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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 JANUARY 31, 1999
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 January 31, 1999 there were 5,050,045 shares of the Registrant's Common Stock
outstanding.
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of
January 31, 1999 and October 31, 1998 ................................. 3
Condensed Consolidated Statements of Income for
the Three Months ended January 31, 1999 and 1998 ...................... 4
Condensed Consolidated Statements of Cash
Flows for the Three Months ended January 31,
1999 and 1998.......................................................... 5
Notes to Condensed Consolidated Financial
Statements............................................................. 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction .......................................................... 8
Results of Operations ................................................. 8
Liquidity and Capital Resources........................................ 9
Item 3: Quantitative and Qualitative Disclosures
about Market Risks .................................................... 12
PART II. OTHER INFORMATION
Item 1: Legal Proceedings ..................................................... 12
Item 2: Changes in Securities and Use of Proceeds.............................. 12
Item 3: Defaults Upon Senior Securities ....................................... 12
Item 4: Submission of Matters to a Vote of
Security Holders ...................................................... 12
Item 5: Other Information ..................................................... 12
Item 6: Exhibits and Reports on Form 8-K ...................................... 12
SIGNATURES...................................................................... 13
</TABLE>
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PART I -- FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
BUSINESS RESOURCE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 397 $ 412
Accounts receivable, net 12,264 10,662
Inventory 11,396 8,279
Prepaids and other current assets 1,933 2,411
------- -------
Total current assets 25,990 21,764
Property and equipment, net 3,205 3,107
Other assets 3,053 3,107
------- -------
$32,248 $27,978
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 9,712 $ 3,858
Accounts payable 2,178 3,369
Accrued liabilities 4,115 4,789
Income taxes payable 237 337
Current portion of long-term debt 336 336
------- -------
Total current liabilities 16,578 12,689
Long-term debt 733 733
Deferred income tax liability 160 160
Shareholders' equity:
Common stock 50 50
Additional paid in capital 11,357 11,337
Retained earnings 3,370 3,009
------- -------
Total shareholders' equity 14,777 14,396
------- -------
$32,248 $27,978
======= =======
</TABLE>
The balance sheet at October 31, 1998 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 consolidated financial statements.
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BUSINESS RESOURCE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
January 31,
-------------------------------
1999 1998
-------- --------
<S> <C> <C>
Net revenues:
Workspace products $ 21,348 $ 15,317
Workspace services 4,669 2,966
-------- --------
Total net revenues 26,017 18,283
-------- --------
Cost of net revenues:
Workspace products 17,173 12,216
Workspace services 3,471 2,268
-------- --------
Total cost of net revenue 20,644 14,484
-------- --------
Gross profit 5,373 3,799
Selling, general and
administrative expenses 4,621 3,558
-------- --------
Income from operations 752 241
-------- --------
Interest and other expense, net (136) (9)
-------- --------
Income before income tax 616 232
Provision for income tax (255) (95)
-------- --------
Net income $ 361 $ 137
======== ========
Net earnings per share
Basic $ 0.07 $ 0.03
======== ========
Diluted $ 0.07 $ 0.03
======== ========
</TABLE>
See notes to condensed consolidated financial statements
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BUSINESS RESOURCE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
January 31,
-----------------------------
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 361 $ 137
Adjustments to reconcile to net cash (used) /
provided by operating activities:
Depreciation and amortization 275 165
Gain on sale of property and equipment (2) -
Warrants issued for services - 91
Changes in operating assets and liabilities:
Accounts receivable (1,602) (70)
Inventory (3,117) (950)
Prepaids and other current assets 478 (93)
Accounts payable (1,191) 193
Accrued liabilities (674) (4)
Income taxes payable (100) 95
------- -------
Net cash (used) by operating activities: (5,572) (436)
INVESTING ACTIVITIES:
Purchase of property and equipment (319) (130)
Proceeds from sale of property and equipment 2 -
Change in other assets - (3)
------- -------
Net cash (used) by investing activities: (317) (133)
FINANCING ACTIVITIES:
Change in bank overdraft - 295
Borrowings against line of credit 5,854 -
Issuance of common stock, net compensation 20 -
------- -------
Net cash provided by financing activities: 5,874 295
Net (decrease) in cash and equivalents (15) (274)
CASH AND EQUIVALENTS BALANCES:
Beginning of period 412 274
------- -------
End of period $ 397 $ -
======= =======
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest $ 105 $ -
======= =======
Income taxes $ 269 $ -
======= =======
</TABLE>
See notes to condensed consolidated financial statements
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BUSINESS RESOURCE GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The financial information as of January 31, 1999, and for the three month
periods ended January 31, 1999 and 1998, 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, 1998. 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. BASIC AND DILUTED SHARE INFORMATION
Basic Earnings Per Share ("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
JANUARY 31,
--------------------------
1999 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net earnings ............................. $ 361 $ 137
====== ======
Weighted average common shares outstanding 5,032 4,914
Common equivalent shares:
Stock options ...................... 80 16
------ ------
Total common stock and common
stock equivalents ...................... 5,112 4,930
====== ======
</TABLE>
Options to purchase 155,100 and 284,662 shares of common stock were outstanding
during the first quarter of the Company's fiscal years 1999 and 1998,
respectively, but were not included in the computation of diluted EPS for such
quarters because the exercise price of outstanding options was greater than the
average fair market value of the common shares.
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NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") adopted
Statements of Financial Accounting Standards ("SFAS") 130, (Reporting
Comprehensive Income), which requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from non-owner sources; and SFAS 131, (Disclosures about Segments of an
Enterprise and Related Information), which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not impact the Company's financial position,
results of operations or cash flows, and any effect will be limited to the form
and content of its disclosures. Both statements are effective for the fiscal
year beginning November 1, 1998. The Company is currently evaluating to
determine if it has reportable segments under SFAS 131. With respect to SFAS
130, the Company had no items of comprehensive income other than net income
during either quarter ended January 31, 1999 or 1998.
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was issued which
defines derivatives, requires all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Although the Company has not fully assessed the implications of this new
statement, the Company does not believe adoption of this statement will have a
material impact on the Company's financial statements.
NOTE 4. SUBSEQUENT EVENT
On February 1, 1999, the Company, through its wholly owned subsidiary RN
Acquisition Corp, acquired substantially all of the assets of Re'Nu Office
Systems, Inc., a California Corporation, Re'Nu South, Inc., a California
Corporation and wholly owned subsidiary of Re'Nu Office Systems, and Re'Nu
Office Systems, Inc., a Nevada Corporation and wholly owned subsidiary of Re'Nu
Office Systems. The purchase price paid by the Company was 100,000 shares of
Common Stock of the Company, $2.0 million in cash and an earn out of up to the
aggregate amount of $2.0 million to be paid over three years based upon annual
operating income objectives of RN Acquisition Corp. In connection with this
purchase, the Company borrowed $2,000,000 against the Company's $15.0 million
credit facility.
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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 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 ("SEC") 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. The Company undertakes no obligation to publicly release 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 "BRG," the
"Company" or the "Registrant" refer to Business Resource Group.
RESULTS OF OPERATIONS (THREE MONTHS ENDED JANUARY 31, 1999):
NET REVENUES were $26.0 million for the three months ended January 31, 1999
as compared to $18.3 million reported for the three months ended January 31,
1998, an increase of 42%. Product revenues for the three months ended January
31, 1999 were $21.3 million, an increase of $6.0 million, or 39%, from product
revenues of $15.3 million reported for the three months ended January 31, 1998.
The higher product revenues in the first quarter of fiscal 1999 were due to
increased revenues from Cisco Systems, Inc. in addition to increased revenue
from other new and existing customers. Service revenues for the first quarter of
fiscal 1999 were $4.7 million, an increase of $1.7 million, or 57%, from service
revenues of $3.0 million reported in the same quarter of fiscal 1998. The higher
service revenues reflect increased product-related services on higher product
revenues and increased facilities services revenues.
GROSS PROFIT for the first quarter of fiscal 1999 was $5.4 million, or
20.7% of revenues, as compared to $3.8 million, or 20.8% of
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revenues, for the comparable quarter of fiscal 1998. As a percentage of net
revenues, gross profits from product revenues were 19.6% for the quarter ended
January 31, 1999 as compared to 20.2% for the first quarter ended January 31,
1998. The lower product gross profit percentage was primarily due to the initial
shipment of several large customer orders that reflected a higher level of
discount due to their large order size. Gross profits for the first quarter of
fiscal 1999 from service revenues were 25.7% as compared to 23.5% for the first
quarter of fiscal 1998. The quarter over quarter increase was due to improved
margins in all of the Company's service offerings, primarily due to improved
utilization.
SELLING, GENERAL AND ADMINISTRATIVE expenses were $4.6 million, or 17.8% of
revenues, for the first quarter of fiscal 1999 as compared to $3.6 million, or
19.5% of revenues, for the first quarter of fiscal 1998. Selling, general and
administrative expenses increased over the first quarter of fiscal 1998 due to
incremental costs associated with the acquisition of OFN, Inc. in addition to
higher sales compensation costs on increased revenues and increased support
costs associated with investments made in project management and customer
service.
INTEREST AND OTHER EXPENSE, NET was $136,000 for the three months ended
January 31, 1999 as compared to $9,000 for the same period of fiscal 1998. The
increased expense was primarily due to interest expense on the Company's
outstanding line of credit balance during the quarter.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at January 31, 1999 was $9.4 million, up slightly from $9.1
million at October 31, 1998. At January 31, 1999, the Company had net borrowings
of $9.3 million as compared to $3.5 million reported October 31, 1998 primarily
due to higher inventory and accounts receivable balances and a lower accounts
payable balance. Inventories at January 31, 1999 were $11.4 million, an increase
of $3.1 million from the $8.3 million reported at October 31, 1998. The
increased inventories were the result of an increase in in-transit inventories
at January 31, 1999 representing payments made to vendors on product that is
either in-transit to customers or awaiting installation at the customer's
facility. Accounts receivable at January 31, 1999 were $12.3 million, an
increase of $1.6 million from the $10.7 million reported at October 31, 1998.
The increased accounts receivable balance reflects the timing differences of
customer delivery requirements within a particular quarter. Accounts payable at
January 31, 1999 were $2.2 million, a decrease of $1.2 million from the $3.4
million reported at October 31, 1998. The decrease in payables was attributable
to a change in vendor mix due to the timing of payments made within the quarter.
Net cash used in investing activities in the three months ended January 31,
1999 was $317,000 and resulted from investments in property and equipment, which
primarily related to the purchases of showroom furniture for our new San
Francisco and Phoenix locations. At January 31, 1999, the Company had an
outstanding capital expenditure commitment
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of approximately $350,000 in connection with the implementation of its new
enterprise resource planning management information system.
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. The
Company maintains an irrevocable stand-by letter of credit in the amount of $3.0
million against this facility. As of January 31, 1999, the Company had bank
borrowings of $9.7 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 foreseeable future.
YEAR 2000
The Company continues to monitor and assess the impact of the year 2000
on its critical systems, devices, applications and business relationships. The
Company expects to be prepared for the year 2000 such that critical systems,
devices, applications and business relationships will have been evaluated and
deemed suitable for continued use into and beyond the year 2000, or upon the
implementation of any contingency plans developed by the Company. In May 1998,
after an extensive review of internal systems, the Company selected an
enterprise resource planning system capable of accommodating the year 2000. This
new enterprise resource planning system is expected to be in production during
the Company's third quarter of fiscal 1999. In addition, the Company is
reviewing the readiness of third parties which provide goods or services to the
Company to determine whether the year 2000 will impede the ability of such
suppliers to continue to provide such goods and services to the Company after
January 1, 2000.
Costs: The Company does not expect the costs associated with its year
2000 efforts to be material. The Company estimates that the total cost of
replacing its information systems and achieving year 2000 readiness for its
internal systems and equipment will range from $1.5 to $2.0 million, of which
$958,000 has been incurred as of January 31, 1999. Based on its current
estimates and information currently available to it, the Company does not
anticipate that the costs associated with its year 2000 readiness projects will
have a material adverse affect on the Company's consolidated financial position,
results of operations or cash flows in future periods. The Company's aggregate
cost estimate does not include time and costs that may be incurred by the
Company as a result of the failure of any third parties upon which the Company
relies, including suppliers, to be prepared for the year 2000 or costs to the
Company to implement any contingency plans.
Risks/Contingency Plans: Based on assessment efforts to date, the
Company does not believe that the year 2000 will have a material adverse effect
on its financial condition or results of operations. The Company believes that
the distribution and service nature of the Company's operations and its large
supplier base should mitigate any adverse impact. The Company's beliefs and
expectations, however, are based on certain assumptions and expectations that
ultimately may prove
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to be inaccurate. Because the Company has not completed systems integration
testing with respect to its enterprise resource planning system, it accordingly
has not fully assessed the risks from potential year 2000 failures and
therefore, has not yet developed year 2000 contingency plans. If, upon
completion of such implementation, a business function is determined to be at
current risk, contingency plans will be developed no later than October 31,
1999.
In the normal course of business, potential sources of risk include the
inability of principal suppliers to be year 2000 ready, which could result in
delays in product deliveries, or a reduced ability to provide services. The
Company's contingency plans may include, among other things, (1) manual
workarounds, (2) use of temporary replacement or alternative products,(3)
reliance on temporary or alternative sources of supply, and (4) engagement of
temporary, extra staffing to complete deliveries and provide services to our
customers. In the event of year 2000 failures by common-carrier infrastructure
suppliers such as utilities, telecommunications, transportation and the like,
the Company has significantly less ability to pre-emptively assess and prepare
for such failures. In such scenarios the Company's response is uncertain.
The Company is not currently able to identify or to avoid all possible
year 2000 scenarios. Based upon assessments to date, the Company believes the
most reasonably likely worst case scenario would be the inability of suppliers
to deliver products and/or services in time frames required by the Company's
customers. In the event of such delays the Company intends to provide temporary
replacement products, alternative products or extra staffing to complete
deliveries and provide services in order to mitigate the impact upon our
customers.
The preceding year 2000 discussion contains various forward-looking
statements which represent the Company's beliefs or expectations regarding
future events. When used in the year 2000 discussion, the words "believes,"
"expects," "estimates" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, but are not
limited to, the Company's expectations as to when it will complete the
implementation and testing phases of its year 2000 program as well as its year
2000 contingency plans; its estimated cost of achieving year 2000 readiness; the
Company's belief that its internal systems and equipment will be year 2000
compliant in a timely manner; and the availability of replacement or alternative
products in sufficient quantities should the need arise. All forward-looking
statements involve a number of risks and uncertainties that could cause the
actual results to differ materially from the projected results. Factors that may
cause these differences include, but are not limited to, the availability of
qualified personnel and other information technology resources; the ability to
identify and prepare all date sensitive lines of computer code for the year 2000
or to replace embedded computer chips in affected systems or equipment; and the
actions of governmental agencies or other third parties with respect to year
2000 problems.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There have been no significant changes to the Company's market risks since
the end of the preceding fiscal year.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is not a party to any lawsuit or proceeding which, in the
opinion of management, is likely to have a material adverse affect on the
Company. The Company may from time to time become a party to various legal
proceedings arising in the normal course of its business.
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
Not applicable
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 filed a report on From 8-K dated February 16, 1999
related to the acquisition of Re'Nu Office Systems, Inc., a
California Corporation, Re'Nu South, Inc., a California
Corporation and wholly owned subsidiary of Re'Nu Office Systems,
and Re'Nu Office Systems, Inc., a Nevada Corporation and wholly
owned subsidiary of Re'Nu Office Systems.
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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: 3/16/99 /s/ John M. Palmer
John M. Palmer
Vice President and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-1999
<CASH> 397
<SECURITIES> 0
<RECEIVABLES> 12,632
<ALLOWANCES> 368
<INVENTORY> 11,396
<CURRENT-ASSETS> 25,990
<PP&E> 5,459
<DEPRECIATION> 2,254
<TOTAL-ASSETS> 32,248
<CURRENT-LIABILITIES> 16,578
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 14,727
<TOTAL-LIABILITY-AND-EQUITY> 32,248
<SALES> 21,348
<TOTAL-REVENUES> 26,017
<CGS> 17,173
<TOTAL-COSTS> 20,644
<OTHER-EXPENSES> 4,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> 616
<INCOME-TAX> 255
<INCOME-CONTINUING> 361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
