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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/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
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13587
CROSSZ SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3087939
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
60 Charles Lindbergh Boulevard
Uniondale, New York 11553
(Address of principal executive offices)
(516) 228-8500
(Registrant's telephone number, including area code)
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 / /
As of April 30, 1998 there were 5,120,172 shares of the Registrant's
common stock outstanding.
Transitional Small Business Disclosure Format. Yes / / No /X/
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<PAGE>
CROSSZ SOFTWARE CORPORATION
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Balance Sheet
As of March 31, 1998 (unaudited)........................ 3
Condensed Statement of Operations
For the three months ended March 31, 1998 and
1997 (unaudited)....................................... 4
Condensed Statement of Cash Flows
For the three months ended March 31, 1998 and
1997 (unaudited)....................................... 5
Notes to the Condensed Financial Statements............ 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............. 15
Item 5. Other Information..................................... 16
Item 6. Exhibits and Reports on Form 8-K...................... 16
SIGNATURES........................................................... 17
<PAGE>
Part I.
FINANCIAL INFORMATION
Item 1. Financial Statements
CROSSZ SOFTWARE CORPORATION
CONDENSED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1998
ASSETS
Current assets
<S> <C>
Cash and cash equivalents ................................. $ 3,157,002
Accounts receivable, net of allowance for doubtful
accounts of $30,000 ................................... 248,173
Restricted certificate of deposit ......................... 887,060
Prepaid expenses and other current assets ................. 80,792
Total current assets .................................. 4,373,027
Property and equipment, net ..................................... 1,187,412
Deposits and other assets ....................................... 146,369
Total assets .......................................... $ 5,706,808
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .......................................... $ 250,013
Accrued expenses .......................................... 1,176,660
Deferred revenue .......................................... 73,631
Loan payable to stockholders .............................. 861,335
Customer advance .......................................... 300,000
Capital lease obligations due within one year ............. 214,109
Total current liabilities ............................. 2,875,748
Capital lease obligations ....................................... 277,771
Deferred rent ................................................... 269,157
Total liabilities ..................................... 3,422,676
Stockholders' equity
Preferred stock, 2,000,000 shares authorized;
none issued and outstanding ........................... --
Common stock, $0.001 par value: 30,000,000 shares
authorized; 5,120,172 shares issued and outstanding ... 5,120
Additional paid-in capital ................................ 30,393,881
Accumulated deficit ....................................... (28,102,569)
Receivable from stockholder ............................... (12,300)
Total stockholders' equity ............................ 2,284,132
Total liabilities and stockholders' equity ............ $ 5,706,808
------------
</TABLE>
See accompanying notes to Condensed Financial Statements.
5
<PAGE>
CROSSZ SOFTWARE CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
Revenues
<S> <C> <C>
Software licenses ................................... $ 75,000 $ --
Services and maintenance ............................ 36,861 15,190
Total revenues ............................ 111,861 15,190
Cost of revenues
Software licenses ................................... 750 --
Services and maintenance ............................ 24,756 3,570
Total cost of revenues .................... 25,506 3,570
Gross Profit ............................................. 86,355 11,620
Operating expenses
Sales and marketing ................................. 1,327,218 1,074,331
Research and development ............................ 566,417 535,416
General and administrative .......................... 450,001 284,724
Total operating expenses .................. 2,343,636 1,894,471
Loss from operations ..................................... (2,257,281) (1,882,851)
Interest income .......................................... 63,341 18,854
Interest expense ......................................... (41,412) (43,511)
Other (expense) income ................................... (231) 542
Net loss ................................................. $(2,235,583) $(1,906,966)
----------- -----------
Basic net loss per share ................................. $ (.44) $ (.77)
Weighted average shares used in basic per share
computation (Note 3) ................................ 5,112,089 2,470,208
----------- -----------
</TABLE>
See accompanying notes to Condensed Financial Statements.
6
<PAGE>
CROSSZ SOFTWARE CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities
<S> <C> <C>
Net loss ............................................................. $(2,235,583) $(1,906,966)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization ..................................... 106,580 94,571
Loss (gain) on sales of computer equipment ........................ 231 (542)
Options issued for consulting services ............................ -- 45,000
Changes in operating assets and liabilities
Accounts receivable, net ........................................ 251,594 228,819
Prepaid expenses and other current assets ....................... (32,538) (3,287)
Deposits and other assets ....................................... 3,906 (12,225)
Accounts payable and accrued expenses ........................... (215,439) (180,261)
Compensation payable to related parties ......................... -- (37,521)
Deferred rent ................................................... 224 3,324
Deferred revenue ................................................ 43,597 557,395
Net cash used in operating activities ................................ (2,077,428) (1,211,693)
Cash flows from investing activities
Loan receivable from stockholder ...................................... (65,000) --
Acquisitions of property and equipment ................................ (45,964) (130,128)
Purchase of restricted certificate of deposit ......................... (9,221) (10,168)
Net cash used in investing activities ................................ (120,185) (140,296)
Cash flows from financing activities
Proceeds from issuance of common stock ............................... 9,185 10,787
Repayment of loan payable to stockholders ............................. (30,000) (30,000)
Payments of capital lease obligations ................................. (61,920) (65,098)
Proceeds from sale-leaseback transaction .............................. -- 312,471
Net cash (used in) provided by financing activities ...................... (82,735) 228,160
Net decrease in cash and cash equivalents ................................ (2,280,348) (1,123,829)
Cash and cash equivalents at beginning of year ........................... 5,437,350 1,367,566
Cash and cash equivalents at end of period ............................... $ 3,157,002 $ 243,737
----------- -----------
</TABLE>
See accompanying notes to Condensed Financial Statements.
7
<PAGE>
CROSSZ SOFTWARE CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed financial statements included herein reflect
all adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary to fairly state the Company's financial
position, results of operations and cash flows for the periods presented. These
financial statements should be read in conjunction with the Company's audited
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997. The condensed results of operations for the
period ended March 31, 1998 are not necessarily indicative of the results to be
expected for any subsequent quarter, or for the entire fiscal year ending
December 31, 1998, or for any future period.
2. Initial Public Offering
On November 20, 1997, the Company's Initial Public Offering ("IPO") of
2,500,000 shares of common stock was consummated, which resulted in net proceeds
to the Company of $12,469,574 before repayment of certain bridge and interim
financings, including interest thereon, which totaled approximately $5,281,000.
As of the closing date of the offering, all of the Company's Convertible
Preferred Stock and Mandatorily Redeemable Convertible Preferred Stock
outstanding was converted into 331,523 and 1,365,790 shares of common stock,
respectively.
3. Net Loss Per Common Share
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128") beginning with the Company's fourth
quarter of 1997.
Basic net loss per common share is computed by dividing net loss for
the period by the sum of the weighted average number of shares of common stock
issued and outstanding after conversion of all outstanding preferred stock
effected contemporaneously with the IPO. All outstanding shares of Series A, B,
C and D Preferred Stock were converted as though such conversion occurred at the
beginning of the earliest period presented or the date of issuance in the case
of the Series D. Historical net loss per share has not been presented since such
amount is not deemed to be meaningful due to the significant change in the
Company's capital structure resulting from the IPO. Options and warrants to
acquire common stock have not been included in the computation of net loss per
share because to do so would have been antidilutive for the periods presented.
4. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Interest paid during the period........................... $31,696 $ 47,416
Schedule of non cash investing and financing activities:
Series D Preferred Stock, issued for dividends -- 251,775
</TABLE>
8
<PAGE>
5. Recent Accounting Pronouncements
American Institute of Certified Public Accountants ("AICPA") Statement
of Position 97-2 ("SOP 97-2")
Prior to 1998, the Company recognized revenue in accordance with the
AICPA Statement of Position 91-1. In October 1997, the AICPA issued SOP 97-2 on
software revenue recognition. The Company has adopted SOP 97-2 in the first
quarter of 1998. The Company believes that the adoption of this statement will
not have a significant impact on the Company.
6. Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
7. Liquidity and Business Risks
The company has incurred operating losses since inception, has incurred
negative cash flows from operating activities and had an accumulated deficit of
$28,102,569 as of March 31, 1998. The Company has had a limited operating
history as a software product company and has not made significant sales of its
products. Therefore, revenues are difficult to predict. Based on its current
operating plan, the Company believes that its current cash and cash equivalent
position is sufficient to meet is working capital and capital expenditure
requirements for the next four months. It is anticipated that cash generated
from operations will be insufficient to satisfy the Company's liquidity
requirements, and therefore the Company will seek to sell additional equity or
convertible debt securities. To date, the Company has no commitments, agreements
or understandings with respect to such additional financing and there can be no
assurance that the Company will be able to consummate any such transaction. The
sale of additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders.
Item 2. Management's Discussion and Analysis or Plan of Operation
The discussion in this report on Form 10-QSB contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" in this Part I, Item 2 as well as those discussed in this
section and elsewhere in this Report, and the risks discussed in "Risk Factors"
in Part I, Item 1 - Business, included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997.
The discussion and analysis below should be read in conjunction with
the Financial Statements of the Company and the Notes to Financial Statements
included elsewhere herein.
Overview
The Company commenced operations in February 1989, and to date
substantially all of its revenues have been derived from providing contract
services to customers using its proprietary business intelligence technology. In
the third quarter of 1996, the Company shifted its focus to commercializing its
proprietary business intelligence technology and most of its activities since
then have been devoted to research and development, recruiting personnel,
raising capital, and developing a sales and marketing strategy and
infrastructure. Accordingly, the Company has a limited operating history as a
software product company and has made only limited sales of its QueryObject
System. The Company believes that comparisons of its future operating results to
the operating results presented herein, will not be meaningful. The Company's
future financial performance will depend upon the successful customer acceptance
of QueryObject System.
10
<PAGE>
To date, the Company has incurred substantial losses from operations,
and at March 31, 1998 had an accumulated deficit of $28,102,569. The Company's
operations and activities have been primarily funded through sales of equity and
debt securities, including the closing of the IPO on November 25, 1997. The
Company expects to incur substantial operating expenses in the future to support
its product development efforts, establish and expand its domestic and
international sales and marketing capabilities, including recruiting additional
indirect channel partners, and support and expand its technical and management
personnel and organization.
In November 1997, the Company began implementation of full-scale
marketing activity for QueryObject System. QueryObject System previously
required additional consulting services to implement and was promoted
selectively through the direct sales channel, at several industry trade shows,
and to potential business partners. The current release of QueryObject System
has reduced consulting requirements and is capable of running on additional UNIX
operating systems and the Windows NT operating system. In 1998, the Company
intends to increase promotional activity, including increased trade show and
partnering activity and public relations. The Company intends to market and sell
QueryObject System through its direct sales force as well as through indirect
channel partners such as Original Equipment Manufacturers ("OEMs") and Value
Added Resellers ("VARs"). The Company anticipates that sales through indirect
channel partners will be harder to forecast and will most likely have lower
gross margins. There can be no assurance that the Company will be successful in
developing additional products, in marketing and selling its products, or that
such products will achieve broad market acceptance. The Company's inability to
develop its products or to establish and expand its relationships with indirect
channel partners would have a material adverse effect on the Company's business,
financial condition and results of operations.
Revenues from the sales of the Company's products are generally
recognized upon the execution of a software licensing agreement and shipment of
the product, provided that no significant vendor obligations remain and the
resulting receivable is deemed collectible by management. In instances where a
significant vendor obligation exists, revenue recognition is delayed until such
obligation has been satisfied. Allowances for estimated future returns are
provided for upon shipment. It is anticipated that in the near term, the
Company's revenues from its sales of products will be difficult to predict due
to the discretionary nature of business data delivery software purchases and the
variable length of the sales cycle with respect to new product introductions.
Further, although the Company's product line will include products with sales
prices from $7,500 to over $250,000, the preponderance of its revenues is
expected to be derived from products with sales prices from $60,000 to $160,000.
As a result, the timing of the receipt and shipment of a single order can have a
significant impact on the Company's revenues, results of operations and cash
flows for a particular period. Results of Operations
11
<PAGE>
The following table sets forth certain items in the Company's
statements of operations for the three months ended March 31, 1998 and 1997 ($
in thousands):
Three Months Ended
March 31,
1998 1997
Revenues
Software licenses ............................. $ 75 $ --
Services and maintenance ...................... 37 15
------- -------
Total revenues ............................. 112 15
------- -------
Cost of revenues
Software licenses ............................. 1 --
Services and maintenance ...................... 25 4
------- -------
Total cost of revenues ..................... 26 4
------- -------
Gross profit ........................................ 86 11
------- -------
Operating expenses
Sales and marketing ........................... 1,327 1,074
Research and development ...................... 566 535
General and administrative .................... 450 285
------- -------
Total operating expenses ................... 2,343 1,894
------- -------
Loss from operations ................................ (2,257) (1,883)
Interest income ................................... 63 19
Interest expense .................................. (42) (44)
Other income ...................................... -- 1
------- -------
Net loss ............................................ $(2,236) $(1,907)
======= =======
Revenues
The Company's license revenues have been generated from sales of
QueryObject System. Service revenues have been generated from fees paid by
customers on a project or contract basis for data analysis by the Company using
its proprietary software, and are recognized over the term of the respective
agreements. Maintenance revenues consist of ongoing support and products updates
and are recognized ratably over the term of the contract, which is typically
twelve months.
Total revenues increased by $97,000, or 647%, from $15,000 for the
three months ended March 31, 1997 ("1997") to $112,000 for the three months
ended March 31, 1998 ("1998"). License revenues were $75,000 in 1998, which
represented one license sale. No license sales were recorded in 1997. Service
and maintenance revenue increased by $22,000, or 147%, from $15,000 in 1997 to
$37,000 in 1998, primarily due to increased maintenance revenues associated with
license sales completed during the year ended December 31, 1997, and are
recognized ratably over a twelve month period.
12
<PAGE>
Cost of Revenues
Cost of software license revenues consists primarily of product
packaging, documentation and production costs. Cost of software license revenues
as a percentage of software license revenues was 1.3% for 1998, which resulted
from the sale of one license. No license revenue was recorded in 1997. Cost of
services and maintenance revenues consist primarily of customer support costs
and direct costs associated with providing services. Cost of services and
maintenance revenues increased as a percentage of services and maintenance
revenues from 26.7% in 1997 to 67.6% in 1998, primarily due to higher personnel
costs necessary to service an expanded customer base.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel costs, including sales commissions and incentives, of all personnel
involved in the sales and marketing process, as well as related recruiting
costs, public relations, advertising related costs, collateral material and
trade shows. Sales and marketing expenses increased by $253,000, or 24%, from
$1,074,000 in 1997 to $1,327,000 in 1998. This increase was primarily due to
increased personnel costs and increased costs associated with public relations
and trade shows. The Company believes that its sales and marketing expenses will
increase in absolute dollars as the Company continues to increase promotion and
other marketing expenses.
Research and Development. Research and development expenses consist
primarily of salaries and other personnel related expenses, recruiting costs
associated with the hiring of additional software engineers and quality
assurance personnel, consultant costs and depreciation of development equipment.
Research and development expenses increased by $31,000, or 6%, from $535,000 in
1997 to $566,000 in 1998, primarily due to an increase in software engineering
and quality assurance personnel and related costs, and consultant costs. The
Company believes that a significant level of investment for product research and
development is required to remain competitive and, accordingly, the Company
anticipates that it will continue to devote substantial resources to product
research and development and that these costs will increase in absolute dollars.
To date, all research and development costs have been expensed as incurred.
General and Administrative. General and Administrative expenses consist
primarily of personnel costs for finance, MIS, human resources and general
management, as well as insurance and professional expenses. General and
administrative expenses increased by $165,000, or 58%, from $285,000 in 1997 to
$450,000 in 1998, primarily due to increased professional expenses associated
with being a public company such as increased professional fees, expenses
related to directors' and officers' insurance and investor relations programs,
and, to a lesser extent, increased personnel related costs and benefits. The
Company believes that its general and administrative expenses will increase in
absolute dollars as it incurs additional costs related to being a public
company.
13
<PAGE>
Interest Income and Interest Expense
Interest income represents income earned on the Company's cash and cash
equivalents. Interest income increased by $44,000, or 232%, from $19,000 in 1997
to $63,000 in 1998, primarily due to a higher level of cash and cash equivalents
on deposit during 1998.
Interest expense generally represents charges relating to the H.C.C.
Financial Services Loan Agreement (the "Loan Agreement") and interest expense on
capital equipment leases. Interest expense decreased by $2,000, or 5%, from
$44,000 in 1997 to $42,000 in 1998. This decrease was primarily due to reduced
outstanding borrowings under the Loan Agreement.
Provision for Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company incurred net operating losses in 1997 and 1996 and consequently paid no
federal or state income taxes. At December 31, 1997, the Company had net
operating losses and research and experimental tax credit carryforwards of
$22,000,000 and $144,000, respectively, available to offset future federal
taxable income and tax. These net operating loss carryforwards expire at various
dates through 2012. Although the determination of whether an ownership change
has occurred is subject to factual and legal uncertainties, the Company believes
that an ownership change occurred upon the completion of previous financings and
such "ownership change" will materially limit the Company's ability to utilize
its NOL carryforward. Moreover, while such loss carryforwards are available to
offset future taxable income of the Company, the Company does not expect to
generate sufficient taxable income so as to utilize all or a substantial portion
of such loss carryforwards prior to their expiration.
Liquidity and Capital Resources
On November 25, 1997, the Company consummated the IPO. The Company sold
2,500,000 shares of Common Stock in the IPO and received approximately
$12,470,000 of cash, net of underwriting discounts, commissions and other
offering costs. The Company immediately repaid $5,100,000 plus accrued interest
due on the Bridge Notes and interim financings noted below. Upon completion of
the IPO, all outstanding shares of Series A, Series B, Series C and Series D
Preferred Stock (a total of approximately 1,697,000 shares) were converted into
shares of Common Stock.
Prior to the IPO, the Company had funded its operations primarily
through sales of preferred equity securities, with net proceeds therefrom of
approximately $14,000,000 and, to a lesser extent, through interim financings
and the Bridge Financing, through capital and operating equipment leases, the
issuance of notes payable and the Loan Agreement. As of March 31, 1998, the
Company had $3,157,000 in cash and cash equivalents. Net cash used in operating
activities was $2,077,000 and $1,212,000 in 1998 and 1997, respectively. For
1998, net cash used in operating activities was primarily attributable to a net
loss of $2,236,000, less depreciation and amortization of $107,000. For 1997,
net cash used in operating activities was primarily attributable to a net loss
of $1,907,000 less depreciation and amortization of $95,000 and deferred revenue
of $557,000. Net cash provided by financing activities in 1997 resulted
primarily from the proceeds of sale-leaseback transactions. In addition to the
IPO, since January 1, 1997, the Company's principal sources of capital have been
through several bridge financings whereby the Company received approximately
$6,100,000 in proceeds. The Company repaid promissory notes issued in connection
with such bridge financings either out of proceeds from the IPO or out of
proceeds from a bridge financing consummated in July 1997.
14
<PAGE>
The Company does not currently have a line of credit with a commercial
bank. Under the Loan Agreement, the Company has outstanding borrowings in the
aggregate principal amount of approximately $861,000, such indebtedness secured
by a security interest in and lien on all of the Company's assets. An Addendum
to the Loan Agreement provides that H.C.C., the lender thereunder, will not
demand payment under the Loan Agreement (and requires the Company to maintain a
restricted Certificate of Deposit which was in the amount of $887,000 as of
March 31, 1998), until the earlier of March 31, 1998, a material breach by the
Company under the Addendum or an event of default under the Loan Agreement. In
April 1998, the Company began repaying the indebtedness under the Loan
Agreement, utilizing the funds on deposit in the restricted Certificate of
Deposit. The indebtedness is being repaid at the rate of 10% of the outstanding
month end balance each month, for twelve consecutive months, to be followed by a
payment in full of the remaining outstanding balance. Additionally, as of March
31, 1998, the Company has available $189,000 under an equipment leasing line of
credit.
As of December 31, 1997, the Company's principal commitments consisted
of obligations under operating and capital leases and employment agreements. At
that date, the Company had approximately $554,000 in outstanding borrowings
under capital leases which are payable through 2001. Pursuant to employment
agreements with executive officers of the Company, the Company is obligated to
pay $936,000 and $460,000 in salaries for the years ended December 31, 1998 and
1999, respectively.
As of March 31, 1998, the Company had working capital of $1,497,000.
The Company has had a limited operating history as a software product company
and has not made significant sales of its products. Therefore, revenues are
difficult to predict. Based on its current operating plan, the Company believes
that its current cash and cash equivalent position is sufficient to meet its
working capital and capital expenditure requirements for the next four months.
It is more likely than not that cash generated from operations will be
insufficient to satisfy the Company's liquidity requirements beyond four months.
The independent accountants' report for the year ended December 31, 1997 states
that the Company's recurring losses from operations and the Company's negative
cash flow from operating activities raise substantial doubt about the Company's
ability to continue as a going concern. The Company will seek to sell additional
equity or convertible debt securities. To date, the Company has no commitments,
agreements or understandings with respect to such additional financing and there
can be no assurance that the Company will be able to consummate any such
transaction. The sale of additional equity or convertible debt securities could
result in additional dilution to the Company's stockholders.
Year 2000 Compliance
The Company has assessed and continues to assess the impact of the Year
2000 issue on its operations, including the development of cost estimates for,
and the extent of programming changes required to address, this issue. Although
final cost estimates have yet to be determined, the Company expects that these
Year 2000 costs will not be material to the Company's expenses during 1998 and
1999. The Company does not currently have any information concerning the Year
2000 compliance status of its suppliers and customers. In the event that any of
the Company's significant suppliers or customers does not successfully and
timely achieve Year 2000 compliance, the Company's business or operations could
be adversely affected.
15
<PAGE>
Risk Factors That May Affect Future Results
The Company's business involves a number of risks, some of which are
beyond the Company's control. The following discussion highlights some of these
risks and should be read in conjunction with "Risk Factors" in Part I, Item 1 -
Business, included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
Accumulated Deficit; Historical and Projected Future Operating Losses;
Going Concern Qualification in the Independent Accountants' Report. At March 31,
1998, the Company had an accumulated deficit of $28,102,569. For the fiscal
years ended December 31, 1997 and 1996, and for the three months ended March 31,
1998, the Company incurred net losses of $10,563,484, $4,917,935 and $2,235,583,
respectively. In addition, the Company has incurred a net loss in each year
during which it has operated, and its operations to date have been financed in
significant part through sales of both equity and debt securities. The Company's
expense levels are high and revenues are difficult to predict. As a result, the
Company expects to continue to incur net losses for the foreseeable future.
There can be no assurance that significant revenues or profitability will ever
be achieved or, if they are achieved, that they can be sustained or increased on
a quarterly or annual basis in the future. Future operating results will depend
on many factors, including the demand for the Company's products, the level of
product and price competition, the Company's success in expanding its direct
sales force and indirect distribution channels, the ability of the Company to
develop and market products and to control costs, the percentage of the
Company's revenues derived from indirect channel partners and general economic
conditions. The independent accountants' report for the year ended December 31,
1997 states that the Company's recurring losses from operations and the
Company's negative cash flow from operating activities raise substantial doubt
about the Company's ability to continue as a going concern.
Dependence Upon New Products; Uncertain Market Acceptance.
Substantially all of the Company's revenues for the foreseeable future are
expected to be derived from sales of QueryObject System. Between January 1, 1995
and March 31, 1998, the Company realized software product revenue from only
eight QueryObject System installations, one of which (sold in 1995) was a
pre-production beta version. Further, the Company has recently commenced an
integrated marketing effort for its products. The Company's future financial
performance will depend upon the successful introduction and customer acceptance
of QueryObject System and the development of new and enhanced versions of the
product. The failure to achieve broad market acceptance of QueryObject System
will have a material adverse effect on the business, operating results and
financial condition of the Company.
Lack of Substantial Revenue; Limited Operating History. The Company has
had a limited operating history as a software product company and has not made
significant sales of its products. Total revenues for the year ended December
31, 1997 and for the three months ended March 31, 1998 were $1,012,159 and
$111,861, respectively. Total revenues for the periods noted above included four
sales and one sale, respectively, of QueryObject System. Prior to 1997, the
Company's revenues were derived primarily from contract services provided to
customers using the Company's proprietary data analysis technology. The Company
has discontinued this business. The Company believes that comparisons of its
future operating results to operating results presented herein will not be
meaningful.
16
<PAGE>
Limited Working Capital; Need For Additional Funding. At March 31,
1998, the Company had working capital of $1,497,279. The Company has had a
limited operating history as a software product company and has not made
significant sales of its products. Therefore, revenues are difficult to predict.
Based on its current operating plan, the Company believes that its current cash
and cash equivalent position is sufficient to meet its working capital and
capital expenditure requirements for the next four months. It is more likely
than not that cash generated from operations will be insufficient to satisfy the
Company's liquidity requirements beyond four months, and as a result, the
Company will seek to sell additional equity or convertible debt securities. To
date, the Company has no commitments, agreements or understandings with respect
to such additional financing and there can be no assurance that the Company will
be able to consummate any such transaction. The sale of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders.
Potentially Limited Trading Market; Possible Volatility of Stock Price.
The Common Stock is listed on the Nasdaq SmallCap Market ("Nasdaq"). Under
recently implemented Nasdaq rules, in order for the Company to remain eligible
for listing on Nasdaq, (i) the Company's Common Stock must have a minimum bid
price of $1.00, (ii) the Company must have minimum tangible net assets of
$2,000,000 or a market capitalization of $35,000,000 or net income of $500,000
in two of the three prior years, (iii) the Company must have a public float of
at least 500,000 shares with a market value of at least $1,000,000 and the
Common Stock must have at least two market makers and be held of record by at
least 300 stockholders. While the Company currently satisfies Nasdaq listing and
maintenance standards, the Company believes that without additional financing
(of which there can be no assurance), the Company could have less than
$2,000,000 in net tangible assets by June 30, 1998. The failure to meet the
maintenance criteria in the future may result in the Common Stock no longer
being eligible for quotation on Nasdaq and trading, if any, of the Common Stock
would thereafter be conducted in the non- Nasdaq over-the-counter market. As a
result of such delisting of the Common Stock from Nasdaq, it may be more
difficult for investors to dispose of, or to obtain accurate quotations as to
the market value of, the Common Stock.
The regulations of the Securities and Exchange Commission
("Commission") promulgated under the Securities Exchange Act of 1934, as
amended, require additional disclosure relating to the market for penny stocks.
Commission regulations generally define a penny stock to be an equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. A disclosure schedule explaining the penny stock market and the
risks associated therewith is required to be delivered to a purchaser and
various sales practice requirements are imposed on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). In addition, the broker-dealer must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. If the Company's securities become subject to the
regulations applicable to penny stocks, the market liquidity for the Company's
securities could be severely affected. In such an event, the regulations on
penny stocks could limit the ability of broker-dealers to sell the Company's
securities and thus the ability of purchasers of the Company's securities to
sell their securities in the secondary market. In the absence of an active
trading market, holders of the Common Stock may experience substantial
difficulty in selling their securities.
The trading price of the Company's Common Stock is expected to be
subject to significant fluctuations in response to variations in quarterly
operating results, changes in analysts' earnings estimates, general conditions
in the computer software industry and other factors. In addition, the stock
market is subject to price and volume fluctuations that affect the market prices
for companies and that are often unrelated to operating performance.
17
<PAGE>
Dependence on Significant Customers. For the fiscal year ended December
31, 1997 and for the three months ended March 31, 1998, one customer in each
period accounted for 65% and 67%, respectively, of the Company's total revenues.
The Company does not know at this time if significant future revenues from these
customers will occur.
Potential Fluctuations in Periodic Results. The Company's revenues may
be subject to significant variation from period to period due to the
discretionary nature of business intelligence data delivery software purchases
and will be difficult to predict. Further, although the Company's product line
will include products with sales prices from $7,500 to over $250,000, the
majority of its revenues is expected to be derived from products with sales
prices from $60,000 to $160,000. As a result, the timing of the receipt and
shipment of a single order can have a significant impact on the Company's
revenues and results of operations for a particular period. It is also expected
that for the foreseeable future a relatively small number of customers and VARs
will account for a significant percentage of the Company's revenues. The Company
anticipates that product revenues in any quarter will be substantially dependent
on orders booked and shipped in that quarter, and revenues for any future
quarter will not be predictable with any significant degree of certainty.
Product revenues are also difficult to forecast because the market for business
intelligence software products is rapidly evolving, and the Company's sales
cycle may vary substantially with each customer. As the Company matures in its
product releases, it is anticipated that the Company will operate with limited
order backlog because its software products will typically be shipped shortly
after orders are received.
18
<PAGE>
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On November 19, 1997 the Commission declared effective the Company's
Registration Statement on Form SB-2 (File No. 333-34667) relating to the initial
public offering ("IPO") of 2,500,000 shares of common stock, $.001 par value
(the "Common Stock") of the Company at a price per share of $6.00. Subsequent to
the information provided in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997, the Company has used proceeds of the IPO as
follows; $1,062,000 has been used to fund the Company's integrated full scale
sales and marketing activities and to expand its sales and marketing activities
both domestically and internationally, $525,000 has been used for research and
development including enhancements to existing features and development of new
functions for QueryObject System and $546,000 of the proceeds of the IPO have
been used for working capital and general corporate purposes. The remaining
amount of the proceeds from the IPO, $3,157,000, have been invested temporarily
in investment grade, short-term, interest bearing instruments.
Item 5. Other Information
Pursuant to a separation agreement (the "Separation Agreement") dated
as of March 10, 1998, by and between the Company and Mark A. Chroscielewski, Mr.
Chroscielewski's employment agreement and employment with the Company was
terminated effective March 10, 1998. Mr. Chroscielewski will continue to serve
as the Company's Chairman of the Board until May 26, 1998. The Separation
Agreement provides for a severance payment of $150,000 payable over a one-year
period beginning March 10, 1998 and a payment of $151,896 in settlement of
unpaid and accrued salary and vacation owed to Mr. Chroscielewski. The Company
also agreed to extend the terms of all of the stock options that had previously
been granted to Mr. Chroscielewski until December 31, 1999 and enter into a
reseller agreement relating to the Company's products with an entity to be
formed by Mr. Chroscielewski. Pursuant to the Separation Agreement, Mr.
Chroscielewski has agreed until March 10, 1999 not to (i) compete with the
Company and (ii) take such actions as attempting to acquire control of the
Company or initiating a tender or exchange offer, merger or other business
combination.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Separation Agreement, as amended, between the Company and Mark A.
Chroscielewski (Exhibit 10.15)
Statement of Computation of Net Income Per Share (Exhibit 11.1)
Financial Data Schedule (Exhibit 27.1)
Reports of Form 8-K
No Reports on Form 8-K were filed during the quarter ended March
31, 1998.
<PAGE>
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.
Dated: May 13, 1998 CROSSZ SOFTWARE CORPORATION
By: /s/ Daniel M. Pess
------------------------------------------------
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
SEPARATION AGREEMENT
SEPARATION AGREEMENT dated as of March 10, 1998 by and between
CrossZ Software Corporation ("CrossZ" or the "Company") a Delaware corporation
with its principal office at 60 Charles Lindbergh Boulevard, Uniondale, New York
11553 and Mark Chroscielewski ("Chroscielewski"), who resides at 250-03 87th
Drive, Bellerose, New York 11426.
WHEREAS, Chroscielewski has been employed by CrossZ as
Chairman of the Board pursuant to an Employment Agreement effective as of
October 14, 1997 by and between Chroscielewski and CrossZ (the "Employment
Agreement"); and
WHEREAS, CrossZ and Chroscielewski have determined that
Chroscielewski's employment with the Company was terminated effective March 10,
1998 and Chroscielewski will no longer serve as Chairman of the Board of the
Company effective as of May 26, 1998; and
WHEREAS, the parties hereto desire to set forth their
agreement as to the termination of Chroscielewski's employment and to set forth
certain other agreements and understandings;
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, it is hereby agreed as follows:
1. Termination of Employment Agreement and Severance. The
Employment Agreement is terminated and is of no further force or effect
effective as of the date hereof. The provisions of this Agreement are in full
settlement of any and all rights and
<PAGE>
obligations that each party has to the other under the Employment Agreement.
Notwithstanding the foregoing, the Company and Chroscielewski agree that the
provisions of Section 1 of the Proprietary Rights and Separation Agreement dated
as of June 16, 1992 between Chroscielewski and the Company (the "Proprietary
Rights Agreement") shall remain in full force and effect until May 26, 1998. Any
activities that Chroscielewski engages in as a reseller will not be in violation
of the Proprietary Rights Agreement, provided that the Company's proprietary
information may not be disclosed without the express permission of the Company.
Chroscielewski shall be entitled to receive a severance payment in the amount of
$150,000 payable over the one-year period from March 10, 1998 through March 9,
1999 in accordance with normal Company payroll. Chroscielewski acknowledges that
he has received all severance payments that have been required to be made to him
through March 31, 1998 in accordance with the preceding sentence. In addition,
upon the execution of this Agreement, the Company is paying $151,896 to
Chroscielewski in full settlement of (i) all unpaid accrued salary and other
amounts owed to Chroscielewski or his wife, and (ii) all accrued and unused
vacation through March 10, 1998. The Company will also reimburse the law firm of
Reisman, Peirez, Reisman & Calica L.L.P. $16,000 in full settlement for all
attorney fees incurred by Chroscielewski in connection with the execution of
this Agreement and enforcing his rights under the Employment Agreement.
Chroscielewski is also being reimbursed for all heretofore unreimbursed expenses
reasonably and necessarily incurred by him in connection with the business of
CrossZ prior to March 10, 1998. Chroscielewski acknowledges that he has received
-2-
<PAGE>
full and complete payment of quarterly MBO's through the date of termination of
his employment. Chroscielewski will resign, effective May 26, 1998, as Chairman
of the Board of CrossZ. Chroscielewski further acknowledges that he will not be
nominated by the Board of Directors for election as a director at the Company's
next annual meeting of the stockholders (which is presently scheduled to be held
on May 27, 1998). In addition, Chroscielewski may not (i) speak or take any
action on behalf of the Company including negotiating, discussing or executing
any agreement or (ii) have any discussions with any customers, clients or
suppliers of the Company or any potential customers, clients or suppliers of the
Company. The foregoing limitation includes, but is not limited to, representing
CrossZ or acting on behalf of CrossZ at any trade show or conference.
Notwithstanding the foregoing, the Company will enter into a standard reseller
agreement with such new company as may be hereinafter incorporated or formed by
Chroscielewski as specified in Paragraph 5 hereto.
2. Stock Options and Continuing Benefits. Concurrently
herewith, the Company is amending the terms of the stock option agreement dated
November 11, 1997 between the Company and Chroscielewski so that all options to
purchase Common Stock of the Company currently held by Chroscielewski shall
remain exercisable until December 31, 1999. In connection therewith, the Company
will make any amendments necessary under its 1991 Incentive Stock Option to
effectuate the foregoing. To the extent that the Company reprices any options
granted under the 1991 Incentive Stock Option Plan prior to December 31, 1999,
the Company will include the options granted to Chroscielewski in any such
repricing and will
-3-
<PAGE>
reprice the options to purchase Common Stock held by Chroscielewski to an
exercise price equal to the exercise price of the repriced options.
In addition, Chroscielewski shall receive Company-paid health, dental,
medical, vision, disability and life insurance coverage as provided to
Chroscielewski immediately prior to March 10, 1998, upon the terms and
conditions, including deductibles and co- payments, provided in the Company's
then-existing plans, policies and programs (the "Company-Paid Coverage").
Company-Paid Coverage shall continue until March 10, 1999 in the case of life
insurance coverage and until March 10, 2003 for Chroscielewski and his spouse as
of the date of this Agreement in the case of medical, dental, disability and
vision coverage. Notwithstanding the foregoing, if Chroscielewski is covered
under any health, life, dental, vision or disability insurance plan(s) provided
by a subsequent employer, then the amount of coverage required to be provided by
the Company hereunder shall be reduced by the amount of coverage provided by the
subsequent employer's plan(s) for so long as such coverage continues.
Chroscielewski's rights under this Paragraph 2 shall be in addition to, and not
in lieu of, any post-termination continuation coverage or conversion rights
Chroscielewski may have pursuant to applicable law, including without
limitation, continuation coverage required by Section 4980B of the Internal
Revenue Code of 1986, as amended.
3. Office Space. Until May 26, 1998, Chroscielewski (i) will
be allowed to use during the normal and customary business hours of the Company
his current office at the Company's executive offices located a set forth above,
and (ii) will receive
-4-
<PAGE>
administrative support, consistent with the administrative support he received
from the Company immediately prior to May 26, 1998. After May 26, 1998,
Chroscielewski shall completely vacate the Company's offices, unless he is
granted permission to appear at the Company's offices by the President of the
Company.
4. Office Equipment. By separate bill of sale, the Company is
transferring to Chroscielewski concurrently herewith title to the laptop
computer, desktop computer and printer currently in Chroscielewski's possession,
for the sum of $1.00.
5. Reseller Agreement. (a) CrossZ shall enter into a standard
reseller agreement (the "Reseller Agreement") with such new company as may
hereafter be incorporated or formed by Chroscielewski (the "Chroscielewski
Reseller Company"). The Reseller Agreement will be subject to and in accordance
with the provisions of Paragraph 7 hereof.
(b) As inducement for the Company to enter into the
Reseller Agreement, it shall provide that Chroscielewski and the Chroscielewski
Reseller Company for, and on behalf of, themselves and their directors,
officers, consultants, employees and "affiliates" (as such term is defined in
Rule 405 under the Securities Act of 1933, as amended) will not disclose or
divulge any information, knowledge or data relating to the Reseller Agreement,
including without limitation, its terms to any person or entity including, but
not limited to, other resellers or indirect channel partners, value added
resellers, original equipment manufacturers, consultants and systems integrators
of the Company. Notwithstanding the foregoing, Chroscielewski may disclose the
terms of the Reseller Agreement to the legal, accounting and tax
-5-
<PAGE>
professionals involved in the administration of the Chroscielewski Reseller
Company.
6. Phone Numbers and E-mail. Chroscielewski will have the
opportunity to transfer both of his cell phone numbers as well as his home
office phone number, to his personal use by no later than May 26, 1998, after
which the service will be discontinued. Chroscielewski will have access to the
Company's e-mail through Lotus Notes as well as the Company's voice mail until
May 26, 1998, after which the service will discontinued.
7. Noncompete and Confidentiality. Chroscielewski agrees that
until March 10, 1999 he shall not:
(i) engage in, own, manage or control, or
participate in the ownership, management or control, directly or indirectly, of
any person, firm, corporation or other entity engaged in the design,
development, provision, sales or marketing of any product for the creation,
compression, storage, retrieval or analysis of relational databases ("Restricted
Business") anywhere in the world (the "Restricted Area"). Notwithstanding the
foregoing, Chroscielewski may acquire shares representing not more than 5% of
the outstanding securities of any publicly traded company engaged in the
Restricted Business and the Chroscielewski Reseller Company may enter into the
Reseller Agreement.
(ii) for himself or on behalf of any other
person or entity, directly or indirectly or by action together with others, call
on any person or entity that is or was at any time during the one year period
prior to the date of this Agreement, a customer, licensor, licensee, contractor,
employee, consultant, representative or agent of or for CrossZ, or any of them,
for the
-6-
<PAGE>
purpose of (A) diverting or taking away any such person or entity from CrossZ,
or (B) inducing, influencing or seeking to induce or influence, any such person
or entity to terminate such relationship with CrossZ, or any of them; provided,
that if the employment of any such employee has been terminated by CrossZ and if
Chroscielewski notifies CrossZ that he proposes to employ such employee, CrossZ
will not unreasonably withhold its consent to such subsequent employment; or
(iii) use, disclose or divulge any
information, knowledge or data specifically relating to or concerned with
CrossZ, its respective operations, businesses, methods of doing business,
revenues, results of operations, financial condition or customers to any person
or entity, provided, however, that (A) if Chroscielewski becomes legally
compelled to disclose any such information, knowledge or data, he will promptly
advise CrossZ in writing so that it may seek a protective order or other
appropriate judicial remedy and/or waive compliance with the provisions of this
Paragraph 7, and (B) nothing contained herein shall prevent the use or
disclosure of any information, knowledge or data (1) that is generally known to
the public or (2) that has become generally known to the public otherwise than
by the breach of this Agreement by Chroscielewski or the breach of any other
agreement of like tenor by Chroscielewski, any other shareholder of CrossZ or
any officer, director or employee of the CrossZ.
8. Standstill. Chroscielewski agrees that prior to March 10,
1999, without the prior written consent of the Company, he will not, in any
manner, whether publicly or otherwise, directly or indirectly initiate, make,
effect, cause, seek, offer or propose
-7-
<PAGE>
to initiate, participate in or take a position with respect to, advise or
influence, call or seek to call or execute: (i) any tender or exchange offer,
merger or other business combination involving CrossZ or any of its affiliates;
(ii) any "solicitation" of "proxies" (as such terms are used in the rules of the
Securities and Exchange Commission) or consents that relate in any way to any
shares of Common Stock or other securities of CrossZ, whether before or after
the formal commencement of any such solicitation; (iii) any person or entity
with respect to the voting of, or the giving or withholding of any consents with
respect to, any shares of common stock of CrossZ or other securities of CrossZ;
(iv) a meeting of CrossZ's shareholders or any written consent or any proposal
for action by shareholders of CrossZ; (v) alone or in concert with others, to
acquire control of CrossZ or influence the Board, management or policies of
CrossZ; (vi) any claim, suit, action or otherwise acting to contest the validity
of this letter or proceeding a release of the restrictions contained herein.
Notwithstanding the foregoing, in the event that the Company defaults in the
payment of any installment severance payment provided for him or fails to pay or
refuses to pay any installment severance payment and such default or failure or
refusal to pay is not cured within 15 days after the receipt by the Company of
written notice from Chroscielewski of such default, failure or refusal to pay,
the provisions of this Paragraph 8 will be null and void and of no further force
and effect.
9. Enforceability of Paragraphs 7 and 8. Chroscielewski
acknowledges that (a) the provisions of Paragraphs 7 and 8 hereof are reasonable
and necessary for the protection of
-8-
<PAGE>
CrossZ and are essential to the willingness of CrossZ to enter into this
Separation Agreement. In the event that any provision of Paragraphs 7 and 8
hereof, including any sentence, clause or part thereof, shall be deemed contrary
to law or invalid or unenforceable in any respect by a court of competent
jurisdiction, the remaining provisions shall not be affected, but shall, subject
to the discretion of such court, remain in full force and effect and any invalid
and unenforceable provisions shall be deemed, without further action on the part
of the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable.
10. Withdrawal of Legal Complaint. Simultaneously with the
execution of this Agreement, Chroscielewski will discontinue the Action filed on
his behalf in the Supreme Court of the State of New York, County of Nassau and
provide the Company with a copy of the discontinuance certified by
Chroscielewski's attorneys.
11. Survival of Provisions. The termination of this Agreement
shall not terminate or affect in any manner any provision of this Agreement that
is intended by its terms to survive such termination.
12. Entire Agreement; Amendment. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof, and any prior agreement between CrossZ and Chroscielewski relating to
his employment with CrossZ is hereby superseded and terminated effective
immediately and shall be without further force or effect, except for the
provisions of, Section 1 of the Proprietary Rights Agreement. No amendment or
modification of this Agreement shall be valid or binding unless
-9-
<PAGE>
made in writing and signed by the party against whom enforcement thereof is
sought.
13. Notices. Any notice required, permitted or desired to be
given pursuant to any of the provisions of this Agreement shall be deemed to
have been sufficiently given or served for all purposes if delivered in person
or by responsible overnight delivery service or sent by certified mail, return
receipt requested, postage and fees prepaid to the parties at their respective
addresses set forth above, and if to CrossZ, with a copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: David J. Adler, Esq.
and if to Chroscielewski, with a copy to:
Reisman, Peirez, Reisman & Calica, L.L.P.
Counselors-at-Law
1305 Franklin Avenue
Garden City, New York 11530
Attention: David H. Peirez, Esq.
Any of the parties hereto may at any time and from time to time change the
address to which notice shall be sent hereunder by notice to the other parties
given under this Paragraph 12. The date of the giving of any notice hand
delivered or delivered by responsible overnight carrier shall be the date of its
delivery and of any notice sent by mail shall be the date five days after the
date of the posting of the mail.
14. No Assignment; Binding Effect. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by Chroscielewski.
This Agreement shall be binding upon
-10-
<PAGE>
Chroscielewski, his heirs, executors and administrators and upon CrossZ and its
successors and assigns.
15. Waivers. No course of dealing nor any delay on the part of
CrossZ in exercising any rights hereunder shall operate as a waiver of any such
rights. No waiver of any default or breach of this Agreement shall be deemed a
continuing waiver or a waiver of any other breach or default.
16. Governing Law. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the State of New York,
except that body of law relating to choice of laws.
17. Invalidity. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Separation Agreement to be duly executed as of the day and year first above
written.
CROSSZ SOFTWARE CORPORATION
By: /s/ DANIEL PESS
--------------------------------------
Name: DANIEL PESS
Title: Senior Vice President of
Finance and Administration,
Chief Financial Officer and
Secretary
/s/ MARK CHROSCIELEWSKI
-----------------------------------------
MARK CHROSCIELEWSKI
-11-
CrossZ Software Corporation EXHIBIT 11.1
Computation of Net Loss Per Common Share
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Weighted
Common Days Average
Shares Outstanding Shares
-----------------------------------------------
Three months ended March 31, 1997
---------------------------------
<S> <C> <C> <C>
Common stock outstanding at January 1, 1997 2,453,710 90 2,453,710
Accretion of series D dividends 29,413 45 14,707
Exercise of common stock options 1,250 66 226
Exercise of common stock options 8,320 56 1,276
Exercise of common stock options 2,778 38 289
----------
Weighted average shares used in per share computation 2,470,208
==========
Net loss for the three months ended March 31, 1997 (1,906,966)
Net loss per common share $ (0.77)
==========
</TABLE>
<TABLE>
<CAPTION>
Number of Weighted
Common Days Average
Shares Outstanding Shares
-----------------------------------------------
Three months ended March 31, 1998
---------------------------------
<S> <C> <C> <C>
Common stock outstanding at January 1, 1998 5,110,605 90 5,110,605
Exercise of common stock options 1,875 76 390
Exercise of common stock options 2,118 75 435
Exercise of common stock options 4,584 47 590
Exercise of common stock options 625 32 55
Exercise of common stock options 365 14 14
----------
Weighted average shares used in per share computation 5,112,089
==========
Net loss for the three months ended March 31, 1998 (2,235,583)
Net loss per common share $ (0.44)
===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-QSB FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,157,002
<SECURITIES> 0
<RECEIVABLES> 278,173
<ALLOWANCES> 30,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,373,027
<PP&E> 2,283,628
<DEPRECIATION> 1,096,216
<TOTAL-ASSETS> 5,706,808
<CURRENT-LIABILITIES> 2,875,748
<BONDS> 0
0
0
<COMMON> 5,120
<OTHER-SE> 2,279,012
<TOTAL-LIABILITY-AND-EQUITY> 5,706,808
<SALES> 111,861
<TOTAL-REVENUES> 111,861
<CGS> 25,506
<TOTAL-COSTS> 2,369,142
<OTHER-EXPENSES> 231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,412
<INCOME-PRETAX> (2,235,583)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,235,583)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,235,583)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
