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, 1998
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 April 30, 1998
was: 14,614,772
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page
Condensed Consolidated Balance Sheets
as of March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
and Comprehensive Income For the Three Months
Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
For the Three Months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of March 31, 1998 and December 31, 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
---- ----
(Unaudited)
---------
<S> <C> <C>
CURRENT ASSETS: Cash and cash equivalents $ 1,803 $ 778
Accounts receivable, net of allowance for doubtful accounts
of $235 and $252 in 1998 and 1997, respectively 15,453 17,866
Advances to officers 1,196 1,070
Prepaid expenses and other current assets 1,493 1,987
------- -------
19,945 21,701
INSTALLMENT ACCOUNTS RECEIVABLE, due after one year 7,173 6,480
PROPERTY AND EQUIPMENT, net 2,106 2,069
SOFTWARE COSTS, net 1,891 1,676
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of
accumulated amortization of $2,684 and $2,477 in 1998 and 1997,
respectively 4,666 4,611
OTHER ASSETS 650 707
-------- --------
$ 36,431 $ 37,244
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,434 $ 7,225
Current portion of long- term debt 336 391
Deferred revenue 13,208 11,773
------- -------
18,978 19,389
DEFERRED REVENUE, earned after one year 8,396 7,947
LONG-TERM DEBT, net of current portion 190 241
------ ------
Total liabilities 27,564 27,577
------ ------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.0001 par value; 150,000,000 authorized;
13,600,077 shares in 1998 and 12,744,751 shares in 1997
issued and outstanding 1 1
Additional paid-in capital 94,387 91,641
Accumulated deficit (85,295) (81,741)
Foreign currency translation (46) (54)
Unrealized loss on marketable securities (180) (180)
-------- --------
Total shareholders' equity 8,867 9,667
-------- --------
$ 36,431 $ 37,244
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended March 31,
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Software licenses and support $ 6,339 $ 5,014
Professional services 1,285 837
------- -------
7,624 5,851
COSTS AND EXPENSES:
Cost of revenues - software licenses and support 2,457 1,612
Cost of revenues - professional services 1,189 771
Research and development 754 584
Sales and marketing 4,166 3,004
General and administrative 1,978 1,765
Amortization and depreciation 634 551
------ -------
11,178 8,287
------ -------
NET LOSS $(3,554) $(2,436)
======= =======
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments 8 -
------- -------
COMPREHENSIVE INCOME $(3,546) $(2,436)
======= =======
BASIC AND DILUTED NET LOSS PER SHARE $ (0.27) $ (0.24)
======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,111 10,168
======= =======
<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>
1998 1997
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss $ (3,554) $ (2,436)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization:
Software costs 174 149
Property and equipment 255 213
Excess of cost over fair value of net assets acquired 207 178
Other 4 2
Provision for doubtful accounts 60 -
Common stock and options issued for services 89 40
Changes in operating assets and liabilities
Accounts receivable 2,353 36
Installment accounts receivable, due after one year (693) (529)
Inventories - (4)
Prepaid expenses and other current assets 494 148
Other assets 53 93
Accounts payable and accrued expenses (1,291) (322)
Deferred revenue 1,884 584
------ ------
Net cash provided (used) by operating activities 35 (1,848)
------ ------
Cash flows from investing activities
Capital expenditures (292) (464)
Additional consideration for Softworks acquisition (262) (161)
Software development and technology purchases (389) (96)
Advances to officers, net (126) (91)
------ ------
Net cash used in investing activities (1,068) (812)
------ ------
Cashflows from financing activities
Net proceeds from sales of common stock and options 2,157 18
Repayments of long-term debt (106) (38)
------ ------
Net cash provided (used) by financing activities 2,051 (20)
------ ------
Effect of exchange rate changes on cash and cash equivalents 8 -
------ ------
Net increase (decrease) in cash and cash equivalents 1,025 (2,680)
Cash and cash equivalents, beginning of period 778 5,675
------ ------
Cash and cash equivalents, end of period $ 1,803 $ 2,995
======= =======
<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, 1998 and 1997
1. INTERIM FINANCIAL INFORMATION
The condensed consolidated balance sheet as of March 31, 1998, and the condensed
consolidated statements of operations and cash flows for the three months ended
March 31, 1998, and 1997, 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, 1998, 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, 1997. The accounting policies used in preparing the condensed
consolidated financial statements are consistent with those described in the
December 31, 1997, consolidated financial statements, except as described in
Notes 6 and 7.
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.
Additionally, the Company has recently entered into the technology
infrastructure service and construction business, also referred to as
"professional services", whereby for a fee the Company assists in the design,
construction and installation of building technology systems. The Company's
principal market is the United States. Overseas revenue is principally generated
from European subsidiaries and distributors.
The Company has incurred consolidated net losses of $3,554,000, for the three
months ended March 31, 1998, and cumulative net losses of $85,295,000 through
March 31, 1998. Further, the Company has incurred consolidated net losses of
$12,385,000, $18,953,000 and $18,365,000 during the years ended December 31,
1997, 1996 and 1995, respectively. For the three month period ended March 31,
1998, net cash provided from operating activities was $35,000, reflecting the
above net loss being offset by various non-cash items aggregating $1,289,000 and
a net change (cash provided by) operating assets and liabilities of $2,300,000.
The Company's cash requirements were primarily financed through sales of common
stock and exercises of stock options, along with cash generated from operations.
The Company does not currently maintain a credit facility with any financial
institution, although the Company is actively seeking to obtain an asset based
working capital line of credit. The Company has continued to incur significant
expenditures with respect to the development and marketing of its d.b.Express
technology without generating any significant revenue. 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, there is substantial doubt about
the Company's ability to continue as a going concern. No adjustments have been
made with respect to the 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, 1998 and 1997
2. BASIS OF PRESENTATION (continued)
Management's plans to remain a going concern require additional financing until
such time as the Company achieves positive cash flows from operations through
the continued growth of its wholly-owned subsidiary, Softworks, Inc.
("Softworks") and the successful exploitation of the Company's d.b.Express
technology. The Company's current source of operating revenue continues to be
primarily derived from Softworks. The Company has incurred significant losses
(both cash and non-cash expenses) as a result of the development and marketing
of the d.b.Express technology. Nevertheless, management believes that its
proprietary d.b.Express 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 technology,
the Company is vigorously continuing its efforts to enter into sales or license
agreements of its d.b.Express technology. 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 and reduce its dependency on cash flows from financing
activities. In January, 1998, the Company consumated the sale of approximately
$1,978,000 (net of expenses of approximately $162,000) of restricted common
stock. Until sufficient cash flows are generated from operations, additional
financing is anticipated to be in the form of an asset based working capital
line of credit, additional equity or other debt instruments. There can be no
assurances that the Company will be able to obtain sufficient financing or will
be successful in achieving positive cash flows from operations in order to
execute its business plan.
3. SHAREHOLDERS' EQUITY
a. Common Stock Split
------------------
On March 18, 1998, the Board of Directors declared a reverse split at a ratio of
1 for 10 shares with a record date of March 27, 1998 and an effective date of
March 30,1998. Par value and authorized shares will remain unchanged at $0.0001
and 150,000,000 shares respectively. All references to numbers of shares and per
share data have been restated for 1997 so as to reflect the reverse stock split.
b. Sale of Common Stock
--------------------
In January, 1998, the Company consummated the sale of restricted stock under a
private placement to accredited United States investors under Regulation
D. Proceeds from this sale totaled $1,978,000, net of commissions
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three Months Ended March 31, 1998 and 1997
3. SHAREHOLDERS' EQUITY (continued)
and fees of approximately $162,000. A total of 496,232 shares were sold at a
price of $4.3125 per share. The closing bid price of the Company's common stock,
as stated on the NASDAQ Small Cap Market did not exceed an average of $5.28 for
any five consecutive trading days during the thirty days immediately following
the effective date of the Registration Statement (effective February 6, 1998,
see Note 4). Accordingly, under the terms of this transaction, the Company
issued approximately 280,000 additional shares in April, 1998.
Additionally, 167,500 options were exercised at prices ranging from $0.10 to
$2.50. Proceeds raised from these sales aggregated approximately $179,000.
c. Transactions with consultants
-----------------------------
During October, 1997, the Company issued 114,765 restricted shares of common
stock to HPS America, Inc. ("HPS") for settlement of product development costs
of approximately $600,000 owed to HPS and its affiliates. These shares had a
valuation guarantee based on the Company's stock price during the first 30 days
immediately following the effective date of a registration statement (January 6,
1998). The shares were sold at a value less than the guaranteed amount and the
Company settled the shortfall with a cash payment of approximately $170,000 in
the first quarter of 1998.
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 March 31, 1998,
the Company has incurred an aggregate liability of $1,864,000 (of which
$1,594,000 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.
b. Registration Statements/Restricted Securities
---------------------------------------------
During December 1997, the Company filed three registration statements: (i) an
amended registration statement on Form S-1 (No. 33-97560, effective January 6,
1998) which amended a registration statement that was originally effective on
August 9, 1996, (ii) a registration statement on Form S-8 (No. 333-42795,
effective upon filing, December 19, 1997), and (iii) a registration statement on
Form S-1 (No. 333-42919, effective January 6, 1998). The primary purpose of
these registration statements was to register outstanding restricted common
stock and shares issuable upon exercise of outstanding options.
Additionally, on January 22, 1998, the Company filed another registration
statement on Form S-1 (No. 333-44683, effective February 6, 1998). The primary
purpose of this registration statement was to register shares issued in January
1998 pursuant to a private placement (Note 3).
Accordingly, substantially all of the Company's outstanding common stock
(including shares issuable upon exercise of outstanding options) have been
either registered or are qualified for sale in the market pursuant to Rule 144
of the Securities Act of 1933 as amended.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three Months Ended March 31, 1998 and 1997
4. COMMITMENTS AND CONTINGENCIES (continued)
c. Legal Matters
-------------
In July 1995, the Company and certain officers received notification that they
have been named as defendants in a class action claim in regard to announcements
and statements regarding the Company's business and products. Although the
Company continues to deny any wrongdoing, in an effort to avoid further expense
and resolve the uncertainty of litigation, in July 1997 the Company tentatively
agreed to a Stipulation and Agreement of Settlement ("Stipulation Agreement") of
this class action. In February, 1998, the Court entered a final order approving
the terms of the Stipulation Agreement. The Company agreed to deliver $500,000
of its common stock, and in April 1998, the Company delivered 119,850 shares.
Further, the Company and its insurance carrier each paid $350,000, totaling
$700,000. Based upon the Stipulation Agreement, the Company recorded an $850,000
Unusual Charge to earnings in the quarter ended June 30, 1997.
In March 1995, an action was originally commenced against the Company and a
number of defendants. In early 1997, after a change in counsel, the plaintiff
amended the complaint for a second time, now naming as defendants only the
Company and three of its officers. The second amended complaint alleges that
certain third parties, unrelated to the Company, transferred certificates
representing 1,000,000 shares of the Company's common stock to the plaintiff.
The complaint further alleges that such shares were endorsed in blank by the
third parties and became bearer securities which were negotiated to the
plaintiff by physical delivery. The certificates had not been legally acquired
from the Company and the certificates were reported to the Securities and
Exchange Commission by the Company as stolen certificates. Plaintiff has
requested validation of the transfer of the certificates and is seeking damages
of an unspecified amount, consisting of alleged diminution in market value of
the subject shares from 1994 through the date of any judgment in the plaintiff's
favor. Discovery was substantially completed in January 1998 and, unless a
summary judgment is granted to one side or the other, this case is expected to
go to trial later in 1998. The Company and its counsel believe that the
Company's position regarding the claim has substantial factual and legal support
and are vigorously defending the matter. However, the Company is unable to
predict the ultimate outcome of this claim and, accordingly, no adjustments have
been made in the consolidated financial statements for any potential losses or
potential issuance of common stock.
In 1995, Fletcher Capital Corp. filed a claim against the Company, its president
and several unrelated parties, regarding a claim for an unspecified amount of
commissions in the form of options from the Company and cash from the other
parties. This matter was settled in February 1997 with the issuance of 36,000
options exercisable at $3.50 per share, $126,000 paid with 25,200 shares of
common stock (issued January 1998) and cash payments totaling $31,000.
5. RECLASSIFICATIONS
Certain reclassifications have been made to the condensed consolidated financial
statements shown for the prior year in order to have it conform to the current
year's classifications.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Position 97-2, Software Revenue Recognition, which was issued to
provide further guidance on applying generally accepted accounting principles to
software transactions, became effective for transactions entered into beginning
in 1998. The SOP did not require any changes to the Company's method for the
accounting of software transactions and therefore had no impact on the Company's
financial statements for the period ended March 31, 1998.
7. REPORTING OF COMPREHENSIVE INCOME
In January, 1998, the Company began accounting for comprehensive income in
accordance with Statement of Financial Accounting Standards No. 130 - Reporting
Comprehensive Income. Accordingly, the Company displayed other items of
comprehensive income in the accompanying Condensed Consolidated Statements of
Operations and Comprehensive Income.
<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, 1998 and 1997
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.
Additionally, the Company has recently entered into the technology
infrastructure service and construction business, also referred to as
"professional services", whereby for a fee the Company assists in the design,
construction and installation of building technology systems. The Company's
principal market is the United States. Overseas revenue is principally generated
from European subsidiaries and distributors.
The Company currently consists of three operating units or product lines:
d.b.Express , Softworks, and the newly formed "professional services" 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. During 1997, the Company commenced operations of the
"professional services" unit. To spearhead the unit, the Company employs 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, this unit 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 Months Ended March 31, 1998 Compared with March 31, 1997
Total revenue for the quarter ended March 31, 1998, $7,624,000, reflects an
increase of $1,773,00 as compared to $5,851,000 for the same period last year.
Significant factors contributing to the growth include, among others, increases
of $1,621,000 and $448,000 at Softworks and professional services, respectively.
The sale of the net assets of Maplinx in 1997 creates a loss of revue of
$333,000 for the quarter. While there can be no assurances, the Company believes
that this revenue growth should continue due in part to its planned enhanced
product line, expansion into additional markets, and an increased sales force.
The cost of revenue and technical support increased $1,263,000 to $3,646,000 for
the period ended March 31, 1998, from the prior quarter amount of $2,383,000.
Contributing factors for this increase are additional costs associated with
professional services of $418,000, as well as additional costs at Softworks of
$791,000. As a percentage of software licenses and support, cost of revenues
increased 6.6 percentage points, from 32.1% to 38.7%. Increased staffing costs
necessary to meet the future needs of the Company was the contributing factor
for this increase. The increase in dollars in cost of revenue - professional
services is consistent with the increase in its revenue.
Research and development costs for the three month period ended March 31, 1998,
increased approximately $170,000 over the same period last year primarily as a
result of the Company's expanded efforts made toward the development of
additional applications for, as well as enhancements and upgrades to the
d.b.Express technology.
<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, 1998 and 1997
Results of Operations
Three Months Ended March 31, 1998 Compared with March 31, 1997 (Continued)
Sales and marketing expenses increased by $1,162,000 to $4,166,000 from the
first quarter of the prior year amount of $3,004,000. The increase was primarily
due to costs at Softworks rising $1,159,000, over the three month period in the
prior year. The additional expenditures incurred were due to 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. Additionally, costs associated with d.b.Express increased from
the prior year by $328,000. The above referenced increases were offset by a
decrease of $324,000 associated with the sale of Maplinx.
General and administrative costs increased $213,000 to $1,978,000 for the three
months ended March 31, 1998, when compared to the three months ended March 31,
1997. The major factor contributing to the increase were additional costs at
Softworks of $218,000 which was the result of increased staffing and employee
related costs.
Financial Condition and Liquidity
The Company has incurred consolidated net losses of $3,554,000, for the three
months ended March 31, 1998, and cumulative net losses of $85,295,000 through
March 31, 1998. Further, the Company has incurred consolidated net losses of
$12,385,000, $18,953,000 and $18,365,000 during the years ended December 31,
1997, 1996 and 1995, respectively. For the three month period ended March 31,
1998, net cash provided from operating activities was $35,000, reflecting the
above net loss being offset by various non-cash items aggregating $1,289,000 and
a net change (cash provided by) operating assets and liabilities of $2,300,000.
The Company's cash requirements were primarily financed through sales of common
stock and exercises of stock options, along with cash generated from operations.
The Company does not currently maintain a credit facility with any financial
institution, although the Company is actively seeking to obtain an asset based
working capital line of credit. The Company has continued to incur significant
expenditures with respect to the development and marketing of its d.b.Express
technology without generating any significant revenue. 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, there is substantial doubt about
the Company's ability to continue as a going concern. No adjustments have been
made with respect to the consolidated financial statements to record the results
of the ultimate outcome of this uncertainty.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1998 and 1997
Financial Condition and Liquidity (continued)
Management's plans to remain a going concern require additional financing until
such time as the Company achieves positive cash flows from operations through
the continued growth of its wholly-owned subsidiary, Softworks, Inc.
("Softworks") and the successful exploitation of the Company's d.b.Express
technology. The Company's current source of operating revenue continues to be
primarily derived from Softworks. The Company has incurred significant losses
(both cash and non-cash expenses) as a result of the development and marketing
of the d.b.Express technology. Nevertheless, management believes that its
proprietary d.b.Express 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 technology,
the Company is vigorously continuing its efforts to enter into sales or license
agreements of its d.b.Express technology. 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 and reduce its dependency on cash flows from financing
activities. In January, 1998, the Company consumated the sale of approximately
$1,978,000 (net of expenses of approximately $162,000) of restricted common
stock. Until sufficient cash flows are generated from operations, additional
financing is anticipated to be in the form of an asset based working capital
line of credit, additional equity or other debt instruments. There can be no
assurances that the Company will be able to obtain sufficient financing or will
be successful in achieving positive cash flows from operations in order to
execute its business plan.
<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, 1998 and 1997
Financial Condition and Liquidity (continued)
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, 1998, the amount of such future receivables extending beyond one year was
approximately $7,173,000, and is included in installment accounts receivable,
due after one year and deferred revenues.
Safe Harbor Statement
Certain information contained in this annual report, particularly information
regarding future economic performance and finances, plans and objectives of
management, is forward-looking. In some cases, information regarding certain
important factors that could cause actual results to differ materially from any
such forward-looking statement appear together with such statement. The
following factors, in addition to other possible factors not listed, could
affect the Company's actual results and cause such results to differ materially
from those expressed in forward-looking statements. These factors include
competition within the computer software industry, which remains extremely
intense, both domestically and internationally, with many competitors pursuing
price discounting; changes in economic conditions; the development of new
technologies and/or changes in operating systems which could obsolete or
diminish the value of existing technologies and products; personnel related
costs; legal claims; risks inherent to rolling out new software and new software
technologies; the current lack of adequate financial resources to carry out the
Company's current business plan in regard to the d.b.Express technology; the
potential cash and non-cash costs of raising additional capital or the possible
failure to raise necessary capital; changes in accounting principles applicable
to the Company's activities and other factors set forth in the Company's filings
with the Securities and Exchange Commission.
<PAGE>
COMPUTER CONCEPTS CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
For the Three Months Ended March 31, 1998 and 1997
Item 1. Legal Proceedings
See Note 4 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, 1998 and 1997
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
- --------------------
Daniel DelGiorno Sr. Chief Executive Officer, May 1, 1998
Director
/s/George Aronson
- --------------------
George Aronson Chief Financial Officer May 1, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the nine months ended March 31, 1998 and
is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
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