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 June 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 August 14,
1997 was: 113,888,000
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
INDEX
<TABLE>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Condensed Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows
For the Six Months ended June 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 June 30, 1997 and December 31, 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,507 $ 5,675
Accounts receivable, net of allowance
for doubtful accounts of $426 and
$693 in 1997 and 1996, respectively 11,641 9,044
Advances to officers 837 682
Inventories 19 29
Deferred discount on convertible debentures 83 -
Prepaid expenses and other current assets 1,362 1,036
------- -------
Total current assets 17,449 16,466
INSTALLMENT ACCOUNTS RECEIVABLE, due after
one year 4,941 3,714
PROPERTY AND EQUIPMENT, net 2,008 1,605
SOFTWARE COSTS, net 1,070 949
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED, net of accumulated amortization
of $2,989 and $2,628 in 1997 and 1996,
respectively 4,632 4,683
OTHER ASSETS 173 254
------- -------
$ 30,273 $ 27,671
======= =======
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,876 $4,227
Current portion of long- term debt 496 458
Deferred revenues 9,891 8,972
------- -------
Total current liabilities 16,263 13,657
DEFERRED REVENUES 5,547 3,964
LONG-TERM DEBT 4,215 526
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS EQUITY:
Common stock, $.0001 par value; 150,000,000
shares authorized; 101,622,000 shares
in 1997 and 101,335,000 shares in 1996 issued
and outstanding 10 10
Additional paid-in capital 81,812 78,870
Accumulated deficit (77,574) (69,356)
------- -------
Total shareholders equity 4,248 9,524
------- -------
$ 30,273 $ 27,671
======= =======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months and Six Months Ended June 30, (in thousands,
except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Software licenses and support $6,847 $3,722 $11,862 $ 7,831
Other 575 - 1,412 -
------ ------ ------- -------
7,422 3,722 13,274 7,831
COSTS AND EXPENSES:
Cost of revenues and
technical support 2,838 1,282 5,221 2,616
Research and development 1,067 322 1,651 676
Sales and marketing 4,073 2,448 7,077 4,375
General and administrative 2,941 1,677 4,706 3,494
Amortization and depreciation 557 779 1,108 1,541
Unusual charges 850 - 850 2,075
------ ------ ------ ------
12,326 6,508 20,613 14,777
------ ------ ------ ------
NET LOSS FROM OPERATIONS (4,904) (2,786) (7,339) (6,946)
------ ------ ------ ------
OTHER INCOME/(EXPENSE):
Interest charge pertaining to
the discount on convertible
debentures (880) (1,920) ( 880) (2,180)
------ ------ ------ ------
NET LOSS $(5,784) $(4,706) $(8,219) $(9,126)
====== ====== ====== ======
NET LOSS PER SHARE $(0.06) $(0.07) $(0.08) $ (0.15)
====== ====== ====== ======
WTD. AVG. COMMON SHARES
OUTSTANDING 101,396 65,136 101,508 61,642
======= ====== ======= ======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30,
(in thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................................................. $(8,219) $(9,126)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization:
Software costs .................................................. 298 729
Property and equipment .......................................... 421 336
Excess of cost over fair value of net assets acquired ........... 362 472
Other ........................................................... 3 4
Bad debts ............................................................ 162 --
Common stock and options issued for services.......................... 1,796 305
Non-cash unusual charges ............................................. 500 2,000
Non-cash interest charge for discount on convertible debt ............ 880 2,180
Changes in operating assets and liabilities:
Accounts receivable .................................................. (2,597) 94
Installment accounts receivable, due after one year .................. (1,227) (944)
Inventories .......................................................... 10 54
Prepaid expenses and other current assets ............................ (326) (108)
Other assets ......................................................... 81 (243)
Deferred revenue ..................................................... 2,502 192
Accounts payable and other accrued expenses ........................... 1,149 1,561
------ ------
Net cash used in operating activities ....... (4,205) (2,494)
------ ------
INVESTING ACTIVITIES:
Capital expenditures ................................................. (823) (204)
Additional consideration for Softworks acquisition ................... (311) (269)
Proceeds from the sale of technology ................................. -- 250
Capitalization of software development costs ......................... (420) (218)
Net change in advances to officers ................................... (155) ( 82)
------ ------
Net cash used in investing activities ......... (1,709) (523)
------ ------
FINANCING ACTIVITIES:
Net proceeds from sales of common stock and options and convertible
debentures............................................................ 4,005 9,201
Other loans payable ................................................... -- --
Net change in long term debt .......................................... (259) (186)
------ ------
Net cash provided by financing activities ..... 3,746 9,015
------ ------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ......................... (2,168) 5,998
CASH AND CASH EQUIVALENTS, beginning of period ............................ 5,675 579
------ ------
CASH AND CASH EQUIVALENTS, end of period .................................. $ 3,507 $ 6,577
====== ======
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Six Months Ended June 30, 1997 and 1996
1. INTERIM FINANCIAL INFORMATION
The condensed consolidated balance sheet as of June 30, 1997, and the condensed
consolidated statements of operations for the three and six months ended June
30, 1997, and 1996, and cash flows for the six months ended June 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 six months ended June 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 made to European distributors.
The Company has incurred consolidated net losses of $5,784,000 for the three
months ended June 30, 1997, $8,219,000 for the six months ended June 30, 1997,
and cumulative net losses of $77,574,000 through June 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 six month period ended June 30, 1997, net cash used in
operating activities was $4,205,000, reflecting the above net loss being offset
by various non-cash items described in the accompanying consolidated statement
of cash flows. The Company's cash requirements were primarily financed through
current and prior year sales of convertible debentures, 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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Six Months Ended June 30, 1997 and 1996
2. BASIS OF PRESENTATION (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 six months ended June 30,
1997, the Company received approximately $3,380,000 (net of commissions and
fees) from the sale of convertible debentures. See Note 3 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 current 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 August 14, 1997, the Company
had cash and cash equivalents of approximately $1,920,000 (unaudited).
Ultimately, however, positive cash flows from operations will be necessary in
order to curtail the Company's reliance on equity placements.
The Company is a defendant in several lawsuits and class action claims as
described in Note 4.d. 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.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Six Months Ended June 30, 1997 and 1996
3. SHAREHOLDERS' EQUITY
a. Sales of Common Stock and Convertible Debentures
The Company raised approximately $3,380,000 (net of expenses and
commissions of approximately $485,000) through the sale of $3,865,000
non-interest bearing convertible debentures. These debentures mature May 9,
1998, and are 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 have 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 $966,000 upon the receipt of the funds and is amortizing
this discount amount over the period commencing on the date the security was
issued to the date it first becomes convertible. Accordingly, the Company
recorded a non-cash interest charge related to these securities of $880,000. As
of the date of the filing of this report the entire amount of the debentures,
$3,865,000, had converted into an aggregate of 11,982,342 shares of the
Company's common stack and has, accordingly, increased the Company's
shareholders' equity by an equal amount.
Additionally, during the six month period ended June 30, 1997, the Company
consummated sales of 65,250 shares of common stock resulting from the exercise
of stock options. Proceeds raised from these sales aggregated $18,000.
b. Stock Compensation Awards and Repricing of Options
During the three month period ended June 30, 1997, the Company issued
700,000 shares of common stock, 325,000 of which are subject to registration, to
an officer and an outside consultant. The shares had a fair value on the date of
issuance of $350,000 and, accordingly, the Company recorded a non-cash
compensation charge of $350,000. Additionally, in lieu of cash compensation to
various employees, officers and consultants, the Company's Board of Directors
authorized a reduction of the exercise price of 2,850,000 outstanding options to
purchase the Company's common stock to prices ranging from $0.01 to $0.25 per
share. The options originally had exercise prices ranging from $0.65 to $1.50
per share. Accordingly, the Company recorded non-cash charges of $1,156,800 for
employee compensation (calculated using the intrinsic method) and consulting
services (calculated using the fair value method).
4. COMMITMENTS AND CONTINGENCIES
a. Contingent Consideration
In connection with the 1993 acquisition of Softworks, the Company is
required to make additional payments to two of Softworks' former shareholders,
based upon certain product revenues for the years 1995 through 1998, up to a
maximum of $1,000,000 each, for an aggregate maximum of $2,000,000. Through June
30, 1997, the Company has incurred an aggregate liability of $1,086,000, (of
which $983,000 has been paid) to the non-employee former shareholders, which has
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Six Months Ended June 30, 1997 and 1996
4. COMMITMENTS AND CONTINGENCIES (Continued)
b. Employment Agreements
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. The Company has
entered into various employment agreements with three key employees for base
compensation aggregating $400,000 per year. These agreements expire at various
times in 1997 and will be automatically renewed for succeeding terms of one year
unless the Company, or the employee, gives written notice.
c. Registration Statements/Restricted Securities
The Company has used restricted common stock for the purchase of certain
companies and has sold restricted common stock in private placements. At June
30, 1997, 10,721,000 shares of restricted common stock are issued and
outstanding.
d. Legal Matters
During May 1994, the Company and certain officers received notification that
they have been named as defendants in a class action alleging violations of
certain securities laws with respect to disclosures made regarding the Company's
acquisition of Softworks during 1993. On September 12, 1996, the settlement of
this class action claim was approved by the United States District Court,
Eastern District of New York. The Company recorded a charge to earnings in the
first quarter of 1996 of $2,075,000 to reflect this settlement, consisting of
$75,000 plus 2,614,000 of the Company's common stock.
In July, 1995, the Company received notice of an action alleging the Company had
not used its best efforts to register warrants to purchase 500,000 shares of the
Company's common stock within 30 days from written notice to the Company,
pursuant to a financial consulting agreement. The Company had maintained that it
had always used, and continued to use its best efforts to cause the registration
of those warrants to occur. However, to avoid the expense and resolve the
uncertainties of litigation, the matter was settled by including 385,000
warrants in the Company's registration statement, with the balance of 115,000
warrants being canceled. As the registration statement became effective on
August 9, 1996, the Company believes this matter has been resolved; however, the
Company is unable to predict the ultimate outcome of this suit and, accordingly,
no adjustment has been made in the condensed consolidated financial statements
for any potential losses.
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
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Six Months Ended June 30, 1997 and 1996
4. COMMITMENTS AND CONTINGENCIES (Continued)
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 of Settlement 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 expense, inconvenience and risk. Pursuant to the terms of
the proposed Agreement, if approved the Company will deliver and place into
escrow 1,000,000 shares of common stock. In the event that the average closing
bid price of the Company's 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 proposed Stipulation Agreement, the Company has recorded in the quarter
ended June 30, 1997, an $850,000 Unusual Charge to earnings.
5. SUBSEQUENT EVENT
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.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Six Months Ended June 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 made to European distributors.
The Company consists of four operating units or product lines: d.b.Express ,
Softworks, MapLinx, 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. MapLinx provides a desktop database mapping
utility for personal computers. During the three months ended March 31, 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 Six Months Ended June 30, 1997 Compared with June 30, 1996
Total revenues for the quarter ended June 30, 1997, increased by $3,700,000 from
$3,722,000 to $7,422,000 when compared to the three month period ended June 30,
1996, and increased by $5,443,000 for the six month period ending June 30, 1997,
to $13,274,000 from $7,831,000 for the six month period ended June 30, 1996. For
the quarter ended June 30, 1997, sales at Softworks increased by $2,848,000 and
revenue of $575,000 was generated from the Company's new business unit. The cost
of revenues and technical support has increased by $1,556,000 to $2,838,000 for
the quarter ending June 30, 1997, when compared to $1,282,000 for the prior year
quarter and increased by $2,605,000 to $5,221,000 for the six months ended June
30, 1997, from $2,616,000 for the prior year six month period. The principal
factors
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1997 and 1996
Results of Operations (Continued)
Three and Six Months Ended June 30, 1997 Compared with June 30, 1996 (Continued)
for this increase for the six month period are the costs associated with the new
business unit of $1,572,000, costs associated with d.b.Express technology of
$65,000, increases of costs at Softworks of $1,171,000, offset by decreases at
Maplinx of $176,000.
Research and development costs increased $745,000 to $1,067,000 for the quarter
ended June 30, 1997 from $322,000 for the prior year quarter, and increased
$975,000 to $1,651,000 for the six months ended June 30, 1997, from $676,000 for
the prior year six month period. Development activities were substantially
devoted to further develop current product technologies and to develop products
marketed by Softworks which address the year 2000 problem.
Sales and marketing expenses increased for the quarter ended June 30, 1997,
approximately $1,625,000 from the second quarter of the prior year and by
$2,702,000 for the six month period ending June 30, 1997, primarily as a result
of costs at Softworks rising $1,842,000 and $2,747,000, respectively, for the
three and six month periods ending June 30, 1997. The additional expenditures
were due to start up costs attributable to the marketing of the Year 2000 suite
of products, the SavanTechnology line and additional location and employee costs
for new offices both in the U.S. as well as overseas. See also Note 3.b. to the
condensed consolidated financial statements for discussion relating to non-cash
charges relating to the issuances of stock and the repricing of stock options.
General and administrative costs increased $1,264,000 to $2,941,000 for the
three months ended June 30, 1997, when compared to $1,677,000 for the three
months ended June 30, 1996, and by $1,212,000 to $4,706,000 for the six months
ended June 30,1997 from $3,494,000 for the six months ended June 30, 1996.
Increases at Softworks of $86,000 and $461,000 for the three and six month
periods, combined with increases of costs associated with d.b.Express technology
of $1,263,000 and $1,212,000, respectively, offset by decreases at Maplinx
substantially accounts for the increase in expenditures. See also Note 3.b. to
the condensed consolidated financial statements for discussion relating to
non-cash charges relating to the issuances of stock and the repricing of stock
options.
See Note 3.a. to the condensed consolidated financial statements for
discussion relating to the non-cash interest charge for discount on convertible
debentures.
Financial Condition and Liquidity
The Company has incurred consolidated net losses of $5,784,000 for the three
months ended June 30, 1997, $8,219,000 for the six months ended June 30, 1997,
and cumulative net losses of $77,574,000 through June 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,
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1997 and 1996
Financial Condition and Liquidity (Continued)
respectively. For the six month period ended June 30, 1997, net cash used
in operating activities was $4,205,000, reflecting the above net loss being
offset by various non-cash items described in the accompanying consolidated
statement of cash flows. The Company's cash requirements were primarily financed
through current and prior year sales of convertible debentures 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 require additional financing until
such time as sufficient cash flows are generated from operations. During the six
months ended June 30, 1997, the Company received approximately $3,380,000 (net
of commissions and fees) from the sale of convertible debentures. 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 current 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 August 14, 1997, the Company
had cash and cash equivalents of approximately $1,920,000 (unaudited).
Ultimately, however, positive cash flows from operations will be necessary in
order to curtail the Company's reliance on equity placements.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1997 and 1996
Financial Condition and Liquidity (Continued)
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 June 30, 1997,
the Company has incurred an aggregate liability of $1,086,000, (of which
$983,000 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.
The Company is a defendant in several lawsuits and class action claims as
described in Note 4.d. 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 June
30, 1997, the amount of such future receivables extending beyond one year was
approximately $4,941,000, 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 Six Months Ended June 30, 1997
Item 1. Legal Proceedings
See Note 4.d. 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 9 - Engagement of new independent auditors.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
For the Three and Six Months Ended June 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, August 19, 1997
Director
/s/ George Aronson
George Aronson Chief Financial Officer August 19, 1997
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the quarterly period ending June 30, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
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