<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 0-21202
BROCK INTERNATIONAL, 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 May 12,1997:
------------------------------
Common Stock, no par value 4,952,387 Shares
<PAGE> 2
BROCK INTERNATIONAL, INC.
FORM 10-Q
For the quarter ended March 31, 1997
INDEX
----------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet - December 31, 1996 and March 31, 1997 3
Income Statement - For the Quarters Ended March 31, 1996
and March 31, 1997 4
Statement of Changes in Shareholders' Equity -
For the Quarter Ended March 31, 1997 5
Statement of Cash Flows - For the Quarters Ended
March 31, 1996 and March 31, 1997 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 10
</TABLE>
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BROCK INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DEC 31, MAR 31,
1996 1997
------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND MARKETABLE SECURITIES $ 6,947 $ 4,781
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $1,971 AND $1,790 RESPECTIVELY 4,120 2,947
OTHER ASSETS 964 1,049
------- -------
TOTAL CURRENT ASSETS 12,031 8,777
PROPERTY AND EQUIPMENT, NET 2,906 2,628
DEFERRED INCOME TAX BENEFIT 1,922 1,922
SOFTWARE DEVELOPMENT COSTS, NET 1,508 1,466
------- -------
$18,367 $14,793
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 1,012 $ 922
ACCRUED RESTRUCTURING COSTS 1,111 726
DEFERRED REVENUE 1,464 1,525
ACCRUED EMPLOYEE COMPENSATION
AND BENEFITS 680 646
BORROWINGS UNDER LINE OF CREDIT 2,058 0
OTHER ACCRUED LIABILITIES 475 281
------- -------
TOTAL CURRENT LIABILITIES 6,800 4,100
LONG TERM LIABILITIES:
NOTES PAYABLE 125 0
SHAREHOLDERS' EQUITY 11,442 10,693
------- -------
$18,367 $14,793
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 3 -
<PAGE> 4
BROCK INTERNATIONAL, INC.
INCOME STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-------------------------
MARCH 31, MARCH 31,
1996 1997
--------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
NET REVENUES
SOFTWARE $ 3,223 $ 719
SERVICES 2,339 1,265
MAINTENANCE 1,351 1,264
OTHER 312 160
------- -------
7,225 3,408
------- -------
COST AND EXPENSES
COST OF REVENUES
SOFTWARE 607 55
SERVICES 1,821 956
MAINTENANCE 536 460
OTHER 301 158
SALES AND MARKETING 2,879 933
PRODUCT DEVELOPMENT 514 524
GENERAL AND ADMINISTRATIVE 843 1,129
------- -------
7,501 4,215
------- -------
OPERATING (LOSS) (276) (807)
INTEREST EXPENSE (24) (40)
INTEREST INCOME 35 48
------- -------
(LOSS) BEFORE INCOME TAXES (265) (799)
INCOME TAX BENEFIT 94 0
------- -------
NET (LOSS) ($ 171) ($ 799)
======= =======
NET (LOSS) PER SHARE ($ 0.03) ($ 0.16)
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON SHARE EQUIVALENTS 5,000 4,951
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 4 -
<PAGE> 5
BROCK INTERNATIONAL, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADD'L (LOSS)/GAIN ON
------------------------ PAID-IN MARKETABLE RETAINED
SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
---------- ------ ------- -------------- -------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 4,936,555 $ 9 $18,909 $(14) $(7,462) $11,442
UNREALIZED (LOSS)/GAIN ON
MARKETABLE SECURITIES 3 3
EMPLOYEE STOCK PURCHASE 3,112 0 11 11
EXERCISE OF COMMON STOCK
OPTIONS 11,125 0 36 36
NET (LOSS) (799) (799)
---------- ----- ------- ---- ------- -------
BALANCE AT MARCH 31, 1997 4,950,792 $ 9 $18,956 $(11) $(8,261) $10,693
========== ===== ======= ==== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 5 -
<PAGE> 6
BROCK INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
---------------------------------------------
MARCH 31, 1996 MARCH 31, 1997
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS (USED IN)/PROVIDED BY OPERATING ACTIVITIES 30 (30)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
SOFTWARE DEVELOPMENT COSTS (627) 0
PURCHASES OF PROPERTY AND EQUIPMENT (457) (3)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,084) (3)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
BORROWINGS UNDER LINE OF CREDIT 600 0
REPAYMENTS OF BORROWINGS UNDER LINE OF CREDIT 0 (1,975)
REPAYMENTS OF BORROWINGS UNDER NOTES PAYABLE 0 (208)
PROCEEDS FROM EMPLOYEE STOCK PURCHASE PLAN 33 11
EXERCISE OF COMMON STOCK OPTIONS 51 36
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 684 (2,136)
------- -------
UNREALIZED GAIN ON CASH EQUIVALENTS 117 3
------- -------
INCREASE (DECREASE) IN CASH (253) (2,166)
CASH AND MARKETABLE SECURITIES, BEGINNING OF PERIOD 8,137 6,947
------- -------
CASH AND MARKETABLE SECURITIES, END OF PERIOD $ 7,884 $ 4,781
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------- -------
CASH PAID DURING THE PERIOD FOR INTEREST $ 45 $ 84
======= =======
</TABLE>
- 6 -
<PAGE> 7
BROCK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
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
NET LOSS PER SHARE
Net loss per common share is computed by dividing the net loss by the
weighted average common shares outstanding during each period. Common
stock equivalents, consisting of common shares issuable upon the
exercise of stock options (using the treasury stock method), are not
included in the net loss per common share computation as their effect
would be anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued SFAS
128, Earnings per Share. SFAS 128 will be effective for financial
statements for periods ending after December 15,1997, including interim
periods, and establishes standards for computing and presenting
earnings per share. In its consolidated financial statements for the
year ending December 31, 1997, the Company will make the required
disclosures of basic and diluted earnings per share, as applicable, and
provide a reconciliation of the numerator and denominator of its basic
and diluted earnings per share computations. All prior period earnings
per share data will be restated by the Company in the period of
adoption of SFAS 128, which is not expected to have a material effect
on the presentation of the Company's earnings (loss) per common share
data.
- 7 -
<PAGE> 8
BROCK INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THE QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER
ENDED MARCH 31, 1996.
Total revenues decreased 52.8% from $7,225,000 in the first quarter of 1996 to
$3,408,000 in the first quarter of 1997 primarily as a result of decreased
software and services revenues. Software revenues decreased 77.7% from
$3,223,000 in the first quarter of 1996 to $719,000 in the corresponding quarter
of 1997. Revenues from international licenses decreased 86.7% from $1,998,000 in
the first quarter of 1996 to $266,000 in the corresponding quarter of 1997, and
decreased as a percentage of total revenues from 27.6% to 7.8%. Two large
international software licenses which totaled over $1,090,000 in the first
quarter of 1996 which did not occur in first quarter 1997, and a 72% decrease in
the sales force were the primary reasons for decreases in both international and
domestic software revenue.
Services revenues decreased 45.9% from $2,339,000 in the first quarter of 1996
to $1,265,000 in the first quarter of 1997 primarily due to prior decreases in
domestic software license revenues and the reduction of service personnel by
57%. Maintenance revenues decreased 6.4% from $1,351,000 in the first quarter of
1996 to $1,264,000 in the corresponding quarter of 1997 as a result of a
decrease in the Company's installed base of systems covered under maintenance
agreements. Other revenues decreased 48.7% from $312,000 in the first quarter of
1996 to $160,000 in the first quarter of 1997 primarily due to decreases in
certain reimbursable travel charges consistent with the decline in services
revenue.
During the first quarter of 1997, the Company completed the restructuring of
operations initiated during the fourth quarter of 1996. This resulted in company
wide decreases of personnel and related costs of $778,000 during first quarter
1997, which were on target with expected results. In addition, personnel
declined in total (including restructuring) from 228 at the end of first quarter
1996 to 90 at the end of first quarter 1997, contributing to overall declines in
expenses.
Cost of software revenues decreased 90.9% from $607,000 in the first quarter of
1996 to $55,000 in the first quarter of 1997. This decrease is a result of a
decrease in the amount of amortization of capitalized software from $541,000 in
the first quarter of 1996 to $42,000 in the first quarter of 1997. This decrease
in amortization resulted from the Company's 1996 write-down of capitalized
software costs relating to versions of the Company's TakeControl and Brock
Activity Manager product series to net realizable value at December 31, 1996.
Third party software and documentation costs decreased 80.3% from $66,000 in the
first quarter of 1996 to $13,000 in the first quarter of 1997, as a result of
fewer software licenses sold. 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 decreased 47.5% from $1,821,000 in the first
quarter of 1996 to $956,000 in the first quarter of 1997 due to decreases in the
number of service personnel and related costs. In the first quarter of 1996
service staff numbered 79 employees compared to 34 employees during first
quarter of 1997. Costs of revenues for maintenance decreased 14.2% from $536,000
in the first quarter of 1996 to $460,000 in the first quarter of 1997. The
decrease is primarily due to decreases in support personnel and personnel
related costs.
-8-
<PAGE> 9
Cost of other revenues decreased 47.5% from $301,000 in the first quarter of
1996 to $158,000 in the first quarter of 1997 due to a decrease in reimbursable
travel charges consistent with the decline in services revenue.
Sales and marketing expense decreased 67.6% from $2,879,000 in the first quarter
of 1996 to $933,000 in the first quarter of 1997 primarily due to a decrease in
commissions associated with the decrease in software sales revenues, along with
decreases related to the reduction of sales and marketing personnel including
payroll, payroll associated costs, and travel expenses.
The Company's product innovation and development expenditures decreased 54.1%
from $1,141,000 in the first quarter of 1996 to $524,000 in the first quarter of
1997. The capitalized portions of these amounts were $627,000 in the first
quarter of 1996 and none during the first quarter of 1997. During the first
quarter of 1997 development activities qualifying for capitalization under FAS
86 decreased to an immaterial amount. Product development expense, net of costs
capitalized, increased 1.9% from $514,000 in the first quarter of 1996 to
$524,000 in the first quarter of 1997 due to the combination of an immaterial
amount of costs capitalized and decreases in development personnel, contract
services and related costs.
General and administrative expenses increased 33.9% to $1,129,000 in the first
quarter of 1997 from $843,000 in the first quarter of 1996. The increase
resulted primarily from increases in professional services related to a
settlement of a dispute with one customer and litigation with another customer
that went to trial in the first quarter of 1997. The Company received a
favorable judgment at trial, which is being appealed by the customer. These
increases were offset by decreases in personnel and related costs including
telephone and insurance.
The above factors combined to result in an increase of approximately 367.3% in
net loss for the first quarter of 1997, from a loss of $171,000 in the first
quarter of 1996 to a loss of $799,000 in the first quarter of 1997. Net loss per
share for the period increased from a loss of $.03 per share for the first
quarter of 1996 to a loss of $.16 for the first quarter of 1997.
BALANCE SHEET
Accounts receivable decreased 28.5% from $4,120,000 at December 31, 1996, to
$2,947,000 at March 31, 1997, as a result of the decrease in sales volume.
During the first quarter, accrued restructuring cost declined 34.7% from
$1,111,000 at December 31, 1996 to $726,000 at March 31, 1997 as a result of
payments made. The remaining accrual includes $169,000 in severance payable
through the end of year, and $557,000 in costs associated with non-cancelable
leases which will amortize over the remaining life of the leases. The line of
credit, short term note, and long term note all decreased 100% with the March
21, 1997 payoff of all outstanding balances.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash and marketable securities of $4,781,000,
and believes that its present liquidity position is sufficient to finance the
Company's operations during 1997. During the first quarter of 1997, the Company
paid off, in full, its outstanding line of credit and note payable, and related
interest for a total of $2,199,657. This accounts for the decrease in cash and
marketable securities from $6,947,000 at December 31, 1996 compared to
$4,781,000 at March 31, 1997. The line of credit has been closed.
-9-
<PAGE> 10
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
Not applicable
Item 6. Exhibits and Reports on form 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period
-10-
<PAGE> 11
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.
BROCK INTERNATIONAL, INC.
DATE: May 12, 1997 /s/ Judith A. Vitale
--------------------
Judith A. Vitale
Director of Finance and Administration
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 687
<SECURITIES> 4,094
<RECEIVABLES> 2,947<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,777
<PP&E> 2,628<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,793
<CURRENT-LIABILITIES> 4,100
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 10,684
<TOTAL-LIABILITY-AND-EQUITY> 14,793
<SALES> 719
<TOTAL-REVENUES> 3,408
<CGS> 55
<TOTAL-COSTS> 1,629
<OTHER-EXPENSES> 2,586
<LOSS-PROVISION> 204
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> (799)
<INCOME-TAX> 0
<INCOME-CONTINUING> (799)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (799)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
<FN>
<F1> REPRESENT NET AMOUNTS.
<F2> REPRESENT NET AMOUNTS.
</FN>
</TABLE>
