SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000 Commission File Number 1-13591
COMPUTRON SOFTWARE, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2966911
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Route 17 North
Rutherford, New Jersey
(Address of principal 07070
executive offices) (Zip Code)
(201) 935-3400
(Registrant's telephone number, including area code)
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 July 28, 2000
Class Number of Shares Outstanding
----------------------------------------- --------------------------------
Common Stock, par value $0.01 per share 24,784,742
<PAGE>
COMPUTRON SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION Number
------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1999 and June 30, 2000 (unaudited) ............. 3
Consolidated Statements of Operations
(unaudited) Three and six months ended June 30, 1999 and 2000 4
Consolidated Statements of Comprehensive Loss
(unaudited) Three and six months ended June 30, 1999 and 2000 5
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 1999 and 2000 ..................... 6
Notes to Consolidated Interim Financial Statements .............. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......... 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings ................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders ................. 21
Item 6. Exhibits and Reports on Form 8-K .................................... 21
SIGNATURES
Signatures ................................................................... 22
</TABLE>
<PAGE>
COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
-------- --------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,154 $ 2,045
Restricted cash 301 296
Accounts receivable, net of allowance for doubtful accounts of $ 1,315
and $1,025 at December 31, 1999 and June 30, 2000, respectively 11,153 10,751
Prepaid expenses and other current assets 954 821
======== ========
Total current assets 13,562 13,913
======== ========
Equipment and leasehold improvements, at cost:
Computer and office equipment 11,605 11,800
Furniture and fixtures 1,204 1,305
Leasehold improvements 1,087 1,081
-------- --------
13,896 14,186
Less--accumulated depreciation and amortization 12,052 12,714
-------- --------
1,844 1,472
-------- --------
Capitalized software development costs, net of accumulated amortization
of $4,998 and $5,307 at December 31, 1999 and June 30, 2000, respectively 2,002 2,616
Other assets 93 86
-------- --------
$ 17,501 $ 18,087
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 1,105 $ 1,201
Accounts payable 3,083 2,334
Accrued expenses 7,202 5,365
Other current liabilities 500 500
Deferred revenue 8,534 10,317
======== ========
Total current liabilities 20,424 19,717
-------- --------
Long-term liabilities:
Long-term debt and capital lease obligations, net of current portion 2,425 1,825
======== ========
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.01 par value, authorized 5,000
shares, no shares issued and outstanding -- --
Common stock, $.01 par value, authorized 50,000 shares;
23,923 and 24,785 shares issued and outstanding at
December 31, 1999 and June 30, 2000, respectively 239 248
Additional paid-in capital 70,141 72,032
Accumulated deficit (75,739) (75,762)
Accumulated other comprehensive income 11 27
======== ========
Total stockholders' deficit (5,348) (3,455)
-------- --------
$ 17,501 $ 18,087
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees $ 2,332 $ 1,689 $ 5,849 $ 3,733
Services 13,057 10,588 25,327 20,453
-------- -------- -------- --------
Total revenues 15,389 12,277 31,176 24,186
-------- -------- -------- --------
Operating expenses:
Cost of license fees 554 259 1,216 697
Cost of services 6,710 5,523 13,545 10,940
Sales and marketing 3,100 2,340 6,372 4,488
Research and development 2,013 1,740 4,080 3,523
General and administrative 3,503 2,606 6,915 4,427
-------- -------- -------- --------
Total operating expenses 15,880 12,468 32,128 24,075
-------- -------- -------- --------
Operating income (loss) (491) (191) (952) 111
-------- -------- -------- --------
Other income (expense):
Loss on sale of subsidiary (261) -- (261) --
Interest income 19 29 57 45
Interest expense (111) (91) (216) (199)
Other expense (55) (12) (71) 20
-------- -------- -------- --------
Other expense, net (408) (74) (491) (134)
-------- -------- -------- --------
Net loss $ (899) $ (265) $ (1,443) $ (23)
======== ======== ======== ========
Basic and diluted net loss per
common share $ (0.04) $ (0.01) $ (0.06) $ --
======== ======== ======== ========
Weighted average basic and diluted
common shares outstanding 23,914 24,778 23,914 24,462
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- -----------------------------
June 30, June 30,
---------------------------- -----------------------------
1999 2000 1999 2000
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (899) $ (265) $ (1,443) $ (23)
Translation adjustment 440 3 154 16
------------- ------------ ------------- -------------
Comprehensive loss $ (459) $ (262) $ (1,289) $ (7)
============= ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 2000
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,443) $ (23)
Adjustments to reconcile net loss to net cash flows
provided by (used in) operating activities
Depreciation and amortization 1,503 1,064
Provision for doubtful accounts 198 63
Loss on sale of subsidiary 261 --
Changes in current assets and liabilities, net of divestiture
Restricted cash 4,307 --
Accounts receivable (2,998) 117
Prepaid expenses and other current assets 533 117
Accounts payable and accrued expenses (264) (2,423)
Due to shareholders (4,404) --
Deferred revenue 1,190 2,010
------- -------
Net cash flows provided by (used in) operating activities (1,117) 925
------- -------
Cash flows from investing activities:
Change in other assets (11) 6
Net proceeds from sale of subsidiary 1,191 --
Capitalized software development costs (650) (923)
Purchase of equipment and leasehold improvements (465) (433)
------- -------
Net cash flows provided by (used in) investing activities 65 (1,350)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants -- 1,900
Payments of long term debt and capital lease obligations (846) (504)
------- -------
Net cash flows provided by (used in) financing activities (846) 1,396
------- -------
Foreign currency exchange rate effects (532) (80)
------- -------
Net increase (decrease) in cash and cash equivalents (2,430) 891
Cash and cash equivalents, beginning of period 4,009 1,154
------- -------
Cash and cash equivalents, end of period $ 1,579 $ 2,045
======= =======
Supplemental disclosures of cash flow information
and noncash financing activities:
Cash paid during the period for -
Interest $ 178 $ 205
======= =======
Income taxes $ 30 $ 11
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(In thousands, except per share data)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The Company designs, markets and supports n-tier, Internet-enabled,
client/server, e-commerce, financial, workflow, desktop data access and storage,
and maintenance and asset management software solutions. The Company also offers
consulting, education and support services in support of its customers' use of
its software products.
Basis of Presentation:
The accompanying consolidated financial statements include the accounts of
Computron Software, Inc.; and its wholly owned subsidiaries located in
Australia, Canada, Poland, Singapore, South Africa and the United Kingdom
(collectively, the "Company" and in 1999 also included subsidiaries in France
and Germany) (see Note 5 for discussion of the sales of these subsidiaries in
1999). All significant intercompany transactions and balances have been
eliminated.
The unaudited consolidated 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 consolidated
financial statements.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
1999 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
The results of operations for the three and six months ended June 30, 2000 are
not necessarily indicative of results to be expected for any future periods.
(a) Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2") and Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions." The adoption of SOP 98-9 on January 1, 1999 did not have a
material effect on the Company's consolidated financial statements. Revenue from
non-cancelable software licenses is recognized when the license agreement has
been signed, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. Post contract support (maintenance) fees are
typically billed separately and are recognized on a straight line basis over the
life of the 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, pursuant
to a professional services agreement. When the Company enters into a license
agreement requiring development or significant customization of the software
products, the Company recognizes revenue relating to the agreement using
contract accounting. Anticipated losses, if any, are charged to operations in
the period such losses are determined.
(b) 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.
7
<PAGE>
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
(In thousands, except per share data)
(2) REVOLVING LINE OF CREDIT AND LONG-TERM DEBT
On March 31, 1998, the Company entered into a Loan and Security Agreement
("Agreement") which provides for maximum borrowings of up to $10 million. The
Agreement contained a revolving line of credit and a term loan (the "Initial
Term Loan").
Borrowings under the revolving line of credit bear interest at prime rate plus
1.25%. The Agreement provides for yearly fees as follows: (i) $111 in year one,
$86 in years two and three and (ii) an unused revolving line of credit fee of
.375% per annum. The Agreement is secured by substantially all domestic assets
of the Company together with a pledge of 65% of the stock of its foreign
subsidiaries, and contains certain financial restrictive covenants. Under the
revolving line of credit the Company currently has available the lesser of $5
million or 85% of eligible receivables, as defined. The net available amount
under the revolving line of credit at June 30, 2000 is approximately $2.4
million of which no amounts were outstanding. The Company was in compliance with
the covenants as of June 30, 2000.
The Initial Term Loan provided for $5 million available in one drawdown which
the Company borrowed on the closing date. The Initial Term Loan bears interest
at the prime rate as defined (9.5% at June 30, 2000) plus 1.5%, and was
repayable in 36 monthly installments beginning May 1, 1998.
Effective March 8, 1999, the Company amended the Agreement ("Amended Agreement")
in order to increase amounts available under the term loan portion of the
facility by the lesser of $1 million or eligible maintenance revenue, as
defined, through September 2001 (the "Additional Term Loan"), to extend the
termination date of the credit facility to March 31, 2002, and to establish
financial restrictive covenants for 1999. The Company did not draw down on the
Additional Term Loan.
Effective December 22, 1999, in connection with the sale of its subsidiary in
France, the Company further amended the Agreement (Amendment No. 7) in order to
make available to the Company a second term loan (the "Second Term Loan" and
together with the Initial Term Loan, the "A Term Loan") in the original
principal amount of $1.3 million, which the Company borrowed on that date, a
third term loan (the "B Term Loan") in the original principal amount of $750,
which is still available to be borrowed, subject to certain limitations, to
extend the termination date of the credit facility to March 31, 2003, and to
establish financial restrictive covenants for 2000. The term loans under
amendment No. 7 replaced the Additional Term Loan under the March 8, 1999
amendment.
The A Term Loan bears interest at the rate of prime plus 1.5% and is payable in
monthly installments of $100 through December 31, 2002. The B Term Loan provides
for not more than three borrowings in increments of at least $250 and is
available through December 31, 2000.
Amendment No. 7 provides a limitation that if the total outstanding balance of
term loans exceeds the lessor of (i) 45% of eligible maintenance revenues
through March 31, 2001, 40% of eligible maintenance revenues from April 1, 2001
through March 31, 2002, 30% of eligible maintenance revenues from April 1, 2002
through March 31, 2003 and (ii) $4.0 million, then the Company is required to
prepay the principal amount in an amount sufficient to cause the aggregate
principal amount of the term loans to be less than or equal to the relevant
limits set forth above. As of June 30, 2000, eligible maintenance revenues
totaled approximately $10,030. Based on this limitation, the amount available at
June 30, 2000 under all of the term loans is $750.
8
<PAGE>
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
(In thousands, except per share data)
(3) CONTINGENCIES
On March 6, 1998, the District Court issued a final order approving the
settlement of the class action securities litigation. The overall settlement
included consideration totaling $15 million for the benefit of class members,
including $6 million of consideration from the Company, and payments from
certain of its present and former officers and directors, its former auditors,
and the insurance companies that provided Computron with directors and officers
liability insurance. In return for the payments by the insurance companies, the
settlement also resolved a separate lawsuit brought by the Company against the
insurance companies. As its share of the settlement, the Company paid $1 million
in cash, and issued one million shares of Common Stock of the Company
("Settlement Stock"). The Company recorded a charge to operations of $6 million
during the quarter ended September 30, 1997, reflecting the Company's share of
the settlement costs, excluding legal fees.
The class members received a non-transferable right to resell the Settlement
Stock to a business trust formed by the Company at a price of $5.00 per share
during a period from December 1, 1998 to December 21, 1998 (the "Put Period").
The trust was capitalized by a contribution of $5 million in cash by the Company
in March 1998. During the Put Period, class members exercised the put with
respect to 881 shares of Settlement Stock. The right to put the remaining shares
of Settlement Stock automatically expired as of midnight on December 21, 1998.
Pursuant to the terms of the stipulation of settlement, the Company paid $4,404
during January 1999 in satisfaction of the timely claims made under the puts
and, returned to the Company the remaining balance of the trust. Shares of
Settlement Stock that were not timely put according to the terms of the
settlement remain freely transferable.
Historically, the Company has been involved in other 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 effect on
the Company's business, consolidated financial condition, results of operations
or cash flows.
(4) BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
Basic and diluted net loss per common share is presented in accordance with SFAS
No. 128, "Earnings per Share" ("SFAS No. 128").
Basic net loss per common share is based on the weighted average number of
shares of common stock outstanding during the period. Diluted net loss per
common share is the same as basic net loss per common share since the effect of
stock options and warrants is anti-dilutive.
9
<PAGE>
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
(In thousands, except per share data)
(5) DIVESTITURES
On June 1, 1999 and December 29, 1999, the Company sold its wholly-owned
subsidiaries located in Germany and France, respectively. The Company received
net proceeds of $1,191 on the sale of its German subsidiary. The Company funded
the working capital deficiency for its French subsidiary, during December 1999,
in the amount of $1,253. In addition, the Company is required to pay an
additional $500 to its former French subsidiary on or prior to October 31, 2000,
which is reflected as other current liabilities on the accompanying December 31,
1999 and June 30, 2000 consolidated balance sheets.
The following table sets forth significant financial data of the French and
German subsidiaries for the three and six months ended June 30, 1999.
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
------------------ ----------------
Revenues:
License fees $ 159 $ 485
Services 1,711 3,621
------- -------
1,870 4,106
------- -------
Total operating expenses 2,402 5,368
------- -------
Operating loss (532) (1,262)
Other loss, net (20) (36)
------- -------
Net loss $ (552) $(1,298)
======= =======
10
<PAGE>
(6) OPERATING SEGMENTS
As of December 31, 1999 the Company's operations were conducted in one business
segment which was the licensing of software and related services. Beginning on
January 1, 2000, the Company was reorganized into three separate business
segments based on products as part of its strategy to focus on high-profile
market opportunities. The three business segments are as follows:
a) The Business Process Solutions segment is focused on marketing TransAXS
Solutions to emerging dot.com organizations or traditional organizations making
the transition to becoming dot.com businesses. Business Process Solutions is
also responsible for servicing and managing Computron's extensive installed base
of high-profile customers. TransAXS Solutions enable organizations to achieve
process transparency throughout their value chain.
b) The AXSPoint Solutions segment is focused on identifying markets that need to
rapidly leverage the Internet in communicating, exchanging or reconciling large
volumes of knowledge with their customers, suppliers and partners. The AXSPoint
Solutions segment targets large information-centric organizations that can
utilize self-service information systems to improve communications with their
customers and improve access to business intelligence.
c) The Professional Services Automation segment has been chartered with
delivering a full suite of business solutions and services to organizations that
primarily sell professionals' time.
The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements included in
the 1999 Annual Report on Form 10K. The Company evaluates the performance of its
operating segments based on revenues and operating income (loss). Intersegment
sales and transfers are not significant.
Summarized financial information concerning the Company's reportable segments is
shown in the following table. The Chief Executive Officer uses the information
below in this format while making decisions about allocating resources to each
segment and assessing its performance. Segment information for the 1999 periods
are not shown as it is not practical to do so.
Business Professional
Process AXS Point Services
Solutions Solutions Automation Total
--------- --------- ---------- -------
Three Months Ended June 30, 2000
Revenues:
License fees .............. $ 1,448 $ 185 $ 56 $ 1,689
Services .................. 8,586 851 1,151 10,588
------- ------- ------- -------
Total Revenues ................. 10,034 1,036 1,207 12,277
Operating income (loss) ........ 2,253 (6) 349 2,596
Total assets ................... 14,625 1,889 1,573 18,087
Capital expenditures ........... 242 19 18 279
Depreciation and amortization .. 528 27 25 580
Six Months Ended June 30, 2000
Revenues:
License fees .............. $ 2,873 $ 785 $ 75 $ 3,733
Services .................. 16,719 1,592 2,142 20,453
------- ------- ------- -------
Total Revenues ................. 19,592 2,377 2,217 24,186
Operating income ............... 4,108 466 339 4,913
Total assets ................... 14,625 1,889 1,573 18,087
Capital expenditures ........... 374 31 28 433
Depreciation and amortization .. 957 56 51 1,064
11
<PAGE>
Reconciliation of segment operating income to consolidated operating income
(loss):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, 2000 Ended June 30, 2000
------------------- -------------------
<S> <C> <C>
Operating income from reportable segments $ 2,596 $ 4,913
Unallocated general and administrative expense (2,470) (4,148)
Other corporate unallocated expenses (317) (654)
------- -------
Total consolidated operating income (loss) $ (191) $ 111
======= =======
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Consolidated
Interim Financial Statements and Notes thereto and is qualified in its entirety
by reference thereto.
This Report contains statements of a forward-looking nature within the meaning
of the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended, relating to future events or the future financial performance
of the Company. Investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, investors should specifically consider the various
factors identified in this Report which could cause actual results to differ
materially from those indicated by such forward-looking statements, including
the matters set forth in "Business--Risk Factors" in the Company's 1999 Annual
Report on Form 10K.
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, the Company 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. During the fourth
quarter of 1995, the Company acquired the rights to its Computron Yorvik
software.
In April and June 1996, respectively, the Company acquired the Financial
Services Division of Generale de Service Informatique (GSI) based in Paris,
France, and a portion of the business and assets of AT&T Istel and Co., GMBH, in
Essen, Germany. These operations primarily provided software products and
services in their respective countries. Both of these entities were sold during
1999. See below for the impact of these divestitures.
In 1999 the Company started a major development effort to build a suite of
electronic commerce solutions based upon its next generation n-tier
Internet-architecture. This new family of products, e-Cellerator products, is
designed to meet the needs of organizations that wish to conduct business across
the Internet. E-Cellerator products are used to build two families of solutions,
TransAXS solutions and AXSPoint solutions. TransAXS solutions are designed to
enable businesses to conduct business transactions across the Internet. AXSPoint
solutions are designed to enable organizations to exchange information and
knowledge across the Internet. These two families of solutions were announced in
the fourth quarter of 1999, and TransAXS solutions and AXSPoint solutions
modules will become available throughout 2000 and beyond. See "Item 1. Business"
in the Company's 1999 Annual Report on Form 10K.
12
<PAGE>
The Company's revenues are derived from license fees and services. Revenue from
non-cancelable software licenses is recognized when the license agreement has
been signed, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. Post contract support (maintenance) fees are
typically billed separately and are recognized on a straight line basis over the
life of the applicable agreement. Revenues for consulting, maintenance and
implementation services, including training, are recognized upon performance of
the services. When the Company enters into a license agreement requiring
development or significant customization of the software products, the Company
recognizes revenue relating to the agreement using contract accounting. The
Company's license agreements generally do not provide a right of return.
Historically, the Company's backlog has not been substantial, since products are
generally shipped as orders are received.
The Company has experienced, and may in the future experience, significant
fluctuations in its quarterly and annual revenues and results of operations. 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 timing of revenue recognition related to significant license
agreements, the lengthy sales cycle for the Company's products, the proportion
of revenues attributable to license fees versus services, the utilization of
third parties to perform 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
customers' budgets, competitive conditions in the industry and general economic
conditions. For a description of certain factors which may affect the Company's
operating results, see "Potential for Significant Fluctuations in Operating
Results; Seasonality" in the Company's 1999 Annual Report on Form 10K.
The Company incurred net losses of $13.6 million, $9.0 million and $3.7 million
in 1997, 1998 and 1999, respectively and operating losses of $4.8 million, $8.9
million and $1.2 million in 1997, 1998 and 1999, respectively. Operating losses
incurred by the Company's French and German subsidiaries, which were sold in
1999, totaled $4.3 million, $3.7 and $2.4 million for 1997, 1998 and 1999,
respectively. The Company reported a net loss of $23 thousand for the six months
ended June 30, 2000 and operating income of $0.1 million for the same period.
New Accounting Standards
In the second quarter of 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." In June 1999, the FASB
issued SFAS No. 137 which defers the effective date of SFAS No. 133. SFAS No.
133 requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The Company currently does not use
derivative instruments and as such believes the adoption of SFAS No. 133,
beginning January 1, 2001, will have no effect on the consolidated financial
statements.
In December 1999, the United States Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The effective
date of this pronouncement is the fourth quarter of the fiscal year beginning
after December 15, 1999. The Company believes that adopting SAB 101 will not
have material impact on our financial position and results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, or FIN 44,
"Accounting for Certain Transactions involving Stock Compensation," an
interpretation of APB Opinion No. 25 FIN 44 clarifies the application of Opinion
25 for (a) the definition of employee for purposes of applying Opinion 25, (b)
the criteria for determining whether a
13
<PAGE>
plan qualifies as a non-compensatory plan, (c) the accounting consequence for
various modifications to the terms of a previously fixed stock option or award
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain provisions
cover specific events that occurred after either December 15, 1998 or January 12
2000. The adoption of certain other provisions of FIN 44 did not have a material
effect on our financial statements. The Company does not expect that the
adoption of the remaining provisions will have a material impact on our
financial statements.
Euro Currency
On January 1, 1999, certain countries of the European Union established fixed
conversion rates between their existing currencies and one common currency, the
euro. The euro then began to trade on currency exchanges and to be used in
business transactions. Beginning in January 2002, new euro-denominated
currencies will be issued and the existing local currencies will be withdrawn
from circulation by July 1, 2002. The Company derived approximately 37.9% of its
total revenues outside the United States for 1999, a significant portion of
which is in Europe. The Company derived approximately 40% of its total revenues
outside the United States for the six months ended June 30, 2000. The Company
has not completed its assessment of the potential impact of the euro conversion.
However, at present, the Company believes the euro conversion will not have a
material effect on the Company's consolidated financial position or results of
operations.
14
<PAGE>
Results of Operations
The following tables set forth certain operating data (for the periods
indicated) including and excluding the French and German subsidiaries sold
during 1999. The operating data excluding French and German subsidiaries sold
during 1999 is also shown as a percentage of total revenues:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 Six Months Ended June 30, 2000
--------------------------------------------- --------------------------------
Excluding Data as a Data as a
As France & France & percent of As percent of
(In thousands) Reported Germany Germany revenue Reported revenue
--------------------------------------------- ---------------------
Unaudited Unaudited
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License fees $ 2,332 $ 159 $ 2,173 16.1% $ 1,689 13.8%
Services 13,057 1,711 11,346 83.9 10,588 86.2
--------------------------------------------- ---------------------
Total revenues 15,389 1,870 13,519 100.0 12,277 100.0
--------------------------------------------- ---------------------
Operating expenses:
Cost of license fees 554 70 484 3.6 259 2.1
Cost of services 6,710 1,023 5,687 42.1 5,523 45.0
Sales and marketing 3,100 291 2,809 20.8 2,340 19.1
Research and development 2,013 156 1,857 13.7 1,740 14.2
General and administrative 3,503 862 2,641 19.5 2,606 21.2
--------------------------------------------- ---------------------
Total operating expenses 15,880 2,402 13,478 99.7 12,468 101.6
--------------------------------------------- ---------------------
Operating income (loss) (491) (532) 41 0.3 (191) (1.6)
--------------------------------------------- ---------------------
Other income (expense):
Loss on sale of subsidiary (261) (261) -- -- -- --
Interest income 19 1 18 0.1 29 0.2
Interest expense (111) (5) (106) (0.7) (91) (0.7)
Other expense (55) (16) (39) (0.3) (12) (0.1)
--------------------------------------------- ---------------------
Other expense, net (408) (281) (127) (0.9) (74) (0.6)
--------------------------------------------- ---------------------
Net loss $ (899) $ (813) $ (86) (0.6)% $ (265) (2.2)%
============================================= =====================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 Six Months Ended June 30, 2000
--------------------------------------------- --------------------------------
Excluding Data as a Data as a
As France & France & percent of As percent of
(In thousands) Reported Germany Germany revenue Reported revenue
--------------------------------------------- ---------------------
Unaudited Unaudited
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License fees $ 5,849 $ 485 $ 5,364 19.8% $ 3,733 15.4%
Services 25,327 3,621 21,706 80.2 20,453 84.6
--------------------------------------------- ---------------------
Total revenues 31,176 4,106 27,070 100.0 24,186 100.0
--------------------------------------------- ---------------------
Operating expenses:
Cost of license fees 1,216 191 1,025 3.8 697 2.9
Cost of services 13,545 2,302 11,243 41.5 10,940 45.2
Sales and marketing 6,372 657 5,715 21.1 4,488 18.6
Research and development 4,080 402 3,678 13.6 3,523 14.6
General and administrative 6,915 1,816 5,099 18.8 4,427 18.3
--------------------------------------------- ---------------------
Total operating expenses 32,128 5,368 26,760 98.9 24,075 99.5
--------------------------------------------- ---------------------
Operating income (loss) (952) (1,262) 310 1.1 111 0.5
--------------------------------------------- ---------------------
Other income (expense):
Loss on sale of subsidiary (261) (261) -- -- -- --
Interest income 57 3 54 0.2 45 0.2
Interest expense (216) (7) (209) (0.8) (199) (0.8)
Other expense (71) (32) (39) (0.1) 20 0.1
--------------------------------------------- ---------------------
Other expense, net (491) (297) (194) (0.7) (134) (0.6)
--------------------------------------------- ---------------------
Net income (loss) $ (1,443) $ (1,559) $ 116 0.4% $ (23) (0.1)%
============================================= =====================
</TABLE>
Note: The following discussions relate to changes in the results of operations,
excluding France and Germany for the periods presented.
Total Revenues
Total revenues decreased 9.2% and 10.7% for the three and six months ended June
30, 2000, compared to the corresponding prior year periods. The decrease in 2000
is mainly attributable to a decrease in service and license revenues in the U.S.
operation from the high service and license revenue in 1999 due to customer
preparation for the Year 2000. The decrease is also a result of a normal
industry lag in selling newly introduced products, as the Company introduced
several new Internet-enabled products during 2000.
The Company derived approximately $4.9 million and $9.7 million, or 39.9% and
39.9% of its total revenues, from customers outside of the United States for the
three and six months ended June 30, 2000, respectively, compared to $4.3 million
and $8.5 million, or 31.9% and 31.4%, respectively, for the corresponding prior
year periods. The Company expects that revenues from customers outside the
United States 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. Fluctuations in the
value of foreign currencies relative to the U.S. dollar, in the future could
result in fluctuations in the Company's revenue.
16
<PAGE>
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, to a lesser degree, third party products resold by the Company.
Total license fees decreased $0.5 million and $1.6 million for the three and six
months ended June 30, 2000, respectively, as compared to the prior year periods.
As the Company expected sales of back office financial products to decline after
entities upgraded to Year 2000 compliant versions, the Company began developing
and selling, in 2000, new Internet-enabled products and solutions. The Company
expected and budgeted for a slight decrease in license fees as it launched its
new product lines. License fees for the six months ended June 30, 1999 included
a significant number of installed base customers who upgraded to a Year 2000
certified version of the Company's software.
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 and consulting service revenues are
recognized as the services are performed. Services revenue decreased 6.7% and
5.8% for the three and six months ended June 30, 2000, respectively, as compared
to the comparable prior year periods. The majority of the decrease for the three
and six month periods relates to lower service revenues in the U.S. operations,
due in part to lower license sales and a Year 2000 lockdown earlier in the year.
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 documentation. The elements can vary substantially
from period to period as a percentage of license fees.
Cost of license fees decreased $0.2 million and $0.3 million for the three and
six months ended June 30, 2000, respectively, as compared to the corresponding
prior year periods due to the related decrease in license sales and a decrease
in costs of documentation.
Cost of Services
Cost of services consists primarily of personnel costs for product quality
assurances, training, installation, consulting and customer support. Cost of
services decreased 2.9% and 2.7% for the three and six months ended June 30,
2000, respectively, as compared to the corresponding prior year periods. The
decrease is primarily due to a decrease in services revenue and a related
decrease in third party service costs.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, commission and
bonuses paid to sales and marketing personnel, as well as travel and promotional
expenses.
Sales and marketing expenses decreased 16.7% and 21.5% for the three and six
months ended June 30, 2000, respectively, as compared to the comparable prior
year periods, as a result of lower commissions due to lower license
17
<PAGE>
revenue. The decrease is also attributed to a reduction in marketing costs in
the UK and Canada operations and a lower headcount in the U.S.
Research and Development
Research and development expenses consist primarily of personnel costs, costs of
equipment, facilities and third party software development costs. Research and
development 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.
Research and development expenses decreased to $1.7 million and $3.5 million for
the three and six months ended June 30, 2000, respectively, from $1.9 million
and $3.7 million for the comparable prior year periods mainly due to a decrease
in research and development expenses for the Yorvik product, as well as an
increase in capitalized software development costs. The Company capitalized $0.9
million in software development costs for the six months ended June 30, 2000 as
compared to $0.6 million for the comparable prior year period. The rate of
capitalization of software development costs may fluctuate depending on the mix
and stage of development of the Company's product development and engineering
products.
General and Administrative
General and administrative expenses consist primarily of salaries for
administrative, executive and financial personnel, and outside professional
fees. General and administrative expenses decreased 1.3% and 13.2% for the three
and six months ended June 30, 2000, as compared to the comparable prior year
periods. The decrease, for the three and six month periods, is the result of a
reduction in headcount, offset by an increase in legal fees. For the six month
period, the decrease is also due to a reduction of a reserve for sales taxes
resulting from conclusion of the related tax audits.
Other Income (Expense)
Other income (expense) net decreased to $(74) and $(134) for the three and six
months ended June 30, 2000, respectively, from $(127) and $(194) for the three
and six months ended June 30, 1999, respectively, primarily due to higher
interest income from increased cash balances and lower interest expense due to
less borrowing. Interest expense is a result of the interest on a revolving line
of credit and term loan (see Note 2 to the Consolidated Interim Financial
Statements).
Segment Information
Beginning on January 1, 2000, the Company was reorganized into three separate
business segments. (See Note 6 to the Consolidated Interim Financial
Statements). For the three and six months ended June 30, 2000 the Business
Process Solutions segment had license fee revenues of $1.4 million and $2.9
million, respectively, services revenue of $8.6 million and $16.7 million,
respectively, and operating income of $2.3 million and $4.1 million,
respectively, relating mainly to revenues earned from the installed base. The
AXSPoint Solutions segment had license fee revenues of $0.2 million and $0.8
million, respectively, services revenue of $0.9 million and $1.6 million,
respectively, and operating income of breakeven and $0.5 million, respectively,
which represented new license fee revenue relating to sales of its new AXSPoint
Solutions products as well as maintenance revenue from its installed base. The
Professional Services Automation segment had services revenue of $1.2 million
and $2.1 million, respectively, for the three and six months ended June 30, 2000
and operating income of $0.3 million for both periods relating mainly to
maintenance revenue from its installed base as well as implementation fees to
install its products.
18
<PAGE>
Liquidity and Capital Resources
The available amount under the revolving line of credit at June 30, 2000 was
approximately $2.4 million. The available amount under all term loans at June
30, 2000 was approximately $750 thousand. (See Note 2 to the Consolidated
Interim Financial Statements).
The Company is required to comply with quarterly and annual financial statement
reporting requirements, as well as certain restrictive financial covenants. The
ability to continue to borrow under the Agreement is dependent upon future
compliance with such covenants and available collateral. Management believes
that the Company's projected operating results over the next twelve months will
result in compliance under the Agreement, although there can be no assurances
that such operating results will be achieved.
The Company's operating activities provided (used) cash of ($1.1) million and
$0.9 million for the six months ended June 30, 1999 and 2000, respectively. Net
cash used by operations during the six months ended June 30, 1999 was comprised
primarily of the net loss offset by depreciation and amortization expense and an
increase in accounts receivable, net of deferred revenue, totaling $1.8 million.
Net cash provided by operations during the six months ended June 30, 2000 was
comprised primarily of depreciation and amortization, an increase in deferred
revenue and a decrease in accounts payable and accrued expenses.
The Company's investing activities provided (used) cash of $65 thousand and
$(1.3) million for the six months ended June 30, 1999 and 2000, respectively.
Cash provided for the six months ended June 30, 1999 included proceeds from the
sale of the German subsidiary of $1.2 million offset by cash used for
capitalized software development costs and the purchase of equipment. The
principal uses during 2000 were equipment purchases and an increase in
capitalized software development costs.
Cash provided (used) by financing activities was $(0.8) million and $1.4 million
for the six months ended June 30, 1999 and 2000, respectively, and related
mainly to repayments of debt in 1999 and 2000. In addition, the Company received
$1.9 million in proceeds from the exercise of stock options and warrants for the
six months ended June 30, 2000.
The Company has no significant capital commitments. Planned capital expenditures
for 2000 total approximately $0.9 million. The Company's aggregate minimum
operating lease payments for 2000 will be approximately $2.0 million. The
Company expects that its operating cash flow will be sufficient to fund the
Company's working capital requirements through 2000. However, the Company's
ability to achieve this result is affected by the extent of cash generated from
operations and the pace at which the Company utilizes its available resources.
Accordingly, the Company may in the future be required to seek additional
sources of financing including the issuance of debt and/or sale of equity
securities. No assurance can be given that any such additional sources of
financing will be available on acceptable terms or at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the Company is exposed to fluctuations in
interest rates and equity market risks as the Company seeks debt and equity
capital to sustain its operations. The Company is also exposed to fluctuations
in foreign currency exchange rates as the financial results of its foreign
subsidiaries are translated into U.S. dollars in consolidation. The Company does
not use derivative instruments or hedging to manage its exposures and does not
currently hold any market risk sensitive instruments for trading purposes.
19
<PAGE>
The information below summarizes the Company's market risk associated with its
debt obligation as of June 30, 2000. Fair value included herein has been
estimated taking into consideration the nature and term of the debt instrument
and the prevailing economic and market conditions at the balance sheet date. The
table below presents principal cash flows by year of maturity based on the terms
of the debt. The variable interest rate disclosed represents the rate at June
30, 2000. Changes in the prime interest rate during fiscal 2000 will have a
positive or negative effect on the Company's interest expense. Each 1%
fluctuation in the prime interest rate will increase or decrease annual interest
expense for the Company by approximately $30,000, based on the debt outstanding
as of June 30, 2000. Further information specific to the Company's debt is
presented in Note 2 to the Consolidated Interim Financial Statements.
(In thousands)
Year of Maturity
----------------------
Variable
Interest Estimated Carrying
Description Rate Fair Value Amount 2000 2001 2002
-----------------------------------------------------------------------------
Term loan 11.00% $3,022 $3,022 $600 $1,200 $1,222
Certain Factors That May Affect Future Results and Financial Condition and the
Market Price of Securities
See the Company's 1999 Annual Report on Form 10K for a discussion of risk
factors.
20
<PAGE>
COMPUTRON SOFTWARE, INC.
Part II
Other Information
Item 1. Legal Proceedings
Historically, the Company has been 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 effect on
the Company's business, financial condition and results of operations or cash
flows.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders on June 14, 2000, the
Stockholders voted to ratify the appointment of KPMG LLP as the Company's
independent auditors for 2000 (19,248,229 votes for, 18,467 votes against,
24,556 votes abstained). Further, at the Annual Meeting of Stockholders held on
June 14, 2000, the following directors were nominated and elected by the votes
indicated:
Votes For Votes Withheld
Elias Typaldos 19,257,533 33,719
John Rade 19,254,931 36,321
Gennaro Vendome 19,257,358 33,894
Daniel Burch 19,251,839 39,413
Robert Migliorino 19,253,108 38,144
William E. Vogel 19,253,339 37,913
Eugene Weber 19,255,083 36,169
Edwin T. Brondo 19,254,283 36,969
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 27 - Financial Data Schedule (Edgar filing only).
Reports on Form 8-K - No Reports on Form 8-K were filed by the Company during
the quarter ended June 30, 2000.
21
<PAGE>
COMPUTRON SOFTWARE, INC.
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.
COMPUTRON SOFTWARE, INC.
Date: August 11, 2000 By: : /s/ Michael R. Jorgensen
---------------------------
Michael R. Jorgensen
Executive Vice President, Chief
Financial Officer and Treasurer
By: : /s/ William G. Levering III
------------------------------
William G. Levering III
Vice President, Corporate Controller,
Chief Accounting Officer
22
