<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, 1998
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) 325-3200
(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, 1998 there were 4,918,514 shares of the Registrant's Common Stock
outstanding.
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PART I. FINANCIAL INFORMATION PAGE
Item 1: Financial Statements
Condensed Balance Sheets as of
April 30, 1998 and October 31, 1997 ...................... 3
Condensed Statements of Income for the Three
Months and Six Months ended April 30, 1998
and 1997 ................................................. 4
Condensed Statements of Cash Flows for the
Six Months ended April 30, 1998 and 1997 ................. 5
Notes to Condensed Financial Statements .................. 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction ............................................. 7
Results of Operations .................................... 8
Liquidity and Capital Resources .......................... 9
Item 3: Quantitative and Qualitative Disclosures
about Market Risks .......................................... 10
PART II. OTHER INFORMATION
Item 1: Legal Proceedings ........................................ 10
Item 2: Changes in Securities and Use of Proceeds ................ 10
Item 3: Defaults Upon Senior Securities .......................... 10
Item 4: Submission of Matters to a Vote of Security Holders ...... 10
Item 5: Other Information ........................................ 12
Item 6: Exhibits and Reports on Form 8-K ......................... 12
SIGNATURES ........................................................... 13
2
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PART I - FINANCIAL INFORMATION
ITEM 1: CONDENSED FINANCIAL STATEMENTS
BUSINESS RESOURCE GROUP
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1998 1997
--------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents ..................................... $ 636 $ 274
Accounts receivable, net ................................. 14,866 13,764
Inventory ................................................ 8,211 1,398
Prepaids and other current assets ........................ 2,110 2,076
------- -------
Total current assets .................................. 25,823 17,512
Property and equipment, net ................................ 2,344 2,346
Other assets ............................................... 819 902
------- -------
$28,986 $20,760
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit ........................................... $ 4,990 $ --
Accounts payable ......................................... 6,678 3,997
Accrued liabilities ...................................... 3,906 4,236
Income taxes payable ..................................... 316 --
------- -------
Total current liabilities ............................. 15,890 8,233
Deferred income tax liability .............................. 75 75
Shareholders' equity:
Common stock ............................................. 49 49
Additional paid-in capital ............................... 11,016 10,897
Retained earnings ........................................ 1,956 1,506
------- -------
Total shareholders' equity ............................ 13,021 12,452
------- -------
$28,986 $20,760
======= =======
</TABLE>
(1) The balance sheet at October 31, 1997 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed financial statements.
3
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BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
----------------------- -----------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues:
Workspace products ......................... $17,191 $18,551 $32,484 $36,999
Workspace services ......................... 4,597 3,931 7,563 7,744
Vendor commissions ......................... 22 44 46 95
------- ------- ------- -------
Total net revenues .................... 21,810 22,526 40,093 44,838
------- ------- ------- -------
Cost of net revenues:
Workspace products ......................... 13,723 14,771 25,939 29,601
Workspace services ......................... 3,358 2,833 5,626 5,566
------- ------- ------- -------
Total cost of net revenues ............ 17,081 17,604 31,565 35,167
------- ------- ------- -------
Gross profit ..................................... 4,729 4,922 8,528 9,671
Selling, general and administrative expenses ..... 4,203 4,022 7,761 7,926
------- ------- ------- -------
Income from operations ........................... 526 900 767 1,745
------- ------- ------- -------
Other income / (expense):
Net interest income / (expense) ........... (42) 11 (51) 34
Gain on sale of assets .................... 50 -- 50 --
------- ------- ------- -------
Total other income / (expense) ........ 8 11 (1) 34
------- ------- ------- -------
Earnings before income taxes ..................... 534 911 766 1,779
Income taxes ..................................... 221 377 316 736
------- ------- ------- -------
Net earnings ..................................... $ 313 $ 534 $ 450 $ 1,043
======= ======= ======= =======
Net earnings per share:
Basic .................................... $ .06 $ 0.11 $ .09 $ 0.21
======= ======= ======= =======
Diluted .................................. $ .06 $ 0.11 $ .09 $ 0.21
======= ======= ======= =======
</TABLE>
See notes to condensed financial statements
4
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BUSINESS RESOURCE GROUP
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
----------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings ....................................................... $ 450 $ 1,043
Adjustments to reconcile to net cash (used) provided by
operating activities:
Depreciation and amortization ............................ 372 342
Gain on sale of property and equipment ................... (50) --
Warrants issued for services ............................. 119 --
Changes in operating assets and liabilities:
Accounts receivable .................................. (1,102) 1,841
Inventory ............................................ (6,813) 23
Prepaids and other current assets .................... (34) 217
Accounts payable ..................................... 2,681 (2,635)
Accrued liabilities .................................. (330) 588
Income taxes payable ................................. 316 396
------- -------
Net cash (used) provided by operating activities ..... (4,391) 1,815
------- -------
INVESTING ACTIVITIES:
Purchase of property and equipment ................................. (287) (794)
Proceeds from sale of property and equipment ....................... 50 --
Other assets ....................................................... -- (21)
------- -------
Net cash used by investing activities ................ (237) (815)
------- -------
FINANCING ACTIVITIES:
Bank overdraft ..................................................... -- (476)
Repayment of notes payable and capital lease obligations ........... -- (70)
Issuance of common stock, net of compensation ...................... -- 149
Borrowings against line of credit .................................. 4,990 --
------- -------
Net cash provided (used) by financing activities ..... 4,990 (397)
------- -------
Net decrease in cash and equivalents ................................. 362 603
CASH AND EQUIVALENTS BALANCES:
Beginning of period ................................................ 274 1,011
------- -------
End of period ...................................................... $ 636 $ 1,614
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest ......................................................... $ 57 $ 1
======= =======
Income taxes ..................................................... $ -- $ 340
======= =======
</TABLE>
See notes to condensed financial statements.
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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, 1998 and for the three and six month
periods ended April 30, 1998 and 1997, respectively, 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, 1997. 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.
NOTE 2. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
Company has adopted SFAS 128 and has restated earnings per share (EPS) data for
prior periods to conform with SFAS 128.
SFAS 128 replaces previous EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(IN THOUSANDS) (IN THOUSANDS)
Net earnings ..................................... $ 313 $ 534 $ 450 $1,043
====== ====== ====== ======
Weighted average common shares outstanding ....... 4,914 4,911 4,913 4,916
Common equivalent shares:
Stock options .................................... 59 73 38 29
------ ------ ------ ------
Total common stock and common
stock equivalents ............................. 4,973 4,984 4,951 4,945
====== ====== ====== ======
</TABLE>
Options to purchase 172,381 and 343,650 shares of common stock were outstanding
during the second quarters of the Company's fiscal year 1998 and 1997,
respectively, but were not included in the computation of diluted EPS for such
quarter because the exercise price of
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outstanding options was greater than the average fair market value of the common
shares.
NOTE 3. STOCK OPTIONS
During the quarter ended April 30, 1998 the Company canceled stock options to
purchase 361,992 shares of the Company's common stock at prices ranging from
$3.375 to $7.00 and exchanged them for options to purchase 361,992 shares of the
Company's common stock at a value of $3.1875 per share with new vesting periods.
NOTE 4. SUBSEQUENT EVENT
On May 22, 1998, the Company purchased substantially all of the assets of OFN,
Inc., a San Diego based refurbisher of office workstations, in exchange for
$2,093,000 in cash, the Company's promissory note in the aggregate principal
amount of $1,069,205, and 100,000 shares of Company stock. In connection with
this purchase the Company borrowed an additional $2,093,000 against the
Company's $15.0 million credit facility.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION:
The matters discussed herein include forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and are subject to certain risks and uncertainties that could cause the actual
results to differ materially from those projected. Such forward-looking
statements include, without limitation, statements relating to the Company's
future revenue, gross margins, operating expenses, management's plans and
objectives for the Company's future operations and the sufficiency of financial
resources to support future operations and expenditures. Factors that could
cause actual results to differ materially include, but are not limited to, the
timely availability, delivery and acceptance of new products and services, the
continued strength of sales to Cisco Systems, Inc. (one of the Company's
principal customers), 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 reports filed with the
Securities and Exchange Commission and press releases, copies of which are
available from the Company upon request. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. Additionally, the results of operations for the three and six month
periods ended April 30, 1998 are not necessarily indicative of the results to be
expected for the full fiscal year. In addition, operating results are subject to
the successful close of large project business and related vendor lead times.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date field. Beginning in the year 2000,
these date fields need to accept four digit entries to distinguish 21st century
dates from 20th century dates. As a result, in approximately one and a half
years, computer systems and/or software used by many
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companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
such compliance. Any Year 2000 compliance problem to either the Company, its
suppliers, its service providers or its customers could result in a material
adverse effect on the Company's financial condition and operating results. The
Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
References made in this Quarterly Report on Form 10-Q to the "Company"
or the "Registrant" refer to Business Resource Group.
RESULTS OF OPERATIONS (THREE MONTHS ENDED APRIL 30, 1998):
NET REVENUES were $21.8 million for the three months ended April 30,
1998 as compared to $22.5 million reported for the three months ended April 30,
1997. Service revenues for the second quarter of fiscal 1998 were $4.6 million,
an increase of $700,000, or 17.0%, from service revenues of $3.9 million
reported in the same quarter of fiscal 1997. Product revenues for the three
months ended April 30, 1998 were $17.2 million, a decrease of $1.4 million, or
7.3%, from product revenues of $18.6 million reported for the three months ended
April 30, 1997. The lower product revenues were primarily due to a higher level
of in process projects at the end of the second quarter as reflected in the
Company's higher inventories at April 30, 1998.
GROSS PROFIT for the second quarter of fiscal 1998 was $4.7 million, or
21.7% of revenues, as compared to $4.9 million, or 21.9% of revenues, for the
comparable quarter of fiscal 1997. As a percentage of revenues, gross profits
from product revenues were 20.2% for the quarter ended April 30, 1998 and gross
profits from service revenues were 27.0%, both of which were down slightly from
the second quarter of fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE expenses were $4.2 million, or 19.3%
of revenues, for the second quarter of fiscal 1998 as compared to $4.0 million,
or 17.9% of revenues, for the second quarter of fiscal 1997. The slight increase
in expenses was attributable to increased labor costs as a result of additional
headcount to support the Company's revenue and service objectives.
NET INTEREST EXPENSE was $42,000 for the three months ended April 30,
1998 as compared to net interest income of $11,000 for the same period of fiscal
1997. This change was primarily due to interest expense on an outstanding line
of credit balance during the quarter.
RESULTS OF OPERATIONS (SIX MONTHS ENDED APRIL 30, 1998):
NET REVENUES were $40.1 million for the six months ended April 30, 1998
as compared to $44.8 million reported for the six months ended April 30, 1997.
Product revenues on a year to date basis for fiscal 1998 were $32.5 million as
compared to $37.0 million for the same
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period of fiscal 1997. Service revenues were $7.6 million for the six months
ended April 30, 1998 as compared to $7.7 million for the six months ended April
30, 1997. The lower revenues were primarily due to increased in process projects
at April 30, 1998 as reflected in the Company's increased inventories at April
30, 1998.
GROSS PROFIT for the first six months of fiscal 1998 were $8.5 million,
or 21.3% of revenues, as compared to $9.7 million, or 21.6% of revenues, for the
first six months of fiscal 1997. Gross profits from product revenues were 20.1%
of revenues for the six months ended April 30, 1998, up slightly from the 20.0%
reported for the comparable period of fiscal 1997. Gross profits from service
revenues were 25.6% for the six months ended April 30, 1998 as compared to 28.1%
for the six months ended April 30, 1997. The lower services gross profits as a
percentage of revenues were due to lower absorption of overhead costs primarily
in the first quarter of fiscal 1998 as compared to the first quarter of fiscal
1997.
SELLING, GENERAL AND ADMINISTRATIVE expenses were $7.8 million, or 19.4%
of revenues, for the six months ended April 30, 1998 as compared to $7.9
million, or 17.7% of revenues, for the six months ended April 30, 1997. The
increased selling, general and administrative expenses as a percentage of
revenues was primarily due to lower revenues in the first six months of fiscal
1998 as compared to fiscal 1997.
NET INTEREST EXPENSE was $51,000 for the six months ended April 30, 1998
as compared to net interest income of $34,000 for the same period of fiscal
1997. This change was primarily due to interest expense on an outstanding line
of credit balance during the second quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at April 30, 1998 was $9.9 million, up slightly from
$9.3 million at October 31, 1997. At April 30, 1998 the Company had borrowings,
net of cash and equivalents on hand, of $4.4 million as compared to cash and
equivalents of $274,000 reported October 31, 1997 primarily due to higher
inventories at April 30, 1998. The net borrowings at April 30, 1998 were
primarily due to increased accounts receivable and inventories which were
partially offset by increased accounts payable. Accounts receivable at April 30,
1998 was $14.9 million, an increase of $1.1 million from the $13.8 million in
accounts receivable at October 31, 1997. The increased accounts receivable was
primarily due to higher revenues in the months preceding April 30, 1998 as
compared to the months preceding October 31, 1997. Inventories at April 30, 1998
were $8.2 million, an increase of $6.8 million from the $1.4 million reported at
October 31, 1997. The increase in inventories was primarily due to in process
projects pending completion and in transit inventory from suppliers pending
delivery to customers after the end of the quarter. Accounts payable at April
30, 1998 was $6.7 million, an increase of $2.7 million from the $4.0 million
reported at October 31, 1997. The increased accounts payable balance was
primarily due to in transit inventories at April 30, 1998.
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Investments in property and equipment, which primarily related to
management information systems hardware, were $287,000 in the six months ended
April 30, 1998. The Company has developed a plan to modify its information
technology to recognize the year 2000. The Company currently expects the project
to cost approximately $1.3 to $1.6 million during fiscal 1998. This estimate
includes replacing the Company's enterprise resource planning system to be year
2000 compliant.
The Company has a $15.0 million credit facility with a bank which
expires on August 8, 1999 with an option on an additional $1.0 million term
loan. However, the Company maintains an irrevocable stand-by letter of credit in
the amount of $3.0 million against this facility. As of April 30, 1998 the
Company had bank borrowings of $5.0 million under the existing credit facility.
The Company 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
for the forseeable future.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings.
The Company may from time to time be a party to various legal proceedings
arising in the normal course of its business. These actions could include
products liability, employee related issues and disputes with vendors or
customers.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held on March 2, 1998.
(b) The first matter voted upon at the meeting was the election of
the directors, and the results of that vote were as follows:
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<TABLE>
<CAPTION>
Present
But Not
Voting For Withheld Abstain Voting
------ --- -------- ------- -------
<S> <C> <C> <C> <C>
Brian D. McNay 4,504,520 12,400
John W. Peth 4,504,520 12,400
Harry S. Robbins 4,504,520 12,400
Jeffrey Tuttle 4,504,520 12,400
Jack Bradley 4,504,520 12,400
</TABLE>
(c) The second matter voted upon at the meeting and the results of that vote
were as follows:
<TABLE>
<CAPTION>
Present
But Not
Voting For Withheld Abstain Voting
------ --- -------- ------- -------
<S> <C> <C> <C> <C>
To authorize an 4,183,626 25,643 307,651
amendment to
the Company's
1995 Stock
Option Plan to
increase the
number of
shares of
Common Stock
reserved for
issuance
thereunder by
500,000 shares
to an aggregate
of 2,200,000
shares
</TABLE>
(d) The third matter voted upon at the meeting and the results of that vote were
as follows:
<TABLE>
<CAPTION>
Present
But Not
Voting For Withheld Abstain Voting
------ --- -------- ------- -------
<S> <C> <C> <C> <C>
To ratify the 4,516,920
appointment of
Deloitte &
Touche LLP as
independent
auditors for
the Company for
the fiscal year
ending October
31, 1998
</TABLE>
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ITEM 5: OTHER INFORMATION
Not applicable
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27: Financial data schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three months ended April 30, 1998.
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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.
BUSINESS RESOURCE GROUP
Registrant
Date: 6/12/98 /s/ John M. Palmer
--------------- -----------------------------------------
John M. Palmer
Vice President and Chief
Financial Officer
(Principal financial and
accounting officer)
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Exhibit Index
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 636
<SECURITIES> 0
<RECEIVABLES> 14,964
<ALLOWANCES> 98
<INVENTORY> 8,211
<CURRENT-ASSETS> 25,823
<PP&E> 3,861
<DEPRECIATION> 1,517
<TOTAL-ASSETS> 28,986
<CURRENT-LIABILITIES> 15,890
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 12,972
<TOTAL-LIABILITY-AND-EQUITY> 28,986
<SALES> 17,191
<TOTAL-REVENUES> 21,810
<CGS> 13,723
<TOTAL-COSTS> 17,081
<OTHER-EXPENSES> 4,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 534
<INCOME-TAX> 221
<INCOME-CONTINUING> 313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
