-----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, BGIf15y2QYHro9DWUr+kUCtxDvV5/D4aCN0fQ7HlOLFJELSdbxstSBTu+PLycs5N lUR5dAnXCm5sBvgkE2AsRw== 0000879703-97-000011.txt : 19970520 0000879703-97-000011.hdr.sgml : 19970520 ACCESSION NUMBER: 0000879703-97-000011 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970516 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER CONCEPTS CORP /DE CENTRAL INDEX KEY: 0000879703 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 112895590 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20660 FILM NUMBER: 97610582 BUSINESS ADDRESS: STREET 1: 80 ORVILLE DR CITY: BOHEMIA STATE: NY ZIP: 11716 BUSINESS PHONE: 516-244-1500 MAIL ADDRESS: STREET 1: 80 ORVILLE DRIVE CITY: BOHEMIA STATE: NY ZIP: 11716 10-Q/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File No. 0 - 20660 COMPUTER CONCEPTS CORP. (Exact name of registrant as specified in its charter) Delaware 11-2895590 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 80 Orville Drive, Bohemia, N.Y. 11716 (Address of principal executive offices) (Zip Code) Registrant s telephone number, including area code (516) 244-1500 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 [ ] The number of shares of $.0001 par value stock outstanding as of November 1, 1996 was: 83,061,313 COMPUTER CONCEPTS CORP. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 1 Condensed Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 1996 and 1995 2 Condensed Consolidated Statements of Cash Flows For the Nine Months ended September 30, 1996 and 1995 3 Notes to Condensed Consolidated Financial Statements 4 - 10 Management s Discussion and Analysis of Financial Condition and Results of Operations 11 - 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 COMPUTER CONCEPTS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS as of September 30, 1996 and December 31, 1995 (in thousands, except share data)
September 30, ASSETS 1996 December 31, (Unaudited) 1995 --------------- ------------ CURRENT ASSETS: Cash and cash equivalents ....................................................... $ 6,919 $ 579 Accounts receivable, net of allowance for doubtful accounts of $475 and $539 in 1996 and 1995, respectively ....................................... 5,930 4,475 Advances to officers ........................................................... 570 385 Inventories ..................................................................... 76 123 Prepaid expenses and other current assets ....................................... 1,182 431 ----- --- Total current assets ................................................ 14,677 5,993 INSTALLMENT ACCOUNTS RECEIVABLE, due after one year ............................... 1,789 - PROPERTY AND EQUIPMENT, net ....................................................... 1,572 1,579 SOFTWARE COSTS, net (including $450 held for sale at December 31, 1995) ......... 1,742 2,950 EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated amortization of $2,082 and $1,369 in 1996 and 1995, respectively .. 5,038 5,425 OTHER ASSETS ...................................................................... 447 134 --- --- $ 25,265 $ 16,081 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses .......................................... $ 4,557 $ 4,047 Current portion of long- term debt ............................................. 381 359 Deferred revenues .............................................................. 6,045 4,585 ----- ----- Total current liabilities .......................................... 10,983 8,991 DEFERRED REVENUES ................................................................. 2,202 281 LONG-TERM DEBT .................................................................... 2,695 800 COMMON STOCK SUBJECT TO REDEMPTION ................................................ 3,000 4,000 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, $.0001 par value; 150,000,000 shares authorized; 75,942,000 shares in 1996 and 57,475,000 shares in 1995 issued and outstanding ........ 8 6 Additional paid-in capital ..................................................... 68,864 52,406 Accumulated deficit ............................................................ (62,487) (50,403) ------- ------- Total shareholders' equity .......................................... 6,385 2,009 ----- ----- $ 25,265 $ 16,081 ======== ======== See Notes to Condensed Consolidated Financial Statements.
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months and Nine Months Ended September 30, (in thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 1996 1995 1996 1995 ---- ---- ---- ---- REVENUES: Software licenses and support ......... $ 4,313 $ 4,320 $ 12,144 $ 12,038 COSTS AND EXPENSES: Cost of revenues and technical support... 1,354 1,997 3,971 5,453 Research and development ................ 328 310 1,004 903 Sales and marketing ..................... 2,539 1,971 6,913 6,932 General and administrative .............. 1,621 1,951 5,115 6,232 Amortization and depreciation ........... 798 989 2,340 2,909 Reduction in carrying value of software costs held for sale - 2,097 - 2,097 Unusual charges ......................... - 438 2,075 1,077 ----- --- ----- ----- 6,640 9,753 21,418 25,603 ----- ----- ------ ------ NET LOSS FROM OPERATIONS .................. (2,327) (5,433) (9,274) (13,565) ------ ------ ------ ------- OTHER INCOME/(EXPENSE): Interest charge pertaining to the discount on convertible debentures ........... (630) - (2,810) - ------ ------ ------ ------- NET LOSS ................................. $ (2,957) $ (5,433) $(12,084) $(13,565) ======== ======== ======== ======== NET LOSS PER SHARE ....................... $ (0.04) $ (0.10) $ (0.18) $ (0.28) ======== ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ......................... 73,982 55,954 66,052 48,502 ====== ====== ====== ====== See Notes to Condensed Consolidated Financial Statements.
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, (in thousands)
1996 1995 ---- ---- OPERATING ACTIVITIES: Net loss ....................................................................... $(12,084) $(13,565) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization: Software costs ....................................................... 1,090 1,429 Property and equipment ............................................... 531 514 Excess of cost over fair value of net assets acquired ................ 712 985 Reduction in carrying value of software costs held for sale .......... - 2,097 Other ................................................................ 7 - Common stock issued for services .......................................... 787 1,664 Non-cash interest charge for discount on convertible debt ................. 2,810 - Non-cash unusual charges .................................................. 2,000 995 Changes in operating assets and liabilities: Accounts receivable ....................................................... (1,455) 311 Installment accounts receivable, due after one year ....................... (1,789) - Inventories ............................................................... 47 114 Prepaid expenses and other current assets ................................. (658) 42 Other assets .............................................................. (313) 26 Deferred revenue .......................................................... 3,381 (90) Accounts payable and other accrued expenses ................................ 599 (513) --- ---- Net cash used in operating activities ............ (4,335) (5,991) ------ ------ INVESTING ACTIVITIES: Capital expenditures ...................................................... (533) (538) Additional consideration for Softworks acquisition ........................ (368) (247) Proceeds from the sale of technology ...................................... 350 - Capitalization of software development costs .............................. (332) (584) Net change in advances to officers ........................................ (185) (164) ---- ---- Net cash used in investing activities .............. (1,068) (1,533) ------ ------ FINANCING ACTIVITIES: Net proceeds from sales of common stock, options and convertible debentures 11,976 8,461 Other loans payable ........................................................ - 55 Net change in long term debt ............................................... (233) - ---- Net cash provided by financing activities .......... 14,553 8,516 ------ ----- INCREASE IN CASH AND CASH EQUIVALENTS ......................................... 6,340 992 CASH AND CASH EQUIVALENTS, beginning of period ................................. 579 501 --- --- CASH AND CASH EQUIVALENTS, end of period ....................................... $ 6,919 $ 1,493 ======== ======== See Notes to Condensed Consolidated Financial Statements
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three and Nine Months Ended September 30, 1996 and 1995 1. INTERIM FINANCIAL INFORMATION The condensed consolidated balance sheet as of September 30, 1996, and the condensed consolidated statements of operations for the three and nine months ended September 30, 1996, and 1995, and cash flows for the nine months ended September 30, 1996, and 1995, have been prepared by the Company without audit. These interim financial statements include all adjustments, consisting only of normal recurring accruals, which management considers necessary for a fair presentation of the financial statements for the above periods. The results of operations for the three and nine months ended September 30, 1996, are not necessarily indicative of results that may be expected for any other interim periods or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1995. The accounting policies used in preparing the condensed consolidated financial statements are consistent with those described in the December 31, 1995, consolidated financial statements. 2. BUSINESS MATTERS AND LIQUIDITY Computer Concepts Corp. and subsidiaries (the "Company") design, develop, market and support information delivery software products, including end-user data access tools for use in personal computer and client/server environments, and systems management software products for corporate mainframe data centers. The Company has incurred consolidated net losses of $2,957,000 for the three months ended September 30, 1996, $12,084,000 for the nine months ended September 30, 1996, and cumulative net losses of $62,487,000 through September 30, 1996. As of September 30, 1996, the Company's current assets exceeded current liabilities by $3,694,000. Approximately $853,000 of accounts payable were past due. The Company is not experiencing difficulty in obtaining trade credit with customary terms from its vendors. The Company recorded as an unusual charge in the March 31, 1996, condensed consolidated financial statements, $2,075,000 for a settlement of a class action suit, wherein $2,000,000 worth of the Company's common stock was placed in escrow and $75,000 was paid in cash. See Note 5.d to the condensed consolidated financial statements. Further, the Company has recorded a non-cash charge for discount on convertible debentures of $2,810,000. See Note 4.b to the condensed consolidated financial statements. During the nine month period ended September 30, 1996, net cash used in operating activities totaled $4,335,000, consisting primarily of an operating net loss of $12,084,000, net of depreciation and amortization of $2,340,000, non cash unusual charges of $2,000,000, common stock issued for services of $787,000, non-cash interest charge for the amortization of the discount on convertible debentures of $2,810,000 and a net change (reduction) in operating assets and liabilities of $188,000. In addition, net cash used in investing activities of $1,068,000 consisted primarily of software development costs, $332,000, the purchase of fixed assets, $533,000, and additional consideration paid in connection with the Softworks, Inc. acquisition, $368,000, offset by the proceeds from the sale of software technology, $350,000. The Company does not maintain a credit facility with any financial institution. The uses of cash, referred to above, have been essentially funded through the issuance of the Company's common stock, the sale of convertible debentures, as well as cash generated from Softworks, Inc. Although the Company's liquidity position at September 30, 1996, has been adversely affected by the aforementioned factors, equity placements during the nine months then ended have mitigated these factors. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three and Nine Months Ended September 30, 1996 and 1995 2. BUSINESS MATTERS AND LIQUIDITY (Continued) During the nine months ended September 30, 1996, net proceeds from the sale of common stock and options were $1,996,000. In addition, the Company received approximately $9,980,000 (net of commissions and fees) from the sale of convertible debentures. See Note 4b to the condensed consolidated financial statements. The Company believes that these cash infusions (coupled with anticipated future cash infusions) will enable it to adequately maintain its operations at least through September 30, 1997. At November 14, 1996, the Company had cash and cash equivalents of approximately $6,068,000 (unaudited). Ultimately, however, positive cash flows from operations will be necessary in order to curtail the Company's reliance on equity placements. To achieve positive cash flows from operations, management initiated during 1995, a series of cost saving measures, some of which include, wherever possible, reductions in staffing, advertising, the use of outside consultants and marketing costs. The Company has continued these measures in 1996. Further, the Company has substantially closed down its DBopen product line. During 1995, the Company significantly curtailed the Superbase operations, and, in April, 1996, ceased Superbase operations by selling off this technology. During the quarter ended September 30, 1996, the Company announced that it had signed an agreement with the Availability Services branch of IBM, wherein they will market the Company's d.b.Express product line. This agreement does not contain any sales commitments. Management's plans continue to be centered on the successful exploitation of the Company's d.b.Express product. To date, revenues from current versions of d.b.Express have been insignificant. Management expects that future revenues will support the carrying value of the capitalized software development costs related to d.b.Express of $684,000 at September 30, 1996. Management believes that the successful implementation of the cost saving measures and the planned exploitation of its d.b.Express technology will eventually enable the Company to achieve positive cash flows from operations. The long-term success of the Company, under its existing business plan, is dependent upon the Company's ability to generate material d.b.Express sales revenues. The Company has signed a Letter of Intent to sell one of its wholly-owned subsidiaries, Maplinx, Inc. ("Maplinx"). Financial information pertaining to this wholly-owned subsidiary as of and for the nine months ended September 30, 1996, and as of and for the year ended December 31, 1995, is summarized below:
September 30, 1996 December 31, 1995 ------------------ ----------------- Current Assets: $373,000 $831,000 Total Assets: 971,000 1,520,000 Current Liabilities: 1,444,000 949,000 Total Liabilities: 1,451,000 963,000 Net Assets (Liabilities): (480,000) 557,000 Net Revenues: 1,315,000 3,780,000 Net Loss: 1,038,000 508,000
There can be no assurances that the Company will be successful in its attempt to sell this wholly-owned subsidiary. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three and Nine Months Ended September 30, 1996 and 1995 2. BUSINESS MATTERS AND LIQUIDITY (Continued) In connection with the 1993 acquisition of Softworks, Inc. ("Softworks") the Company is required to make additional contingent purchase consideration payments to two of Softworks' former shareholders based upon certain product revenues for the years 1995 through 1998, up to a maximum of $1,000,000 each, for an aggregate maximum of $2,000,000. Through September 30, 1996, the Company incurred a liability of $736,000, (of which $659,000 has been paid) to the non-employee former shareholders, which has been treated as additional consideration in connection with the acquisition and, accordingly, included in the excess of cost over the fair value of net assets acquired, as these individuals did not continue in the employment of the Company subsequent to the acquisition. No other contingent payments have been made under the terms of this agreement. In June, 1994, the Company completed the purchase of the Superbase product technology and certain related assets from Software Publishing Corp. ("SPC") in exchange for 2,031,175 shares of the Company's restricted stock, valued at approximately $4,000,000, and $75,000 in cash. SPC received a valuation guarantee for the stock issued, and will be permitted to sell such stock in an orderly manner over a twelve month period following registration, which was originally required to be completed before December 31, 1994. The agreement provided that should such registration statement not be effective by December 31, 1994, SPC, at its option, could require the Company to repurchase the shares issued for the amount of the valuation guarantee. On January 19, 1995, SPC and the Company entered into an extension agreement whereby the Company was given an extension to file the registration statement to February 15, 1995. In exchange for that extension, the Company agreed to pay SPC $560,000 (the "Penalty Amount"), payable $300,000 in cash in three monthly installments, and $260,000 in additional shares of Company common stock. These additional shares also have a valuation guarantee. As a result of the Company's failure to meet the December 31, 1994, registration statement filing deadline, the Company recorded the Penalty Amount as an unusual charge in the December 31, 1994, consolidated statement of operations. As of September 30, 1996, the Company has paid $100,000 of the required $300,000 cash penalty amount. The remaining balance of $200,000 was paid subsequent to September 30, 1996. The extension agreement included a provision that if the Company did not meet the February 15, 1995 deadline, and the registration was not completed by May 31, 1995, SPC would be entitled to either of the following (at SPC's option): (i) the payment of an additional penalty payment equal to $638,400 payable equally in cash and Company common stock, or (ii) the repurchase of the shares as provided for in the agreement. The Company did not meet the May 31, 1995 requirement. The Company recorded an additional penalty of $638,400 as an unusual charge in the 1995 consolidated statement of operations. In June, 1996 SPC initiated the sale of a portion of its shares pursuant to the Rule 144 provisions of the Securities Act of 1933 and, further, exercised its option for the penalty payment of $638,400. The penalty payment of $638,000 payable equally in cash and Company common stock was satisfied by the Company subsequent to September 30, 1996. The remaining stock issued to SPC is presently included in the accompanying September 30, 1996 balance sheet as "Common Stock Subject To Redemption" and is classified as debt. However, based upon the elections made by SPC, coupled with the final settlement of all of the above matters between the Company and SPC subsequent to September 30, 1996, any remaining amount will be reclassified and reported as equity in future filings. The Company is a defendant in several lawsuits and class action claims as described in Note 5d. Based on consultation with legal counsel, the Company and its officers believe that meritorious defenses exist regarding the lawsuits and claims, and they are vigorously defending against the allegations. The Company is unable to predict the ultimate outcome of the claims, which could have a material adverse effect on the consolidated financial position and results of operations of the Company. Accordingly, except as expressly discussed herein, the financial statements do not reflect any adjustments that might result from the ultimate outcome of these litigation matters. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three and Nine Months Ended September 30, 1996 and 1995 3. RECLASSIFICATIONS Certain reclassifications have been made to the 1995 financial statements to conform to the 1996 presentation. 4. SHAREHOLDERS' EQUITY a. Authorized Common Shares On March 20, 1996, the shareholders of the Company approved an increase in the number of authorized common shares from 60,000,000 to 150,000,000 shares. b. Sales of Common Stock, convertible debentures and proceeds from stock options During the nine month period ended September 30, 1996, the Company consummated sales of restricted common stock under various private placement agreements. Proceeds raised from these sales aggregated $1,733,000, net of offering commissions and expenses of approximately $297,000. A total of 1,015,000 shares were sold at a price of $2.00 per share. Additionally, approximately $263,000 was raised through the exercise of stock options. During the nine month period ended September 30, 1996, the Company raised approximately $9,980,000 (net of commissions and expenses of $1,320,000) through the sale of subordinated convertible debentures. Such debentures, which aggregate to the principal amount of $11,300,000, had maturity dates ranging from April, 1997 to March, 1998, and are convertible, at the option of the holder, commencing 45 days from the date of issue, into the restricted common stock of the Company at conversion rates ranging from 67.5% to 75.0% of the prices of the Company's common stock during various defined periods. In connection with this discount, SEC Staff comments and consistent with SEC observer comments at the Emerging Issues Task Force meeting on March 13, 1997 related to this topic, the Company recorded a deferred discount of $2,810,000 upon the receipt of the funds. This deferred discount was amortized over the periods commencing on the date the security was issued through the date they first became eligible to convert, and accordingly, the Company recorded a non-cash interest charge related to these securities of $2,810,000. As of the initial date of the filing of this report, November 15, 1996, $10,800,000 of the convertible debentures had converted into an aggregate of 14,706,597 shares of the Company's common stock and has, accordingly, increased the Company's shareholders' equity by an equal amount. c. Stock Option Plans On March 20, 1996, the Company's shareholders approved the termination of the 1993 Stock Option Plan (the "Employees' Plan"), the 1993 Directors, Officers and Consultants Stock Option Plan (the "DOC Plan"), and the 1993 Prior Services Stock Option Plan (the "Prior Services Plan") and the adoption of the 1995 Stock Incentive Plan (the "1995 Incentive Plan"). Further, the Company's shareholders also approved the Outside Director Stock Option Plan (the "Director Plan"). Directors of the Company who are not full-time employees of the Company are eligible to participate in the Director Plan. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three and Nine Months Ended September 30, 1996 and 1995 5. COMMITMENTS AND CONTINGENCIES a. Contingent Consideration In connection with the 1993 acquisition of Softworks, the Company is required to make additional payments to two of Softworks' former shareholders, based upon certain product revenues for the years 1995 through 1998, up to an aggregate maximum of $2,000,000. $659,000, treated for accounting purposes as additional consideration, has been paid thus far through September 30, 1996. b. Employment Agreements The Company has entered into various employment agreements with certain key employees for base compensation aggregating $690,000 per year. These agreements expire at various times in 1996 and 1997 and would be automatically renewed for succeeding terms of one year unless the Company, or the employee, gives written notice. c. Registration Statements/Restricted Securities The Company has used restricted common stock for the purchase of certain companies and has sold restricted common stock in private placements. At September 30, 1996, 14,362,000 shares of restricted common stock were issued and outstanding, exclusive of shares which may be issued in connection with acquisition related valuation guarantees or stock related valuation guarantees. See Part II Item 5. d. Legal Matters The previously disclosed settlement of a class action claim [Nicholas Cosmas v Computer Concepts Corp., et al; United States District Court, Eastern District of New York] was approved by the Court on September 12, 1996. The Company posted a charge to earnings in the first quarter of 1996 of $2,075,000 to reflect this settlement. In July, 1995, the Company received notice of an action alleging the Company had not used its best efforts to register warrants to purchase 500,000 shares of the Company's common stock within 30 days from written notice to the Company, pursuant to a financial consulting agreement. The Company has maintained that it has always used its best efforts to cause the registration of those warrants to occur. However, to avoid the expense and resolve the uncertainties of litigation, the matter was originally settled by including 385,000 warrants in the Company's pending registration statement, with the balance of 115,000 warrants being canceled. As the pending registration statement became effective on August 9, 1996, the Company believes this matter has been resolved, however, the Company is unable to predict the ultimate outcome of this suit and, accordingly, no adjustment has been made in the consolidated financial statements for any potential losses. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three and Nine Months Ended September 30, 1996 and 1995 5. COMMITMENTS AND CONTINGENCIES (continued) In July, 1995, the Company and certain officers received notification that they have been named as defendants in a class action claim in regard to announcements and statements regarding the Company's business and products. During August and September, 1995, four additional, substantially identical, class action claims were made. In November, 1995, the five complaints were consolidated into one action. Plaintiffs have moved to certify a Class Action and the Company has not opposed the motion. No damages have been specified in any of these class action claims. Based on consultation with legal counsel, the Company and its officers believe that meritorious defenses exist regarding the claims and they are vigorously defending against the allegations. The Company is unable to predict the ultimate outcome of these claims, which could have a material adverse impact on the consolidated financial position and results of operations of the Company, and accordingly, no adjustment has been made for any potential losses. On June 11, 1996, the Company received notice of entry of a default judgement against it for $1,500,000 and specific performance to effect the registration of common stock held by Merit Technology, Inc. in a matter which the Company had not been served or received notice of (In Re: Merit Technology, Inc., Debtor, U.S. Bankruptcy Court, Eastern District of Texas). The Company timely filed a motion to set aside the default judgement based on the lack of service and meritorious defenses and is vigorously defending the matter. On August 13, 1996, the default judgement was set aside by the Court. The Company is unable to predict the ultimate outcome of these claims, which could have a material adverse impact on the consolidated financial position and results of operations of the Company, and accordingly, no adjustment has been made for any potential losses. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three and Nine Months Ended September 30, 1996 and 1995 Results of Operations - --------------------- Three and Nine Months Ended September 30, 1996 Compared with September 30, 1995 - ------------------------------------------------------------------------------- Revenues for the quarter ended September 30, 1996, were $4,313,000, virtually the same as the comparable period in 1995, while revenues for the nine months ended September 30, 1996 of $12,144,000 were $106,000 or 1.0% over the prior year. For the quarter ended September 30, 1996, net revenues increased at Softworks by $943,000 while decreasing at Maplinx by $693,000 as compared to the quarter ended September 30, 1995. Year to date increases of $2,674,000 and $73,000 at Softworks and Computer Concepts respectively, were offset by decreases of $1,741,000 and $491,000 at Maplinx and Superbase, (which ceased operations in April, 1996 ) respectively. The increase in revenues at Softworks is due primarily to the release of new products and expanded sales and marketing efforts. The decrease at Maplinx is principally due in large part to a delay in the release of its new products. The closure of certain subsidiaries and product lines accounted for an additional loss of revenues of approximately $409,000. The cost of revenues and technical support decreased $643,000 to $1,354,000 for the quarter ended September 30, 1996, as compared to $1,997,000 for the prior year quarter and by $1,482,000 to $3,971,000 for the nine months ended September 30, 1996, from $5,453,000 for the prior year nine month period. The principal factors for these decreases include the elimination of certain subsidiaries and product lines, as well as various reductions in overhead. Research and development costs increased $18,000 to $328,000 for the quarter ended September 30, 1996 from $310,000 for the prior year quarter, and increased $101,000 to $1,004,000 for the nine months ended September 30, 1996, from $903,000 for the prior year nine month period. Substantially all development activities were devoted to further develop current product technologies. Sales and marketing expenses increased approximately $568,000 for the quarter ended September 30, 1996, to $2,539,000 from $1,971,000 for the prior year primarily as a result of increased efforts to market d.b.Express . However, for the nine month period ended September 30, 1996, expenses decreased when compared to the nine months ended September 30, 1995 by $19,000. The cumulative decrease is primarily a result of the elimination of certain subsidiaries and product lines. General and administrative costs decreased $330,000 to $1,621,000 for the three months ended September 30, 1996, when compared to $1,951,000 for the quarter ended September 30, 1995, and by $1,117,000 to $5,115,000 for the nine months ended September 30,1996 from $6,232,000 for the nine month period ended September 30, 1995. The principal factor contributing to the decrease has been the elimination of certain subsidiaries and product lines. See Notes 2 and 5d to the condensed consolidated financial statements for discussions relating to unusual charges incurred during the nine months ended September 30, 1996. See Note 4.b to the condensed consolidated financial statements for discussion relating to the non-cash interest charge of $2,810,000 for the amortization of the discount on convertible debentures. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three and Nine Months Ended September 30, 1996 and 1995 Financial Condition and Liquidity - --------------------------------- The Company has incurred consolidated net losses of $2,957,000 for the three months ended September 30, 1996, $12,084,000 for the nine months ended September 30, 1996, and cumulative net losses of $62,487,000 through September 30, 1996. As of September 30, 1996, the Company's current assets exceeded current liabilities by $3,694,000. Approximately $853,000 of accounts payable were past due. The Company is not experiencing difficulty in obtaining trade credit with customary terms from its vendors. The Company recorded as an unusual charge in the March 31, 1996, condensed consolidated financial statements, $2,075,000 for a settlement of a class action suit, wherein $2,000,000 worth of the Company's common stock was placed in escrow and $75,000 was paid in cash. See Note 5.d to the condensed consolidated financial statements. Further, the Company has recorded a non-cash charge for discount on convertible debentures of $2,810,000. See Note 4.b to the condensed consolidated financial statements. During the nine month period ended September 30, 1996, net cash used in operating activities totaled $4,335,000, consisting primarily of an operating net loss of $12,084,000, net of depreciation and amortization of $2,340,000, non cash unusual charges of $2,000,000, common stock issued for services of $787,000, non-cash interest charge for the amortization of the discount on convertible debentures of $2,810,000 and a net change (reduction) in operating assets and liabilities of $188,000. In addition, net cash used in investing activities of $1,068,000 consisted primarily of software development costs, $332,000, the purchase of fixed assets, $533,000, and additional consideration paid in connection with the Softworks, Inc. acquisition, $368,000, offset by the proceeds from the sale of software technology, $350,000. The Company does not maintain a credit facility with any financial institution. The uses of cash, referred to above, have been essentially funded through the issuance of the Company's common stock, the sale of convertible debentures, as well as cash generated from Softworks, Inc. Although the Company's liquidity position at September 30, 1996, has been adversely affected by the aforementioned factors, equity placements during the nine months then ended have mitigated these factors. During the nine months ended September 30, 1996, net proceeds from the sale of common stock and options were $1,996,000. In addition, the Company received approximately $9,980,000 (net of commissions and fees) from the sale of convertible debentures. See Note 4b to the condensed consolidated financial statements. The Company believes that these cash infusions (coupled with anticipated future cash infusions) will enable it to adequately maintain its operations at least through September 30, 1997. At November 14, 1996, the Company had cash and cash equivalents of approximately $6,068,000 (unaudited). Ultimately, however, positive cash flows from operations will be necessary in order to curtail the Company's reliance on equity placements. To achieve positive cash flows from operations, management initiated during 1995, a series of cost saving measures, some of which include, wherever possible, reductions in staffing, advertising, the use of outside consultants and marketing costs. The Company has continued these measures in 1996. Further, the Company has substantially closed down its DBopen product line. During 1995, the Company significantly curtailed the Superbase operations, and, in April, 1996, ceased Superbase operations by selling off this technology. During the quarter ended September 30, 1996, the Company announced that it had signed an agreement with the Availability Services branch of IBM, wherein they will market the Company's d.b.Express product line. This agreement does not contain any sales commitments. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three and Nine Months Ended Septeber 30, 1996 and 1995 Financial Condition and Liquidity (Continued) - --------------------------------- Management's plans continue to be centered on the successful exploitation of the Company's d.b.Express product. To date, revenues from current versions of d.b.Express from such agreements have been insignificant. Management expects that future revenues will support the carrying value of the capitalized software development costs related to d.b.Express of $684,000 at September 30, 1996. Management believes that the successful implementation of the cost saving measures and the planned exploitation of its d.b.Express technology will eventually enable the Company to achieve positive cash flows from operations. The long-term success of the Company, under its existing business plan, is dependent upon the Company's ability to generate material d.b.Express sales revenues. Softworks sells perpetual and fixed term licenses for its mainframe products, for which extended payment terms of three to five years may be offered. In the case of extended term payment agreements, the customer is contractually bound to equal and annual fixed payments. The first year of post contract customer support (PCS) is bundled with standard license agreements. In cases of extended term license agreements, PCS is bundled for the length of the payment term. Thereafter, in both instances, the customer may purchase PCS annually. At September 30, 1996, the amount of such future receivables extending beyond one year was approximately $1,789,000, and is included in installment accounts receivable-due after one year and deferred revenues. During April, 1996, the Company signed an agreement to sell the technology of its Superbase subsidiary for $450,000, with $200,000 paid at closing and five monthly payments of $50,000, commencing June 10, 1996. Such proceeds approximated the carrying value of the software costs. Certain liabilities as of the closing remain the responsibility of the subsidiary. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION For the Three and Nine Months Ended September 30, 1996 and 1995 Item 1. Legal Proceedings See Note 5d to the Condensed Consolidated Financial Statements. 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 A registration statement covering 30,830,325 shares of the Company's common stock (16,524,776 outstanding shares and 14,305,549 shares issuable upon exercise of outstanding options or warrants) was declared effective by the Securities and Exchange Commission on August 9, 1996. As the registration statement covers securities previously issued by the Company, the sale of shares by selling stockholders covered by the registration statement will not result in proceeds to the Company. The Company may receive proceeds from the exercise of outstanding options or warrants, when and if such options or warrants are exercised, which may result in receipt by the Company of up to approximately $26,000,000, however, there is no assurance all or any of the options or warrants will ever be exercised. Item 6. Exhibits and Reports on Form 8-K Not applicable. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION For the Three and Nine Months Ended September 30, 1996 and 1995 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, there unto duly authorized. COMPUTER CONCEPTS CORP. /s/ Daniel DelGiorno, Sr. Daniel DelGiorno Sr. Chief Executive Officer, May 15, 1997 Director /s/ George Aronson George Aronson Chief Financial Officer May 15, 1997 EX-27 2
5 The schedule contains summary financial information extracted from the consolidated financial statements for the nine months ended September 30, 1996 and is qualified in its entirety by reference to such statements. 9-MOS DEC-31-1996 SEP-30-1996 6,919,000 227,000 6,405,000 475,000 76,000 14,677,000 1,572,000 516,000 25,265,000 10,983,000 0 0 0 7,000 6,378,000 25,265,000 12,144,000 12,144,000 3,971,000 21,418,000 2,810,000 0 288,000 (12,084,000) (12,084,000) (12,084,000) 0 0 0 (12,084,000) (0.18) (0.18)
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