UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(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, 1996
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 1, 1996 was: 83,061,313
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page
Condensed Consolidated Balance Sheets
as of September 30, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 1996
and 1995 2
Condensed Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4 - 10
Management s Discussion and Analysis of Financial
Condition and Results of Operations 11 - 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of September 30, 1996 and December 31, 1995
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30,
ASSETS 1996 December 31,
(Unaudited) 1995
--------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................................................... $ 6,919 $ 579
Accounts receivable, net of allowance for doubtful accounts of $475 and
$539 in 1996 and 1995, respectively ....................................... 5,930 4,475
Advances to officers ........................................................... 570 385
Inventories ..................................................................... 76 123
Prepaid expenses and other current assets ....................................... 1,182 431
----- ---
Total current assets ................................................ 14,677 5,993
INSTALLMENT ACCOUNTS RECEIVABLE, due after one year ............................... 1,789 -
PROPERTY AND EQUIPMENT, net ....................................................... 1,572 1,579
SOFTWARE COSTS, net (including $450 held for sale at December 31, 1995) ......... 1,742 2,950
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of
accumulated amortization of $2,082 and $1,369 in 1996 and 1995, respectively .. 5,038 5,425
OTHER ASSETS ...................................................................... 447 134
--- ---
$ 25,265 $ 16,081
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses .......................................... $ 4,557 $ 4,047
Current portion of long- term debt ............................................. 381 359
Deferred revenues .............................................................. 6,045 4,585
----- -----
Total current liabilities .......................................... 10,983 8,991
DEFERRED REVENUES ................................................................. 2,202 281
LONG-TERM DEBT .................................................................... 2,695 800
COMMON STOCK SUBJECT TO REDEMPTION ................................................ 3,000 4,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.0001 par value; 150,000,000 shares authorized; 75,942,000 shares
in 1996 and 57,475,000 shares in 1995 issued and outstanding ........ 8 6
Additional paid-in capital ..................................................... 68,864 52,406
Accumulated deficit ............................................................ (62,487) (50,403)
------- -------
Total shareholders' equity .......................................... 6,385 2,009
----- -----
$ 25,265 $ 16,081
======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months and Nine Months Ended September 30, (in
thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Software licenses and support ......... $ 4,313 $ 4,320 $ 12,144 $ 12,038
COSTS AND EXPENSES:
Cost of revenues and technical support... 1,354 1,997 3,971 5,453
Research and development ................ 328 310 1,004 903
Sales and marketing ..................... 2,539 1,971 6,913 6,932
General and administrative .............. 1,621 1,951 5,115 6,232
Amortization and depreciation ........... 798 989 2,340 2,909
Reduction in carrying value of software
costs held for sale - 2,097 - 2,097
Unusual charges ......................... - 438 2,075 1,077
----- --- ----- -----
6,640 9,753 21,418 25,603
----- ----- ------ ------
NET LOSS FROM OPERATIONS .................. (2,327) (5,433) (9,274) (13,565)
------ ------ ------ -------
OTHER INCOME/(EXPENSE):
Interest charge pertaining to the discount
on convertible debentures ........... (630) - (2,810) -
------ ------ ------ -------
NET LOSS ................................. $ (2,957) $ (5,433) $(12,084) $(13,565)
======== ======== ======== ========
NET LOSS PER SHARE ....................... $ (0.04) $ (0.10) $ (0.18) $ (0.28)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ......................... 73,982 55,954 66,052 48,502
====== ====== ====== ======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30,
(in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................................................... $(12,084) $(13,565)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization:
Software costs ....................................................... 1,090 1,429
Property and equipment ............................................... 531 514
Excess of cost over fair value of net assets acquired ................ 712 985
Reduction in carrying value of software costs held for sale .......... - 2,097
Other ................................................................ 7 -
Common stock issued for services .......................................... 787 1,664
Non-cash interest charge for discount on convertible debt ................. 2,810 -
Non-cash unusual charges .................................................. 2,000 995
Changes in operating assets and liabilities:
Accounts receivable ....................................................... (1,455) 311
Installment accounts receivable, due after one year ....................... (1,789) -
Inventories ............................................................... 47 114
Prepaid expenses and other current assets ................................. (658) 42
Other assets .............................................................. (313) 26
Deferred revenue .......................................................... 3,381 (90)
Accounts payable and other accrued expenses ................................ 599 (513)
--- ----
Net cash used in operating activities ............ (4,335) (5,991)
------ ------
INVESTING ACTIVITIES:
Capital expenditures ...................................................... (533) (538)
Additional consideration for Softworks acquisition ........................ (368) (247)
Proceeds from the sale of technology ...................................... 350 -
Capitalization of software development costs .............................. (332) (584)
Net change in advances to officers ........................................ (185) (164)
---- ----
Net cash used in investing activities .............. (1,068) (1,533)
------ ------
FINANCING ACTIVITIES:
Net proceeds from sales of common stock, options and convertible debentures 11,976 8,461
Other loans payable ........................................................ - 55
Net change in long term debt ............................................... (233) -
----
Net cash provided by financing activities .......... 14,553 8,516
------ -----
INCREASE IN CASH AND CASH EQUIVALENTS ......................................... 6,340 992
CASH AND CASH EQUIVALENTS, beginning of period ................................. 579 501
--- ---
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 6,919 $ 1,493
======== ========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Nine Months Ended September 30, 1996 and 1995
1. INTERIM FINANCIAL INFORMATION
The condensed consolidated balance sheet as of September 30, 1996, and the
condensed consolidated statements of operations for the three and nine months
ended September 30, 1996, and 1995, and cash flows for the nine months ended
September 30, 1996, and 1995, 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, 1996, 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, 1995. The accounting policies used in preparing the condensed
consolidated financial statements are consistent with those described in the
December 31, 1995, consolidated financial statements.
2. BUSINESS MATTERS AND LIQUIDITY
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 incurred consolidated net losses of $2,957,000 for the three
months ended September 30, 1996, $12,084,000 for the nine months ended September
30, 1996, and cumulative net losses of $62,487,000 through September 30, 1996.
As of September 30, 1996, the Company's current assets exceeded current
liabilities by $3,694,000. Approximately $853,000 of accounts payable were past
due. The Company is not experiencing difficulty in obtaining trade credit with
customary terms from its vendors. The Company recorded as an unusual charge in
the March 31, 1996, condensed consolidated financial statements, $2,075,000 for
a settlement of a class action suit, wherein $2,000,000 worth of the Company's
common stock was placed in escrow and $75,000 was paid in cash. See Note 5.d to
the condensed consolidated financial statements. Further, the Company has
recorded a non-cash charge for discount on convertible debentures of $2,810,000.
See Note 4.b to the condensed consolidated financial statements. During the nine
month period ended September 30, 1996, net cash used in operating activities
totaled $4,335,000, consisting primarily of an operating net loss of
$12,084,000, net of depreciation and amortization of $2,340,000, non cash
unusual charges of $2,000,000, common stock issued for services of $787,000,
non-cash interest charge for the amortization of the discount on convertible
debentures of $2,810,000 and a net change (reduction) in operating assets and
liabilities of $188,000. In addition, net cash used in investing activities of
$1,068,000 consisted primarily of software development costs, $332,000, the
purchase of fixed assets, $533,000, and additional consideration paid in
connection with the Softworks, Inc. acquisition, $368,000, offset by the
proceeds from the sale of software technology, $350,000.
The Company does not maintain a credit facility with any financial institution.
The uses of cash, referred to above, have been essentially funded through the
issuance of the Company's common stock, the sale of convertible debentures, as
well as cash generated from Softworks, Inc. Although the Company's liquidity
position at September 30, 1996, has been adversely affected by the
aforementioned factors, equity placements during the nine months then ended have
mitigated these factors.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Nine Months Ended September 30, 1996 and 1995
2. BUSINESS MATTERS AND LIQUIDITY (Continued)
During the nine months ended September 30, 1996, net proceeds from the sale of
common stock and options were $1,996,000. In addition, the Company received
approximately $9,980,000 (net of commissions and fees) from the sale of
convertible debentures. See Note 4b to the condensed consolidated financial
statements.
The Company believes that these cash infusions (coupled with anticipated future
cash infusions) will enable it to adequately maintain its operations at least
through September 30, 1997. At November 14, 1996, the Company had cash and cash
equivalents of approximately $6,068,000 (unaudited). Ultimately, however,
positive cash flows from operations will be necessary in order to curtail the
Company's reliance on equity placements.
To achieve positive cash flows from operations, management initiated during
1995, a series of cost saving measures, some of which include, wherever
possible, reductions in staffing, advertising, the use of outside consultants
and marketing costs. The Company has continued these measures in 1996. Further,
the Company has substantially closed down its DBopen product line. During 1995,
the Company significantly curtailed the Superbase operations, and, in April,
1996, ceased Superbase operations by selling off this technology. During the
quarter ended September 30, 1996, the Company announced that it had signed an
agreement with the Availability Services branch of IBM, wherein they will market
the Company's d.b.Express product line. This agreement does not contain any
sales commitments.
Management's plans continue to be centered on the successful exploitation of the
Company's d.b.Express product. To date, revenues from current versions of
d.b.Express have been insignificant. Management expects that future revenues
will support the carrying value of the capitalized software development costs
related to d.b.Express of $684,000 at September 30, 1996. Management believes
that the successful implementation of the cost saving measures and the planned
exploitation of its d.b.Express technology will eventually enable the Company to
achieve positive cash flows from operations. The long-term success of the
Company, under its existing business plan, is dependent upon the Company's
ability to generate material d.b.Express sales revenues.
The Company has signed a Letter of Intent to sell one of its wholly-owned
subsidiaries, Maplinx, Inc. ("Maplinx"). Financial information pertaining to
this wholly-owned subsidiary as of and for the nine months ended September 30,
1996, and as of and for the year ended December 31, 1995, is summarized below:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Current Assets: $373,000 $831,000
Total Assets: 971,000 1,520,000
Current Liabilities: 1,444,000 949,000
Total Liabilities: 1,451,000 963,000
Net Assets (Liabilities): (480,000) 557,000
Net Revenues: 1,315,000 3,780,000
Net Loss: 1,038,000 508,000
</TABLE>
There can be no assurances that the Company will be successful in its attempt to
sell this wholly-owned subsidiary.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Nine Months Ended September 30, 1996 and 1995
2. BUSINESS MATTERS AND LIQUIDITY (Continued)
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 September 30, 1996, the Company
incurred a liability of $736,000, (of which $659,000 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 June, 1994, the Company completed the purchase of the Superbase
product technology and certain related assets from Software Publishing Corp.
("SPC") in exchange for 2,031,175 shares of the Company's restricted stock,
valued at approximately $4,000,000, and $75,000 in cash. SPC received a
valuation guarantee for the stock issued, and will be permitted to sell such
stock in an orderly manner over a twelve month period following registration,
which was originally required to be completed before December 31, 1994. The
agreement provided that should such registration statement not be effective by
December 31, 1994, SPC, at its option, could require the Company to repurchase
the shares issued for the amount of the valuation guarantee.
On January 19, 1995, SPC and the Company entered into an extension agreement
whereby the Company was given an extension to file the registration statement to
February 15, 1995. In exchange for that extension, the Company agreed to pay SPC
$560,000 (the "Penalty Amount"), payable $300,000 in cash in three monthly
installments, and $260,000 in additional shares of Company common stock. These
additional shares also have a valuation guarantee. As a result of the Company's
failure to meet the December 31, 1994, registration statement filing deadline,
the Company recorded the Penalty Amount as an unusual charge in the December 31,
1994, consolidated statement of operations. As of September 30, 1996, the
Company has paid $100,000 of the required $300,000 cash penalty amount. The
remaining balance of $200,000 was paid subsequent to September 30, 1996. The
extension agreement included a provision that if the Company did not meet the
February 15, 1995 deadline, and the registration was not completed by May 31,
1995, SPC would be entitled to either of the following (at SPC's option): (i)
the payment of an additional penalty payment equal to $638,400 payable equally
in cash and Company common stock, or (ii) the repurchase of the shares as
provided for in the agreement. The Company did not meet the May 31, 1995
requirement. The Company recorded an additional penalty of $638,400 as an
unusual charge in the 1995 consolidated statement of operations. In June, 1996
SPC initiated the sale of a portion of its shares pursuant to the Rule 144
provisions of the Securities Act of 1933 and, further, exercised its option for
the penalty payment of $638,400. The penalty payment of $638,000 payable equally
in cash and Company common stock was satisfied by the Company subsequent to
September 30, 1996.
The remaining stock issued to SPC is presently included in the accompanying
September 30, 1996 balance sheet as "Common Stock Subject To Redemption" and is
classified as debt. However, based upon the elections made by SPC, coupled with
the final settlement of all of the above matters between the Company and SPC
subsequent to September 30, 1996, any remaining amount will be reclassified and
reported as equity in future filings.
The Company is a defendant in several lawsuits and class action claims as
described in Note 5d. 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 Nine Months Ended September 30, 1996 and 1995
3. RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
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 shares.
b. Sales of Common Stock, convertible debentures and proceeds from stock options
During the nine month period ended September 30, 1996, the Company consummated
sales of restricted common stock under various private placement agreements.
Proceeds raised from these sales aggregated $1,733,000, net of offering
commissions and expenses of approximately $297,000. A total of 1,015,000 shares
were sold at a price of $2.00 per share. Additionally, approximately $263,000
was raised through the exercise of stock options. During the nine month period
ended September 30, 1996, the Company raised approximately $9,980,000 (net of
commissions and expenses of $1,320,000) through the sale of subordinated
convertible debentures. Such debentures, which aggregate to the principal amount
of $11,300,000, had maturity dates ranging from April, 1997 to March, 1998, and
are convertible, at the option of the holder, commencing 45 days from the date
of issue, into the restricted common stock of the Company at conversion rates
ranging from 67.5% to 75.0% of the prices of the Company's common stock during
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
discount of $2,810,000 upon the receipt of the funds. This deferred discount was
amortized over the periods commencing on the date the security was issued
through the date they first became eligible to convert, and accordingly, the
Company recorded a non-cash interest charge related to these securities of
$2,810,000.
As of the initial date of the filing of this report, November 15, 1996,
$10,800,000 of the convertible debentures had converted into an aggregate of
14,706,597 shares of the Company's common stock and has, accordingly, increased
the Company's shareholders' equity by an equal amount.
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 and Nine Months Ended September 30, 1996 and 1995
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 an aggregate
maximum of $2,000,000. $659,000, treated for accounting purposes as additional
consideration, has been paid thus far through September 30, 1996.
b. Employment Agreements
The Company has entered into various employment agreements with certain key
employees for base compensation aggregating $690,000 per year. These agreements
expire at various times in 1996 and 1997 and would 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
September 30, 1996, 14,362,000 shares of restricted common stock were issued and
outstanding, exclusive of shares which may be issued in connection with
acquisition related valuation guarantees or stock related valuation guarantees.
See Part II Item 5.
d. Legal Matters
The previously disclosed settlement of a class action claim [Nicholas Cosmas v
Computer Concepts Corp., et al; United States District Court, Eastern District
of New York] was approved by the Court on September 12, 1996. The Company posted
a charge to earnings in the first quarter of 1996 of $2,075,000 to reflect this
settlement.
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 has maintained that it
has always used 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 pending registration statement, with the balance of 115,000
warrants being canceled. As the pending 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 consolidated financial
statements for any potential losses.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three and Nine Months Ended September 30, 1996 and 1995
5. COMMITMENTS AND CONTINGENCIES (continued)
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.
On June 11, 1996, the Company received notice of entry of a default judgement
against it for $1,500,000 and specific performance to effect the registration of
common stock held by Merit Technology, Inc. in a matter which the Company had
not been served or received notice of (In Re: Merit Technology, Inc., Debtor,
U.S.
Bankruptcy Court, Eastern District of Texas). The Company timely filed a motion
to set aside the default judgement based on the lack of service and meritorious
defenses and is vigorously defending the matter. On August 13, 1996, the default
judgement was set aside by the Court. 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.
<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, 1996 and 1995
Results of Operations
- ---------------------
Three and Nine Months Ended September 30, 1996 Compared with September 30, 1995
- -------------------------------------------------------------------------------
Revenues for the quarter ended September 30, 1996, were $4,313,000, virtually
the same as the comparable period in 1995, while revenues for the nine months
ended September 30, 1996 of $12,144,000 were $106,000 or 1.0% over the prior
year. For the quarter ended September 30, 1996, net revenues increased at
Softworks by $943,000 while decreasing at Maplinx by $693,000 as compared to the
quarter ended September 30, 1995. Year to date increases of $2,674,000 and
$73,000 at Softworks and Computer Concepts respectively, were offset by
decreases of $1,741,000 and $491,000 at Maplinx and Superbase, (which ceased
operations in April, 1996 ) respectively. The increase in revenues at Softworks
is due primarily to the release of new products and expanded sales and marketing
efforts. The decrease at Maplinx is principally due in large part to a delay in
the release of its new products. The closure of certain subsidiaries and product
lines accounted for an additional loss of revenues of approximately $409,000.
The cost of revenues and technical support decreased $643,000 to $1,354,000 for
the quarter ended September 30, 1996, as compared to $1,997,000 for the prior
year quarter and by $1,482,000 to $3,971,000 for the nine months ended September
30, 1996, from $5,453,000 for the prior year nine month period. The principal
factors for these decreases include the elimination of certain subsidiaries and
product lines, as well as various reductions in overhead.
Research and development costs increased $18,000 to $328,000 for the quarter
ended September 30, 1996 from $310,000 for the prior year quarter, and increased
$101,000 to $1,004,000 for the nine months ended September 30, 1996, from
$903,000 for the prior year nine month period. Substantially all development
activities were devoted to further develop current product technologies.
Sales and marketing expenses increased approximately $568,000 for the quarter
ended September 30, 1996, to $2,539,000 from $1,971,000 for the prior year
primarily as a result of increased efforts to market d.b.Express . However, for
the nine month period ended September 30, 1996, expenses decreased when compared
to the nine months ended September 30, 1995 by $19,000. The cumulative decrease
is primarily a result of the elimination of certain subsidiaries and product
lines.
General and administrative costs decreased $330,000 to $1,621,000 for the three
months ended September 30, 1996, when compared to $1,951,000 for the quarter
ended September 30, 1995, and by $1,117,000 to $5,115,000 for the nine months
ended September 30,1996 from $6,232,000 for the nine month period ended
September 30, 1995. The principal factor contributing to the decrease has been
the elimination of certain subsidiaries and product lines.
See Notes 2 and 5d to the condensed consolidated financial statements for
discussions relating to unusual charges incurred during the nine months ended
September 30, 1996.
See Note 4.b to the condensed consolidated financial statements for discussion
relating to the non-cash interest charge of $2,810,000 for the amortization of
the discount on convertible debentures.
<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, 1996 and 1995
Financial Condition and Liquidity
- ---------------------------------
The Company has incurred consolidated net losses of $2,957,000 for the three
months ended September 30, 1996, $12,084,000 for the nine months ended September
30, 1996, and cumulative net losses of $62,487,000 through September 30, 1996.
As of September 30, 1996, the Company's current assets exceeded current
liabilities by $3,694,000. Approximately $853,000 of accounts payable were past
due. The Company is not experiencing difficulty in obtaining trade credit with
customary terms from its vendors. The Company recorded as an unusual charge in
the March 31, 1996, condensed consolidated financial statements, $2,075,000 for
a settlement of a class action suit, wherein $2,000,000 worth of the Company's
common stock was placed in escrow and $75,000 was paid in cash. See Note 5.d to
the condensed consolidated financial statements. Further, the Company has
recorded a non-cash charge for discount on convertible debentures of $2,810,000.
See Note 4.b to the condensed consolidated financial statements. During the nine
month period ended September 30, 1996, net cash used in operating activities
totaled $4,335,000, consisting primarily of an operating net loss of
$12,084,000, net of depreciation and amortization of $2,340,000, non cash
unusual charges of $2,000,000, common stock issued for services of $787,000,
non-cash interest charge for the amortization of the discount on convertible
debentures of $2,810,000 and a net change (reduction) in operating assets and
liabilities of $188,000. In addition, net cash used in investing activities of
$1,068,000 consisted primarily of software development costs, $332,000, the
purchase of fixed assets, $533,000, and additional consideration paid in
connection with the Softworks, Inc. acquisition, $368,000, offset by the
proceeds from the sale of software technology, $350,000.
The Company does not maintain a credit facility with any financial institution.
The uses of cash, referred to above, have been essentially funded through the
issuance of the Company's common stock, the sale of convertible debentures, as
well as cash generated from Softworks, Inc. Although the Company's liquidity
position at September 30, 1996, has been adversely affected by the
aforementioned factors, equity placements during the nine months then ended have
mitigated these factors.
During the nine months ended September 30, 1996, net proceeds from the sale of
common stock and options were $1,996,000. In addition, the Company received
approximately $9,980,000 (net of commissions and fees) from the sale of
convertible debentures. See Note 4b to the condensed consolidated financial
statements.
The Company believes that these cash infusions (coupled with anticipated future
cash infusions) will enable it to adequately maintain its operations at least
through September 30, 1997. At November 14, 1996, the Company had cash and cash
equivalents of approximately $6,068,000 (unaudited). Ultimately, however,
positive cash flows from operations will be necessary in order to curtail the
Company's reliance on equity placements.
To achieve positive cash flows from operations, management initiated during
1995, a series of cost saving measures, some of which include, wherever
possible, reductions in staffing, advertising, the use of outside consultants
and marketing costs. The Company has continued these measures in 1996. Further,
the Company has substantially closed down its DBopen product line. During 1995,
the Company significantly curtailed the Superbase operations, and, in April,
1996, ceased Superbase operations by selling off this technology.
During the quarter ended September 30, 1996, the Company announced that it had
signed an agreement with the Availability Services branch of IBM, wherein they
will market the Company's d.b.Express product line. This agreement does not
contain any sales commitments.
<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 Septeber 30, 1996 and 1995
Financial Condition and Liquidity (Continued)
- ---------------------------------
Management's plans continue to be centered on the successful exploitation of the
Company's d.b.Express product. To date, revenues from current versions of
d.b.Express from such agreements have been insignificant. Management expects
that future revenues will support the carrying value of the capitalized software
development costs related to d.b.Express of $684,000 at September 30, 1996.
Management believes that the successful implementation of the cost saving
measures and the planned exploitation of its d.b.Express technology will
eventually enable the Company to achieve positive cash flows from operations.
The long-term success of the Company, under its existing business plan, is
dependent upon the Company's ability to generate material d.b.Express sales
revenues.
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 term payment agreements, the customer is contractually bound to
equal and annual fixed payments. The first year of post contract customer
support (PCS) is bundled with standard license agreements. In cases of extended
term license agreements, PCS is bundled for the length of the payment term.
Thereafter, in both instances, the customer may purchase PCS annually. At
September 30, 1996, the amount of such future receivables extending beyond one
year was approximately $1,789,000, and is included in installment accounts
receivable-due after one year and deferred revenues.
During April, 1996, the Company signed an agreement to sell the technology of
its Superbase subsidiary for $450,000, with $200,000 paid at closing and five
monthly payments of $50,000, commencing June 10, 1996. Such proceeds
approximated the carrying value of the software costs. Certain liabilities as of
the closing remain the responsibility of the subsidiary.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
For the Three and Nine Months Ended September 30, 1996 and 1995
Item 1. Legal Proceedings
See Note 5d 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
A registration statement covering 30,830,325 shares of the Company's common
stock (16,524,776 outstanding shares and 14,305,549 shares issuable upon
exercise of outstanding options or warrants) was declared effective by the
Securities and Exchange Commission on August 9, 1996. As the registration
statement covers securities previously issued by the Company, the sale of shares
by selling stockholders covered by the registration statement will not result in
proceeds to the Company. The Company may receive proceeds from the exercise of
outstanding options or warrants, when and if such options or warrants are
exercised, which may result in receipt by the Company of up to approximately
$26,000,000, however, there is no assurance all or any of the options or
warrants will ever be exercised.
Item 6. Exhibits and Reports on Form 8-K
Not applicable.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
For the Three and Nine Months Ended September 30, 1996 and 1995
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, May 15, 1997
Director
/s/ George Aronson
George Aronson Chief Financial Officer May 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the nine months ended September 30, 1996
and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,919,000
<SECURITIES> 227,000
<RECEIVABLES> 6,405,000
<ALLOWANCES> 475,000
<INVENTORY> 76,000
<CURRENT-ASSETS> 14,677,000
<PP&E> 1,572,000
<DEPRECIATION> 516,000
<TOTAL-ASSETS> 25,265,000
<CURRENT-LIABILITIES> 10,983,000
<BONDS> 0
0
0
<COMMON> 7,000
<OTHER-SE> 6,378,000
<TOTAL-LIABILITY-AND-EQUITY> 25,265,000
<SALES> 12,144,000
<TOTAL-REVENUES> 12,144,000
<CGS> 3,971,000
<TOTAL-COSTS> 21,418,000
<OTHER-EXPENSES> 2,810,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288,000
<INCOME-PRETAX> (12,084,000)
<INCOME-TAX> (12,084,000)
<INCOME-CONTINUING> (12,084,000)
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<NET-INCOME> (12,084,000)
<EPS-PRIMARY> (0.18)
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