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 March 31, 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 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)
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 April 28, 2000
Class Number of Shares Outstanding
--------------------------------------- ----------------------------
Common Stock, par value $0.01 per share 24,768,054
<PAGE>
COMPUTRON SOFTWARE, INC.
INDEX
Page
PART I FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
Consolidated Balance Sheets December 31, 1999 and March 31, 2000
(unaudited).................................................... 3
Consolidated Statements of Operations (unaudited)
Three months ended March 31, 1999 and 2000..................... 4
Consolidated Statements of Comprehensive Income (Loss)
(unaudited) - Three months ended March 31, 1999 and 2000....... 5
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 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....... 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 18
Item 6. Exhibits and Reports on Form 8-K................................. 18
SIGNATURES
Signatures .............................................................. 19
2
<PAGE>
COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ --------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,154 $ 3,453
Restricted cash 301 297
Accounts receivable, net of allowance for doubtful accounts of $1,315
and $1,048 at December 31, 1999 and March 31, 2000, respectively 11,153 9,885
Prepaid expenses and other current assets 954 982
-------- --------
Total current assets 13,562 14,617
-------- --------
Equipment and leasehold improvements, at cost:
Computer and office equipment 11,605 11,589
Furniture and fixtures 1,204 1,296
Leasehold improvements 1,087 1,088
-------- --------
13,896 13,973
Less--accumulated depreciation and amortization 12,052 12,381
-------- --------
1,844 1,592
-------- --------
Capitalized software development costs, net of accumulated amortization
of $4,998 and $5,103 at December 31, 1999 and March 31, 2000, respectively 2,002 2,370
Other assets 93 88
-------- --------
$ 17,501 $ 18,667
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 1,105 $ 1,202
Accounts payable 3,083 2,425
Accrued expenses 7,202 5,131
Other current liabilities 500 500
Deferred revenue 8,534 10,514
-------- --------
Total current liabilities 20,424 19,772
-------- --------
Long-term liabilities:
Long-term debt and capital lease obligations, net of current portion 2,425 2,125
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 24,760 shares outstanding at
December 31, 1999 and March 31, 2000, respectively 239 248
Additional paid-in capital 70,141 71,995
Accumulated deficit (75,739) (75,497)
Accumulated other comprehensive income 11 24
-------- --------
Total stockholders' deficit (5,348) (3,230)
-------- --------
$ 17,501 $ 18,667
======== ========
</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)
Three Months Ended March 31,
----------------------------
1999 2000
---------- ------------
Revenues:
License fees $ 3,517 $ 2,044
Services 12,270 9,864
-------- --------
Total revenues 15,787 11,908
-------- --------
Operating expenses:
Cost of license fees 662 437
Cost of services 6,828 5,418
Sales and marketing 3,270 2,148
Research and development 2,071 1,782
General and administrative 3,417 1,821
-------- --------
Total operating expenses 16,248 11,606
-------- --------
Operating income (loss) (461) 302
-------- --------
Other income (expense):
Interest income 38 16
Interest expense (105) (108)
Other income (expense) (16) 32
-------- --------
Other expense, net (83) (60)
-------- --------
Net income (loss) $ (544) $ 242
======== ========
Basic and diluted net income (loss)
per common share $ (0.02) $ 0.01
======== ========
Weighted average basic
common shares outstanding 23,914 24,147
======== ========
Weighted average diluted
common shares outstanding 23,914 27,600
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended
-----------------------
March 31,
-----------------------
1999 2000
------ ------
Net income (loss) $(544) $ 242
Translation adjustment (286) 13
----- -----
Comprehensive income (loss) $(830) $ 255
===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 2000
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (544) $ 242
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 754 483
Provision for (recovery of) doubtful accounts 68 (40)
Loss on disposal of equipment and leasehold improvements 57 --
Changes in current assets and liabilities:
Restricted cash 4,296 --
Accounts receivable (3,167) 1,185
Prepaid expenses and other current assets 116 (33)
Accounts payable and accrued expenses (372) (2,648)
Due to shareholders (4,404) --
Deferred revenue 1,564 2,103
------- -------
Net cash flows provided by (used in) operating activities (1,632) 1,292
------- -------
Cash flows from investing activities:
Change in other assets (62) 4
Capitalized software development costs (350) (473)
Purchase of equipment and leasehold improvements (320) (154)
------- -------
Net cash flows used in investing activities (732) (623)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants -- 1,863
Net borrowings on revolving line of credit 464 --
Payments of long term debt and capital lease obligations (426) (202)
------- -------
Net cash flows provided by financing activities 38 1,661
------- -------
Foreign currency exchange rate effects (323) (31)
------- -------
Net increase (decrease) in cash and cash equivalents (2,649) 2,299
Cash and cash equivalents, beginning of period 4,009 1,154
------- -------
Cash and cash equivalents, end of period $ 1,360 $ 3,453
======= =======
Supplemental disclosures of cash flow information and noncash financing
activities:
Cash paid during the period for -
Interest $ 106 $ 111
======= =======
Income taxes $ 21 $ 3
======= =======
</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 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 months ended March 31, 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.
7
<PAGE>
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
(In thousands, except per share data)
(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.
(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. Such available amount is
reduced further by a $600 letter of credit outstanding at March 31, 2000. The
net available amount under the revolving line of credit at March 31, 2000 is
approximately $1.6 million of which no amounts were outstanding. The Company was
in compliance with the covenants as of March 31, 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 (9.0% at March 31, 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
8
<PAGE>
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
(In thousands, except per share data)
March 31, 2000, eligible maintenance revenues totaled approximately $9,672.
Based on this limitation, the amount available at March 31, 2000 under all of
the term loans is $678.
(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 income (loss) per common share is presented in accordance
with SFAS No. 128, "Earnings per Share" ("SFAS No. 128").
Basic net income (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 for the three months
ended March 31, 1999 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)
The following represents the calculations of the basic and diluted net income
(loss) per common share for the three months ended March 31, 1999 and 2000.
Three Months Ended March 31,
----------------------------
1999 2000
------- -------
Net income (loss) ............................... $ (544) $ 242
======= =======
Weighted average basic common shares
outstanding during the periods ................ 23,914 24,147
Effect of dilutive securities:
Stock options and warrants .................... -- 3,453
------- -------
Weighted average diluted common shares
outstanding during the period ................. 23,914 27,600
======= =======
Basic net income (loss) per common share ........ $ (0.02) $ 0.01
======= =======
Diluted net income (loss) per common share ...... $ (0.02) $ 0.01
======= =======
(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 March 31, 2000 consolidated balance sheets.
The following table sets forth significant financial data of the French and
German subsidiaries for the three months ended March 31, 1999.
Three Months Ended
March 31, 1999
------------------
Revenues:
License fees $ 325
Services 1,911
-------
2,236
-------
Total operating expenses 2,966
-------
Operating loss (730)
Other loss, net (16)
-------
Net loss $ (746)
=======
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. Historical segment information is not
shown as it is not practical to do so.
<TABLE>
<CAPTION>
Business Professional
Process AXS Point Services
Solutions Solutions Automation Total
--------- --------- ------------ -------
Three Months Ended March 31, 2000
- ---------------------------------
<S> <C> <C> <C> <C>
Revenues:
License fees ............................................. $ 1,425 $ 600 $ 18 $ 2,043
Services ................................................. 8,133 741 991 9,865
------- ------- ------- -------
Total Revenues ................................................ 9,558 1,341 1,009 11,908
Operating income (loss) ....................................... 1,855 472 (10) 2,317
Total assets .................................................. 15,923 1,339 1,405 18,667
Capital expenditures .......................................... 132 12 10 154
Depreciation and amortization ................................. 429 29 26 483
</TABLE>
Reconciliation of segment operating income to consolidated operating income:
Three Months
Ended March 31, 2000
--------------------
Operating income from reportable segments $ 2,317
Unallocated general and administrative expense (1,678)
Other corporate unallocated expenses (337)
-------
Total consolidated operating income $ 302
=======
11
<PAGE>
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 sales.
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.
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. 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.
12
<PAGE>
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 million and $2.4 million for 1997, 1998 and
1999, respectively. The Company reported net income of $0.2 million for the
three months ended March 31, 2000 and operating income of $0.3 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.
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 40.0% of its total
revenues outside the United States for the three months ended March 31, 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.
13
<PAGE>
Results of Operations
The following table sets forth for the periods indicated, certain operating
data, and data as a percentage of total revenues both including and excluding
the French and German subsidiaries sold during 1999:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 Three Months Ended March 31, 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 $ 3,517 $ 325 $ 3,192 23.6% $ 2,044 17.2%
Services 12,270 1,911 10,359 76.4 9,864 82.8
------------------------------------------ ----------------------
Total revenues 15,787 2,236 13,551 100.0 11,908 100.0
------------------------------------------ ----------------------
Operating expenses:
Cost of license fees 662 121 541 4.0 437 3.7
Cost of services 6,828 1,279 5,549 40.9 5,418 45.5
Sales and marketing 3,270 366 2,904 21.4 2,148 18.0
Research and development 2,071 246 1,825 13.5 1,782 15.0
General and administrative 3,417 954 2,463 18.2 1,821 15.3
------------------------------------------ ----------------------
Total operating expenses 16,248 2,966 13,282 98.0 11,606 97.5
------------------------------------------ ----------------------
Operating income (loss) (461) (730) 269 2.0 302 2.5
------------------------------------------ ----------------------
Other income (expense):
Interest income 38 1 37 0.3 16 0.1
Interest expense (105) (2) (103) (0.8) (108) (0.9)
Other income (expense) (16) (15) (1) (0.0) 32 0.3
------------------------------------------ ----------------------
Other expense, net (83) (16) (67) (0.5) (60) (0.5)
------------------------------------------ ----------------------
Net income (loss) $ (544) $ (746) $ 202 1.5% $ 242 2.0%
========================================== ======================
</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 12.1% for the three months ended March 31, 2000,
compared to the three months ended March 31, 1999. The decrease was mainly
attributable to a decrease in services and license revenue in the US operations
due to a lockdown by certain customers in January and February 2000 relating to
their transition to the Year 2000.
The Company derived approximately $4.2 million and $4.8 million or 30.9% and
40.0%, respectively, of its total revenues, from customers outside of the United
States for the three months ended March 31, 1999 and 2000, 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. Fluctuations in the value of foreign currencies relative to the US
dollar in the future could result in fluctuations in the Company's revenue.
14
<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 $1.1 million for the three months ended March 31,
2000, as compared to the three months ended March 31, 1999. License fees for the
March 31, 1999 period 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 services revenue are
recognized as the services are performed. Services revenue decreased 4.8% for
the three months ended March 31, 2000, as compared to the three months ended
March 31, 1999. The decrease was mainly due to a decrease in demand for
implementation services in January and February 2000 due to a lockdown by
certain customers relating to their transition to the year 2000.
Cost of License Fees
Cost of license fees consists primarily of amounts paid to third parties with
respect to products resold by the Company in conjunction with licensing of the
Company's products, amortization of capitalized software development costs, 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 during the three months ended March 31, 2000 as
compared to the corresponding prior year period due to a decrease in costs of
documentation and a decrease in payments to third parties related to the
decrease in license revenue.
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 2.4% for the three months ended March 31, 2000 as
compared to the three months ended March 31, 1999. The decrease is primarily due
to lower services revenue and a decrease in third party services.
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 26.0% for the three months ended March
31, 2000 as compared to the three months ended March 31, 1999, as a result of
lower headcount and lower commissions due to lower license revenue.
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
15
<PAGE>
Standards No. 86. Such capitalized software development costs are generally
amortized on a straight line basis over periods not exceeding three years.
Research and development expenses were $1.8 million in the first quarter of 1999
and 2000. The Company capitalized $0.4 million in software development costs in
the first quarter of 2000 as compared to $0.3 million in the first quarter of
1999. 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 projects. Including capitalized software, overall
spending increased slightly due to increased spending on its new suite of
products offset by a decrease in spending for the Yorvik product.
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 26.1% for the three months
ended March 31, 2000, as compared to the three months ended March 31, 1999,
primarily 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 remained substantially flat for the three months
ended March 31, 1999 and 2000. Interest expense is a result of the interest on
the 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 months ended March 31, 2000 the Business Process
Solutions segment had license fee revenues, services revenue and operating
income of $1.4 million, $8.1 million and $1.9 million , respectively , relating
mainly to revenues earned from the installed base. The AXSPoint Solutions
segment had license fee revenues, services revenue and operating income of $0.6
million, $0.7 million and $0.5 million , respectively , and represented new
license fee revenue relating to sales of its new AXSPoint Solutions products.
The Professional Services Automation segment had services revenue of $1.0
million and breakeven operating results relating mainly to maintenance revenue
from its installed base as well as implementation fees to install its products.
Liquidity and Capital Resources
The available amount under the revolving line of credit at March 31, 2000 was
approximately $1.6 million. The available amount under all term loans at March
31, 2000 was approximately $0.7 million. (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 ($1.6) million and
$1.3 million for the three months ended March 31, 1999 and 2000, respectively.
Net cash used by operations during the three months ended March 31, 1999 was
comprised of the net loss offset by depreciation and amortization expense, and
an increase in accounts
16
<PAGE>
receivable, net of deferred revenue, totaling $1.6 million. Net cash provided by
operations during the three months ended March 31, 2000 was comprised of the net
income, a decrease in accounts receivable and an increase in deferred revenue
partially offset by a decrease in accounts payable and accrued expenses.
The Company's investing activities used cash of $0.7 million and $0.6 million
for the three months ended March 31, 1999 and 2000, respectively. The uses in
1999 and 2000 were for capitalized software development costs and the purchase
of equipment and leasehold improvements.
Cash provided by financing activities was $38 thousand and $1.7 million during
the three months ended March 31, 1999 and 2000, respectively, and related mainly
to borrowings under the revolving line of credit for 1999, and proceeds received
from the exercise of stock options and warrants in 2000, partially offset by
repayments of debt.
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.
The information below summarizes the Company's market risk associated with its
debt obligation as of March 31, 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 March
31, 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 $33,000, based on the debt outstanding
as of March 31, 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 Estimated
Interest Fair Carrying
Description Rate Value Amount 2000 2001 2002
- --------------------------------------------------------------------------------
Term loan 10.50% $3,322 $3,322 $900 $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.
17
<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 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 27 - Financial Data Schedule (Edgar filing only).
Reports on Form 8-K - On January 13, 2000 the Company filed a Report on Form 8K
relating to the sale of its French subsidiary on December
29, 1999.
18
<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: May 12, 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
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,750
<SECURITIES> 0
<RECEIVABLES> 10,933
<ALLOWANCES> 1,048
<INVENTORY> 0
<CURRENT-ASSETS> 14,617
<PP&E> 13,973
<DEPRECIATION> 12,381
<TOTAL-ASSETS> 18,667
<CURRENT-LIABILITIES> 19,772
<BONDS> 0
0
0
<COMMON> 72,243
<OTHER-SE> (75,473)
<TOTAL-LIABILITY-AND-EQUITY> 18,667
<SALES> 2,044
<TOTAL-REVENUES> 11,908
<CGS> 437
<TOTAL-COSTS> 7,566
<OTHER-EXPENSES> 3,603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 242
<INCOME-TAX> 0
<INCOME-CONTINUING> 242
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<EXTRAORDINARY> 0
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