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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, 1999
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
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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 12, 1999:
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Common Stock, no par value 5,154,819 Shares
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FIRSTWAVE TECHNOLOGIES, INC.
FORM 10-Q
For the quarter ended March 31, 1999
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - December 31, 1998 and March 31, 1999 3
Consolidated Statement of Operations - For the Three Months ended
March 31, 1998 and March 31, 1999 4
Consolidated Statement of Changes in Shareholders' Equity -
For the Three Months Ended March 31, 1999 5
Consolidated Statement of Cash Flows - For the Three Months Ended
March 31, 1998 and March 31, 1999 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Part II. Other Information 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
DEC 31, MAR 31,
1998 1999
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $2,245 $2,926
Accounts receivable, less allowance for
doubtful accounts of $425 and $632, respectively 3,146 2,235
Other assets 395 307
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Total Current Assets 5,786 5,468
Property and equipment, net 1,501 1,185
Deferred income tax benefit 2,621 2,621
Software development costs, net 770 972
Intangible asset 644 595
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$11,322 $10,841
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,354 $997
Deferred revenue 1,581 1,370
Accrued employee compensation
and benefits 284 323
Other accrued liabilities 343 280
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Total current liabilities 3,562 2,970
Deposit on preferred stock offering 0 1,000
Shareholders' equity 7,760 6,871
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$11,322 $10,841
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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
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MAR 31, MAR 31,
1998 1999
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Net revenues
Software $1,319 $1,171
Services 889 959
Maintenance 1,303 1,233
Other 99 99
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3,610 3,462
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Cost and expenses
Cost of revenues
Software 167 205
Services 719 633
Maintenance 396 301
Other 99 95
Sales and marketing 1,699 1,379
Product development 525 624
General and administrative 615 1,079
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4,220 4,316
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Operating loss (610) (854)
Interest income 54 18
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Loss before income taxes (556) (836)
Income tax (17) (4)
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Net Loss ($573) ($840)
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Basic and diluted
net loss per share ($0.11) ($0.16)
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Basic and diluted weighted
average shares outstanding 5,102 5,160
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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, 1999
COMMON STOCK
---------------------- ADD'L COMPRE- OTHER
PAID-IN HENSIVE COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL LOSS INCOME/(LOSS) DEFICIT TOTAL
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Balance at December 31, 1998 5,151,322 $10 $19,813 $0 $34 ($12,097) $7,760
Employee Stock Purchase 1,266 3 3
Comprehensive loss
Net loss (840) (840) (840)
Foreign currency translation adj (52) (52) (52)
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Comprehensive Loss (892)
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Balance At March 31, 1999 5,152,588 $10 $19,816 ($18) ($12,937) $6,871
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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, 1998 MAR 31, 1999
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Cash flows provided by operating activities $ 415 $ 94
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Cash flows from investing activities
Software development costs 0 (344)
Purchases of property and equipment (208) (20)
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Net cash used in investing activities (208) (364)
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Cash flows from financing activities
Proceeds from employee stock purchase plan 6 3
Proceeds from deposit on preferred stock offering 0 1,000
Exercise of common stock options 10 0
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Net cash provided by financing activities 16 1,003
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Foreign currency translation adjustment 0 (52)
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Increase in cash 223 681
Cash and cash equivalents, beginning of period 4,969 2,245
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Cash and cash equivalents, end of period $5,192 $2,926
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Supplemental disclosure of cash flow information
Cash paid during the period for income taxes $ 17 $ 4
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The accompanying notes are an integral part of these financial statements.
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FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal
occurring accruals) considered necessary for a fair presentation have
been included.
B. ACCOUNTING POLICIES
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 were the only securities issued which would have been included
in the diluted loss per share calculation had they not been
antidilutive.
FOREIGN CURRENCIES
Assets and liabilities recorded in foreign currencies are translated
at the exchange rate on the balance sheet date and the effects of
foreign currency translation adjustments are included as a component
of stockholders' equity.
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ITEM 2.
FIRSTWAVE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1998.
First quarter 1999 yielded total revenues of $3,462,000 and a net loss of
$840,000, slightly better than market expectations. The Company's April 30,
1998 acquisition of its largest international distributor, Co-cam UK, affects
the comparisons between the first quarter of 1998 and the first quarter of
1999. During the first quarter of 1998 Co-cam UK operated as an independent
international distributor. However, during the first quarter of 1999, these
operations are included in the consolidated financial statements as a wholly
owned subsidiary, Firstwave UK.
Total revenues decreased 4.1% from $3,610,000 in the first quarter of 1998 to
$3,462,000 in the first quarter of 1999. Total software revenues decreased
11.2% from $1,319,000 in the first quarter of 1998 to $1,171,000 in the same
period of 1999. The first quarter's revenues reflect increased sales of
domestic software license revenues, while international software license
revenues decreased. The Company's quarter-to-quarter revenues are significantly
dependent upon the timing of the closing of license agreements.
Revenues from international license sales decreased 35.7 % from $1,210,000 in
the first quarter of 1998 to $778,000 in the corresponding quarter of 1999 as a
result of lower sales by international distributors. As a percentage of total
revenues, international license revenues decreased from 33.5% in the first
quarter of 1998 to 22.5% in first quarter of 1999. During the first quarter of
1999, revenue generated from sales in the United Kingdom and Australia each
exceeded 10% of total revenue.
Services revenues increased 7.9% from $889,000 in the first quarter of 1998 to
$959,000 in the first quarter of 1999 due to the addition of services revenues
generated by Firstwave UK. Maintenance revenues decreased 5.4% from $1,303,000
in first quarter of 1998 to $1,233,000 in the first quarter of 1999 due to
cancellations of domestic maintenance agreements.
Cost of software revenues increased 22.8% from $167,000 in the first quarter of
1998 to $205,000 in the first quarter of 1999. The increase is the result of
increased amortization expense due to the increased capitalization of costs
associated with the Netgain product line and increased third party software
costs. Cost of software revenues include amortization of capitalized software,
costs of third party software, and costs of packaging and documentation
materials and related media costs.
Cost of revenues for services decreased 12.0% from $719,000 in the first
quarter of 1998 to $633,000 in the first quarter of 1999 due to decreases in
domestic payroll and
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related costs partially offset by an increase in payroll related to the
addition of Firstwave UK.
Cost of revenues for maintenance decreased 24.0% from $396,000 in the first
quarter of 1998 to $301,000 in the first quarter of 1999. The decrease is
primarily due to a decrease in international maintenance costs from the
acquisition of Firstwave UK. Previously, while operating as a distributor, a
portion of the maintenance revenue was retained by the distributor and recorded
as a cost of maintenance by the Company. Now as a wholly owned subsidiary, the
full amount of the maintenance revenue is retained by the Company. This
decrease in maintenance costs was partially offset by increases in payroll and
related costs due to the addition of Firstwave UK personnel.
Sales and marketing expense decreased 18.8% from $1,699,000 in the first
quarter of 1998 to $1,379,000 in the first quarter of 1999. The decrease was a
result of decreases in commissions associated with the decrease in
international license revenue and decreases in marketing expenses related to
the new corporate identity and name change from Brock International, Inc. to
Firstwave Technologies, Inc. which occurred during the first quarter of 1998.
The Company's product innovation and development expenditures increased 18.9%
from $525,000 in the first quarter of 1998 to $624,000 in the first quarter of
1999. The increase is due to increased payroll costs and contract services
expense related to the increased development efforts on the Netgain(TM)
Enterprise and TakeControl(R)Today products. During the first quarter of 1999,
$344,000 in software costs were capitalized. No capitalization occurred in the
first quarter of 1998.
General and administrative expenses increased 75.4% from $615,000 in the first
quarter of 1998 to $1,079,000 in the first quarter of 1999. The increase is
attributed to the addition of Firstwave UK administrative personnel, the costs
associated with maintaining the London office, and increased provisions for bad
debts.
BALANCE SHEET
Net accounts receivable decreased 29.0% from $3,146,000 at December 31, 1998,
to $2,235,000 at March 31, 1999, primarily as a result of the collection of
outstanding receivables. Property and equipment, net decreased 21.1% from
$1,501,000 at December 31, 1998 to $1,185,000 at March 31, 1999 due to
depreciation and write off of some obsolete computer equipment. Capitalized
software increased 26.2% from $770,000 at December 31, 1998 to $972,000 at
March 31, 1999 due to additional capitalization of $344,000 in development
costs during the first quarter of 1999 net of $142,000 of amortization.
Accounts payable decreased 26.4% from $1,354,000 at December 31, 1998 to
$997,000 at March 31, 1999 due to payments made on outstanding payables.
Deferred revenue decreased 13.3% from $1,581,000 at December 31, 1998 to
$1,370,000 at March 31, 1999 due to recognition of first quarter 1999
maintenance revenues related to annual contracts billed in advance at year end.
The deposit on preferred stock offering was $1,000,000 at March 31, 1999, which
represents the receipt of funds in advance of the Company's April 26, 1999
closing of its private placement offering of Series A Convertible Preferred
Stock.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had cash and cash equivalents of $2,926,000 and
believes that its present liquidity position, recent equity infusions and the
available line of credit are sufficient to finance the Company's operations
during 1999 and beyond. During the first quarter of 1999, the Company renewed
its $3,000,000 line of credit for another one-year term, which now expires
March 14, 2000. The line of credit bears interest at the prime rate and is
secured by the assets of the Company. As of March 31, 1999 there were no
borrowings against the line of credit.
SUBSEQUENT EVENTS
The Company raised $2 million through the sale of Series A Convertible
Preferred Stock in a private placement offering which closed on April 26, 1999.
The Company received $1 million in March 1999 in advance of the closing of this
offering.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
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
Item 6. Exhibits and Reports on Form 8-K
Exhibit 3.1 Amended and Restated Articles of Incorporation, as amended.
Exhibit 27 Financial Data Schedule (for SEC use only).
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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 12, 1999 /s/ Judith A. Vitale
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Judith A. Vitale
Vice President of Finance and Administration
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