSTWAVE TECHNOLOGIES, INC.
DATE: May 14, 2001 /s/ Judith A. Vitale
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Judith A. Vitale
Vice President of Finance and Administration
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