<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
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 APRIL 30, 1996
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
-------------------------------
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) 441-3700
(Registrant's telephone number, including area code)
-----------------------------------------
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
--- ---
At April 30, 1996 there were 4,840,639 shares of the Registrant's common stock
outstanding.
Page 1 of 13
<PAGE> 2
BUSINESS RESOURCE GROUP
FORM 10-Q
QUARTER ENDED APRIL 30, 1996
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1: Condensed Financial Statements
Condensed Balance Sheets at
April 30, 1996 and October 31, 1995 ....................... 3
Condensed Statements of Income for the Three
Months and Six Months ended April 30, 1996
and 1995 .................................................. 4
Condensed Statements of Cash Flows for the
Six Months ended April 30, 1996 and 1995 .................. 5
Notes to Condensed Financial Statements ................... 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................................. 7
PART II: OTHER INFORMATION
Item 1: Legal Proceedings - none
Item 2: Changes in Securities - none
Item 3: Defaults Upon Senior Securities - none
Item 4: Submission of Matters to a Vote of
Security Holders - none
Item 5: Other Information - none
Item 6: Exhibits and Reports on Form 8-K ...................... 11
SIGNATURES ............................................................ 11
EXHIBITS .............................................................. 12
Page 2 of 13
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BUSINESS RESOURCE GROUP
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
APRIL 30, OCTOBER 31,
1996 1995
----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents ................................ $ 3,336 $ 5,326
Accounts receivable, net ............................ 12,315 7,168
Inventory ........................................... 1,437 929
Prepaids and other current assets ................... 1,669 941
--------- ---------
Total current assets ........................ 18,757 14,364
Property and equipment, net ........................... 1,268 733
Other assets .......................................... 1,214 956
--------- ---------
$ 21,239 $ 16,053
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft ...................................... $ 769 $ 651
Accounts payable .................................... 5,258 2,096
Accrued liabilities ................................. 2,472 1,905
Income taxes payable ................................ 620 --
Current portion of notes payable and
capital lease obligations .......................... 92 242
--------- ---------
Total current liabilities ................... 9,211 4,894
Notes payable and capital lease obligations 56 120
Deferred income tax liability ......................... 19 19
Shareholders' equity:
Preferred stock ..................................... -- --
Common stock ........................................ 48 48
Additional paid-in capital .......................... 10,558 10,558
Retained earnings ................................... 1,347 414
--------- ---------
Total shareholders'equity ............. 11,953 11,020
--------- ---------
$ 21,239 $ 16,053
========= =========
</TABLE>
See notes to condensed financial statements.
Page 3 of 13
<PAGE> 4
<TABLE>
<CAPTION>
BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
------------------ ------------------
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
Workspace products ......................... $ 18,293 $10,491 $ 31,128 $ 16,985
Workspace services ......................... 2,265 1,610 3,814 3,092
Vendor commissions ......................... 82 149 201 339
-------- ------- -------- --------
Total net revenues ...................... 20,640 12,250 35,143 20,416
-------- ------- -------- --------
Cost of net revenues:
Workspace products ......................... 15,103 8,052 25,465 13,293
Workspace services ......................... 1,685 1,203 2,758 2,069
-------- ------- -------- --------
Total cost of net revenues .............. 16,788 9,255 28,223 15,362
-------- ------- -------- --------
Gross profit ................................ 3,852 2,995 6,920 5,054
Selling, general and
administrative expenses ................... 2,978 2,151 5,409 3,829
-------- -------- -------- -------
Income from operations ...................... 874 844 1,511 1,225
Interest income (expense) - net ............. 26 (24) 81 (26)
-------- ------- -------- --------
Income before income taxes .................. 900 820 1,592 1,199
Provision for income taxes .................. 373 14 659 21
-------- ------- -------- --------
Net income .................................. $ 527 $ 806 $ 933 $ 1,178
======== ======= ======== ========
Net income per common and common
equivalent share ........................ $ .11 $ .19
======== ========
Shares used in computation .................. 4,919 4,889
======== ========
Pro forma (Note 2):
Historical income before
income taxes ........................ $ 820 $ 1,199
Pro forma income taxes .................. 340 497
------- --------
Pro forma net income .................... $ 480 $ 702
======= ========
Pro forma net income per common
and common equivalent share ............... $ .14 $ .21
======= ========
Pro forma shares used in computation 3,406 3,406
======= ========
</TABLE>
See notes to condensed financial statements.
Page 4 of 13
<PAGE> 5
<TABLE>
<CAPTION>
BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
APRIL 30,
-----------------
1996 1995
------ --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 933 $ 1,178
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization .................................. 184 53
Stock compensation ............................................. -- 67
Changes in operating assets and liabilities:
Accounts receivable .......................................... (4,822) (1,288)
Inventory .................................................... (507) 153
Prepaids and other current assets ............................ (721) (71)
Accounts payable ............................................. 2,917 (98)
Accrued liabilities .......................................... 524 35
Income taxes payable ......................................... 620 --
------ --------
Net cash provided (used) by operating activities ................. (872) 29
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .............................. (627) (132)
Cash paid for acquisitions ....................................... (300) (150)
Other assets ..................................................... (95) (3)
------ --------
Net cash used by investing activities ............................ (1022) (285)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft ......................................... 118 --
Distributions to shareholders .................................... -- (1,932)
Borrowings on line of credit - net ............................... -- 2,470
Repayment of notes payable & capital lease obligations ........... (214) (72)
Issuance of common stock, net of compensation .................... -- 9
------ --------
Net cash used by financing activities ............................ (96) 475
------ --------
NET INCREASE (DECREASE) IN CASH ................................... (1,990) 219
CASH AND EQUIVALENTS:
Beginning of period .............................................. 5,326 192
------ --------
End of period .................................................... $3,336 $ 411
====== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ......................................................... $ 19 $ 61
====== ========
Income taxes ..................................................... $ -- $ 47
====== ========
Cash flow for acquisitions:
Tangible assets acquired ......................................... $ 333 $ 64
Intangible assets acquired ....................................... $ 255 $ 363
Liabilities assumed .............................................. $ (288) $ (32)
Notes payable issued ............................................. $ -- $ (245)
------ --------
Cash paid for acquisitions ....................................... $ 300 $ 150
====== ========
</TABLE>
See notes to condensed financial statements.
Page 5 of 13
<PAGE> 6
BUSINESS RESOURCE GROUP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The financial information as of April 30, 1996 and with respect to the
three and six month periods ended April 30, 1996 and 1995 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, 1995. 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.
Reclassification - Certain reclassifications have been made in fiscal
1995 financial information to conform to the 1996 presentation.
NOTE 2. PRO FORMA INFORMATION
The condensed statements of income for the three month and six month
periods ended April 30, 1995 included a pro forma provision for income taxes. At
the close of business on June 25, 1995, the election to treat the Company as an
S Corporation for tax purposes was revoked. The pro forma provision reflects
income taxes as if the Company had operated as a C Corporation for each of the
periods.
Pro forma net income per common and common equivalent share is computed
by dividing the pro forma net income by the weighted average number of common
and common equivalent shares outstanding during the period. Common stock
equivalents are calculated using the treasury stock method.
Page 6 of 13
<PAGE> 7
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION:
Except for the historical information contained in this Quarterly
Report on Form 10-Q, the matters discussed herein are forward-looking statements
that are subject to certain risks and uncertainties that could cause the actual
results to differ materially from those projected. Factors that could cause
actual results to differ materially include the timely availability, delivery
and acceptance of new products and services, 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.
Additionally, the results of operations for the three and six month periods
ended April 30, 1996 are not necessarily indicative of the results to be
expected for the full fiscal year. Operating results are subject to the
successful close of large project business and related vendor lead times. The
Company's revenues are generally the result of a consultative selling process
and the precise timing of the issuance of customer purchase orders is often
contingent upon customer site development and move-in schedules. In order to
minimize risk of procurement errors and obsolete inventory, the Company
generally does not issue vendor purchase orders until final product
configurations are documented in a formal customer purchase order. As a result,
the short term timing of product delivery can be impacted, which in turn may
affect the specific quarter in which revenue is recognized on particular
projects. Vendor delivery lead times also affect product availability and the
resulting time at which the Company delivers product and recognizes revenue;
lead times for many of the products sold by the Company average 4 to 12 weeks.
Consequently, these factors can affect quarter to quarter results. The Company
assumes no obligation to update any forward-looking statements contained herein.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED APRIL 30, 1996 COMPARED TO THREE MONTHS ENDED APRIL 30, 1995.
Net revenues were $20.6 million for the three months ended April 30,
1996, an increase of 68% from $12.3 million for the three months ended April 30,
1995. Increases in product revenue ($7.8 million or 74%) and service revenue
($655,000 or 41%) more than offset the decline in vendor commissions ($67,000 or
45%). The overall increase in revenue was primarily the result of new large
project business from both new and existing customers (Cisco Systems, National
Semiconductor, the City & County of San Francisco's Main Library, Silicon Valley
Group, and Atmel), the addition of twenty-two new sales people (up 88% over the
prior year to 49) and the revenue generated by the southwestern United States
and Texas regional business units acquired in September 1995 and January 1996,
respectively ($1.8 million, including large projects from Motorola and Comp
USA). Cisco Systems and National Semiconductor, which historically have been
Page 7 of 13
<PAGE> 8
significant customers to the Company, contributed $9.7 million or 47% of total
revenue, up from $6.7 million but down from 55% of the total revenue in the
comparable period in 1995. Service revenue increased due to increases in
installation and delivery services, all directly related to the increases in
product revenues. Service revenue as a percentage of total revenue, compared to
the second quarter of 1995, declined to 11% from 13%, primarily attributable to
faster product sales growth, which resulted from the significant year-on-year
product revenue increase at Cisco and the acquisition of traditional dealers
whose initial revenue contribution tends to be heavily weighted toward product
revenues rather than service revenues, and slower than expected growth of the
workspace management services business in Northern California due to the
significant amount of sales training required and a longer selling and delivery
cycle.
Commission revenue declined as principally all but one vendor have
discontinued their policies of billing customers directly and only paying a
commission to the Company.
Gross profit increased to $3.9 million during the second fiscal quarter
of 1996 from $3.0 million during the same period of fiscal 1995, a 29% increase,
despite declining as a percentage of net revenues from 24% during the second
fiscal quarter of 1995 to 19% during the same fiscal quarter of 1996. The
Company experienced lower product margins as a percentage of revenue, due in
part to the Company's decision to accept certain low margin business which the
Company felt was important to its competitive positioning and its ability to
penetrate certain markets. In addition, lower product margins resulted from an
increase in high volume sales transactions which were aggressively priced based
on such volumes. These lower product margins, coupled with flat service margins,
accounted for the overall decrease in gross profit as a percentage of net
revenues.
Selling, general and administrative expenses increased 38% to $3.0
million for the three months ended April 30, 1996 from $2.2 million for the same
period of the prior year. As a percentage of net revenues such expenses declined
to 14% in the second fiscal quarter of 1996, down from 18% in the comparable
quarter in 1995. The increase in spending was primarily attributable to the
Company's efforts to build infrastructure, as well as the additional operating
expenses related to the continuing integration of RST & Associates and Corporate
Source, acquired in September 1995 and January 1996, respectively.
Interest income, net of interest expense, totaled $26,000 for the three
months ended April 30, 1996 versus interest expense, net of interest income, of
$24,000 for the same period of fiscal 1995. The shift from net interest expense
to net interest income was due to higher cash balances as a result of the
Company's initial public offering of its common stock in June 1995.
The Company was treated as an S Corporation for tax purposes until the
close of business on June 25, 1995. As such, the Company was exempt from federal
and certain state taxes for the three month period ended April 30, 1995. The
Company has used a tax rate of 41% for all pro forma information.
Page 8 of 13
<PAGE> 9
SIX MONTHS ENDED APRIL 30, 1996 COMPARED TO SIX MONTHS ENDED APRIL 30, 1995.
Net revenues were $35.1 million for the six months ended Apri1 30,
1996, an increase of 72% from $20.4 million for the six months ended April 30,
1995. Increases were achieved in product revenue ($14.1 million or 83%) and
service revenue ($722,000 or 23%), partially offset by a decrease in commission
revenue ($138,000 or 41%). The overall increase in revenue was primarily the
result of the continuing strength of sales to Cisco Systems and National
Semiconductor, with combined revenue of $13.9 million for the six months ended
April 30, 1996, up from $9.8 million for the same period of 1995, and large
project business from the City and County of San Francisco's Main Library,
Bechtel, Silicon Valley Group, Atmel and Consilium (which combined accounted for
approximately $5.4 million in the period), and first time revenue of $3.2
million generated by the southwestern United States and Texas regional business
units. As a percentage of total revenue, Cisco Systems and National
Semiconductor accounted for 40% for the first six months of fiscal 1996, down
from 48% during the same period a year ago. The increase in service revenue in
the first six months of fiscal 1996 as compared to the year earlier period was
primarily attributable to increases in delivery services, installation and first
time revenue of workspace management services.
Commission revenue declined as principally all but one vendor have
discontinued their policies of billing customers directly and only paying a
commission to the Company.
Gross profit increased to $6.9 million for the first six months of
fiscal 1996 from $5.1 million during the same period a year ago, a 37% increase.
As a percentage of net revenues gross profits decreased from 25% for the first
six months of fiscal 1995 to 20% during the same period of fiscal 1996. Lower
service margins, resulting from underutilization of labor and underabsorption of
overhead on installation revenues and increased volume of lower margin delivery
services, and lower product margins, accounted for the decrease in gross profit
as a percentage of net revenues. The Company experienced lower product margins
as a percentage of revenue, due in part to the Company's decision to accept
certain low margin business which the Company felt was important to its
competitive positioning and its ability to penetrate certain markets. In
addition, lower product margins resulted from an increase in high volume sales
transactions which were aggressively priced based on such volumes.
Selling, general and administrative expenses increased 41% to $5.4
million for the six months ended April 30, 1996 from $3.8 million for the same
period of the prior year. Selling, general and administrative expenses, as a
percentage of net revenues, were 15% in the first six months of fiscal 1996,
down from 19% in the comparable period in fiscal 1995. The increase in absolute
spending levels was primarily the result of expanded operations in existing
Northern California regions, two acquisitions outside of California and an
overall effort to build infrastructure to support the growth of the company.
Interest income, net of interest expense totaled $81,000 for the six
months ended April 30, 1996 versus interest expense, net of interest income of
$26,000 for the same period of fiscal 1995. The shift from net interest expense
to net interest income was due to
Page 9 of 13
<PAGE> 10
higher cash balances as a result of the Company's initial public offering of its
common stock in June 1995.
The Company was treated as an S Corporation for tax purposes until the
close of business on June 25, 1995. As such, the Company was exempt from federal
and certain state taxes for the six month period ended April 30, 1995. The
Company has used a tax rate of 41% for all pro forma information.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at April 30, 1996 was $9.5 million, unchanged from
October 31, 1995.
During the six months ended April 30, 1996, net cash used by operating
activities was $872,000, representing net income of $933,000 and increases in
accounts payable of $2.9 million, accrued liabilities of $524,000 and income
taxes payable of $620,000, offset by increases in accounts receivable of $4.8
million, inventory of $507,000 and prepaids and other current assets of
$721,000. Accounts receivable increased as a result of increased revenue and the
timing of such revenue during the quarter ended April 30, 1996, reflecting in
particular a relatively large percentage of sales during the final month of this
most recent fiscal quarter. Accounts payable increased as a result of increased
vendor purchases in support of increased revenues. Net cash used in investing
activities was $1.0 million, primarily representing the purchase of property and
equipment for $627,000 and a payment of $300,000 in connection with the
acquisition of certain assets of Corporate Source. Net cash used by financing
activities was $96,000, representing the change in bank overdraft position of
$118,000, offset by repayments of capital lease obligations and notes payable of
$214,000.
The Company's $4,000,000 revolving line of credit with a bank, which
was scheduled to expire in March 1996, was extended to July 1996 during the
Company's fiscal first quarter ending January 31, 1996. A new $8 million credit
facility, including an option to term-out up to $3 million of the total
facility, has been approved by the Company's lender. A formal agreement is being
prepared and will be executed before the expiration of the existing facility.
The Company presently 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 and its planned expansion/acquisition strategy for the foreseeable
future.
FUTURE OPERATIONS:
Subsequent to the the close of the Company's fiscal second quarter
ending April 30, 1996, the Company decided to discontinue its Records Management
business in order to streamline its operations and focus on its core Workspace
Products business and its new Workspace Management Services business. As a
result, the Company will sell the exclusive TAB Products distribution rights it
currently holds for the five county area extending from South San Francisco to
Monterey,
Page 10 of 13
<PAGE> 11
California. Because net revenues totalled only 1.5% of total net revenues for
the six month period ended April 30, 1996, the Company feels that the
divestiture of its Records Management business will not have a material impact
on the Company's financial results.
PART II - OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11.1 Computation of Net Income Per Share
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the three months ended April 30, 1996.
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
-------------------------------------
Registrant
Date: 6/12/96 /s/P. Steven Melman
--------------------------- -------------------------------------
P. Steven Melman
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 11 of 13
<PAGE> 12
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
EXHIBIT # DESCRIPTION PAGE
11.1 Computation of Net Income Per Share ............ 13
Page 12 of 13
<PAGE> 1
Exhibit 11.1
<TABLE>
<CAPTION>
BUSINESS RESOURCE GROUP
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
----------------- ----------------
1996 1995 1996 1995
------- ------ -------- ------
<S> <C> <C> <C> <C>
FULLY DILUTED
Net income .......................................... $ 527 $ 933
======= ========
Weighted average shares outstanding-
Common shares ..................................... 4,841 4,841
Common equivalent shares-
Stock options ..................................... 78 48
------- --------
Total common stock and common
stock equivalents ................................. 4,919 4,889
======= ========
Net income per common and
common share equivalent ........................... $ .11 $ .19
======= ========
Pro forma net income ................................ $ 480 $ 702
====== ======
Weighted average shares outstanding-
Pro forma common shares ........................... 3,085 3,085
Pro forma common equivalent shares:
Stock options ..................................... 58 58
Supplemental shares (1) ........................... 263 263
------ ------
Total pro forma common stock and
common stock equivalents .......................... 3,406 3,406
====== ======
Pro forma net income
per common share .................................. $ .14 $ .21
====== ======
</TABLE>
(1) Represents the approximate number of shares that would have to have been
sold to fund the distribution of undistributed S Corporation earnings.
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 3,336
<SECURITIES> 0
<RECEIVABLES> 12,384
<ALLOWANCES> 69
<INVENTORY> 1,437
<CURRENT-ASSETS> 18,757
<PP&E> 1,724
<DEPRECIATION> 456
<TOTAL-ASSETS> 21,239
<CURRENT-LIABILITIES> 9,211
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> 11,905
<TOTAL-LIABILITY-AND-EQUITY> 21,239
<SALES> 31,128
<TOTAL-REVENUES> 35,143
<CGS> 25,465
<TOTAL-COSTS> 28,223
<OTHER-EXPENSES> 5,409
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,592
<INCOME-TAX> 659
<INCOME-CONTINUING> 933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 933
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
