<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 JUNE 30, 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
------- -------
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 August 10, 1998:
Common Stock, no par value 5,139,958 Shares
<PAGE> 2
FIRSTWAVE TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance Sheet - December 31, 1997 and June 30, 1998 3
Statement of Operations - For the Three and Six Months ended
June 30, 1997 and June 30, 1998 4
Statement of Changes in Shareholders' Equity -
For the Six Months Ended June 30, 1998 5
Statement of Cash Flows - For the Six Months Ended
June 30, 1997 and June 30, 1998 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 12
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET
<TABLE>
<CAPTION>
DEC 31, JUN 30,
1997 1998
---------- ----------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
CASH AND MARKETABLE SECURITIES $ 4,969 $ 3,648
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $703 AND $698, RESPECTIVELY 3,047 3,057
OTHER ASSETS 636 1,194
---------- ----------
TOTAL CURRENT ASSETS 8,652 7,899
PROPERTY AND EQUIPMENT, NET 1,938 1,949
DEFERRED INCOME TAX BENEFIT 2,362 2,362
SOFTWARE DEVELOPMENT COSTS, NET 1,089 838
INTANGIBLE ASSET 245 661
---------- ----------
$ 14,286 $ 13,709
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 868 $ 1,424
ACCRUED RESTRUCTURING COSTS 325 170
DEFERRED REVENUE 1,545 1,617
ACCRUED EMPLOYEE COMPENSATION
AND BENEFITS 614 575
OTHER ACCRUED LIABILITIES 282 419
---------- ----------
TOTAL CURRENT LIABILITIES 3,634 4,205
COMMON STOCK SUBJECT TO REPURCHASE 300 0
SHAREHOLDERS' EQUITY 10,352 9,504
---------- ----------
$ 14,286 $ 13,709
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-3-
<PAGE> 4
FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1998 1997 1998
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NET REVENUES
SOFTWARE $ 1,191 $ 868 $ 1,910 $ 2,187
SERVICES 1,336 1,376 2,601 2,265
MAINTENANCE 1,380 1,301 2,644 2,604
OTHER 173 193 333 292
---------- ---------- ---------- ----------
4,080 3,738 7,488 7,348
---------- ---------- ---------- ----------
COST AND EXPENSES
COST OF REVENUES
SOFTWARE 143 173 198 340
SERVICES 972 1,001 1,928 1,720
MAINTENANCE 472 431 932 827
OTHER 171 181 329 280
SALES AND MARKETING 1,511 1,322 2,444 3,021
PRODUCT DEVELOPMENT 400 564 924 1,089
GENERAL AND ADMINISTRATIVE 699 791 1,828 1,406
---------- ---------- ---------- ----------
4,368 4,463 8,583 8,683
---------- ---------- ---------- ----------
OPERATING LOSS (288) (725) (1,095) (1,335)
INTEREST EXPENSE 0 0 (40) 0
INTEREST INCOME 44 61 92 115
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (244) (664) (1,043) (1,220)
INCOME TAX 0 (53) 0 (70)
---------- ---------- ---------- ----------
NET LOSS $ (244) $ (717) $ (1,043) $ (1,290)
========== ========== ========== ==========
BASIC AND DILUTED
NET LOSS PER SHARE $ (0.05) $ (0.14) $ (0.21) $ (0.25)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON SHARE EQUIVALENTS 4,955 5,129 4,955 5,110
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-4-
<PAGE> 5
FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
--------------------- ADD'L LOSS ON
PAID-IN MARKETABLE COMPREHENSIVE
SHARES AMOUNT CAPITAL SECURITIES INCOME
--------- ---------- ---------- -------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 5,033,027 $ 9 $ 19,329 $ (14) $ 0
EMPLOYEE STOCK PURCHASE 3,459 0 11 0 0
STOCK ISSUED RELATED TO
NETGAIN ACQUISITION 67,989 0 300 0 0
EXERCISE OF COMMON STOCK 31,636 0 103 0 0
OPTIONS
ISSUANCE OF STOCK OPTIONS 0 0 7 0 0
COMPREHENSIVE LOSS
NET LOSS 0 0 0 0 (1,290)
GAIN/(LOSS) ON FOREIGN
CURRENCY 0 0 0 0 21
-------------
COMPREHENSIVE LOSS $ (1,269)
--------- ---------- ---------- -------------- =============
BALANCE AT JUNE 30, 1998 5,136,111 $ 9 $ 19,750 $ (14)
========= ========== ========== ==============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE ACCUMULATED
INCOME DEFICIT TOTAL
-------------- ----------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ 0 $ (8,972) $ 10,352
EMPLOYEE STOCK PURCHASE 0 0 11
STOCK ISSUED RELATED TO
NETGAIN ACQUISITION 0 0 300
EXERCISE OF COMMON STOCK 0 0 103
OPTIONS
ISSUANCE OF STOCK OPTIONS 0 0 7
COMPREHENSIVE LOSS
NET LOSS 0 (1,290) (1,290)
GAIN/(LOSS) ON FOREIGN
CURRENCY 21 0 21
COMPREHENSIVE LOSS
------------ -------- --------
BALANCE AT JUNE 30, 1998 $ 21 $(10,262) $ 9,504
============ ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-5-
<PAGE> 6
FIRSTWAVE TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------
JUNE 30, 1997 JUNE 30, 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES $ (67) $ (861)
CASH FLOWS FROM INVESTING ACTIVITIES
ACQUISITION OF CO-CAM UK 0 (246)
PURCHASES OF PROPERTY AND EQUIPMENT (13) (356)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (13) (602)
--------- ---------
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 15 11
EXERCISE OF COMMON STOCK OPTIONS 36 110
--------- ---------
NET CASH (USED IN)/PROVIDED BY
FINANCING ACTIVITIES (2,132) 121
--------- ---------
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 0 21
--------- ---------
DECREASE IN CASH (2,212) (1,321)
CASH AND MARKETABLE SECURITIES, BEGINNING OF PERIOD 6,947 4,969
--------- ---------
CASH AND MARKETABLE SECURITIES, END OF PERIOD $ 4,735 $ 3,648
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
--------- ---------
CASH PAID DURING THE PERIOD FOR INTEREST $ 84 $ 0
========= =========
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 0 $ 58
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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<PAGE> 7
FIRSTWAVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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
Financial Accounting Standards 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.
C. ACQUISITION
On April 30, 1998 the Company acquired its largest international
distributor, Co-cam UK. Based in London, Co-cam UK now operates as
Firstwave UK. 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. The excess of
cost over the estimated fair value of the net assets acquired was
$455,000 (including cost of acquisition of approximately $180,000) and
has been accounted for as goodwill and is being amortized over five
years.
-7-
<PAGE> 8
ITEM 2.
FIRSTWAVE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1997, AND THE SIX MONTHS ENDED JUNE 30, 1998
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997.
Second quarter 1998 yielded on-plan performance of total revenues of $3,738,000
and a net loss of $717,000. These results consolidate two months of operating
performance of Firstwave UK with three months of US operations. Firstwave UK
added 42 employees to the Company workforce resulting in increased costs
compared to first quarter 1998.
Total revenues decreased 8.4% from $4,080,000 in the second quarter of 1997 to
$3,738,000 in the second quarter of 1998 primarily due to a decrease in
international license revenue. Year to date, total revenues decreased slightly
from $7,488,000 in 1997 to $7,348,000 in 1998. While software revenues decreased
27.1% from $1,191,000 in the second quarter of 1997 to $868,000 in the same
period of 1998 due to lower international license revenue, year to date,
software revenues increased 14.5% from $1,910,000 in 1997 to $2,187,000 in 1998.
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 45.7% from $1,013,000 in the
second quarter of 1997 to $550,000 in the corresponding quarter of 1998. Year to
date, revenues from international licenses increased 37.6% from $1,279,000 in
1997 to $1,760,000 in 1998. As a percentage of total revenues, international
license revenues decreased from 24.8% in the second quarter of 1997 to 14.7% in
second quarter of 1998, and year to date increased as a percentage of total
revenues from 17.1% in 1997 to 24.0% in 1998. During the second quarter of 1998
total revenue for Firstwave UK was $985,000 which represents 26.4% of total
revenue.
Services revenues increased 3.0% from $1,336,000 in the second quarter of 1997
to $1,376,000 in the second quarter of 1998 primarily as a result of the
addition of services revenues from Firstwave UK. Year to date, services revenues
decreased 12.9% from $2,601,000 in 1997 to $2,265,000 in 1998. The year to date
decrease in services revenues is consistent with the year to date decrease in
domestic software license revenues.
-8-
<PAGE> 9
Maintenance revenues decreased 5.7% from $1,380,000 in the second quarter of
1997 to $1,301,000 in second quarter of 1998. Year to date, maintenance revenues
remained consistent at $2,604,000 for the first six months of 1998. Other
revenues increased 11.6% from $173,000 in the second quarter of 1997 to $193,000
in the second quarter of 1998. Year to date, other revenues decreased 12.3% from
$333,000 in 1997 to $292,000 in 1998. These changes are due to changes in
certain reimbursable travel charges consistent with the changes in services
revenue.
Cost of software revenues increased 21.0% from $143,000 in the second quarter of
1997 to $173,000 in the second quarter of 1998. Year to date, cost of software
revenues increased 71.7% from $198,000 in 1997 to $340,000 in 1998. These
increases are a result of an increase in third party software costs associated
with the Netgain product and an increase in amortization of capitalized
software. For the first six months of the year, amortization of capitalized
software increased from $168,000 in 1997 to $251,000 in 1998. This increase
resulted from the Company's release of Take Control '97, a major upgrade, in
late February 1997 which allowed only four months of amortization year to date
at June 1997 compared to six months of amortization year to date at June 1998.
Cost of software revenues include costs of third party software, amortization of
capitalized software costs and costs of packaging and documentation materials
and related media costs.
Cost of revenues for services increased 3.0% from $972,000 in the second quarter
of 1997 to $1,001,000 in the second quarter of 1998 due to increases in the
number of service personnel and related costs associated with the addition of
Firstwave UK. Year to date, cost of revenues for services decreased 10.8% from
$1,928,000 in 1997 to $1,720,000 in 1998 due to decreased personnel in Firstwave
US services departments. Cost of revenues for maintenance decreased 8.7% from
$472,000 in the second quarter of 1997 to $431,000 in the second quarter of
1998. Year to date, cost of revenues for maintenance decreased 11.3% from
$932,000 in 1997 to $827,000 in 1998.
Cost of other revenues increased 5.8% from $171,000 in the second quarter of
1997 to $181,000 in the second quarter of 1998; and, year to date, decreased
14.9% from $329,000 in 1997 to $280,000 in 1998. These variances are due to
fluctuations in reimbursable travel charges consistent with the changes in other
revenue.
Sales and marketing expense decreased 12.5% from $1,511,000 in the second
quarter of 1997 to $1,322,000 in the second quarter of 1998. Year to date, sales
and marketing expense increased 23.6% from $2,444,000 in 1997 to $3,021,000 in
1998. The quarterly decrease was primarily due to a decrease in commissions
associated with the decrease in software sales revenues. The year to date
increase is related to increased marketing materials and advertising expenses
associated with the new corporate identity and name change from Brock
International, Inc. to Firstwave Technologies, Inc.
-9-
<PAGE> 10
The Company's product innovation and development expenditures increased 41.0%
from $400,000 in the second quarter of 1997 to $564,000 in the second quarter of
1998. Year to date, product innovation and development expenditures increased
17.9% from $924,000 in 1997 to $1,089,000 in 1998. These increases are related
to increases in personnel and personnel related costs due to increased resources
dedicated to Netgain product development. Development resources totaled 15
employees at June 30, 1997 compared to 24 employees at June 30, 1998.
General and administrative expenses increased 13.2% from $699,000 in the second
quarter of 1997 to $791,000 in the second quarter of 1998. Year to date, general
and administrative expenses decreased 23.1% from $1,828,000 in 1997 to
$1,406,000 in 1998. The quarterly increase is due to the addition of Firstwave
UK and the resulting expenses of maintaining the London office. The year to date
decrease is attributed to higher bad debt expense and increased incentive
compensation costs in 1997 that did not recur in 1998.
The above factors combined to result in a net loss of $244,000 in the second
quarter of 1997 compared to a net loss of $717,000 in the second quarter of
1998, and a net loss per share of $.05 for the second quarter of 1997 compared
to a net loss per share of $.14 for the second quarter of 1998. Year to date,
net loss increased 23.7% from $1,043,000 in 1997 compared to $1,290,000 in 1998.
Year to date, net loss per share increased 19.0% from $0.21 per share in 1997
compared to $0.25 per share in 1998.
BALANCE SHEET
Cash and cash equivalents decreased 26.6% from $4,969,000 at December 31, 1997,
to $3,648,000 at June 30, 1998, due to investment in product development of
future technologies, acquisition costs and funding of operations of Firstwave
UK. Other assets increased 87.7% due to the acquisition of Co-cam UK. Intangible
assets increased 169.8% from $245,000 at December 31, 1997 to $661,000 at June
30, 1998, due to goodwill resulting from the acquisition of Co-cam UK offset by
the amortization of goodwill. Accounts payable increased 64.1% from $868,000 at
December 31, 1997 to $1,424,000 at June 30, 1998 due to the acquisition of
Co-cam UK. Accrued restructuring costs declined 47.7% from $325,000 at December
31, 1997 to $170,000 at June 30, 1998. The remaining accrual represents costs
associated with non-cancelable leases which will amortize over the remaining
life of the leases. Other accrued liabilities increased 48.6% from $282,000 at
December 31, 1997 to $419,000 at June 30, 1998 due to the acquisition of Co-cam
UK.
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<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and marketable securities of $3,648,000
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 second quarter of 1998, the Company invested more than a million
dollars in product development, sales, and marketing to launch Netgain Sales(TM)
- - the Company's new product. The Company also funded the operating expenses for
May and June of Firstwave UK. As of June 30, 1998, there were no borrowings
against the $3,000,000 line of credit.
The Company's product line is Year 2000 compatible. A review of Year 2000
compatibility for the Company's internal systems has been completed and revealed
some internal systems are not yet Year 2000 compliant, however, the cost to
comply has been determined to be immaterial.
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<PAGE> 12
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
The proxy or proxies designated by the Company will have discretionary
authority to vote on any matter properly presented by a shareholder for
consideration at the 1999 Annual Meeting of Shareholders but not
submitted for inclusion in the proxy materials for such meeting unless
notice of the matter is received by the Company at its principal
executive office not later than February 19, 1999 and certain other
conditions of the applicable rules of the Securities and Exchange
Commission are satisfied.
Item 6. Exhibits and Reports on form 8-K
a) Exhibit 27 Financial Data Schedule (for SEC use only).
b) Form 8-K filed May 13, 1998 reporting the acquisition of
Co-cam UK, a division of PMS Creative UK.
-12-
<PAGE> 13
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: August 10, 1998 /s/ Judith A. Vitale
-----------------------------------
Judith A. Vitale
Director of Finance and Administration
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 488
<SECURITIES> 3,160
<RECEIVABLES> 3,057<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,899
<PP&E> 1,949<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,709
<CURRENT-LIABILITIES> 4,205
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 9,495
<TOTAL-LIABILITY-AND-EQUITY> 13,709
<SALES> 2,187
<TOTAL-REVENUES> 7,348
<CGS> 340
<TOTAL-COSTS> 3,167
<OTHER-EXPENSES> 5,516
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,220)
<INCOME-TAX> (70)
<INCOME-CONTINUING> (1,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,290)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
<FN>
<F1>
A/R AND PPE ASSET VALUES REPRESENT NET AMOUNTS
</FN>
</TABLE>
