-----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, EU0bmEBDC6RtihcABuNyeaj+k7oDr06ZuWuVKfSt0orr3THegM4QKDrbYB8iNghp 8wQcHyduwQKbrC2WuNKlBQ== 0000879703-98-000010.txt : 19980504 0000879703-98-000010.hdr.sgml : 19980504 ACCESSION NUMBER: 0000879703-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980501 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 SEC ACT: SEC FILE NUMBER: 000-20660 FILM NUMBER: 98607924 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 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 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 April 30, 1998 was: 14,614,772 COMPUTER CONCEPTS CORP. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Operations and Comprehensive Income For the Three Months Ended March 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows For the Three Months ended March 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 - 11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 COMPUTER CONCEPTS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS as of March 31, 1998 and December 31, 1997 (in thousands, except share data)
March 31, December 31, ASSETS 1998 1997 ---- ---- (Unaudited) --------- CURRENT ASSETS: Cash and cash equivalents $ 1,803 $ 778 Accounts receivable, net of allowance for doubtful accounts of $235 and $252 in 1998 and 1997, respectively 15,453 17,866 Advances to officers 1,196 1,070 Prepaid expenses and other current assets 1,493 1,987 ------- ------- 19,945 21,701 INSTALLMENT ACCOUNTS RECEIVABLE, due after one year 7,173 6,480 PROPERTY AND EQUIPMENT, net 2,106 2,069 SOFTWARE COSTS, net 1,891 1,676 EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated amortization of $2,684 and $2,477 in 1998 and 1997, respectively 4,666 4,611 OTHER ASSETS 650 707 -------- -------- $ 36,431 $ 37,244 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 5,434 $ 7,225 Current portion of long- term debt 336 391 Deferred revenue 13,208 11,773 ------- ------- 18,978 19,389 DEFERRED REVENUE, earned after one year 8,396 7,947 LONG-TERM DEBT, net of current portion 190 241 ------ ------ Total liabilities 27,564 27,577 ------ ------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, $.0001 par value; 150,000,000 authorized; 13,600,077 shares in 1998 and 12,744,751 shares in 1997 issued and outstanding 1 1 Additional paid-in capital 94,387 91,641 Accumulated deficit (85,295) (81,741) Foreign currency translation (46) (54) Unrealized loss on marketable securities (180) (180) -------- -------- Total shareholders' equity 8,867 9,667 -------- -------- $ 36,431 $ 37,244 ======== ======== See Notes to Condensed Consolidated Financial Statements.
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) For the Three Months Ended March 31, (in thousands, except per share data)
1998 1997 ---- ---- REVENUES: Software licenses and support $ 6,339 $ 5,014 Professional services 1,285 837 ------- ------- 7,624 5,851 COSTS AND EXPENSES: Cost of revenues - software licenses and support 2,457 1,612 Cost of revenues - professional services 1,189 771 Research and development 754 584 Sales and marketing 4,166 3,004 General and administrative 1,978 1,765 Amortization and depreciation 634 551 ------ ------- 11,178 8,287 ------ ------- NET LOSS $(3,554) $(2,436) ======= ======= OTHER COMPREHENSIVE INCOME: Foreign currency translation adjustments 8 - ------- ------- COMPREHENSIVE INCOME $(3,546) $(2,436) ======= ======= BASIC AND DILUTED NET LOSS PER SHARE $ (0.27) $ (0.24) ======= ======= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,111 10,168 ======= ======= See Notes to Condensed Consolidated Financial Statements.
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, (in thousands)
1998 1997 ---- ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flows from operating activities Net loss $ (3,554) $ (2,436) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization: Software costs 174 149 Property and equipment 255 213 Excess of cost over fair value of net assets acquired 207 178 Other 4 2 Provision for doubtful accounts 60 - Common stock and options issued for services 89 40 Changes in operating assets and liabilities Accounts receivable 2,353 36 Installment accounts receivable, due after one year (693) (529) Inventories - (4) Prepaid expenses and other current assets 494 148 Other assets 53 93 Accounts payable and accrued expenses (1,291) (322) Deferred revenue 1,884 584 ------ ------ Net cash provided (used) by operating activities 35 (1,848) ------ ------ Cash flows from investing activities Capital expenditures (292) (464) Additional consideration for Softworks acquisition (262) (161) Software development and technology purchases (389) (96) Advances to officers, net (126) (91) ------ ------ Net cash used in investing activities (1,068) (812) ------ ------ Cashflows from financing activities Net proceeds from sales of common stock and options 2,157 18 Repayments of long-term debt (106) (38) ------ ------ Net cash provided (used) by financing activities 2,051 (20) ------ ------ Effect of exchange rate changes on cash and cash equivalents 8 - ------ ------ Net increase (decrease) in cash and cash equivalents 1,025 (2,680) Cash and cash equivalents, beginning of period 778 5,675 ------ ------ Cash and cash equivalents, end of period $ 1,803 $ 2,995 ======= ======= See Notes to Condensed Consolidated Financial Statements.
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three Months Ended March 31, 1998 and 1997 1. INTERIM FINANCIAL INFORMATION The condensed consolidated balance sheet as of March 31, 1998, and the condensed consolidated statements of operations and cash flows for the three months ended March 31, 1998, and 1997, 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 months ended March 31, 1998, 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, 1997. The accounting policies used in preparing the condensed consolidated financial statements are consistent with those described in the December 31, 1997, consolidated financial statements, except as described in Notes 6 and 7. 2. BASIS OF PRESENTATION 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. Additionally, the Company has recently entered into the technology infrastructure service and construction business, also referred to as "professional services", whereby for a fee the Company assists in the design, construction and installation of building technology systems. The Company's principal market is the United States. Overseas revenue is principally generated from European subsidiaries and distributors. The Company has incurred consolidated net losses of $3,554,000, for the three months ended March 31, 1998, and cumulative net losses of $85,295,000 through March 31, 1998. Further, the Company has incurred consolidated net losses of $12,385,000, $18,953,000 and $18,365,000 during the years ended December 31, 1997, 1996 and 1995, respectively. For the three month period ended March 31, 1998, net cash provided from operating activities was $35,000, reflecting the above net loss being offset by various non-cash items aggregating $1,289,000 and a net change (cash provided by) operating assets and liabilities of $2,300,000. The Company's cash requirements were primarily financed through sales of common stock and exercises of stock options, along with cash generated from operations. The Company does not currently maintain a credit facility with any financial institution, although the Company is actively seeking to obtain an asset based working capital line of credit. The Company has continued to incur significant expenditures with respect to the development and marketing of its d.b.Express technology without generating any significant revenue. As a result of continued operating losses, the use of significant cash in operations and the lack of sufficient funds to execute its business plan, there is substantial doubt about the Company's ability to continue as a going concern. No adjustments have been made with respect to the consolidated financial statements to record the results of the ultimate outcome of this uncertainty. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three Months Ended March 31, 1998 and 1997 2. BASIS OF PRESENTATION (continued) Management's plans to remain a going concern require additional financing until such time as the Company achieves positive cash flows from operations through the continued growth of its wholly-owned subsidiary, Softworks, Inc. ("Softworks") and the successful exploitation of the Company's d.b.Express technology. The Company's current source of operating revenue continues to be primarily derived from Softworks. The Company has incurred significant losses (both cash and non-cash expenses) as a result of the development and marketing of the d.b.Express technology. Nevertheless, management believes that its proprietary d.b.Express technology has significant potential in several areas and solves certain significant business issues in the telecommunications and Internet related markets. In order to realize the potential of this technology, the Company is vigorously continuing its efforts to enter into sales or license agreements of its d.b.Express technology. Management believes that the successful exploitation of its d.b.Express technology, as well as the continued growth of Softworks, will eventually enable the Company to achieve positive cash flows from operations and reduce its dependency on cash flows from financing activities. In January, 1998, the Company consumated the sale of approximately $1,978,000 (net of expenses of approximately $162,000) of restricted common stock. Until sufficient cash flows are generated from operations, additional financing is anticipated to be in the form of an asset based working capital line of credit, additional equity or other debt instruments. There can be no assurances that the Company will be able to obtain sufficient financing or will be successful in achieving positive cash flows from operations in order to execute its business plan. 3. SHAREHOLDERS' EQUITY a. Common Stock Split ------------------ On March 18, 1998, the Board of Directors declared a reverse split at a ratio of 1 for 10 shares with a record date of March 27, 1998 and an effective date of March 30,1998. Par value and authorized shares will remain unchanged at $0.0001 and 150,000,000 shares respectively. All references to numbers of shares and per share data have been restated for 1997 so as to reflect the reverse stock split. b. Sale of Common Stock -------------------- In January, 1998, the Company consummated the sale of restricted stock under a private placement to accredited United States investors under Regulation D. Proceeds from this sale totaled $1,978,000, net of commissions COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three Months Ended March 31, 1998 and 1997 3. SHAREHOLDERS' EQUITY (continued) and fees of approximately $162,000. A total of 496,232 shares were sold at a price of $4.3125 per share. The closing bid price of the Company's common stock, as stated on the NASDAQ Small Cap Market did not exceed an average of $5.28 for any five consecutive trading days during the thirty days immediately following the effective date of the Registration Statement (effective February 6, 1998, see Note 4). Accordingly, under the terms of this transaction, the Company issued approximately 280,000 additional shares in April, 1998. Additionally, 167,500 options were exercised at prices ranging from $0.10 to $2.50. Proceeds raised from these sales aggregated approximately $179,000. c. Transactions with consultants ----------------------------- During October, 1997, the Company issued 114,765 restricted shares of common stock to HPS America, Inc. ("HPS") for settlement of product development costs of approximately $600,000 owed to HPS and its affiliates. These shares had a valuation guarantee based on the Company's stock price during the first 30 days immediately following the effective date of a registration statement (January 6, 1998). The shares were sold at a value less than the guaranteed amount and the Company settled the shortfall with a cash payment of approximately $170,000 in the first quarter of 1998. 4. 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 a maximum of $1,000,000 each, for an aggregate maximum of $2,000,000. Through March 31, 1998, the Company has incurred an aggregate liability of $1,864,000 (of which $1,594,000 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. b. Registration Statements/Restricted Securities --------------------------------------------- During December 1997, the Company filed three registration statements: (i) an amended registration statement on Form S-1 (No. 33-97560, effective January 6, 1998) which amended a registration statement that was originally effective on August 9, 1996, (ii) a registration statement on Form S-8 (No. 333-42795, effective upon filing, December 19, 1997), and (iii) a registration statement on Form S-1 (No. 333-42919, effective January 6, 1998). The primary purpose of these registration statements was to register outstanding restricted common stock and shares issuable upon exercise of outstanding options. Additionally, on January 22, 1998, the Company filed another registration statement on Form S-1 (No. 333-44683, effective February 6, 1998). The primary purpose of this registration statement was to register shares issued in January 1998 pursuant to a private placement (Note 3). Accordingly, substantially all of the Company's outstanding common stock (including shares issuable upon exercise of outstanding options) have been either registered or are qualified for sale in the market pursuant to Rule 144 of the Securities Act of 1933 as amended. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the Three Months Ended March 31, 1998 and 1997 4. COMMITMENTS AND CONTINGENCIES (continued) c. Legal Matters ------------- 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. Although the Company continues to deny any wrongdoing, in an effort to avoid further expense and resolve the uncertainty of litigation, in July 1997 the Company tentatively agreed to a Stipulation and Agreement of Settlement ("Stipulation Agreement") of this class action. In February, 1998, the Court entered a final order approving the terms of the Stipulation Agreement. The Company agreed to deliver $500,000 of its common stock, and in April 1998, the Company delivered 119,850 shares. Further, the Company and its insurance carrier each paid $350,000, totaling $700,000. Based upon the Stipulation Agreement, the Company recorded an $850,000 Unusual Charge to earnings in the quarter ended June 30, 1997. In March 1995, an action was originally commenced against the Company and a number of defendants. In early 1997, after a change in counsel, the plaintiff amended the complaint for a second time, now naming as defendants only the Company and three of its officers. The second amended complaint alleges that certain third parties, unrelated to the Company, transferred certificates representing 1,000,000 shares of the Company's common stock to the plaintiff. The complaint further alleges that such shares were endorsed in blank by the third parties and became bearer securities which were negotiated to the plaintiff by physical delivery. The certificates had not been legally acquired from the Company and the certificates were reported to the Securities and Exchange Commission by the Company as stolen certificates. Plaintiff has requested validation of the transfer of the certificates and is seeking damages of an unspecified amount, consisting of alleged diminution in market value of the subject shares from 1994 through the date of any judgment in the plaintiff's favor. Discovery was substantially completed in January 1998 and, unless a summary judgment is granted to one side or the other, this case is expected to go to trial later in 1998. The Company and its counsel believe that the Company's position regarding the claim has substantial factual and legal support and are vigorously defending the matter. However, the Company is unable to predict the ultimate outcome of this claim and, accordingly, no adjustments have been made in the consolidated financial statements for any potential losses or potential issuance of common stock. In 1995, Fletcher Capital Corp. filed a claim against the Company, its president and several unrelated parties, regarding a claim for an unspecified amount of commissions in the form of options from the Company and cash from the other parties. This matter was settled in February 1997 with the issuance of 36,000 options exercisable at $3.50 per share, $126,000 paid with 25,200 shares of common stock (issued January 1998) and cash payments totaling $31,000. 5. RECLASSIFICATIONS Certain reclassifications have been made to the condensed consolidated financial statements shown for the prior year in order to have it conform to the current year's classifications. 6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Statement of Position 97-2, Software Revenue Recognition, which was issued to provide further guidance on applying generally accepted accounting principles to software transactions, became effective for transactions entered into beginning in 1998. The SOP did not require any changes to the Company's method for the accounting of software transactions and therefore had no impact on the Company's financial statements for the period ended March 31, 1998. 7. REPORTING OF COMPREHENSIVE INCOME In January, 1998, the Company began accounting for comprehensive income in accordance with Statement of Financial Accounting Standards No. 130 - Reporting Comprehensive Income. Accordingly, the Company displayed other items of comprehensive income in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three Months Ended March 31, 1998 and 1997 Business Description 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. Additionally, the Company has recently entered into the technology infrastructure service and construction business, also referred to as "professional services", whereby for a fee the Company assists in the design, construction and installation of building technology systems. The Company's principal market is the United States. Overseas revenue is principally generated from European subsidiaries and distributors. The Company currently consists of three operating units or product lines: d.b.Express , Softworks, and the newly formed "professional services" unit. d.b.Express provides businesses with a simple, fast, low-cost method of finding, organizing, analyzing and using information contained in databases through a visually-based proprietary software tool. Softworks, provides systems management software products that optimize mainframe system performance, reduce hardware expenditures, and enhance the reliability and availability of the data processing environment. During 1997, the Company commenced operations of the "professional services" unit. To spearhead the unit, the Company employs an individual, formerly with I.B.M., having expertise in this field and intends to capitalize on his experience and competency in order to create a unique, single management infrastructure to support an extensive selection of services and vendors. The Company's new business line will offer solutions, support, and strategies to solve various business crises in such areas as: network determinations, help desk applications, wiring/cabling, LAN connections, moves/adds/changes, and project management. Additionally, this unit will oversee new installations as well as offering on-site component repair. The method of revenue recognition will be dependent upon the type and manner of service provided. Results of Operations Three Months Ended March 31, 1998 Compared with March 31, 1997 Total revenue for the quarter ended March 31, 1998, $7,624,000, reflects an increase of $1,773,00 as compared to $5,851,000 for the same period last year. Significant factors contributing to the growth include, among others, increases of $1,621,000 and $448,000 at Softworks and professional services, respectively. The sale of the net assets of Maplinx in 1997 creates a loss of revue of $333,000 for the quarter. While there can be no assurances, the Company believes that this revenue growth should continue due in part to its planned enhanced product line, expansion into additional markets, and an increased sales force. The cost of revenue and technical support increased $1,263,000 to $3,646,000 for the period ended March 31, 1998, from the prior quarter amount of $2,383,000. Contributing factors for this increase are additional costs associated with professional services of $418,000, as well as additional costs at Softworks of $791,000. As a percentage of software licenses and support, cost of revenues increased 6.6 percentage points, from 32.1% to 38.7%. Increased staffing costs necessary to meet the future needs of the Company was the contributing factor for this increase. The increase in dollars in cost of revenue - professional services is consistent with the increase in its revenue. Research and development costs for the three month period ended March 31, 1998, increased approximately $170,000 over the same period last year primarily as a result of the Company's expanded efforts made toward the development of additional applications for, as well as enhancements and upgrades to the d.b.Express technology. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three Months Ended March 31, 1998 and 1997 Results of Operations Three Months Ended March 31, 1998 Compared with March 31, 1997 (Continued) Sales and marketing expenses increased by $1,162,000 to $4,166,000 from the first quarter of the prior year amount of $3,004,000. The increase was primarily due to costs at Softworks rising $1,159,000, over the three month period in the prior year. The additional expenditures incurred were due to costs attributable to the marketing of the Year 2000 suite of products, the SavanTechnology line and additional location and employee costs for new offices both in the U.S. as well as overseas. Additionally, costs associated with d.b.Express increased from the prior year by $328,000. The above referenced increases were offset by a decrease of $324,000 associated with the sale of Maplinx. General and administrative costs increased $213,000 to $1,978,000 for the three months ended March 31, 1998, when compared to the three months ended March 31, 1997. The major factor contributing to the increase were additional costs at Softworks of $218,000 which was the result of increased staffing and employee related costs. Financial Condition and Liquidity The Company has incurred consolidated net losses of $3,554,000, for the three months ended March 31, 1998, and cumulative net losses of $85,295,000 through March 31, 1998. Further, the Company has incurred consolidated net losses of $12,385,000, $18,953,000 and $18,365,000 during the years ended December 31, 1997, 1996 and 1995, respectively. For the three month period ended March 31, 1998, net cash provided from operating activities was $35,000, reflecting the above net loss being offset by various non-cash items aggregating $1,289,000 and a net change (cash provided by) operating assets and liabilities of $2,300,000. The Company's cash requirements were primarily financed through sales of common stock and exercises of stock options, along with cash generated from operations. The Company does not currently maintain a credit facility with any financial institution, although the Company is actively seeking to obtain an asset based working capital line of credit. The Company has continued to incur significant expenditures with respect to the development and marketing of its d.b.Express technology without generating any significant revenue. As a result of continued operating losses, the use of significant cash in operations and the lack of sufficient funds to execute its business plan, there is substantial doubt about the Company's ability to continue as a going concern. No adjustments have been made with respect to the consolidated financial statements to record the results of the ultimate outcome of this uncertainty. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three Months Ended March 31, 1998 and 1997 Financial Condition and Liquidity (continued) Management's plans to remain a going concern require additional financing until such time as the Company achieves positive cash flows from operations through the continued growth of its wholly-owned subsidiary, Softworks, Inc. ("Softworks") and the successful exploitation of the Company's d.b.Express technology. The Company's current source of operating revenue continues to be primarily derived from Softworks. The Company has incurred significant losses (both cash and non-cash expenses) as a result of the development and marketing of the d.b.Express technology. Nevertheless, management believes that its proprietary d.b.Express technology has significant potential in several areas and solves certain significant business issues in the telecommunications and Internet related markets. In order to realize the potential of this technology, the Company is vigorously continuing its efforts to enter into sales or license agreements of its d.b.Express technology. Management believes that the successful exploitation of its d.b.Express technology, as well as the continued growth of Softworks, will eventually enable the Company to achieve positive cash flows from operations and reduce its dependency on cash flows from financing activities. In January, 1998, the Company consumated the sale of approximately $1,978,000 (net of expenses of approximately $162,000) of restricted common stock. Until sufficient cash flows are generated from operations, additional financing is anticipated to be in the form of an asset based working capital line of credit, additional equity or other debt instruments. There can be no assurances that the Company will be able to obtain sufficient financing or will be successful in achieving positive cash flows from operations in order to execute its business plan. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three Months Ended March 31, 1998 and 1997 Financial Condition and Liquidity (continued) 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 payment term agreements, the customer is contractually bound to equal annual fixed payments. The first year of post contract customer support, (PCS) is bundled with standard license agreements. In the case of extended payment term agreements, PCS is bundled for the length of the payment term. Thereafter, in both instances, the customer may purchase PCS annually. At March 31, 1998, the amount of such future receivables extending beyond one year was approximately $7,173,000, and is included in installment accounts receivable, due after one year and deferred revenues. Safe Harbor Statement Certain information contained in this annual report, particularly information regarding future economic performance and finances, plans and objectives of management, is forward-looking. In some cases, information regarding certain important factors that could cause actual results to differ materially from any such forward-looking statement appear together with such statement. The following factors, in addition to other possible factors not listed, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include competition within the computer software industry, which remains extremely intense, both domestically and internationally, with many competitors pursuing price discounting; changes in economic conditions; the development of new technologies and/or changes in operating systems which could obsolete or diminish the value of existing technologies and products; personnel related costs; legal claims; risks inherent to rolling out new software and new software technologies; the current lack of adequate financial resources to carry out the Company's current business plan in regard to the d.b.Express technology; the potential cash and non-cash costs of raising additional capital or the possible failure to raise necessary capital; changes in accounting principles applicable to the Company's activities and other factors set forth in the Company's filings with the Securities and Exchange Commission. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION For the Three Months Ended March 31, 1998 and 1997 Item 1. Legal Proceedings See Note 4 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 Not applicable Item 6. Exhibits and Reports on Form 8-K Not applicable. COMPUTER CONCEPTS CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION For the Three Months Ended March 31, 1998 and 1997 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. COMPUTER CONCEPTS CORP. /s/Daniel DelGiorno - -------------------- Daniel DelGiorno Sr. Chief Executive Officer, May 1, 1998 Director /s/George Aronson - -------------------- George Aronson Chief Financial Officer May 1, 1998 EX-27 2
5 The schedule contains summary financial information extracted from the consolidated financial statements for the nine months ended March 31, 1998 and is qualified in its entirety by reference to such statements. 3-MOS DEC-31-1998 MAR-31-1998 1,803 99 15,453 235 0 19,945 2,106 634 36,431 18,978 0 0 0 1 8,866 36,431 7,624 7,624 3,646 11,178 0 0 22 (3,554) 0 (3,554) 0 0 0 (3,554) (0.27) (0.27)
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