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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, 1996
COMMISSION FILE NUMBER 0-21202
BROCK INTERNATIONAL, INC.
(Formerly Brock Control Systems, 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 November 11, 1996:
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Common Stock, no par value 4,936,555 Shares
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BROCK INTERNATIONAL, INC. *
FORM 10-Q
For the quarter ended September 30, 1996
Index
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheet - December 31, 1995 and September 30, 1996 3
Income Statement - For the Three and Nine Months ended
September 30, 1995 and September 30, 1996 4
Statement of Changes in Shareholders' Equity -
For the Nine Months Ended September 30, 1996 5
Statement of Cash Flows - For the Nine Months Ended
September 30, 1995 and September 30, 1996 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 11
* Brock Control Systems, Inc. officially changed its name to Brock
International, Inc. on February 7, 1996.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BROCK INTERNATIONAL, INC.
Balance Sheet
DEC 31, SEPT 30,
1995 1996
------------ -----------
(unaudited)
(in thousands)
ASSETS
Current assets:
Cash and marketable securities $ 8,137 $ 6,663
Accounts receivable, less allowance for
doubtful accounts of $1,415 and $1,512 respectively 8,092 5,766
Other assets 822 1,029
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Total current assets 17,051 13,458
Property and equipment, net 4,035 3,862
Deferred income tax benefit 974 810
Software development costs, net 3,985 4,578
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$26,045 $22,708
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 957 $ 756
Deferred revenue 1,971 1,063
Accrued employee compensation
and benefits 1,126 569
Borrowings under line of credit 985 1,975
Current portion of notes payable 0 83
Income Tax Payable 0 (1,178)
Other accrued liabilities 776 573
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Total current liabilities 5,815 3,841
Long term liabilities:
Notes payable 0 146
Shareholders' equity 20,230 18,721
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$26,045 $22,708
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The accompanying notes are an integral part of these financial statements.
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BROCK INTERNATIONAL, INC.
Income Statement
(unaudited)
For the Quarter Ended For the Nine Months Ended
----------------------------- ---------------------------------
Sept 30, Sept 30, Sept 30, Sept 30,
1995 1996 1995 1996
---------- ---------- ------------- ------------
(In thousands, except per share amounts)
Net Revenues
Software $2,542 $2,532 $ 7,131 $ 8,132
Services 2,154 1,495 7,147 5,709
Maintenance 1,311 1,245 3,869 3,906
Other 317 202 1,125 770
------ ------ ------- -------
6,324 5,474 19,272 18,517
------ ------ ------- -------
Cost and Expenses
Cost of revenues
Software 555 541 1,874 1,659
Services 1,834 1,305 6,143 4,735
Maintenance 526 477 1,544 1,523
Other 310 196 1,096 691
Sales and marketing 2,689 2,779 8,497 8,051
Product development 480 436 1,344 1,526
General and administrative 1,268 1,316 4,249 3,210
------ ------ ------- -------
7,662 7,050 24,747 21,395
------ ------ ------- -------
Operating (Loss) (1,338) (1,576) (5,475) (2,878)
Interest expense (28) (40) (29) (108)
Interest income 119 59 370 173
------ ------ ------- -------
(Loss) before income taxes (1,247) (1,557) (5,134) (2,813)
Income tax benefit 457 574 1,898 1,055
------ ------ ------- -------
Net (loss) ($790) ($983) ($3,236) ($1,758)
====== ====== ======= =======
Net (loss) per share ($0.16) ($0.20) ($0.66) ($0.35)
====== ====== ======= =======
Weighted average number of common
and common share equivalents 4,935 5,000 4,915 5,000
====== ====== ======= =======
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, 1996
Common Stock Unrealized
-------------------------- Add'l (Loss)/Gain on
Paid-in Marketable Retained
Shares Amount Capital Securities Earnings Total
------------- -------- ------- -------------- -------- -------
(In thousands, except share data)
Balance at December 31, 1995 4,908,815 $9 $18,744 ($121) $1,598 $20,230
Unrealized (Loss)/Gain on
Marketable Securities 106 106
Employee Stock Purchase 13,026 0 84 84
Exercise of Common Stock
Options 9,242 0 59 59
Net (loss) (1,758) (1,758)
--------- ------ ------- ------ ------- -------
Balance at September 30, 1996 4,931,083 $9 $18,887 ($15) ($160) $18,721
========= ====== ======= ====== ======= =======
The accompanying notes are an integral part of these financial statements.
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BROCK INTERNATIONAL, INC.
Statement of Cash Flows
(unaudited)
For the Nine Months Ended
-----------------------------------
Sept 30, 1995 Sept 30, 1996
------------- -------------
(In thousands)
Cash flows from operating activities
Net (loss) ($3,236) ($1,758)
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Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 2,226 2,550
Provision for bad debt 594 575
Deferred income tax (9) 164
Changes in assets and liabilities
(Increase) decrease in accounts receivable 1,356 1,751
(Increase) decrease in other assets 470 (207)
Increase (decrease) in accounts payable (581) (201)
Increase (decrease) in deferred revenue (325) (908)
Increase (decrease) in accrued employee
compensation and benefits 47 (557)
Increase (decrease) in other accrued liabilities (1,925) (1,381)
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Total adjustments 1,853 1,786
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Net cash (used in)/provided by operating activities (1,383) 28
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Cash flows from investing activities
Software development costs (2,006) (2,135)
Purchases of property and equipment (1,135) (835)
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Net cash used in investing activities (3,141) (2,970)
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Cash flows from financing activities
Borrowings under line of credit 2,303 2,990
Repayments of borrowings under line of credit 0 (2,000)
Borrowings under notes payable 0 250
Repayments of borrowings under notes payable 0 (21)
Proceeds from employee stock purchase plan 68 84
Exercise of common stock options 26 59
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Net cash provided by financing activities 2,397 1,362
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Unrealized gain on cash equivalents 212 106
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Increase (decrease) in cash (1,915) (1,474)
Cash and marketable securities, beginning of period 11,705 8,137
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Cash and marketable securities, end of period $ 9,790 $ 6,663
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Supplemental disclosure of cash flow information
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Cash paid during the period for interest $ 29 $ 96
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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, 1996
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 manage-
ment, 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 share is computed using the weighted average number
of common shares and common share equivalents outstanding. Common share
equivalents consist of the Company's common shares issuable upon the
exercise of stock options using the treasury stock method.
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BROCK INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - The quarter ended September 30, 1996 compared to the
quarter ended September 30, 1995, and the nine months ended September 30,
1996 compared to the nine months ended September 30, 1995.
Total revenues decreased 13.4% from $6,324,000 in the third quarter of 1995 to
$5,474,000 in the third quarter of 1996 as a result of decreased software,
services, maintenance, and other revenues. For the first nine months of 1996,
total revenues decreased 3.9% to $18,517,000 from $19,272,000 in 1995.
Software revenues for the quarter remained fairly consistent at $2,532,000 in
1996 compared to $2,542,000 for the same period in 1995. For the first nine
months of 1996 software revenues have increased 14.0% to $8,132,000 from
$7,131,000 in 1995, primarily as a result of increased licenses sold to
international customers.
Software revenues from international licenses for the quarter increased 360.5%
to $1,819,000 in 1996 from $395,000 in 1995. For the first nine months of 1996
compared to the first nine months of 1995, international license revenues
increased 152.2% to $4,623,000 from $1,833,000, and increased as a percentage
of total revenues to 25.0% in 1996 from 9.5% in 1995. The increases resulted
from additional penetration of international markets including a third quarter
sale of $1,500,000 in licenses concurrent with a new distribution agreement
with Policy Management Systems Corporation, which will be distributing Brock
products in Asia Pacific and the United Kingdom.
Software revenues from domestic licenses for the quarter decreased 64.9% to
$686,000 in 1996 compared to $1,952,000 in 1995. This decrease in domestic
license fees may be partially attributed to market and prospective customer
damage caused by the timing of the announcement on September 9, 1996 of the
resignation of Brock's President and COO, Michael E. Kohlsdorf.
Services revenues decreased 30.6% from $2,154,000 in the third quarter of 1995
to $1,495,000 in the third quarter of 1996 primarily due to prior decreases in
software licenses. Year to date, services revenue decreased 20.1% from
$7,147,000 in 1995 to $5,709,000 in 1996 due to prior decreases in software
license sales and the Company's commitment to enhance customer satisfaction,
which, in certain instances, resulted in providing services free of charge or
at reduced rates. The company believes these investments in customer
satisfaction have resulted in a referenceable client base which should
contribute to the Company's ability to increase revenue by system expansions,
recurring maintenance revenue, and additional services revenue.
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Maintenance revenues decreased 5.0% to $1,245,000 in the third quarter of 1996
from $1,311,000 during the same period of 1995. For the first nine months of
1996, maintenance revenues increased 1.0% to $3,906,000 compared to $3,869,000
for the first nine months of 1995, primarily as a result of increases in
international installations. Other revenues decreased 36.3% from $317,000 in
the third quarter of 1995 to $202,000 in the third quarter of 1996. Year to
date, other revenues decreased 31.6% to $770,000 in 1996 from $1,125,000 in
1995, primarily due to decreases in certain reimbursable travel charges.
Cost of software revenues decreased 2.5% from $555,000 in the third quarter of
1995 to $541,000 in the third quarter of 1996 primarily as a result of
decreased third party software revenues. Year to date, software revenue costs
decreased 11.5% from $1,874,000 in 1995 to $1,659,000 in 1996 as a result of
decreased third party software costs offset by an increase in amortization of
capitalized software costs. Costs 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 28.8% from $1,834,000 in the third
quarter of 1995 to $1,305,000 in the third quarter of 1996 due to decreases in
the number of service personnel, and personnel related costs. For the nine
months ended September 30, 1996, costs of revenues for services decreased 22.9%
to $4,735,000 from $6,143,000 during the same period of 1995. Cost of revenues
for maintenance decreased 9.3% from $526,000 in the third quarter of 1995 to
$477,000 in the third quarter of 1996 due to decreases in domestic maintenance
related personnel costs, offset by increases in international maintenance costs
which are directly related to increases in international maintenance revenue.
Year to date, costs of revenues for maintenance decreased 1.4% from $1,544,000
in 1995 to $1,523,000 in 1996. Cost of other revenues decreased 36.8% from
$310,000 in the third quarter of 1995 to $196,000 in the third quarter of 1996;
and year to date decreased 37.0% from $1,096,000 in 1995 to $691,000 in 1996
due to decreases in certain reimbursable travel charges.
Sales and marketing expenses increased 3.3% from $2,689,000 in the third
quarter of 1995 to $2,779,000 in the third quarter of 1996 primarily due to an
increase in commission expense. The increase in commission expense results from
the increase in international distributor commissions due to the increase in
international license revenue. For the nine months of 1996, sales and
marketing expense decreased 5.2% to $8,051,000 from $8,497,000 in 1995. The
decreases were due to decreases in personnel and personnel associated costs,
and decreased advertising campaigns, offset by increases in international
distributor commissions.
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The Company's product innovation and development expenditures increased 3.1%
from $1,201,000 in the third quarter of 1995 to $1,238,000 in the third quarter
of 1996. The capitalized portions of these amounts were $721,000 and $802,000
respectively. Product development expense decreased 9.2% from $480,000 in the
third quarter of 1995 to $436,000 in the third quarter of 1996 primarily due to
an increase in activities qualifying for capitalization under FAS 86. For the
nine months ended September 30, 1996 product development expenses increased
13.5% to $1,526,000 from $1,344,000 during the same period of 1995 due to
increased product development activities for new and existing products.
General and administrative expenses increased 3.8% from $1,268,000 in the third
quarter of 1995 to $1,316,000 in the third quarter of 1996 primarily due to
increases in the provision for doubtful receivables for the quarter, offset by
decreases in personnel and personnel related costs of insurance, recruiting,
and relocation. Year to date, general and administrative expenses decreased
24.5% from $4,249,000 in 1995 to $3,210,000 in 1996. This was primarily due to
decreases in professional services, personnel and personnel related costs, and
the year to date decrease in expense for provision for doubtful receivables.
The above factors combined to result in an increase of 24.4% in net loss for
the third quarter of 1996, from a net loss of $790,000 in the third quarter of
1995 to a net loss of $983,000 in the third quarter of 1996. Net loss per
share for the period increased 25.0% from a loss of $0.16 per share for the
third quarter of 1995 to a loss of $0.20 per share for the third quarter of
1996. Year to date, net loss decreased 45.7% from a net loss of $3,236,000 in
1995 to a net loss of $1,758,000 in 1996. Year to date, net loss per share
decreased 46.9% from a net loss of $0.66 per share in 1995 to a net loss of
$0.35 per share in 1996.
Liquidity and Capital Resources
At September 30, 1996, the Company had cash and marketable securities of
$6,663,000, and believes that its present liquidity position is sufficient to
finance the Company's operations.
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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
On September 9, 1996, the Company announced the resignation of
Michael E. Kohlsdorf, President and Chief Operating Officer.
Richard T. Brock has assumed these responsibilities.
As an employee incentive, the Board of Directors of the Company
approved an opportunity for non-officer employees to reprice
stock options held. This resulted in the repricing of 253,042
options from their original grant prices to a new option price
of $4.75, which represented market price at the effective date
of July 12, 1996. Additionally, on September 26, 1996, the
Company granted a total of 189,550 options to non-officer
employees at an option price of $4.75 which represented market
price on that date.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule (for SEC use only)
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, 1996 /s/ Judith A. Vitale
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Judith A. Vitale
Director Finance and Adminstration