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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 JUNE 30, 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
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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 11, 1997:
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Common Stock, no par value 4,953,654 Shares
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BROCK INTERNATIONAL, INC.
FORM 10-Q
For the quarter ended June 30, 1997
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheet - December 31, 1996 and June 30, 1997 3
Statement of Operations - For the Three and Six Months ended
June 30, 1996 and June 30, 1997 4
Statement of Changes in Shareholders' Equity -
For the Six Months Ended June 30, 1997 5
Statement of Cash Flows - For the Six Months Ended
June 30, 1996 and June 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
DEC 31, JUN 30,
1996 1997
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(UNAUDITED)
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
CASH AND MARKETABLE SECURITIES $ 6,947 $ 4,735
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $1,971 AND $1,440 RESPECTIVELY 4,120 2,524
OTHER ASSETS 964 1,089
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TOTAL CURRENT ASSETS 12,031 8,348
PROPERTY AND EQUIPMENT, NET 2,906 2,354
DEFERRED INCOME TAX BENEFIT 1,922 1,922
SOFTWARE DEVELOPMENT COSTS, NET 1,508 1,340
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$18,367 $13,964
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 1,012 $ 649
ACCRUED RESTRUCTURING COSTS 1,111 594
DEFERRED REVENUE 1,464 1,242
ACCRUED EMPLOYEE COMPENSATION
AND BENEFITS 680 757
LINE OF CREDIT AND SHORT TERM NOTE PAYABLE 2,058 0
OTHER ACCRUED LIABILITIES 475 272
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TOTAL CURRENT LIABILITIES 6,800 3,514
LONG TERM LIABILITIES:
NOTES PAYABLE 125 0
SHAREHOLDERS' EQUITY 11,442 10,450
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$18,367 $13,964
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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)
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
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JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1997 1996 1997
-------- --------- --------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NET REVENUES
SOFTWARE $ 2,377 $ 1,191 $ 5,600 $ 1,910
SERVICES 1,875 1,336 4,214 2,601
MAINTENANCE 1,310 1,380 2,661 2,644
OTHER 256 173 568 333
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5,818 4,080 13,043 7,488
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COST AND EXPENSES
COST OF REVENUES
SOFTWARE 511 143 1,118 198
SERVICES 1,609 972 3,430 1,928
MAINTENANCE 510 472 1,046 932
OTHER 194 171 495 329
SALES AND MARKETING 2,393 1,511 5,272 2,444
PRODUCT DEVELOPMENT 576 400 1,090 924
GENERAL AND ADMINISTRATIVE 1,051 699 1,894 1,828
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6,844 4,368 14,345 8,583
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OPERATING LOSS (1,026) (288) (1,302) (1,095)
INTEREST EXPENSE (44) 0 (68) (40)
INTEREST INCOME 79 44 114 92
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LOSS BEFORE INCOME TAXES (991) (244) (1,256) (1,043)
INCOME TAX BENEFIT 387 0 481 0
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NET LOSS $ (604) $ (244) $ ( 775) $(1,043)
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NET LOSS PER SHARE $ (0.12) $ (0.05) $ (0.16) $ (0.21)
======= ======== ======== =======
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON SHARE EQUIVALENTS 4,950 4,955 5,000 4,955
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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 SIX MONTHS ENDED JUNE 30, 1997
UNREALIZED
COMMON STOCK ADD'L (LOSS)/GAIN ON
------------------- PAID-IN MARKETABLE RETAINED
SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
--------- ------- ------- ---------- -------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
BALANCE AT DECEMBER 31, 1996 4,936,555 $ 9 $18,909 $(14) $(7,462) $11,442
UNREALIZED (LOSS)/GAIN ON
MARKETABLE SECURITIES 0 0
EMPLOYEE STOCK PURCHASE 4,707 0 15 15
EXERCISE OF COMMON STOCK
OPTIONS 11,125 0 36 36
NET LOSS (1,043) (1,043)
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BALANCE AT JUNE 30, 1997 4,952,387 $ 9 $18,960 $(14) $(8,505) $10,450
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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)
FOR THE SIX MONTHS ENDED
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JUN 30, 1996 JUN 30, 1997
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(IN THOUSANDS)
CASH FLOWS (USED IN)/PROVIDED BY OPERATING ACTIVITIES 186 (67)
CASH FLOWS FROM INVESTING ACTIVITIES
SOFTWARE DEVELOPMENT COSTS (1,332) 0
PURCHASES OF PROPERTY AND EQUIPMENT (739) (13)
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NET CASH USED IN INVESTING ACTIVITIES (2,071) (13)
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CASH FLOWS FROM FINANCING ACTIVITIES
BORROWINGS UNDER LINE OF CREDIT 1,515 0
REPAYMENTS OF BORROWINGS UNDER LINE OF CREDIT (400) (1,975)
BORROWINGS UNDER NOTES PAYABLE 250 0
REPAYMENTS OF BORROWINGS UNDER NOTES PAYABLE 0 (208)
PROCEEDS FROM EMPLOYEE STOCK PURCHASE PLAN 63 15
EXERCISE OF COMMON STOCK OPTIONS 59 36
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NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES 1,487 (2,132)
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UNREALIZED GAIN ON CASH EQUIVALENTS 107 0
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DECREASE IN CASH (291) (2,212)
CASH AND MARKETABLE SECURITIES, BEGINNING OF PERIOD 8,137 6,947
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CASH AND MARKETABLE SECURITIES, END OF PERIOD $ 7,846 $ 4,735
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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CASH PAID DURING THE PERIOD FOR INTEREST $ 69 $ 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
JUNE 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 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.
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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 JUNE 30, 1997 COMPARED TO THE QUARTER
ENDED JUNE 30, 1996, AND THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996.
Total revenues decreased 29.9% from $5,818,000 in the second quarter of 1996 to
$4,080,000 in the second quarter 1997. Year to date, total revenues decreased
42.6% to $7,488,000 from $13,043,000 in the same period of 1996. These decreases
were due to lower software and services revenues. Software revenues decreased
49.9% from $2,377,000 in the second quarter of 1996 to $1,191,000 in the same
period of 1997. For the first six months of 1997 software revenues decreased
65.9% to $1,910,000 from $5,600,000 in 1996.
Revenues from international license sales increased 25.7% from $806,000 in the
second quarter of 1996 to $1,013,000 in the corresponding quarter of 1997. Year
to date, revenues from international licenses decreased 54.4% from $2,804,000 in
1996 to $1,279,000 in 1997. As a percentage of total revenues, international
revenues increased to 24.8% in the second quarter of 1997 compared to 13.9% in
second quarter 1996, but year to date, decreased as a percentage of total
revenues from 21.5% in 1996 to 17.1% in 1997. During the second quarter of 1997
there were no sales to customers in any foreign country which were in excess of
10% of total revenues. The decrease in year to date international and domestic
software revenue can be attributed to a smaller sales force, 37 employees in the
second quarter of 1996 compared to 14 employees in the second quarter of 1997.
During the second quarter of 1997, the sales force began rebuilding and three
new sales employees were brought on board which management believes will begin
to contribute to generating sales revenue.
Services revenues decreased 28.7% from $1,875,000 in the second quarter of 1996
to $1,336,000 in the second quarter of 1997. Year to date, services revenues
decreased 38.3% from $4,214,000 in 1996 to $2,601,000 in 1997. The decrease in
services revenues is consistent with the year to date decrease in domestic
software license revenues. Maintenance revenues increased 5.3% from $1,310,000
in the second quarter of 1996 to $1,380,000 in the same period of 1997. For the
first six months of 1997, maintenance revenues remained fairly consistent at
$2,644,000 from $2,661,000 for the first six months of 1996. Other revenues
decreased 32.4% from $256,000 in the second quarter of 1996 to $173,000 in the
second quarter of 1997. Year to date, other revenues decreased 41.4% to $333,000
in 1997 from $568,000 in 1996 primarily due to decreases in certain reimbursable
travel charges consistent with the decline in services revenue.
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During the second quarter of 1997, the Company continued to see the results of
the restructuring of operations initiated during the fourth quarter of 1996. The
results included company wide decreases of personnel and related costs totaling
approximately $1,556,000 during the first six months of 1997 which were on
target with expected results. Company personnel declined 57.3% from 213
employees at June 30, 1996 to 91 employees at June 30, 1997. This decrease in
personnel contributed to overall declines in expenses for both second quarter
1997 and year to date 1997.
Cost of software revenues decreased 72.0% from $511,000 in the second quarter
of 1996 to $143,000 in the second quarter of 1997. Year to date, cost of
software revenues decreased 82.3% from $1,118,000 in 1996 to $198,000 in 1997.
This decrease is a result of a decrease in the amount of amortization of
capitalized software from $462,000 in the second quarter of 1996 to $126,000 in
the second 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. Third party software and documentation
costs decreased 65.3% from $49,000 in the second quarter of 1996 to $17,000 in
the second quarter of 1997. For the first six months of 1997 third party
software and documentation costs have decreased 73.0% from $115,000 in 1996 to
$31,000 in 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 39.6% from $1,609,000 in the second
quarter of 1996 to $972,000 in the second quarter of 1997 due to decreases in
the number of service personnel and related costs. Year to date, costs of
revenues for services decreased 43.8% to $1,928,000 in 1997 from $3,430,000
during the same period of 1996. In the second quarter of 1996 service staff
numbered 67 employees compared to 32 employees during the second quarter of
1997. Costs of revenues for maintenance decreased 7.5% from $510,000 in the
second quarter of 1996 to $472,000 in the second quarter of 1997. Year to date,
costs of revenues for maintenance decreased 10.9% from $1,046,000 in 1996 to
$932,000 in 1997. The decrease is primarily due to decreases in support
personnel and personnel related costs.
Cost of other revenues decreased 11.9% from $194,000 in the second quarter of
1996 to $171,000 in the second quarter of 1997; and, year to date, decreased
33.5% from $495,000 in 1996 to $329,000 in 1997 due to a decrease in
reimbursable travel charges consistent with the decline in services revenue.
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Sales and marketing expense decreased 36.9% from $2,393,000 in the second
quarter of 1996 to $1,511,000 in the second quarter of 1997. Year to date, sales
and marketing expense decreased 53.6% to $2,444,000 in 1997 from $5,272,000 in
1996. 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 53 employees at June 30, 1996, to 21
employees at June 30, 1997.
The Company's product innovation and development expenditures decreased 68.8%
from $1,281,000 in the second quarter of 1996 to $400,000 in the second quarter
of 1997. During the second quarter of 1996, $705,000 was capitalized; however,
no capitalization was recorded during the second quarter of 1997 because
development activities qualifying for capitalization were immaterial. Product
development expense, net of costs capitalized, decreased 30.6% from $576,000 in
the second quarter of 1996 to $400,000 in the second quarter of 1997 and year to
date decreased 15.2% to $924,000 in 1997 from $1,090,000 during the same period
of 1996. These decreases were due to the combination of no new costs being
capitalized and the decreases in development personnel, personnel related costs
and contract services.
General and administrative expenses decreased 33.5% to $699,000 in the second
quarter of 1997 from $1,051,000 in the second quarter of 1996. Year to date,
general and administrative expenses decreased 3.5% from $1,894,000 in 1996 to
$1,828,000 in 1997. The decreases resulted primarily from decreases in personnel
and personnel related costs including telephone and insurance.
The above factors combined to result in a decrease of approximately 59.6% in net
loss for the second quarter of 1997, from a loss of $604,000 in the second
quarter of 1996 to a loss of $244,000 in the second quarter of 1997. Net loss
per share for the period decreased from a loss of $0.12 per share for the second
quarter of 1996 to a loss of $0.05 for the second quarter of 1997.
BALANCE SHEET
Net accounts receivable decreased 38.7% from $4,120,000 at December 31, 1996, to
$2,524,000 at June 30, 1997, as a result of the collection of outstanding
receivables and the decrease in sales revenues for the first six months of 1997.
Accrued restructuring costs declined 46.5% from $1,111,000 at December 31, 1996
to $594,000 at June 30, 1997 as a result of payments made. The remaining accrual
includes $116,000 in severance payable through the end of year, and $478,000 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.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and marketable securities of $4,735,000
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
$4,735,000 at June 30, 1997. The line of credit has been closed.
As of July 25, 1997, the Company has entered into an option to purchase an
internet based software company, Netgain Corporation. Option payments of
$285,000 have been made 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.
The Company believes its current cash position is sufficient to fund its
operations as well as these option payments.
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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
No reports on Form 8-K were filed during the period
Exhibit 10.15. NetGain Option Agreement
Exhibit 27. Financial data Schedule (for SEC use only)
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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: August 11, 1997 /s/ Judith A. Vitale
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Judith A. Vitale
Director of Finance and Administration
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