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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1995 COMMISSION FILE
NUMBER 0-26368
COMPUTRON SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-2966911
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 ROUTE 17 NORTH
RUTHERFORD, NEW JERSEY 07070
(Address of principal executive offices) (Zip Code)
(201) 935-3400
(Registrant's telephone number, including area code)
</TABLE>
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 [ ]
Number of shares outstanding of the issuer's common stock as of October 31, 1995
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES OUTSTANDING
- --------------------------------------- ----------------------------
<C> <C>
Common Stock, par value $0.01 per share 20,698,114
</TABLE>
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EXPLANATORY NOTE
This 10-Q/A is being filed to amend the report on Form 10-Q for the period
ended September 30, 1995 (the "Original Report") and to report the restatement
of certain financial information included in the Original Report.
The Company has restated its consolidated financial statements for each of
the four years ended December 31, 1995, for certain unaudited quarters in such
periods and for each of the three unaudited quarters ended September 30, 1996.
See Note 2 to the accompanying Consolidated Financial Statements. The Company
believes that all material adjustments necessary to correct the Company's
previously reported financial statements have been recorded.
The restatements reflect revenue reversals and deferrals of sales
previously recognized in the periods from the fourth quarter of 1992 through the
third quarter of 1996. These revenue adjustments resulted in reductions of
previously recorded bad debt provisions and increases in deferred revenue. Also
included in the restated consolidated financial statements are certain operating
expenses not previously recorded by the Company and the recording of certain
expenses in different accounting periods.
The net impact of these adjustments on the Company's revenues and net
income (loss) for each of the five years ended December 31, 1996, is as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
------------------------------
REVENUES NET INCOME (LOSS)
-------- -----------------
<S> <C> <C>
1992...................................................... $ (868) $ (868)
1993...................................................... (694) (694)
1994...................................................... (2,485) (2,485)
1995...................................................... (2,724) (1,266)
1996...................................................... (1,126) 264
</TABLE>
This 10-Q/A includes only the changes necessary to reflect the restatement
of the financial statements included in the Original Report and does not address
any other developments subsequent to the date of the Original Report. For a
discussion of developments subsequent to the date of the Original Report
including but not limited to pending litigation against the Company, changes in
management, recommendations of the Company's independent public accountants
regarding financial and accounting procedures and controls, and delisting of the
Company's common stock from Nasdaq National Market, see the Registrant's most
recent reports and documents filed with the Securities and Exchange Commission.
2
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COMPUTRON SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I FINANCIAL INFORMATION (RESTATED)
Item 1. Financial Statements (Restated)
Consolidated Balance Sheets
December 31, 1994 and September 30, 1995....................................... 4
Consolidated Statements of Operations
Three months and nine months ended September 30, 1994 and 1995................. 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 1994 and 1995.................................. 6
Notes to Consolidated Interim Financial Statements................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Restated)....................................................... 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................... 17
SIGNATURES
Signatures........................................................................ 18
EXHIBITS
Exhibit 11.1...................................................................... 19
Exhibit 27.1...................................................................... 20
</TABLE>
3
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COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ------------------
(RESTATED) (RESTATED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................................... $15,186 $ 52,550
Short-term investments............................................ 1,116 925
Accounts receivables, less reserves of $2,202 and $2,702 at
December 31, 1994 and September 30, 1995, respectively.......... 13,581 16,324
Prepaid expenses and other current assets......................... 588 800
-------- --------
Total current assets....................................... 30,471 70,599
-------- --------
Equipment and leasehold improvements, at cost:
Computer and office equipment..................................... 5,766 7,499
Furniture and fixtures............................................ 565 636
Leasehold improvements............................................ 122 473
-------- --------
6,453 8,608
Less -- accumulated depreciation and amortization................. 4,592 5,347
-------- --------
1,861 3,261
-------- --------
Capitalized software development costs, net of accumulated
amortization of $1,342 and $2,011 at December 31, 1994 and
September 30, 1995, respectively.................................. 1,835 2,294
Amount due from officers............................................ 298 --
Other assets........................................................ 610 576
-------- --------
$35,075 $ 76,730
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable and accrued liabilities.......................... $ 4,947 7,720
Note payable...................................................... 4,000 --
Current portion of long term debt................................. 1,249 998
Current portion of obligations under capital lease................ 211 148
Deferred revenue.................................................. 12,376 10,314
-------- --------
Total current liabilities.................................. 22,783 19,180
-------- --------
Long-term liabilities:
Long-term debt, less current portion.............................. 831 124
Obligations under capital lease, less current portion............. 205 220
Contingencies (Note 3)
Series A redeemable 10% convertible preferred stock, $.01 par value,
authorized 1,050,000 shares authorized, issued and outstanding in
1994, stated at redemption price.................................. 25,554 --
Series B redeemable 6.5% convertible preferred stock, $.01 par
value, authorized 1,500,000 shares, 1,466,946 shares issued and
outstanding in 1994, stated at redemption price................... 14,484 --
Stockholders' equity (deficit):
Preferred stock, $.01 par value, authorized 5,000,000 shares, no
shares issued and outstanding................................... -- --
Class B nonvoting common stock, $.01 par value, authorized
15,000,000 shares; 7,900,000 shares issued and outstanding at
December 31, 1994............................................... 79 --
Class A nonvoting common stock, $.01 par value, authorized 15,000
shares; 8,400 shares issued and outstanding at December 31,
1994............................................................ -- --
Common stock, $.01 par value, authorized 50,000,000 shares,
20,698,114 shares issued and outstanding at September 30,
1995............................................................ -- 207
Additional paid-in capital........................................ 1,633 63,606
Accumulated deficit............................................... (30,316) (6,516)
Cumulative translation adjustment................................. (178) (91)
-------- --------
Total stockholders' equity (deficit)....................... (28,782) 57,206
-------- --------
$35,075 $ 76,730
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1994 1995
------------- ------------- ------------- -------------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Revenues:
License fees......................... $ 4,164 $ 8,933 $ 8,261 $28,839
Services............................. 3,670 5,051 9,287 14,028
------- ------- ------- -------
Total revenues............... 7,834 13,984 17,548 42,867
------- ------- ------- -------
Operating expenses:
Cost of license fees................. 545 572 1,917 3,896
Cost of services..................... 2,218 3,418 5,635 9,319
Sales and marketing.................. 2,582 4,407 7,404 13,363
Research and development............. 1,790 2,653 4,753 7,064
General and administrative........... 1,269 2,105 3,668 5,758
------- ------- ------- -------
Total operating expenses..... 8,404 13,155 23,377 39,400
------- ------- ------- -------
Operating income (loss)................ (570) 829 (5,829) 3,467
------- ------- ------- -------
Other income (expense):
Other income......................... 40 315 158 597
Other expense........................ (173) (146) (379) (467)
------- ------- ------- -------
Other income (expense), net....... (133) 169 (221) 130
------- ------- ------- -------
Income (loss) before income taxes...... (703) 998 (6,050) 3,597
Income tax (benefit) provision......... 40 572 (930) 1,191
------- ------- ------- -------
Net income (loss)............ $ (743) $ 426 $(5,120) $ 2,406
======= ======= ======= =======
Pro forma net income (loss) per common
and common stock equivalent.......... $ (0.04) $ 0.02 $ (0.31) $ 0.13
======= ======= ======= =======
Pro forma weighted average number of
common and common equivalent
shares............................... 17,975 19,685 16,734 18,958
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1995
------------------ ------------------
(RESTATED) (RESTATED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ (5,120) $ 2,406
Adjustments to reconcile net income (loss) to net cash
flows provided by (used in) operating activities --
Depreciation and amortization............................ 1,341 1,424
Provision for doubtful accounts.......................... 27 911
Changes in current assets and liabilities --
Accounts receivable...................................... (3,798) (3,654)
Prepaid expenses and other current assets................ (479) (212)
Accounts payable and accrued liabilities................. (356) 2,773
Deferred revenue......................................... 3,018 (2,062)
------- -------
Net cash flows provided by (used in) operating
activities..................................... (5,367) 1,586
------- -------
Cash flows from investing activities:
Other assets............................................. (154) 356
Capitalized software development costs................... (632) (1,128)
Purchase of equipment and leasehold improvements......... (977) (2,155)
Short-term investments................................... (723) 191
------- -------
Net cash flows used in investing activities...... (2,486) (2,736)
------- -------
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible
preferred stock....................................... 10,004 --
Net proceeds from the sale of common stock............... -- 43,346
Proceeds from exercise of stock options.................. -- 87
Proceeds from long-term debt............................. 2,458 --
Payments of long-term debt............................... (968) (4,958)
Principal payments under capital lease obligations....... 5 (48)
------- -------
Net cash flows provided by financing
activities..................................... 11,499 38,427
------- -------
Foreign currency exchange rate effects..................... (5) 87
------- -------
Net increase in cash and cash equivalents.................. 3,641 37,364
Cash and cash equivalents, beginning of period............. 4,302 15,186
------- -------
Cash and cash equivalents, end of period................... $ 7,943 $ 52,550
======= =======
Supplemental disclosures of cash flow information and
noncash financing activities:
Cash paid during the period for --
Interest.............................................. $ 352 $ 418
======= =======
Income taxes.......................................... $ 52 $ 64
======= =======
Capital lease obligations incurred....................... $ 77 $ 33
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
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COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated as Computron Systems Company, Inc. under the
laws of the State of Delaware in September 1978. The name of the Company was
changed to Computron Technologies Corporation in February 1979 and was
subsequently changed to Computron Software, Inc. in May 1995. The Company
designs, develops, markets and supports client/server financial, workflow and
archival data management software solutions to manage mission-critical
applications in large organizations operating across a broad range of industries
worldwide.
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include the
accounts of Computron Software, Inc. and its wholly owned foreign subsidiaries
located in Australia, Hong Kong, Singapore, and the United Kingdom, as well as,
a joint venture in Poland 80 percent owned by Computron (collectively, the
"Company"). These financial statements have been prepared by the Company in
accordance with generally accepted accounting principles and in the opinion of
management, contain all adjustments, consisting only of those of a normal
recurring nature, necessary for a fair presentation of these financial
statements.
The results of operations for the three months and nine months ended
September 30, 1995 are not necessarily indicative of results to be expected for
the entire year.
(a) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains the majority of cash
balances with three financial institutions and its accounts receivable credit
risk is not concentrated within any geographic area. There were no accounts
receivable from a single customer which exceeded 10% of total accounts
receivable as of September 30, 1995.
(b) Pro Forma Net Income per Common and Common Equivalent Share
For the nine months ended September 30, 1994 and 1995 pro forma net income
(loss) per common and common equivalent share was based on the weighted average
number of common and common equivalent shares outstanding during the periods
computed in accordance with the treasury stock method. The weighted average
number of common and common equivalent shares assumes that all series of
Redeemable Convertible Preferred Stock and Class A and Class B Common Stock had
been converted to Common Stock as of the original issuance dates and that shares
of Common Stock related to options issued during the period from August 1, 1994
to August 1995 have been outstanding for all periods presented, computed in
accordance with the treasury stock method.
(c) Revenue Recognition
The Company recognizes revenue from non-cancelable software licenses upon
product shipment, provided collection is probable and no significant vendor and
post-contract customer obligations remain at the time of shipment. The Company
accounts for insignificant vendor obligations by deferring a portion of the
revenue and recognizing it when the related services are performed. Post
contract support (maintenance) service fees are typically billed separately and
are recognized on a straight line basis over the life of the
7
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COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
applicable agreement. The Company recognizes service revenues from consulting
and implementation services, including training, provided by both its own
personnel and by third parties, upon performance of the services.
(d) Cash and Cash Equivalents
Cash equivalents are stated at cost, which approximates market, and consist
of short-term, highly liquid investments with original maturities of less than
three months.
(2) RESTATED FINANCIAL RESULTS
On January 27, 1997, the Company announced that certain new information had
come to the attention of its Board of Directors and its independent public
accountants that may impact previously reported financial results. As a result,
the Company restated its consolidated financial statements for each of the four
years ended December 31, 1995, and certain unaudited quarters therein and for
each of the three unaudited quarters ended September 30, 1996. In the opinion of
management, all material adjustments necessary to correct the financial
statements have been recorded.
The restatements reflect revenue reversals and deferrals of sales
previously recognized in the periods from the fourth quarter of 1992 through the
third quarter of 1996. These revenue adjustments resulted in reductions of
previously reported bad debt provisions and increases in deferred revenue. Also
included in the restated consolidated financial statements are certain operating
expenses not previously recorded by the Company and the recording of certain
expenses in different accounting periods.
A summary of the impact of such restatements on the unaudited financial
statements for the three and nine months ended September 30, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
---------------------- ----------------------
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Total Revenue................................ $ 14,961 $ 13,984 $ 43,191 $ 42,867
Income (Loss) from operations................ 1,739 829 3,991 3,467
Net Income (Loss)............................ 1,336 426 2,930 2,406
Net Income (Loss) per share.................. .07 .02 .15 .13
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1994
---------------------- ----------------------
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Total Revenue................................ $9,215 $7,834 $ 19,434 $ 17,548
Income (Loss) from operations................ 811 (570) (3,943) (5,829)
Net Income (Loss)............................ 638 (743) (3,234) (5,120)
Net Income (Loss) per share ................. .04 (.04) (.19) (.31)
</TABLE>
(3) CONTINGENCIES
From time to time, the Company is involved in disputes and/or litigation
encountered in its normal course of business. The Company believes that the
ultimate outcome of these proceedings will not have a material adverse impact on
the Company's consolidated financial position, results of operations and cash
flows.
8
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COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(4) SALE OF COMMON STOCK
On June 19, 1995, the Company's Board of Directors approved the
reclassification and conversion of its outstanding capital stock, such that each
two shares of Class A and Class B Common Stock issued and outstanding be
converted into 105 and three shares, respectively, of new Common Stock and each
share of Series A and Series B Preferred Stock be converted into 3.105 and
1.5525 shares, respectively, of new Common Stock upon the closing of an initial
public offering (IPO). During August 1995, the Company completed its IPO and
sold an aggregate of 2,795,000 shares of common stock at $17.50 per share
resulting in net proceeds to the Company of approximately $43.3 million.
Immediately prior to the consummation of the IPO all outstanding shares of Class
A and Class B common stock were automatically converted into Common Stock. Upon
consummation of the IPO, all outstanding shares of Series A and Series B
Preferred Stock were converted into 17,828,676 shares of Common Stock.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was founded in 1978 as a developer of custom financial software
for mission-critical applications in large organizations, primarily financial
institutions. In the early 1980's Computron developed financial software for
legacy platforms and introduced sophisticated enterprise-wide financial
software. Identifying the need for client/server financial software applications
in the late 1980's, the Company commenced the re-architecture of its financial
software and began the development and deployment of new products, specifically
a workflow and document management product. In 1993, the Company introduced
Computron Financials and Computron Workflow, the client/server versions of its
financial and workflow products. Computron COOL was introduced in the latter
half of 1993. Since 1994, the Company has released versions of its products with
the capability to interoperate with popular RDBMS software.
The Company has continued to expand its direct sales force and its indirect
channels of distribution and in late 1994 began emphasizing indirect channels of
distribution for Computron Workflow and Computron COOL. The Company has also
expanded its indirect channels of distribution by establishing relationships
with systems integrators, distributors and third party service providers. The
Company substantially increased its sales and marketing and product development
and engineering expenses in 1994 to complete the development, introduction,
sale, marketing and support of its new products. After incurring substantial
losses during 1992 and 1993, the Company recorded a net loss of $2.4 million
during 1994 and had net income of $2.4 million and for the nine months ended
September 30, 1995. The domestic and international operating result fluctuations
during such periods primarily reflect the timing of revenue recognition related
to significant license agreements. The Company believes that domestic and
international operating results will continue to fluctuate significantly in the
future as a result of a variety of factors, including the lengthy sales cycle
for the Company's products, the proportion of revenues attributable to license
fees versus services, the amount of revenue generated by resales of third party
software, changes in product mix, demand for the Company's product, the size and
timing of individual license transactions, the introduction of new product
enhancements by the Company or its competitors, changes in customers' budgets,
competitive conditions in the industry and general economic conditions.
The Company's revenues are derived from license fees and services. Revenues
for services and training are recognized upon performance of the service. The
Company's license agreements generally do not provide a right of return.
Historically, the Company's backlog has been insubstantial, since products are
generally shipped as orders are received.
Following the audit of the Company's consolidated financial statements for
1994, the Company received a management letter from its independent public
accountants, Arthur Andersen LLP, which enumerated material weaknesses in the
Company's financial and accounting processes, controls, reporting systems and
procedures. The Company's independent public accountants highlighted the
Company's need for additional financial and accounting personnel with software
industry experience. In addition, the Company's independent public accountants
noted (i) the need for uniformity in the language of its contracts and
recommended that the Company standardize the terms of its license agreements and
expand its internal contract review and approval procedures, (ii) deficiencies
in the organization of customer and contract files and recommended that the
Company improve and standardize record keeping, (iii) the need for expanded and
formalized accounts receivable collection procedures, (iv) the need for improved
documentation and record keeping relating to consulting service projects, and
(v) the need to develop policies and procedures to accurately identify the date
when technological feasibility of developed software had been attained and to
improve the documentation and record keeping for capitalized software
development costs and to do so on a timely basis.
In response to the independent public accountants concerns, the Company has
recently added financial and accounting personnel. In addition, in early 1995,
the Company began implementing more extensive financial and accounting
processes, controls, reporting systems and procedures which are designed to
address those material weaknesses. Specifically, in early 1995 the Company (i)
began to develop standard contractual
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terms for its license agreements and expand its contract review and approval
procedures, (ii) reorganized and centralized its customer files and consulting
services contracts and standardized its record keeping procedures, and (iii)
expanded and began to formalize its accounts receivable collection efforts.
During the remainder of 1995, the Company intends to improve its policies and
procedures with respect to documenting its software development efforts and
supporting its capitalized software development costs, and to expand the efforts
listed above. The Company's independent public accountants have not conducted
any further reviews of the Company's internal accounting controls since the
Company began the implementation of such changes.
The Company believes that further additions to its financial and accounting
staff and further improvements in its financial and accounting controls are
needed to correct such material weaknesses and manage future growth, should it
occur. The Company intends to hire additional financial and accounting staff and
further improve its financial and accounting controls during 1995.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating data as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1994 1995 1994 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
License fees...................................... 53.2% 63.9% 47.1% 67.3%
Services.......................................... 46.8 36.1 52.9 32.7
----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0
Operating expenses:
Cost of license fees.............................. 7.0 4.1 10.9 9.1
Cost of services.................................. 28.3 24.4 32.1 21.7
Sales and marketing............................... 33.0 31.5 42.2 31.2
Product development and engineering............... 22.8 19.0 27.1 16.5
General and administrative........................ 16.2 15.1 20.9 13.4
----- ----- ----- -----
Total operating expenses.................. 107.3 94.1 133.2 91.9
Operating income (loss)............................. (7.3) 5.9 (33.2) 8.1
Interest income (expense)........................... (1.7) 1.2 (1.3) 0.3
----- ----- ----- -----
Income (loss) before income taxes................... (9.0) 7.1 (34.5) 8.4
Income taxes (benefit).............................. 0.5 4.1 (5.3) 2.8
----- ----- ----- -----
Net income (loss)......................... (9.5)% 3.0% (29.2)% 5.6%
===== ===== ===== =====
</TABLE>
Total Revenues
Total revenues increased 78.5% and 144.3% for the quarter and nine months
ended September 30, 1995 respectively, compared to the quarter and nine months
ended September 30, 1994, respectively. The increase was attributable to
continued growth in both license fees and services revenues. For the nine months
ended September 30, 1995, Polish State Railways Central Office of Purchasing and
Sales Ferpol, a division of Polish State Railways accounted for 12.1% of total
revenues. There were no other customers who generated 10% or more of total
revenues during the nine months ending September 30, 1995.
The Company derived approximately $2.8 million, $3.4 million, $5.0 million
and $13.1 million or 35.9%, 24.3%, 28.6% and 30.5% of its total revenues, from
customers outside of the United States for the quarters and nine months ended
September 30, 1994 and 1995, respectively. The Company expects that such
revenues will continue to represent a significant percentage of its total
revenues in the future. Most of the Company's international license fees and
services revenue are denominated in foreign currencies. Decreases in the value
of foreign currencies relative to the US dollar could result in losses from
foreign currency translations. The
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Company does not currently hedge its foreign exchange exposure. With respect to
the Company's sales that are US dollar-denominated, decreases in the value of
foreign currencies relative to the US dollar could make the Company's products
less price competitive.
License Fees
License fees include revenues from software license agreements entered into
between the Company and its customers with respect to both the Company's
products and third party products resold by the Company. License fees increased
114.5% and 249.1% for the three and nine months ended September 30, 1995,
respectively, as compared to the three and nine months ended September 30, 1994.
The increases were attributable to increased market acceptance of the Company's
products which resulted in an increased number of licenses of the Company's
software, as well as increased average dollar amounts per order. In addition,
license fee revenues for the nine months ended September 30, 1995 and 1994
included approximately $2.8 million and $1.2 million, respectively, of resales
of third-party software, primarily RDBMS software. For the nine months ended
September 30, 1995, license fee revenues include a non-refundable source code
and license fee of approximately $2.7 million pursuant to the Company's
agreement with Wang.
Services Revenue
Services revenue includes fees from software maintenance agreements,
training, installation and consulting services. Maintenance fees, including
first year maintenance, are billed separately and are recognized ratably over
the period of the maintenance agreement. Training, installation and consulting
service revenues are recognized as the services are performed. Services revenue
increased 37.6%, and 51.0% for the three and nine months ended September 30,
1995, respectively, compared to the three and nine months ended September 30,
1994, respectively. The increase in services revenue was attributable primarily
to increased training and consulting services which resulted from increased
licensing of the Company's products and increased maintenance revenues related
to a larger installed base of the Company's products.
Cost of License Fees
Cost of license fees consists primarily of amortization of capitalized
software development costs, amounts paid to third parties with respect to
products resold by the Company in conjunction with licensing of the Company's
products and, to a lesser extent, the costs of product media, duplication,
manuals and shipping. The first two elements can vary substantially from period
to period while the third element typically remains relatively stable. The
following table sets forth, for the periods indicated, the relationship of cost
of license fees to license fee revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ------------------
1994 1995 1994 1995
------ ------ ------ -------
(IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
License fees................................... $4,164 $8,933 $8,261 $28,839
Cost of license fees........................... 545 572 1,917 3,896
Cost of license fees as a percentage of license
fees......................................... 13.1% 6.4% 23.2% 13.5%
</TABLE>
Cost of license fees increased for the nine months ended September 30, 1995
compared to the nine months ended September 30, 1994 reflecting the growth in
license fees. For the nine months ended September 30, 1995 compared to the nine
months ended September 30, 1994, the dollar cost of license fees increased
substantially, primarily as a result of increased costs associated with third
party software resold to customers, but decreased significantly as a percentage
of license fees as a result of a proportionately greater increase in license
fees.
Cost of Services
Cost of services consists primarily of personnel costs for training,
installation, consulting and customer support. These costs include training
third party service and support organizations for the Company's products.
12
<PAGE> 13
The following table sets forth, for the periods indicated, the relationship of
cost of services and services revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1994 1995 1994 1995
------- ------- ------ -------
(IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Services revenue............................... $3,670 $5,051 $9,287 $14,028
Cost of services............................... 2,218 3,418 5,635 9,319
Cost of services as a percentage of services
revenue...................................... 60.4% 67.7% 60.7% 66.4%
</TABLE>
For the three and nine months ended September 30, 1995, cost of services as
a percentage of services revenue increased compared to the three and nine months
ended September 30, 1994, primarily as a result of increased reliance by the
Company on third party service providers as the demand for services increased.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses paid to sales and marketing personnel, as well as, travel and
promotional expenses. The following table sets forth, for the periods indicated,
sales and marketing expenses, the percentage increases of such expenses compared
to the comparable period in the prior year and the relationship of such expenses
to total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1994 1995 1994 1995
------- ------- ------ -------
(IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Sales and marketing expenses................... $2,582 $4,407 $7,404 $13,363
Percentage increase over the comparable period
in the prior year............................ 18.7% 70.7% 23.2% 80.5%
Sales and marketing expenses as a percentage of
total revenues............................... 33.0% 31.5% 42.2% 31.2%
</TABLE>
Sales and Marketing expenses as a percentage of total revenue decreased
slightly for the three months ended September 30, 1995 as compared to the three
months ended September 30, 1994 primarily due to the sales activity. Sales and
marketing expenses decreased as a percentage of total revenues for the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994 as a result of increased sales productivity. Further, total revenues
for the nine months ended September 30, 1995 included approximately $2.6 million
from the resale of third-party software. Without this resale revenue, sales and
marketing expenses as a percentage of total revenues for the nine months ended
September 30, 1995 would have been 33.2%. While the Company anticipates that
sales and marketing expenses will increase in the future, the Company does not
expect sales and marketing expenses as a percentage of total revenues to
increase substantially over the percentage for the year ended December 31, 1994.
Product Development and Engineering
Product development and engineering expenses consist primarily of
engineering personnel costs, costs of third party equipment and software for
development purposes and costs of outside consultants hired by the Company to
assist its product development efforts. Product development and engineering
expenses are generally charged to operations as incurred. However, certain
software development costs are capitalized in accordance with Statement of
Financial Accounting Standards No. 86. Such capitalized software development
costs are generally amortized over periods not exceeding three years.
Gross product development and engineering expenses have increased over the
periods presented due primarily to the hiring and training of additional
software engineers to develop and enhance the Company's existing products and to
develop new products as well as an increase in depreciation due to the
additional purchases of development equipment required for the additional
personnel. While the Company expects product development and engineering
expenses to increase, such expenses as a percentage of total revenues are
13
<PAGE> 14
expected to remain approximately the same. The rate of capitalization of
software development cost may fluctuate depending on the mix and stage of
development of the Company's product development and engineering projects.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries of
administrative, executive and financial personnel, provision for doubtful
accounts and outside professional fees. General and administrative expenses
represented 15.1% and 13.4% of total revenues for the three and nine months
ended September 30, 1995, respectively, compared to 16.2% and 20.9% of total
revenues for the three and nine months ended September 30, 1994, respectively.
General and administrative expenses as a percentage of total revenue decreased
slightly for the three months ended September 30, 1995, as compared to the three
months ended September 30, 1994 primarily due to the increase in financial and
administrative support. The decrease as a percentage of total revenues for the
nine months ended September 30, 1995 compared to nine months ended September 30,
1994 reflects the allocation of the general and administrative expenses, which
increased primarily as a result of increased payroll and benefit expenses
associated with increased senior management staffing levels, over a larger total
revenue base. While the Company anticipates continuing dollar increases in
general and administrative expenses, it expects such expenses as a percentage of
total revenues to decrease over time. Fluctuations in the provision for doubtful
accounts are expected to vary in relation to the net accounts receivable balance
due to the concentration of orders towards the end of each quarter, the receipt
of payments in accordance with contract terms and the aging of specific account
balances.
Income Tax (Benefit) Provision
The Company's provision for income taxes was $572,000 and $1,191,000 for
the three and nine months ended September 30, 1995. These amounts are based on
the federal statutory rate of 34% and reflect the impact of state and foreign
income taxes and utilization of net operating loss and credit carryforwards.
QUARTERLY RESULTS
The Company has experienced, and may in the future continue to experience,
significant quarter to quarter fluctuations in results of operations and
revenues. Such fluctuations may result in volatility in the price of the
Company's Common Stock. Quarterly revenues and results of operations may
fluctuate as a result of a variety of factors, including the lengthy sales cycle
for the Company's products, the proportion of revenue attributable to license
fees versus services, the amount of revenue generated by resales of third party
software, changes in product mix, demand for the Company's products, the size
and timing of individual license transactions, the introduction of new products
and product enhancements by the Company or its competitors, changes in customer
budgets, competitive conditions in the industry and general economic conditions.
Further, the license of the Company's products generally involves a significant
commitment of capital, and may be delayed due to time-consuming authorization
procedures within an organization. For these and other reasons, the sales cycles
for the Company's products are typically lengthy and subject to a number of
significant risks over which the Company has little or no control, including
customers' budgetary constraints and internal authorization reviews. The Company
has historically operated with relatively little backlog, since its products are
generally shipped as orders are received. The Company has historically
recognized a substantial portion of its revenues in the last month of a quarter,
with these revenues frequently concentrated in the last week of the quarter.
License fees in any quarter are substantially dependent on orders booked and
shipped in the last month and last week of that quarter. Delays in the timing of
recognition of specific revenues may adversely and disproportionately affect the
Company's results of operations because a high percentage of the Company's
operating expenses are relatively fixed, and planned expenditures, such as
continued expansion of the Company's sales force, are based primarily on sales
forecasts and only a small percentage of the Company's operating expenses vary
with its revenues. Accordingly, the Company believes that period to period
comparisons of results of operations are not necessarily meaningful and should
not be relied upon as an indication of future results of operations. There can
be no assurance that the Company will be profitable in any future quarter.
14
<PAGE> 15
The Company's business has experienced and is expected to continue to
experience significant seasonality, due in part to customer buying patters. In
recent years, the Company generally has had greater demand for its products in
the fourth quarter. These fluctuations are caused primarily by customer
budgeting and purchasing patterns, and by the Company's sales commission
policies which compensate sales personnel on the basis of quarterly and annual
performance quotas. The Company believes this pattern may continue in the
future.
Due to the foregoing factors, it is likely that in some future quarter, the
Company's operating results will be below the expectations of public market
analysts and investors. Such an event would have a material adverse effect on
the price of the Company's Common Stock.
OTHERS FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
The Company's future business, results of operations and financial
condition are also dependent on the Company's ability to successfully develop,
manufacture, market and support its products in order to meet customer demands.
Inherent in this process are a number of factors that the Company must carefully
manage in order to be successful. These factors include: competing successfully
against current and future competitors; adapting to competitive pressures that
the Company may face; achieving broader market acceptance for its current
products; enhancing its current products and developing and introducing new
products; protecting its proprietary rights; avoiding infringement claims by
third parties; managing certain risks associated with the Company's foreign
operation; and maintaining relationships with consultants, systems integrators,
software and hardware vendors and other third parties. No assurance can be given
that the Company will be able to manage such factors successfully. The failure
to manage such factors successfully could have a material adverse effect on the
Company's business, financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Through July 1995, the Company had financed its operations primarily
through sales of preferred stock, cash provided by operating activities,
short-term and long-term bank debt, long-term equipment financing debt and trade
credit. The net proceeds from sales of the Company's preferred stock were
approximately $18.5 million. In August 1995, the Company completed the sale of
2,795,000 shares of common stock in its initial public offering which yielded
net proceeds of approximately $43.3 million .
At September 30, 1995, the Company had cash, cash equivalents and
short-term investments of $53.5 million and working capital of $51.4 million. As
of September 30, 1995, the Company had the following facilities under its bank
line of credit: (i) fully available $4.0 million revolving line of credit which
expires on May 31, 1996 collateralized by the Company's accounts receivable,
(ii) a three year term loan maturing on July 1, 1996 with a balance due at
September 30, 1995 of $0.6 million collateralized by the Company's accounts
receivable, (iii) a fully available $1.0 million secured equipment financing
facility expiring on May 31, 1996, (iv) a fully available $2.0 million line of
credit for letters of credit which expires on May 31, 1996 and (v) a $125,000
standby letter of credit collateralized by U.S. Treasury securities, maturing on
November 8, 1995. In addition, the company has various equipment loans
outstanding with an aggregate balance of $0.5 million at September 30, 1995 that
bear, interest at rates ranging from 7.3% to 11.125% and which matures from time
to time.
The Company's operating activities provided (used) cash of $(5.4) million
and $1.6 million for the nine months ended September 30, 1994 and 1995,
respectively. Net cash used in operating activities for the nine months ended
September 30, 1994 was primarily composed of the net loss and an increase in
accounts receivable due to increased revenue levels. Net cash provided by
operations in the nine months ended September 30, 1995 was composed of net
income, the increase in accounts payable and accrued expenses, depreciation and
amortization and provision for doubtful accounts, which in the aggregate more
than offset an increase in accounts receivable due to increased revenue levels
and a decrease in deferred revenue.
The Company's investing activities have used cash of $2.5 million and $2.7
million for the nine months ended September 30, 1994 and 1995, respectively. The
principal uses have been capitalized software costs and purchases of equipment.
15
<PAGE> 16
Cash provided by financing activities was $11.5 million and $38.4 million
during the nine months ended September 30, 1994 and 1995, respectively. During
the nine months ended September 30, 1994, cash provided by financing activities
consisted primarily of net proceeds from the sale of Preferred Stock and amounts
borrowed under the Company's secured bank line of credit. During the nine months
ended September 30, 1995, the Company completed its initial public offering of
2,795,000 shares of common stock resulting in net proceeds to the Company of
$43.3 million, but also repaid $5.0 million of long term debt.
The Company has no significant capital commitments. The Company's aggregate
minimum operating lease payments for 1995 and 1996 are expected to be
approximately $2.1 million. The Company believes that its available cash and
cash equivalents, together with investment income and cash flows from
operations, will be sufficient to meet its cash requirements at least through
1996.
16
<PAGE> 17
COMPUTRON SOFTWARE, INC.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of Net Income (Loss) Per Share (filed herewith)
27.1 Exhibit 27.1
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fiscal quarter for
which the report is filed.
17
<PAGE> 18
COMPUTRON SOFTWARE, INC.
SIGNATURE
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.
COMPUTRON SOFTWARE, INC.
By: /s/ MICHAEL R. JORGENSEN
------------------------------------
Michael R. Jorgensen
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial and
Accounting Officer)
Date: April 16, 1997
18
<PAGE> 19
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
11.1 Computation of Net Income (Loss) Per Share (filed herewith)
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
COMPUTRON SOFTWARE, INC.
STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ------------------
1994 1995 1994 1995
------ ------ ------- ------
<S> <C> <C> <C> <C>
Net income (loss)...................................... $ (743) $ 426 $(5,120) $2,406
====== ====== ====== ======
Weighted average common and common equivalent shares
outstanding:
Shares outstanding at the beginning of the period.... 17,828 17,829 15,551 17,829
Weighted average shares issued during the period..... -- 1,006 1,183 339
Weighted average common stock equivalents............ 742 1,016 583 956
Weighted average treasury shares acquired using the
treasury stock method............................. (595) (166) (583) (166)
------ ------ ------ ------
Weighted average common and common equivalent shares
outstanding:......................................... 17,975 19,685 16,734 18,958
====== ====== ====== ======
Pro forma net income (loss) per share.................. $(0.04) $ 0.02 $ (0.31) $ 0.13
====== ====== ====== ======
</TABLE>
- ---------------
All share information contained in the per share calculations has been
adjusted to reflect the conversion of all series of Redeemable Convertible
Preferred Stock and Class A and Class B Common Stock into Common Stock as of the
original issuance dates. These equities were converted into Common Stock upon
the closing of the initial public offering on August 29, 1995.
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 52,550
<SECURITIES> 925
<RECEIVABLES> 19,026
<ALLOWANCES> 2,702
<INVENTORY> 0
<CURRENT-ASSETS> 70,599
<PP&E> 8,608
<DEPRECIATION> 5,347
<TOTAL-ASSETS> 76,730
<CURRENT-LIABILITIES> 19,180
<BONDS> 0
0
0
<COMMON> 63,813
<OTHER-SE> (6,607)
<TOTAL-LIABILITY-AND-EQUITY> 76,730
<SALES> 28,839
<TOTAL-REVENUES> 42,867
<CGS> 3,896
<TOTAL-COSTS> 26,578
<OTHER-EXPENSES> 12,822
<LOSS-PROVISION> 911
<INTEREST-EXPENSE> 467
<INCOME-PRETAX> 3,597
<INCOME-TAX> 1,191
<INCOME-CONTINUING> 2,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,406
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
