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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20660
COMPUTER CONCEPTS CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-2895590
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 Orville Drive, Bohemia, N.Y. 11716
(Address of principal executive offices) (Zip Code)
Registrant s telephone number, including area code (516) 244-1500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of $.0001 par value stock outstanding as of November 12,
1997 was:126,683,670.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Condensed Consolidated Balance Sheets
as of September 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30,
1997 and 1996 2
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4 - 8
Management s Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of September 30, 1997 and December 31, 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
---- ----
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,600 $ 5,675
Accounts receivable, net of
allowance for doubtful
accounts of $350 and $693 in
1997 and 1996, respectively 13,065 9,044
Advances to officers 861 682
Inventories - 29
Prepaid expenses and other
current assets 1,395 1,036
------ ------
Total current assets 18,921 16,466
INSTALLMENT ACCOUNTS RECEIVABLE,
due after one year 6,980 3,714
PROPERTY AND EQUIPMENT, net 2,059 1,605
SOFTWARE COSTS, net 993 949
EXCESS OF COST OVER FAIR VALUE OF
NET ASSETS ACQUIRED, net of
accumulated amortization
of $2,279 and $2,628 in
1997 and 1996, respectively 4,614 4,683
OTHER ASSETS 170 254
-------- --------
$ 33,737 $ 27,671
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ 5,936 $ 4,227
Current portion of long- term debt 453 458
Deferred revenues 11,198 8,972
------- -------
Total current liabilities 17,587 13,657
DEFERRED REVENUES 7,373 3,964
LONG-TERM DEBT 280 526
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS EQUITY:
Common stock, $.0001 par value;
150,000,000 shares authorized;
125,535,000 shares in 1997
and 101,335,000 shares in 1996
issued and outstanding 13 10
Additional paid-in capital 90,839 78,870
Accumulated deficit (82,355) (69,356)
-------- --------
Total shareholders equity 8,497 9,524
-------- --------
$ 33,737 $ 27,671
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three and Nine Months Ended September 30,
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES: $6,657 $4,313 $19,931 $12,144
------ ------ ------- -------
COSTS AND EXPENSES:
Cost of revenues and
technical support 1,825 1,354 7,046 3,971
Research and development 1,254 328 2,905 1,004
Sales and marketing 5,744 2,539 12,821 6,913
General and administrative 2,413 1,621 7,119 5,115
Amortization and depreciation 606 798 1,714 2,340
Unusual charges - - 850 2,075
------ ------ ------ ------
11,842 6,640 32,455 21,418
------ ------ ------ ------
LOSS FROM OPERATIONS (5,185) (2,327) (12,524) (9,274)
OTHER INCOME/(EXPENSE):
Gain on sale of net assets
of subsidiary 813 - 813 -
Interest charge pertaining
to the discount
on convertible debentures (408) (630) (1,288) (2,810)
------ ------ ------ ------
NET LOSS $(4,780) $(2,957) $(12,999) $(12,084)
====== ------ ====== ======
NET LOSS PER SHARE $ (0.04) $ (0.04) $ (0.12) $ (0.18)
====== ====== ====== ======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 117,451 73,982 106,897 66,052
======= ====== ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30,
(in thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(12,999) $(12,084)
Adjustments to reconcile
net loss to net cash used in
operating activities:
Depreciation and amortization:
Software costs 480 1,090
Property and equipment 668 531
Excess of cost over fair
value of net assets acquired 552 712
Other 5 7
Common stock and options issued
for services 3,766 787
Gain on sale of net assets of
subsidiary (813) -
Non-cash interest charge
pertaining to the discount on
convertible debentures 1,288 2,810
Non-cash unusual charges 500 2,000
Bad debts 61 -
Changes in operating assets and
liabilities:
Accounts receivable (4,235) (1,455)
Installment accounts receivable,
due after one year (3,266) (1,789)
Inventories 10 47
Prepaid expenses and other
current assets (134) (658)
Other assets 81 (313)
Deferred revenues 5,653 3,381
Accounts payable and
other accrued expenses 2,502 599
------ ------
Net cash used in operating
activities (5,872) (4,335)
------ ------
INVESTING ACTIVITIES:
Capital expenditures (1,164) (533)
Additional consideration
for Softworks acquisition (486) (368)
Proceeds from the sale of
technology - 350
Proceeds from the sale of
net assets of subsidiary 230 -
Capitalization of software
development costs (525) (332)
Net change in advances to
officers (179) (185)
------ ------
Net cash used in investing
activities (2,124) (1,068)
------ ------
FINANCING ACTIVITIES:
Net proceeds from sales of
common stock, options
and convertible
debentures 6,164 11,976
Net change in long-term debt (243) (233)
------ ------
Net cash provided by
financing activities 5,921 11,743
------ ------
DECREASE (INCREASE) IN CASH
AND CASH EQUIVALENTS (2,075) 6,340
CASH AND CASH EQUIVALENTS,
beginning of period 5,675 579
------ ------
CASH AND CASH EQUIVALENTS,
end of period $3,600 $6,919
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Nine Months Ended September 30, 1997 and 1996
1. INTERIM FINANCIAL INFORMATION
The condensed consolidated balance sheet as of September 30, 1997, and the
condensed consolidated statements of operations for the three and nine months
ended September 30, 1997, and 1996, and cash flows for the nine months ended
September 30, 1997, and 1996, have been prepared by the Company without audit.
These interim financial statements include all adjustments, consisting only of
normal recurring accruals, which management considers necessary for a fair
presentation of the financial statements for the above periods. The results of
operations for the three and nine months ended September 30, 1997, 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, 1996. The accounting policies used in preparing the
condensed consolidated financial statements are consistent with those described
in the December 31, 1996, consolidated financial statements.
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.
The Company has recently entered into the Information Services / technology
infrastructure service business. The Company's principal market is the United
States. Overseas revenues are principally generated from European subsidiaries
and distributors.
The Company has incurred consolidated net losses of $4,780,000 for the
three months ended September 30, 1997, $12,999,000 for the nine months ended
September 30, 1997, and cumulative net losses of $82,355,000 through September
30, 1997. Further, the Company has incurred consolidated net losses of
$18,953,000, $18,365,000 and $12,207,000 during the years ended December 31,
1996, 1995, and 1994, respectively. For the nine month period ended September
30, 1997, net cash used in operating activities was $5,872,000, reflecting the
above net loss being offset by various non-cash items and changes in assets and
liabilities described in the accompanying condensed consolidated statement of
cash flows. The Company's cash requirements were primarily financed through
current and prior year sales of convertible debentures, sales of common stock
and funds generated from Softworks' operations.
The Company does not maintain a credit facility with any financial
institution. The Company has continued to incur significant expenses with
respect to the development and marketing of its d.b.Express product technology
without generating any significant revenues. 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, among other matters, there is substantial
doubt about the Company's ability to continue as a going concern. No adjustments
have been made with respect to the condensed consolidated financial statements
to record the results of the ultimate outcome of this uncertainty.
Management's plans to remain a going concern, as more fully described in
these notes, require additional financing until such time as sufficient cash
flows are generated from operations. During the nine months ended September 30,
1997, the Company received approximately $3,865,000 (less commissions and fees
of approximately $484,000) from the sale of convertible debentures, and
$3,000,000 (less commissions and fees of $240,000) from the sale of common
stock. See Note 3.a. to the condensed consolidated financial statements.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) For the Three and Nine Months Ended September 30, 1997 and 1996
2. BASIS OF PRESENTATION (Continued)
There can be no assurances that the Company will be able to obtain
sufficient financing to execute its business plan. The Company's primary source
of revenue continues to be derived from its Softworks subsidiary. Management's
plans to remain a going concern rely upon achieving positive cash flows from
operations through the continued growth of Softworks and the successful
exploitation of the Company's d.b.Express product. While to date, revenues from
d.b.Express have been insignificant, management believes that its proprietary
software 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 product, management
will need to aggressively pursue all marketing opportunities. To date, the
Company has incurred significant losses (both cash expenses and non-cash
expenses) as a result of the development and marketing of d.b.Express. There can
be no assurances that the Company will be successful in achieving positive cash
flows from operations with respect to the d.b.Express product. The Company
continues to pursue license and development agreements with various companies.
While none of the Company's existing agreements or development opportunities,
that relate to d.b.Express, provide sales commitments, 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. Unless the Company determines to
discontinue its pursuit of d.b.Express revenues (which requires significant
financial resources), the Company will need to generate positive cash flows from
operations from the sale of d.b.Express product in order to decrease its
dependency on cash flows from financing activities and remain a going concern.
At November 10, 1997, the Company had cash and cash equivalents of approximately
$1,674,000. Ultimately, however, positive cash flows from operations will be
necessary in order to curtail the Company's reliance on equity placements.
3. SHAREHOLDERS' EQUITY
a. Sales of Common Stock and Convertible Debentures
During the quarter ended June 30, 1997, the Company raised approximately
$3,865,000 (less commissions and fees of approximately $484,000) through the
sale of non-interest bearing convertible debentures. These debentures had a
maturity date in May, 1998, and were convertible, at the option of the holder,
commencing 45 days from the date of issue into restricted common stock of the
Company. The convertible debentures had an assured discount of 25% from the
prices of the Company's common stock at various defined periods. In connection
with this discount, SEC Staff comments and consistent with SEC observer comments
at the Emerging Issues Task Force meeting on March 13, 1997 related to this
topic, the Company recorded a deferred asset of $1,288,000 upon the receipt of
the funds and amortized this discount amount over the period commencing on the
date the security was issued to the date it first became convertible.
Accordingly, the Company recorded a non-cash interest charge related to these
securities of $1,288,000. During the quarter ended September 30, 1997, the
entire amount of the debentures, $3,865,000, had converted into an aggregate of
11,982,343 shares of the Company's common stock and has, accordingly, increased
the Company's shareholders' equity by an equal amount.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Nine Months Ended September 30, 1997 and 1996
3. SHAREHOLDERS' EQUITY (Continued)
Additionally, during the quarter ended September 30, 1997, the Company
consummated a sale of restricted common stock under a private placement to
accredited United States investors under Regulation D. Proceeds from this sale
were $3,000,000 (less commissions and fees of $240,000). A total of
approximately 4,615,000 shares were sold at a price of $0.65 per share.
Additional shares may be required to be issued under a valuation guarantee
should the closing bid price of the Company's common stock, as stated on The
Nasdaq SmallCap Market, not exceed an average of $0.78 for any five consecutive
trading days during the thirty days immediately following the effective date of
a Registration Statement.
During the nine month period ended September 30, 1997, the Company
consummated sales of 85,250 shares of common stock resulting from the exercise
of stock options. Proceeds raised from these sales aggregated $23,000.
b. Stock Compensation Awards and Repricing of Options
During the nine month period ended September 30, 1997, the Company issued
6,945,400 shares of common stock, 6,145,400 of which are subject to
registration, to officers, employees and outside consultants. The shares had a
fair value (adjusted for the value of 2,000,000 canceled options) on the date of
issuance of approximately $2,477,000 and, accordingly, the Company recorded a
non-cash compensation charge of approximately $2,477,000. Further, 2,500,000 of
these shares are subject to forfeiture based upon specified Company performance
criteria. Additionally, for the nine months ended September 30, 1997, in lieu of
cash compensation to various officers, employees and consultants, the Company's
Board of Directors authorized a reduction of the exercise price of 3,915,000
outstanding options to purchase the Company's common stock to prices ranging
from $0.01 to $1.00 per share. The options originally had exercise prices
ranging from $0.50 to $1.50 per share. Accordingly, the Company recorded
non-cash charges of approximately $1,271,000 for employee compensation
(calculated using the intrinsic method) and consulting services (calculated
using the fair value method). The Company also recorded a non-cash compensation
charge of $18,000 for options granted to two key employees as part of their
employment contract agreements.
c. Subsequent Event
During October, 1997, the Company issued 1,147,652 restricted shares of
common stock to HPS America, Inc. ("HPS") for settlement of product development
costs aggregating $860,739 owed to HPS and its affiliates. Additional shares may
be required to be issued should the net proceeds from the sale of these shares
not equal $0.75 per share. In the event the net proceeds exceed the gross
valuation amount, $860,739, then the Company shall be entitled to either a
credit to be applied against potential future HPS invoices or the return to the
Company of 75% of the excess proceeds (as determined by the per share sales
price in excess of $.75).
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Nine Months Ended September 30, 1997 and 1996
4. SALE OF NET ASSETS OF SUBSIDIARY
In July, 1997, the Company completed a transaction in which it sold all
rights to the underlying software technologies of its Maplinx, Inc. subsidiary.
Further, as part of the transaction, the purchaser acquired all of Maplinx'
current assets and assumed all of its liabilities. The sales price of
approximately $850,000 was adjusted (reduced) by the excess of Maplinx' current
liabilities over current assets (approximately $380,000), resulting in a net
sales price of $470,000. Approximately $235,000 was paid at closing, the balance
of $235,000 plus interest is due six months from closing. As a result of this
transaction, the Company recognized a gain on the sale of net assets of $813,000
in the quarter ended September 30, 1997.
5. COMMITMENTS AND CONTINGENCIES
a. Contingent Consideration
In connection with the 1993 acquisition of Softworks, the Company is
required to make additional payments to two of Softworks' former shareholders,
based upon certain product revenues for the years 1995 through 1998, up to a
maximum of $1,000,000 each, for an aggregate maximum of $2,000,000. Through
September 30, 1997, the Company has incurred an aggregate liability of
$1,409,000, (of which $1,289,000 has been paid) to the non-employee former
shareholders, which has been treated as additional consideration in connection
with the acquisition, and, accordingly, included in the excess of cost over the
fair value of net assets acquired, as these individuals did not continue in the
employment of the Company subsequent to the acquisition. No other contingent
payments have been made under the terms of this agreement.
b. Registration Statements/Restricted Securities
The Company has used restricted common stock for the purchase of certain
companies, has sold restricted common stock in private placements and has issued
restricted common stock as compensation to employees and certain outside
consultants. At September 30, 1997, 16,168,000 shares of restricted common stock
are issued and outstanding.
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.
During August and September, 1995, four additional, substantially identical,
class action claims were made. In November, 1995, the five complaints were
consolidated into one action. Plaintiffs have moved to certify a class action
and the Company did not oppose the motion. In July, 1997, in an effort to avoid
the expense of and resolve the uncertainty of litigation, the Company
tentatively agreed to a Stipulation and Agreement of Settlement ("Stipulation
Agreement") of this class action. The Company continues to deny any wrongdoing
with respect to this action and seeks to settle to avoid further substantial
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Nine Months Ended September 30, 1997 and 1996
5. COMMITMENTS AND CONTINGENCIES (Continued)
expense, inconvenience and risk. The plaintiff's counsel is presently providing
notice of the action and the proposed settlement to the class members. A hearing
is scheduled for December 12, 1997 ("Settlement Hearing"), at which time it is
contemplated that the Court will enter a final order approving the following
terms of the settlement. If approved, the Company will deliver and place into
escrow 1,000,000 shares of its common stock. In the event that the average
closing bid price of the Company's common stock for the ten trading days prior
to the Settlement Hearing is less than $0.50 per share, the Company will issue
additional shares, determined by dividing $500,000 by the ten day average less
the shares already placed into escrow. Further, the Company and its insurance
carrier will each deposit into escrow $350,000, totaling $700,000. Based upon
the Stipulation Agreement, the Company had recorded in the quarter ended June
30, 1997, an $850,000 Unusual Charge to earnings.
d. Software Distribution Agreement
In July 1997, the Company acquired from Cognizant Technology Solutions
Corporation ("CTS") the generally exclusive worldwide rights to two technologies
(the "Technology") that complement the Company's existing Year 2000 product
solutions. Pursuant to the software distribution agreement, in exchange for the
Technology rights, the Company is required to pay CTS a royalty on sales of the
Technology at defined rates subject to minimum annual royalties as follows:
$100,000 in 1997, $900,000 in 1998, $1,400,000 in 1999 and $400,000 in 2000.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1997 and 1996
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.
The Company has recently entered into the Information Services / technology
infrastructure service business. The Company's principal market is the United
States. Overseas revenues are principally generated from European subsidiaries
and distributors.
The Company currently consists of three operating units or product lines:
d.b.Express, Softworks, and a newly formed business 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. Products marketed by Softworks include technology which
addresses the year 2000 problem. During the nine months ended September 30,
1997, the Company commenced operations of a new business unit which is designed
to provide a wide array of information technology, support and services. The
Company has employed 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, the
Company 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 and Nine Months Ended September 30, 1997 Compared with September 30, 1996
- -------------------------------------------------------------------------------
Revenues for the quarter ended September 30, 1997, were $6,657,000, an
increase of $2,344,000 over revenues for the quarter ended September 30, 1996,
while for the nine months ended September 30, 1997, and 1996, revenues increased
$7,787,000 from $12,144,000 to $19,931,000. For the quarter ended September 30,
1997, net revenues increased at Softworks by $2,816,000, while decreases in
revenues of $472,000 resulted primarily from the closure of certain subsidiaries
and product lines. Year to date increases of $7,138,000 and $1,432,000 at
Softworks and Computer Concepts respectively, were offset by decreases of
$783,000 from the closure of certain subsidiaries and product lines. The
increase in revenues at Softworks is due primarily to the release of new
products and expanded sales and marketing efforts. The increase at Computer
Concepts is principally due to the revenues generated from its new special
services division.
The cost of revenues and technical support increased $471,000 to $1,825,000
for the quarter ended September 30, 1997, as compared to $1,354,000 for the
prior year quarter and by $3,075,000 to $7,046,000 for the nine months ended
September 30, 1997, from $3,971,000 for the prior year nine month period. The
principal factors for these increases include the release of new product lines
and added technical support for the additional sales at Softworks at Softworks
as well as the costs associated with the new special services division at
Computer Concepts.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1997 and 1996
Three and Nine Months Ended September 30, 1997 Compared with September 30,
1996 (Continued)
Research and development costs increased $926,000 to $1,254,000 for the
quarter ended September 30, 1997 from, $328,000 for the prior year quarter, and
increased $1,901,000 to $2,905,000 for the nine months ended September 30, 1997,
from $1,004,000 for the prior year nine month period. R&D activities were
devoted to further develop current product technologies, as well as the
development of technologies pertaining to the Year 2000 problem.
Sales and marketing expenses increased approximately $3,205,000 for the
quarter ended September 30, 1997, to $5,744,000 from $2,539,000 for the prior
year. This increase is primarily due to Softworks' domestic expansion, the
creation of additional international subsidiaries and its efforts to market and
promote Year 2000 technologies. Additional expenses incurred were a result of
increased efforts to market d.b.Express TM. For the nine month period ended
September 30, 1997, expenses increased when compared to the nine months ended
September 30, 1996 by $5,908,000, primarily due to factors mentioned above.
General and administrative costs increased $792,000 to $2,413,000 for the
three months ended September 30, 1997, when compared to $1,621,000 for the
quarter ended September 30, 1996, and by $2,004,000 to $7,119,000 for the nine
months ended September 30,1997 from $5,115,000 for the nine month period ended
September 30, 1996. The principal factors contributing to these increases has
been the additional overhead costs associated with the increased efforts to
market d.b.Express and technologies associated with the Year 2000 problem, along
with non-cash compensation awards made to certain officers, employees and
consultants.
See Note 3.a. to the condensed consolidated financial statements for
discussion relating to the non-cash interest charge pertaining to the discount
on convertible debentures.
See Note 5.c to the condensed consolidated financial statements for
discussion relating to the unusual charges incurred during the nine months ended
September 30, 1997. For the quarter ended March 31, 1996, the Company recorded
an unusual charge to earnings of $2,075,000 as a result of a settlement of a
class action suit.
Financial Condition and Liquidity
The Company has incurred consolidated net losses of $4,780,000 for the
three months ended September 30, 1997, $12,999,000 for the nine months ended
September 30, 1997, and cumulative net losses of $82,355,000 through September
30, 1997. Further, the Company has incurred consolidated net losses of
$18,953,000, $18,365,000 and $12,207,000 during the years ended December 31,
1996, 1995, and 1994, respectively. For the nine month period ended September
30, 1997, net cash used in operating activities was $5,872,000 reflecting the
above net loss being offset by various non-cash items and changes in assets and
liabilities described in the accompanying condensed consolidated statement of
cash flows. The Company's cash requirements were primarily financed through
current and prior year sales of convertible debentures, sales of common stock
and funds generated from Softworks' operations.
The Company does not maintain a credit facility with any financial
institution. The Company has continued to incur significant expenses with
respect to the development and marketing of its d.b.Express product technology
without generating any significant revenues. 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, among other matters, there is substantial
doubt about the Company's ability to continue as a going concern. No adjustments
have been made with respect to the condensed consolidated financial statements
to record the results of the ultimate outcome of this uncertainty.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1997 and 1996
Financial Condition and Liquidity (Continued)
Management's plans to remain a going concern, as more fully described in
these notes, require additional financing until such time as sufficient cash
flows are generated from operations. During the nine months ended September 30,
1997, the Company received approximately $3,865,000 (less commissions and fees
of $484,000) from the sale of convertible debentures, and $3,000,000 (less
commissions and fees of $240,000) from the sale of common stock. See Note 3.a.
to the condensed consolidated financial statements.
There can be no assurances that the Company will be able to obtain
sufficient financing to execute its business plan. The Company's primary source
of revenue continues to be derived from its Softworks subsidiary. Management's
plans to remain a going concern rely upon achieving positive cash flows from
operations through the continued growth of Softworks and the successful
exploitation of the Company's d.b.Express product. While to date, revenues from
d.b.Express have been insignificant, management believes that its proprietary
software 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 product, management
will need to aggressively pursue all marketing opportunities. To date, the
Company has incurred significant losses (both cash expenses and non-cash
expenses) as a result of the development and marketing of d.b.Express. There can
be no assurances that the Company will be successful in achieving positive cash
flows from operations with respect to the d.b.Express product. The Company
continues to pursue license and development agreements with various companies.
While none of the Company's existing agreements or development opportunities,
that relate to d.b.Express, provide sales commitments, 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. Unless the Company determines to
discontinue its pursuit of d.b.Express revenues (which requires significant
financial resources), the Company will need to generate positive cash flows from
operations from the sale of d.b.Express product in order to decrease its
dependency on cash flows from financing activities and remain a going concern.
At November 10, 1997, the Company had cash and cash equivalents of approximately
$1,674,000. Ultimately, however, positive cash flows from operations will be
necessary in order to curtail the Company's reliance on equity placements.
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
September 30, 1997, the Company has incurred an aggregate liability of
$1,409,000, (of which $1,289,000 has been paid) to the non-employee former
shareholders, which has been treated as additional consideration in connection
with the acquisition, and, accordingly, included in the excess of cost over the
fair value of net assets acquired, as these individuals did not continue in the
employment of the Company subsequent to the acquisition. No other contingent
payments have been made under the terms of this agreement.
In July, 1997, the Company completed a transaction in which it sold all
rights to the underlying software technologies of its Maplinx, Inc. subsidiary.
Further, as part of the transaction, the purchaser acquired all of Maplinx'
current assets and assumed all of its liabilities. The sales price of
approximately $850,000 was adjusted (reduced) by the excess of Maplinx' current
liabilities over current assets (approximately $380,000), resulting in a net
sales price of $470,000. Approximately $235,000 was paid at closing, the balance
of $235,000 plus interest is due six months from closing. As a result of this
transaction, the Company recognized a gain on the sale of net assets of $813,000
in the quarter ended September 30, 1997.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1997 and 1996
Financial Condition and Liquidity (Continued)
The Company is a defendant in several lawsuits and class action claims.
Based on consultation with legal counsel, the Company and its officers believe
that meritorious defenses exist regarding the lawsuits and claims, and they are
vigorously defending against the allegations. The Company is unable to predict
the ultimate outcome of the claims, which could have a material adverse effect
on the consolidated financial position and results of operations of the Company.
Accordingly, except as expressly discussed herein, the financial statements do
not reflect any adjustments that might result from the ultimate outcome of these
litigation matters.
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 September 30, 1997, the amount of such future receivables extending
beyond one year was approximately $6,980,000, and is included in installment
accounts receivable, due after one year and deferred revenues.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
For the Three and Nine Months Ended September 30, 1997 and 1996
Item 1. Legal Proceedings
See Note 5.c. 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 The Company filed the following Form
8-Ks:
May 23, 1997 Item 9 - Sale of equity securities pursuant to Regulation S
May 29, 1997 Item 4 - Dismissal of independent auditors
June 3, 1997 Item 4 - Engagement of new independent auditors.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
For the Three and Nine Months Ended September 30, 1997 and 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
COMPUTER CONCEPTS CORP.
/s/ Daniel DelGiorno, Sr.
Daniel DelGiorno Sr. Chief Executive Officer, November 14, 1997
Director
/s/ George Aronson
George Aronson Chief Financial Officer November 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the quarterly period ending September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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