-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q0GyaG1Ov3O4pVd1CRghCq+jVjSJHg1u1S3qvPivwWUR5jT9XeCdw3AT4L57sR1y iwcm3rB2uCFfVzVWMyCuRw== 0000950144-98-009546.txt : 19980813 0000950144-98-009546.hdr.sgml : 19980813 ACCESSION NUMBER: 0000950144-98-009546 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTWAVE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000897078 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 581588291 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21202 FILM NUMBER: 98684251 BUSINESS ADDRESS: STREET 1: 2859 PACES FERRY RD STREET 2: STE 1000 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 7704311200 MAIL ADDRESS: STREET 1: 2859 PACES FERRY RD STREET 2: STE 1000 CITY: ATLANTA STATE: GA ZIP: 30339 FORMER COMPANY: FORMER CONFORMED NAME: BROCK INTERNATIONAL INC DATE OF NAME CHANGE: 19960227 FORMER COMPANY: FORMER CONFORMED NAME: BROCK CONTROL SYSTEMS INC DATE OF NAME CHANGE: 19930208 10-Q 1 FIRSTWAVE TECHNOLOGIES, INC. 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 2 FIRSTWAVE TECHNOLOGIES, INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 INDEX ----------
Page No. ------------ 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
- 2 - 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRSTWAVE TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET
DEC 31, JUN 30, 1997 1998 ---------- ---------- (UNAUDITED) (IN THOUSANDS) ASSETS 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 ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. -3- 4 FIRSTWAVE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
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) 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 ========== ========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. -4- 5 FIRSTWAVE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1998
COMMON STOCK UNREALIZED --------------------- ADD'L LOSS ON PAID-IN MARKETABLE COMPREHENSIVE SHARES AMOUNT CAPITAL SECURITIES INCOME --------- ---------- ---------- -------------- ------------- (IN THOUSANDS, EXCEPT SHARE DATA) 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) ========= ========== ========== ==============
ACCUMULATED OTHER COMPREHENSIVE ACCUMULATED INCOME DEFICIT TOTAL -------------- ----------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) 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 ============ ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. -5- 6 FIRSTWAVE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED ------------------------------ JUNE 30, 1997 JUNE 30, 1998 ------------- ------------- (IN THOUSANDS) 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 ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. -6- 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- 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- 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- 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. -10- 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. -11- 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- 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- EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 488 3,160 3,057 0 0 7,899 1,949 0 13,709 4,205 0 0 0 9 9,495 13,709 2,187 7,348 340 3,167 5,516 30 0 (1,220) (70) (1,290) 0 0 0 (1,290) (.25) (.25) A/R AND PPE ASSET VALUES REPRESENT NET AMOUNTS
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