<PAGE> 1
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, 1998
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, 1998:
Common Stock, no par value 5,130,261 Shares
<PAGE> 2
FIRSTWAVE TECHNOLOGIES, INC.
FORM 10-Q
For the quarter ended March 31, 1998
INDEX
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet - December 31, 1997 and March 31, 1998 3
Statement of Operations - For the Three Months ended
March 31, 1997 and March 31, 1998 4
Statement of Changes in Shareholders' Equity -
For the Three Months Ended March 31, 1998 5
Statement of Cash Flows - For the Three Months Ended
March 31, 1997 and March 31, 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information 11
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTWAVE TECHNOLOGIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DEC 31, MAR 31,
1997 1998
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(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND MARKETABLE SECURITIES $ 4,969 $ 5,192
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $703 AND $688, RESPECTIVELY 3,047 1,945
OTHER ASSETS 636 583
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TOTAL CURRENT ASSETS 8,652 7,720
PROPERTY AND EQUIPMENT, NET 1,938 1,899
DEFERRED INCOME TAX BENEFIT 2,362 2,362
SOFTWARE DEVELOPMENT COSTS, NET 1,089 964
INTANGIBLE ASSET 245 232
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$14,286 $13,177
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 868 $ 1,086
ACCRUED RESTRUCTURING COSTS 325 247
DEFERRED REVENUE 1,545 1,224
ACCRUED EMPLOYEE COMPENSATION
AND BENEFITS 614 345
OTHER ACCRUED LIABILITIES 282 180
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TOTAL CURRENT LIABILITIES 3,634 3,082
COMMON STOCK SUBJECT TO REPURCHASE 300 0
SHAREHOLDERS' EQUITY 10,352 10,095
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$14,286 $13,177
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<PAGE> 4
FIRSTWAVE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
MAR 31, MAR 31,
1997 1998
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
NET REVENUES
SOFTWARE $ 719 $ 1,319
SERVICES 1,265 889
MAINTENANCE 1,264 1,303
OTHER 160 99
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3,408 3,610
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COST AND EXPENSES
COST OF REVENUES
SOFTWARE 55 167
SERVICES 956 719
MAINTENANCE 460 396
OTHER 158 99
SALES AND MARKETING 933 1,699
PRODUCT DEVELOPMENT 524 525
GENERAL AND ADMINISTRATIVE 1,129 615
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4,215 4,220
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OPERATING LOSS (807) (610)
INTEREST EXPENSE (40) 0
INTEREST INCOME 48 54
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LOSS BEFORE INCOME TAXES (799) (556)
INCOME TAX 0 (17)
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NET LOSS $ (799) $ (573)
======= =======
BASIC AND DILUTED
NET LOSS PER SHARE $ (0.16) $ (0.11)
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON SHARE EQUIVALENTS 4,951 5,102
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<PAGE> 5
FIRSTWAVE TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
---------------------- ADD'L LOSS ON
PAID-IN MARKETABLE RETAINED
SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
--------- ------ ------- ---------- -------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 5,033,027 $9 $19,329 $(14) $(8,972) $10,352
EMPLOYEE STOCK PURCHASE 2,025 0 3 0 3
STOCK ISSUED RELATED TO 67,989 0 300 0 300
NETGAIN ACQUISITION
EXERCISE OF COMMON STOCK
OPTIONS 20,757 0 6 0 6
ISSUANCE OF STOCK OPTIONS 0 7 0 7
NET LOSS (573) (573)
--------- -- ------- ---- ------- -------
BALANCE AT MARCH 31, 1998 5,123,798 $9 $19,645 $(14) $(9,545) $10,095
========= == ======= ==== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<PAGE> 6
FIRSTWAVE TECHNOLOGIES, INC
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------
MAR 31, 1997 MAR 31, 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS (USED IN)/ PROVIDED BY OPERATING ACTIVITIES $ (30) $ 415
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASES OF PROPERTY AND EQUIPMENT (3) (208)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (3) (208)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
REPAYMENTS OF BORROWINGS UNDER LINE OF CREDIT (1,975) 0
REPAYMENTS OF BORROWINGS UNDER NOTES PAYABLE (208) 0
PROCEEDS FROM EMPLOYEE STOCK PURCHASE PLAN 11 6
EXERCISE OF COMMON STOCK OPTIONS 36 10
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NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (2,136) 16
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UNREALIZED GAIN ON CASH EQUIVALENTS 3 0
------- -------
INCREASE/(DECREASE) IN CASH (2,166) 223
CASH AND MARKETABLE SECURITIES, BEGINNING OF PERIOD 6,947 4,969
------- -------
CASH AND MARKETABLE SECURITIES, END OF PERIOD $ 4,781 $ 5,192
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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CASH PAID DURING THE PERIOD FOR INTEREST $ 84 $ 0
======= =======
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 0 $ 17
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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 presented in accordance with FAS
128,"Earnings per Share", which provides for new accounting principles
used in the calculation of earnings per share and was effective for
financial statements for both interim and annual periods ended after
December 15, 1997. The Company has restated the basic and diluted net
loss per common share for all periods presented to give effect to FAS
128. 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 earnings per share calculation had they not been
antidilutive.
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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, 1998 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1997.
Effective March 1, 1998 the Company changed its name from Brock International,
Inc. to Firstwave Technologies, Inc.
The first quarter of 1998 yielded on-plan performance of total revenues of
$3,610,000 and net loss of $573,000. This is the second consecutive quarter the
Company posted year-over-year improvement in top and bottom line results.
Total revenues increased 5.9% from $3,408,000 in the first quarter of 1997 to
$3,610,000 in the first quarter of 1998. The Company's quarter-to-quarter
revenues are significantly dependent upon the timing of the closing of license
agreements. Total software revenues increased 83.4% from $719,000 in the first
quarter of 1997 to $1,319,000 in the same period of 1998 due to increased
international license revenues.
Revenues from international license sales increased 354.9 % from $266,000 in the
first quarter of 1997 to $1,210,000 in the corresponding quarter of 1998 as a
result of several large system expansions in Europe and Mexico. As a percentage
of total revenues, international license revenues increased from 7.8% in the
first quarter of 1997 to 33.5% in first quarter of 1998. During the first
quarter of 1998, revenue generated from sales in the United Kingdom exceeded 10%
of total revenue at $512,000.
Services revenues decreased 29.7% from $1,265,000 in the first quarter of 1997
to $889,000 in the first quarter of 1998 as a result of lower headcount and
decreased domestic software license revenues. Maintenance revenues remained
strong at $1,303,000 in first quarter of 1998 compared to $1,264,000 in the
first quarter of 1997. Other revenues decreased 38.1% from $160,000 in the first
quarter of 1997 to $99,000 in the first quarter of 1998 primarily due to
decreases in certain reimbursable travel charges consistent with the decline in
services revenue.
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<PAGE> 9
Cost of software revenues increased 203.6% from $55,000 in the first quarter of
1997 to $167,000 in the first quarter of 1998. This increase is a result of
increased amortization of capitalized software from $42,000 in the first quarter
of 1997 compared to $126,000 in the first quarter of 1998. The increase in
amortization resulted from the Company's release of TakeControl '97, a major
upgrade, in late February 1997 which allowed only one month of amortization
during the first quarter of 1997 compared to three months amortization during
the first quarter of 1998. For the first three months of the year, third party
software and documentation costs have increased 215.4% from $13,000 in 1997 to
$41,000 in 1998 due to increased third party software expenses. 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 24.8% from $956,000 in the first quarter
of 1997 to $719,000 in the first quarter of 1998 due to decreases in payroll and
related costs associated with a decrease in the number of service personnel from
34 employees to 26 employees. Cost of revenues for maintenance decreased 13.9%
from $460,000 in the first quarter of 1997 to $396,000 in the first quarter of
1998. The decrease is primarily due to decreases in support personnel and
personnel related costs.
Cost of other revenues decreased 37.3% from $158,000 in the first quarter of
1997 to $99,000 in the first quarter of 1998 due to a decrease in reimbursable
travel charges.
Sales and marketing expense increased 82.1% from $933,000 in the first quarter
of 1997 to $1,699,000 in the first quarter of 1998. The increase was primarily
due to an increase in commissions associated with the increase in international
license revenue and increases in payroll and payroll associated costs related to
the increase in sales and marketing personnel from 16 employees at March 31,
1997 to 21 employees at March 31, 1998. During the first quarter of 1998 the
Company also had increased trade show, marketing materials, and advertising
expenses relating to the new corporate identity and name change from Brock
International, Inc. to Firstwave Technologies, Inc.
The Company's product innovation and development expenditures remained
consistent at $525,000 in the first quarter of 1998 compared to $524,000 in the
first quarter of 1997. No capitalization was recorded during the first quarter
of 1997 or 1998 because development activities qualifying for capitalization
were immaterial.
General and administrative expenses decreased 45.5% from $1,129,000 in the first
quarter of 1997 to $615,000 in the first quarter of 1998. The decreases are
attributed to decreased bad debt expense and decreases in professional fees
related to litigation with a customer that went to trial during the first
quarter 1997. (The case was settled favorably during the third quarter of 1997.)
Decreases in personnel and personnel related costs including telephone and
insurance also contributed to the lower expenses.
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<PAGE> 10
The above factors combined to result in a net loss of $573,000 in the first
quarter of 1998 compared to a net loss of $799,000 in the first quarter of 1997,
and a net loss per share of $.11 for the first quarter of 1998 compared to a net
loss per share of $.16 for the first quarter of 1997.
BALANCE SHEET
Net accounts receivable decreased 36.2% from $3,047,000 at December 31, 1997, to
$1,945,000 at March 31, 1998, as a result of the collection of outstanding
receivables and lower revenues of $3,610,000 for the first quarter 1998 compared
to $4,850,00 in the fourth quarter of 1997. Accrued restructuring declined 24.0%
from $325,000 at December 31, 1997 to $247,000 at March 31, 1998 as a result of
the amortization of costs associated with non-cancelable leases. The remaining
accrual represents costs associated with non-cancelable leases which will
amortize over the remaining life of the leases. Accrued employee compensation
and benefits decreased 43.8% from $614,000 at December 31, 1997 to $345,000 at
March 31, 1998 due to first quarter payments of annual incentives and
commissions accrued at December 31, 1997. Common stock subject to repurchase
decreased 100% from $300,000 at December 31, 1997 to none at March 31, 1998 as a
result of reclassifying the stock to equity upon the February 13, 1998
registration of the shares on Form S-3 with the SEC.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and marketable securities of $5,192,000
and believes that its present liquidity position and available line of credit
are sufficient to finance the Company's operations during 1998 and beyond.
During the first quarter of 1998, the Company executed a $3,000,000 line of
credit arrangement with a bank. The line of credit bears interest at the prime
rate plus 1% and reduces to the prime rate upon the Company's attainment of
quarterly income objectives. The line of credit is secured by substantially all
of the corporate assets of the Company with a negative pledge on intellectual
property. As of March 31, 1998 there were no borrowings against the line of
credit. The Company will be investing aggressively in its Internet technologies
to maximize future performance.
SUBSEQUENT EVENTS
On April 30, 1998, the Company acquired its largest international distributor,
Co-Cam UK. Based in London, Co-Cam UK is a leading sales and marketing solutions
provider with an expertise in call center applications. The transaction was an
asset purchase from PMS Creative Ltd., a wholly owned subsidiary of Policy
Management Systems Corporation. The purchase price of approximately $426,000 is
payable in cash in four quarterly installments beginning July 31, 1998, after a
payment of approximately $85,000 on the date of closing.
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<PAGE> 11
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
a) Exhibits - 27 Financial Data Schedule (for SEC use only).
b) Reports on Form 8-K
Form 8-K filed January 13, 1998 reporting the acquisition of Netgain
Corporation
Form 8-K filed May 13, 1998 reporting the acquisition of Co-Cam, a
division of PMS Creative UK
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<PAGE> 12
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, 1998 /s/ Judith A. Vitale
--------------------
Judith A. Vitale
Director of Finance and Administration
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRSTWAVE TECHNOLOGIES INC. FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 342
<SECURITIES> 4,850
<RECEIVABLES> 1,945<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,720
<PP&E> 1,899<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,177
<CURRENT-LIABILITIES> 3,082
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 10,086
<TOTAL-LIABILITY-AND-EQUITY> 13,177
<SALES> 1,319
<TOTAL-REVENUES> 3,610
<CGS> 167
<TOTAL-COSTS> 1,381
<OTHER-EXPENSES> 2,839
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (556)
<INCOME-TAX> 17
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (573)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
<FN>
<F1>A/R AND PPE ASSET VALUES REPRESENT NET AMOUNTS.
</FN>
</TABLE>
