UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
May 20, 1997 was: 101,904,836
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page
----
Condensed Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
For the Three Months ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of March 31, 1997 and December 31, 1996
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,995 $ 5,675
Accounts receivable, net of allowance
for doubtful accounts of $502 and
$693 in 1997 and 1996, respectively................... 9,008 9,044
Advances to officers .................................... 773 682
Inventories .............................................. 33 29
Prepaid expenses and other current assets ................ 888 1,036
--- -----
Total current assets ..................................... 13,697 16,466
INSTALLMENT ACCOUNTS RECEIVABLE, due after one year. 4,243 3,714
PROPERTY AND EQUIPMENT, net .............................. 1,857 1,605
SOFTWARE COSTS, net ...................................... 895 949
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED,
net of accumulated amortization of $2,805 and $2,627
in 1997 and 1996, respectively ........................ 4,666 4,683
OTHER ASSETS ............................................. 159 254
--- ---
$25,517 $27,671
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................. $ 3,239 $ 4,227
Current portion of long- term debt .................... 505 458
Deferred revenues ..................................... 9,097 8,972
----- -----
Total current liabilities ......................... 12,841 13,657
DEFERRED REVENUES ........................................ 4,423 3,964
LONG-TERM DEBT ........................................... 441 526
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.0001 par value; 150,000,000
authorized; 101,904,000 shares in 1997 and
101,335,000 shares in 1996 issued and outstanding .... 10 10
Additional paid-in capital ............................. 79,594 78,870
Accumulated deficit .................................... (71,792) (69,356)
------- -------
Total Shareholders' Equity .................. 7,812 9,524
----- -----
$ 25,517 $ 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 Ended March 31,
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996
---- ----
(As restated)
<S> <C> <C>
REVENUES:
Software licenses and support.......... $ 5,014 $ 4,109
Other .................................. 837 --
----- -----
5,851 4,109
COSTS AND EXPENSES:
Cost of revenues and technical support . 2,383 1,334
Research and development ............... 584 354
Sales and marketing .................... 3,004 1,927
General and administrative .............. 1,765 1,817
Amortization and depreciation ........... 551 762
Unusual charges ......................... -- 2,075
----- ------
8,287 8,269
----- -----
OPERATING LOSS .......................... (2,436) (4,160)
------ ------
OTHER INCOME/(EXPENSE):
Interest charge pertaining to the
discount on convertible debentures .... -- (260)
----- ----
NET LOSS ................................ $ (2,436) $ (4,420)
========= ========
NET LOSS PER SHARE ....................... $ (.02) $ (.08)
========= ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 101,676 58,211
======= ======
<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 Three Months Ended March 31,
(in thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
OPERATING ACTIVITIES: (As restated)
<S> <C> <C>
Net loss ................................................. $(2,436) $(4,420)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization:
Software costs ................................... 149 366
Property and equipment ........................... 213 160
Excess of cost over fair value of net assets
acquired ....................................... 178 234
Other ............................................ 2 2
Non-cash interest charge for discount on
convertible debt ............................... -- 260
Common stock issued for services ..................... 40 305
Non-cash unusual charges ............................. -- 2,000
Changes in operating assets and liabilities:
Accounts receivable .................................. 36 1,402
Installment accounts receivable, due after one year .. (529) (769)
Inventories .......................................... (4) 22
Prepaid expenses and other current assets ............ 148 (111)
Other assets ......................................... 93 (6)
Accounts payable and accrued expenses ................ (322) (302)
Deferred revenue ..................................... 584 435
--- ---
Net cash used in operating activities .......... (1,848) (422)
------ ----
INVESTING ACTIVITIES:
Capital expenditures ................................ (464) (59)
Additional consideration for Softworks acquisition ... (161) (176)
Capitalization of software development costs ......... (96) (104)
Net change in advances to officers .................. (91) (6)
--- --
Net cash used in investing activities .......... (812) (345)
---- ----
FINANCING ACTIVITIES:
Net proceeds from sales of common stock and options .. 18 1,733
Net change in long-term debt, including proceeds
from sale of convertible debentures ................. (38) 1,621
--- -----
Net cash provided/(used) by financing activities (20) 3,354
--- -----
INCREASE (DECREASE ) IN CASH AND CASH EQUIVALENTS ..... (2,680) 2,587
CASH AND CASH EQUIVALENTS, beginning of period .......... 5,675 579
----- ---
CASH AND CASH EQUIVALENTS, end of period ................ $ 2,995 $ 3,166
======= =======
<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 Months Ended March 31, 1997 and 1996
1. INTERIM FINANCIAL INFORMATION
The condensed consolidated balance sheet as of March 31, 1997, and the condensed
consolidated statements of operations and cash flows for the three months ended
March 31, 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 months ended March 31, 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 $2,436,000, for the three
months ended March 31, 1997, and cumulative net losses of $71,792,000 through
March 31, 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 three month period ended March 31,
1997, net cash used in operating activities was $1,848,000, 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 prior year sales of convertible debentures and common
stock and exercises of stock options.
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 Months Ended March 31, 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. Subsequent to March 31, 1997, the Company raised
approximately $1,097,000, through the sale of $1,270,000 of non-interest bearing
convertible debentures. See Note 4.b 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 May 20, 1997, the Company
had cash and cash equivalents of approximately $2,650,000 (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 5.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 Months Ended March 31, 1997 and 1996
3. RESTATEMENTS
In March, 1996, the Company sold $2,000,000 of 13% convertible debentures. Such
debentures had a maturity date of March 5, 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 debentures fully converted during the three
month period ended June 30, 1996, into 2,473,839 shares of the Company's common
stock. The convertible debentures had an assured conversion discount of 32.5%
from the average of the five business days closing bid price immediately
preceding the conversion. 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 $650,000 upon the receipt of the funds, and amortized such
discount over the period commencing on the date the security was issued to the
date it first became convertible. Accordingly, for the three month period ended
March 31, 1996, the Company recorded a non-cash interest charge related to these
securities of $260,000.
4. SHAREHOLDERS' EQUITY
a. Authorized Common Shares
On March 20, 1996, the shareholders of the Company approved an increase in the
number of authorized common shares from 60,000,000 to 150,000,000.
b. Sales of Common Stock and Convertible Debentures
During the three month period ended March 31, 1997, the Company consummated
sales of 65,250 shares of unrestricted common stock resulting from the exercise
of stock options. Proceeds raised from these sales aggregated $18,000.
Subsequent to March 31, 1997, the Company raised approximately $1,097,000
(net of expenses and commissions of approximately $173,000) through the sale of
$1,270,000 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.
c. Stock Option Plans
On March 20, 1996, the Company's shareholders approved the termination of the
1993 Stock Option Plan (the "Employees' Plan"), the 1993 Directors, Officers and
Consultants Stock Option Plan (the "DOC Plan"), and the 1993 Prior Services
Stock Option Plan (the "Prior Services Plan") and the adoption of the 1995 Stock
Incentive Plan (the "1995 Incentive Plan"). Further, the Company's shareholders
also approved the Outside Director Stock Option Plan (the "Director Plan").
Directors of the Company who are not full-time employees of the Company are
eligible to participate in the Director Plan.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three Months Ended March 31, 1997 and 1996
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
March 31, 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.
b. Employment Agreements
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 March
31, 1997, 15,505,000 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 September 1994, the Company received notice of an action alleging breach
of contract regarding an acquisition transaction initiated during 1993. In July
1995, a settlement agreement was reached whereby the Company was required to pay
$75,000 and agreed to an amendment of the original contract to acquire the
license for additional software. Pursuant to such amendment, the Company issued
a non-interest bearing promissory note in the amount of $388,800 payable in 36
monthly installments, with the final payment scheduled for September 1, 1998,
which amount was recorded as an unusual charge in the 1995 consolidated
statement of operations.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three Months Ended March 31, 1997 and 1996
5. COMMITMENTS AND CONTINGENCIES (continued)
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 originally 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 action. Plaintiffs have moved to certify a class action
and the Company has not opposed the motion. No damages have been specified in
any of these class action claims. Based on consultation with legal counsel, the
Company and its officers believe that meritorious defenses exist regarding the
claims and they are vigorously defending against the allegations. The Company is
unable to predict the ultimate outcome of these claims, which could have a
material adverse impact on the consolidated financial position and results of
operations of the Company, and accordingly, no adjustment has been made for any
potential losses.
During March 1997, the Company received a Complaint filed in the U.S. District
Court for the Western District of Texas, by Dell Computer Corporation. The
Complaint alleges that the Company failed to deliver product as contracted for
and further alleges damages in excess of $50,000. Based on consultation with
legal counsel, the Company and its officers believe that meritorious defenses
exist regarding the claims and they are vigorously defending against the
allegations. The Company is unable to predict the ultimate outcome of this
claim, which could have an adverse impact on the consolidated financial position
and results of operations of the Company, and accordingly, no adjustment has
been made for any potential losses.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 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.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1997 and 1996
Results of Operations
Three Months Ended March 31, 1997 Compared with March 31, 1996
- ---------------------------------------------------------------
Total revenues for the quarter ended March 31, 1997, of $5,851,000 increased by
$1,742,000 from $4,109,000 for the three months ended March 31, 1996. For the
quarter ending March 31, 1997, sales at Softworks increased by $1,474,000, while
decreasing at Maplinx - $531,000. Revenue of $837,000 was recognized applying
the percentage-of-completion method by the Company's new business unit.
The cost of revenues and technical support has increased by $1,049,000 to
$2,383,000 for the period ended March 31, 1997 from $1,334,000 for the prior
year first quarter. The principal factors for this increase are the costs
associated (applying the percentage-of-completion method) with the new business
unit of $771,000, costs associated with d.b.Express technology of $217,000,
increases of costs at Softworks of $247,000, offset by decreases at Maplinx of
$174,000.
Research and development costs rose approximately $230,000, due in part, to
increases incurred in further developing d.b.Express technology, of $205,000.
Sales and marketing expenses increased by $1,077,000 to $3,004,000 from the
first quarter of the prior year amount of $1,927,000. The increase was primarily
due to costs at Softworks rising $905,000, over the three month period in the
prior year. 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 in the U.S. as well
as overseas. Additionally, costs associated with d.b.Express increased from the
prior year by $302,000. The above referenced increases were offset by decreases
at Maplinx - $124,000.
General and administrative costs decreased $52,000 to $1,765,000 for the three
months ended March 31, 1997, when compared to the three months ended March 31,
1996. Factors contributing to the decrease were the cessation of operations of
Superbase - $162,000, decreases of costs associated with d.b.Express - $254,000,
offset by increases at Softworks of $375,000.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1997 and 1996
Results of Operations (continued)
Financial Condition and Liquidity
- ---------------------------------
The Company has incurred consolidated net losses of $2,436,000, for the three
months ended March 31, 1997, and cumulative net losses of $71,792,000 through
March 31, 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 three month period ended March 31,
1997, net cash used in operating activities was $1,848,000, 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 prior year sales of convertible debentures and common
stock and exercises of stock options.
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. Subsequent to
March 31, 1997, the Company raised approximately $1,097,000, through the sale of
$1,270,000 non-interest bearing convertible debentures. See Note 4.b 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
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1997 and 1996
Financial Condition and Liquidity (continued)
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 May 20, 1997, the Company had cash and cash equivalents of approximately
$2,650,000 (unaudited). 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, Inc. ("Softworks") the
Company is required to make additional contingent purchase consideration
payments to two of Softworks' former shareholders based upon certain product
revenues for the years 1995 through 1998, up to a maximum of $1,000,000 each,
for an aggregate maximum of $2,000,000. Through March 31, 1997, the Company
incurred a 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.
The Company is a defendant in several lawsuits and class action claims as
described in Note 5.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 March
31, 1997, the amount of such future receivables extending beyond one year was
approximately $4,243,000, 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 Months Ended March 31, 1997 and 1996
Item 1. Legal Proceedings
See Note 5.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
Not applicable.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
For the Three Months Ended March 31, 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, thereunto duly authorized.
COMPUTER CONCEPTS CORP.
/s/ Daniel DelGiorno, Sr.
Daniel DelGiorno Sr. Chief Executive Officer, May 20, 1997
Director
/s/ George Aronson
George Aronson Chief Financial Officer May 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the three months ended March 31, 1997 and
is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,995,000
<SECURITIES> 197,000
<RECEIVABLES> 9,510,000
<ALLOWANCES> 502,000
<INVENTORY> 33,000
<CURRENT-ASSETS> 13,697,000
<PP&E> 1,857,000
<DEPRECIATION> 211,000
<TOTAL-ASSETS> 25,517,000
<CURRENT-LIABILITIES> 12,841,000
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 7,802,000
<TOTAL-LIABILITY-AND-EQUITY> 25,517,000
<SALES> 5,014,000
<TOTAL-REVENUES> 5,851,000
<CGS> 2,383,000
<TOTAL-COSTS> 8,287,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,000
<INCOME-PRETAX> (2,436,000)
<INCOME-TAX> (2,436,000)
<INCOME-CONTINUING> (2,436,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,436,000)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
