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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 SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-21202
BROCK INTERNATIONAL, INC.
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<S> <C> <C>
7372 GEORGIA 58-1588291
(Primary Std. Ind. (State of incorporation) (IRS Employer
Classification Code #) Identification #)
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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 November 10, 1997:
Common Stock, no par value 4,959,878 Shares
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BROCK INTERNATIONAL, INC.
FORM 10-Q
For the quarter ended September 30, 1997
INDEX
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheet - December 31, 1996 and September 30, 1997 3
Statement of Operations - For the Three and Nine Months ended
September 30, 1996 and September 30, 1997 4
Statement of Changes in Shareholders' Equity -
For the Nine Months Ended September 30, 1997 5
Statement of Cash Flows - For the Nine Months Ended
September 30, 1996 and September 30, 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 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BROCK INTERNATIONAL, INC.
BALANCE SHEET
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<CAPTION>
DEC 31, SEPT 30,
1996 1997
------- ----------
(UNAUDITED)
(IN THOUSANDS)
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ASSETS
CURRENT ASSETS:
CASH AND MARKETABLE SECURITIES $ 6,947 $ 5,347
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $1,971 AND $992, RESPECTIVELY 4,120 1,231
OTHER ASSETS 964 1,248
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TOTAL CURRENT ASSETS 12,031 7,826
PROPERTY AND EQUIPMENT, NET 2,906 2,048
DEFERRED INCOME TAX BENEFIT 1,922 1,922
SOFTWARE DEVELOPMENT COSTS, NET 1,508 1,215
OTHER LONG TERM ASSETS 0 492
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$18,367 $13,503
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 1,012 $ 595
ACCRUED RESTRUCTURING COSTS 1,111 461
DEFERRED REVENUE 1,464 1,172
ACCRUED EMPLOYEE COMPENSATION
AND BENEFITS 680 554
LINE OF CREDIT AND SHORT TERM NOTE PAYABLE 2,058 0
OTHER ACCRUED LIABILITIES 475 209
------- -------
TOTAL CURRENT LIABILITIES 6,800 2,991
NOTES PAYABLE 125 0
SHAREHOLDERS' EQUITY 11,442 10,512
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$18,367 $13,503
======= =======
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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BROCK INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
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FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
SEPT 30, SEPT 30, SEPT 30, SEPT 30,
1996 1997 1996 1997
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NET REVENUES
SOFTWARE $ 2,532 $ 921 $ 8,132 $ 2,831
SERVICES 1,495 1,204 5,709 3,805
MAINTENANCE 1,245 1,254 3,906 3,898
OTHER 202 131 770 464
------- ------- -------- --------
5,474 3,510 18,517 10,998
------- ------- -------- --------
COST AND EXPENSES
COST OF REVENUES
SOFTWARE 541 156 1,659 354
SERVICES 1,305 828 4,735 2,756
MAINTENANCE 477 364 1,523 1,296
OTHER 196 131 691 460
SALES AND MARKETING 2,779 1,368 8,051 3,812
PRODUCT DEVELOPMENT 436 587 1,526 1,511
GENERAL AND ADMINISTRATIVE 1,316 67 3,210 1,895
------- ------- -------- --------
7,050 3,501 21,395 12,084
------- ------- -------- --------
OPERATING INCOME/(LOSS) (1,576) 9 (2,878) (1,086)
INTEREST EXPENSE (40) 0 (108) (40)
INTEREST INCOME 59 46 173 138
------- ------- -------- --------
INCOME/(LOSS) BEFORE INCOME TAXES (1,557) 55 (2,813) (988)
INCOME TAX BENEFIT 574 0 1,055 0
------- ------- -------- --------
NET INCOME/(LOSS) ($ 983) $ 55 ($ 1,758) ($ 988)
======= ======= ======== ========
NET INCOME/(LOSS) PER SHARE ($ 0.20) $ 0.01 ($ 0.35) ($ 0.20)
======= ======= ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON SHARE EQUIVALENTS 5,000 5,345 5,000 4,956
======= ======= ======== ========
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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BROCK INTERNATIONAL, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
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COMMON STOCK UNREALIZED
-------------------- ADD'L LOSS ON
PAID-IN MARKETABLE RETAINED
SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
--------- ------ ------- ---------- --------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
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BALANCE AT DECEMBER 31, 1996 4,936,555 $ 9 $18,909 ($14) ($7,462) $11,442
UNREALIZED LOSS ON
MARKETABLE SECURITIES 0 0
EMPLOYEE STOCK PURCHASE 5,974 0 18 18
EXERCISE OF COMMON STOCK
OPTIONS 12,000 0 40 40
NET LOSS (988) (988)
---------- ----- ------- ---- ------- -------
BALANCE AT SEPTEMBER 30, 1997 4,954,529 $ 9 $18,967 ($14) ($8,450) $10,512
========== ===== ======= ==== ======= =======
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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BROCK INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
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FOR THE NINE MONTHS ENDED
---------------------------------
SEPT 30, 1996 SEPT 30, 1997
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(IN THOUSANDS)
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CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 28 $ 658
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CASH FLOWS FROM INVESTING ACTIVITIES
SOFTWARE DEVELOPMENT COSTS (2,135) 0
PURCHASES OF PROPERTY AND EQUIPMENT (835) (133)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (2,970) (133)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
BORROWINGS UNDER LINE OF CREDIT 2,990 0
REPAYMENTS OF BORROWINGS UNDER LINE OF CREDIT (2,000) (1,975)
BORROWINGS UNDER NOTES PAYABLE 250 0
REPAYMENTS OF BORROWINGS UNDER NOTES PAYABLE (21) (208)
PROCEEDS FROM EMPLOYEE STOCK PURCHASE PLAN 84 18
EXERCISE OF COMMON STOCK OPTIONS 59 40
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NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES 1,362 (2,125)
------- -------
UNREALIZED GAIN ON CASH EQUIVALENTS 106 0
------- -------
DECREASE IN CASH (1,474) (1,600)
CASH AND MARKETABLE SECURITIES, BEGINNING OF PERIOD 8,137 6,947
------- -------
CASH AND MARKETABLE SECURITIES, END OF PERIOD $ 6,663 $ 5,347
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------- -------
CASH PAID DURING THE PERIOD FOR INTEREST $ 96 $ 84
======= =======
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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BROCK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 INCOME/(LOSS) PER SHARE
Net income/(loss) per common share is computed by dividing the net
income/(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 PRONOUNCEMENTS
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.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income, and SFAS 131, Disclosure about Segments
of an Enterprise and Related Information. In October 1997, the AICPA
issued Statement of Position 97-2, Software Revenue Recognition. All
three statements are effective for fiscal years beginning after
December 15, 1997 and are not expected to have a material impact on the
Company's financial statements.
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ITEM 2.
BROCK INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1996, AND THE NINE MONTHS ENDED SEPTEMBER
30, 1997 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996.
Total revenues decreased 35.9% from $5,474,000 in the third quarter of 1996 to
$3,510,000 in the third quarter of 1997 primarily due to a decrease in
international license revenue which included a $1,500,000 license sale in the
third quarter of 1996. The Company's quarter to quarter revenues are
significantly dependent upon the timing of the closing of license agreements.
Year to date, total revenues decreased 40.6% from $18,517,000 in 1996 to
$10,998,000 in 1997. The decrease in each of the comparative periods is
attributed to lower software and services revenues. Software revenues decreased
63.6% from $2,532,000 in the third quarter of 1996 to $921,000 in the same
period of 1997. Year to date, software revenues decreased 65.2% from $8,132,000
in 1996 to $2,831,000 in 1997. The decrease in software license revenues may
also be attributed to a smaller sales force of 29 employees in the third quarter
of 1996 compared to 15 employees in the third quarter of 1997.
Revenues from international license sales decreased 85.5% from $1,819,000 in the
third quarter of 1996 to $264,000 in the corresponding quarter of 1997. This
variance is attributed to the large license agreement referenced above. Year to
date, revenues from international licenses decreased 66.6% from $4,623,000 in
1996 to $1,544,000 in 1997. As a percentage of total revenues, international
license revenues decreased from 33.2% in the third quarter of 1996 to 7.5% in
third quarter of 1997, and year to date decreased as a percentage of total
revenues from 25.0% in 1996 to 14.0% in 1997. During the third quarter of 1997
there were no sales to customers in any foreign country which were in excess of
10% of total revenues.
Services revenues decreased 19.5% from $1,495,000 in the third quarter of 1996
to $1,204,000 in the third quarter of 1997. Year to date, services revenues
decreased 33.4% from $5,709,000 in 1996 to $3,805,000 in 1997. The decrease in
services revenues is consistent with the year to date decrease in domestic
software license revenues. Maintenance revenues remained consistent with
$1,245,000 in the third quarter of 1996 compared to $1,254,000 in third quarter
of 1997 and $3,906,000 for the first nine months of 1996 compared to $3,898,000
for the first nine months of 1997. Other revenues decreased 35.1% from $202,000
in the third quarter of 1996 to $131,000 in the third quarter of 1997. Year to
date, other revenues decreased 39.7% from $770,000 in 1996 to $464,000 in 1997
primarily due to decreases in certain reimbursable travel charges consistent
with the decline in services revenue.
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During the third quarter of 1997, the Company continued to see the results of
the restructuring of operations initiated during the fourth quarter of 1996.
Company personnel declined 50.3% from 179 employees at September 30, 1996 to 89
employees at September 30, 1997. This decrease in personnel contributed to
overall declines in expenses for both third quarter 1997 and year to date 1997.
Cost of software revenues decreased 71.2% from $541,000 in the third quarter of
1996 to $156,000 in the third quarter of 1997. Year to date, cost of software
revenues decreased 78.7% from $1,659,000 in 1996 to $354,000 in 1997. This
decrease is a result of a decrease in the amount of amortization of capitalized
software from $538,000 in the third quarter of 1996 to $126,000 in the third
quarter of 1997. The 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. For the first nine months of the year, third party software
and documentation costs have decreased 48.3% from $118,000 in 1996 to $61,000 in
1997 consistent with the decline in software revenues. 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 36.6% from $1,305,000 in the third
quarter of 1996 to $828,000 in the third quarter of 1997 due to decreases in the
number of service personnel and related costs. Year to date, cost of revenues
for services decreased 41.8% from $4,735,000 in 1996 to $2,756,000 in 1997. In
the third quarter of 1996 service staff numbered 51 employees compared to 31
employees during the third quarter of 1997. Cost of revenues for maintenance
decreased 23.7% from $477,000 in the third quarter of 1996 to $364,000 in the
third quarter of 1997. Year to date, cost of revenues for maintenance decreased
14.9% from $1,523,000 in 1996 to $1,296,000 in 1997. The decrease is primarily
due to decreases in support personnel and personnel related costs.
Cost of other revenues decreased 33.2% from $196,000 in the third quarter of
1996 to $131,000 in the third quarter of 1997; and, year to date, decreased
33.4% from $691,000 in 1996 to $460,000 in 1997 due to a decrease in
reimbursable travel charges.
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Sales and marketing expense decreased 50.8% from $2,779,000 in the third quarter
of 1996 to $1,368,000 in the third quarter of 1997. Year to date, sales and
marketing expense decreased 52.7% from $8,051,000 in 1996 to $3,812,000 in 1997.
The decreases were primarily due to a decrease in commissions associated with
the decrease in software sales revenues. There were also decreases in payroll,
payroll associated costs, and travel expenses related to the decrease in sales
and marketing personnel from 40 employees at September 30, 1996, to 23 employees
at September 30, 1997.
The Company's product innovation and development expenditures decreased 52.6%
from $1,238,000 in the third quarter of 1996 to $587,000 in the third quarter of
1997. During the third quarter of 1996, $802,000 was capitalized; however, no
capitalization was recorded during the third quarter of 1997 because development
activities qualifying for capitalization were immaterial. Product development
expense, net of costs capitalized, increased 34.6% from $436,000 in the third
quarter of 1996 to $587,000 in the third quarter of 1997 due to no new costs
being capitalized in 1997. Due to the combination of no new costs being
capitalized and the decreases in development personnel, personnel related costs
and contract services, year to date product development expenditures remained
consistent at $1,526,000 in 1996 compared to $1,511,000 in 1997.
General and administrative expenses decreased 94.9% from $1,316,000 in the third
quarter of 1996 to $67,000 in the third quarter of 1997. Year to date, general
and administrative expenses decreased 41.0% from $3,210,000 in 1996 to
$1,895,000 in 1997. The decreases are attributed to a decrease in bad debt
expense consistent with the decrease in revenue and a favorable settlement of a
legal dispute which resulted in a $603,000 credit to G&A expense during the
third quarter of 1997. Decreases in personnel and personnel related costs
including telephone and insurance also contributed to the lower G&A expenses.
The above factors combined to result in a net income of $55,000 in the third
quarter of 1997 compared to a net loss of $983,000 in the third quarter of 1996,
and a net income per share of $.01 for the third quarter of 1997 compared to a
net loss per share of $.20 for the for the third quarter of 1996. Year to date,
net loss decreased 43.8% to a net loss of $988,000 in 1997 compared to a net
loss of $1,758,000 in 1996. Year to date, net loss per share decreased 42.9% to
a net loss of $0.20 per share in 1997 compared to a net loss of $0.35 per share
in 1996.
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BALANCE SHEET
Net accounts receivable decreased 70.1% from $4,120,000 at December 31, 1996, to
$1,231,000 at September 30, 1997, as a result of the collection of outstanding
receivables and the decrease in revenues for the first nine months of 1997.
Accrued restructuring costs declined 58.5% from $1,111,000 at December 31, 1996
to $461,000 at September 30, 1997 as a result of payments made. The remaining
accrual includes $59,000 in severance payable through the end of year, and
$402,000 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 September 30, 1997, the Company had cash and marketable securities of
$5,347,000 and believes that its present liquidity position is sufficient to
finance the Company's operations through 1998. 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. The line of credit has been
closed.
As of July 25, 1997, the Company entered into an option to purchase an internet
based software company, Netgain Corporation. Option payments of $492,000 have
been made and recorded as other long term assets and additional option payments
of $70,000 monthly will be made until the exercise of the option, or January 31,
1998, whichever occurs first. If the option is exercised, 200,000 shares of the
Company's common stock will be placed in escrow and will be released based upon
achievement of targeted revenues realized from sale of Netgain products.
Additional shares may be issued depending on the achievement of future revenues
from sale of Netgain products.
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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 purposes only).
(b) No reports on Form 8-K were filed during the period
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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.
BROCK INTERNATIONAL, INC.
DATE: November 11, 1997 /s/ Judith A. Vitale
--------------------
Judith A. Vitale
Director of Finance and Administration
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BROCK
INTERNATIONAL'S FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 172
<SECURITIES> 5,175
<RECEIVABLES> 1,231<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,826
<PP&E> 2,048<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,503
<CURRENT-LIABILITIES> 2,991
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 10,503
<TOTAL-LIABILITY-AND-EQUITY> 13,503
<SALES> 2,831
<TOTAL-REVENUES> 10,998
<CGS> 354
<TOTAL-COSTS> 4,866
<OTHER-EXPENSES> 7,218
<LOSS-PROVISION> 217
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> (988)
<INCOME-TAX> 0
<INCOME-CONTINUING> (988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (988)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
<FN>
<F1>A/R AND PPE ASSET VALUES REPRESENT NET AMOUNTS
</FN>
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