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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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 incorporation (I.R.S. Employer Identification No.)
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock $.01 par value....................... American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on March 15, 2000
as reported on the American Stock Exchange, was approximately $87.7 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 15, 2000, Registrant had outstanding 24,348,352 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
ITEMS 10, 11, 12 AND 13 OF PART III ARE INCORPORATED BY REFERENCE FROM A
PORTION OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FURNISHED TO
STOCKHOLDERS IN CONNECTION WITH THE 2000 ANNUAL MEETING OF STOCKHOLDERS.
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ITEM 1. BUSINESS
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 future financial results
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 events or results to
differ materially from those indicated by such forward-looking statements,
including the matters set forth in "Business--Risk Factors" below.
GENERAL
Computron is a provider of electronic commerce (e-commerce) solutions. It
has over 20 years of experience in designing and building process-centric
business solutions for global organizations. Computron has a proven track record
in developing robust, high-volume, scalable, secure and effective business
solutions for global 2000 sized organizations. Computron's ability to quickly
identify emerging market opportunities and build high-quality innovative
solutions has won many awards over the years, including Imaging Magazine's
"Product of the Year" award for Computron Workflow and first Internet/Java COLD
product: "Best of AIIM" award.
Computron believes that the ultimate success of 21st century organizations
will be determined by how seamlessly they conduct business with their trading
partners (customers, suppliers and partners). The Company's objective is to
deliver Internet-based business solutions that enable organizations to establish
transparent processes throughout their value-network.
In 1999, Computron invested significantly in the development of e-commerce
technology, and will continue to invest throughout 2000. In order to better
focus on emerging e-commerce opportunities, effective January 1, 2000, Computron
reorganized around three new product families that represent separate lines of
business ("LOB") within Computron:
TRANSAXS-TM- SOLUTIONS--an e-commerce solution for conducting business across
the Internet
AXSPOINT-TM- SOLUTIONS--a solution for sharing knowledge internally and between
trading partners
PSA SOLUTIONS--a complete e-commerce solution for the professional services
industry
Each of these new Internet-based families of solutions are based on
Computron's e-Cellerator-TM- products, which utilize a next generation, business
messaging, processing and transaction architecture that Computron developed to
support the design and development of large-scale, Internet-based commerce
solutions. It is an "n-tier" (desktop browser, Internet server, application
server and database server), component-based, Internet-deployable, scalable
architecture. At the core of the architecture is an advanced workflow engine
that handles large volumes of complex business logic. The user interface is very
intuitive and is accessible over the Internet.
E-Cellerator products run on Windows NT, Sun Unix, HP UNIX, Tru64 UNIX and
IBM RS/6000 Unix. Support for Linux is expected to be made available during
2000. The e-Cellerator products support the following database engines: Oracle,
MS SQLServer, Informix and Sybase. The component-based architecture enables
rapid integration and deployment of advanced technology. Solutions built with
e-Cellerator products can be hosted in-house or remotely by third-party
application service providers (ASP). In the ASP model, use of e-Cellerator
products allows multiple customers to be hosted on a single server, thus
significantly reducing the cost of ownership.
TransAXS Solutions are modular and can be purchased as separate components
or as part of a full e-commerce solution. The first TransAXS module, TransAXS
Procurement, is expected to ship to customers as of the first quarter of 2000.
Other TransAXS Commerce Manager modules, including TransAXS Vendor and TransAXS
Customer, are expected to be available for release during the second half of
2000.
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Computron's AXSPoint Solutions enable organizations to seamlessly share
business knowledge with their trading partners. They are built with e-Cellerator
products and are Internet-deployable, robust and able to handle large volumes of
business traffic. AXSPoint Solutions are designed to seamlessly connect
disparate information sources across the Internet. Initially AXSPoint Solutions
will be focused on high volume, information-centric, service industries such as
Banking, Finance and Utilities. Like TransAXS Solutions, AXSPoint Solutions are
modular and can be licensed directly to organizations or hosted on third-party
ASPs.
Computron's PSA Solutions are focused on the professional services
marketplace. PSA Solutions are a full suite of modules that enable professional
services firms to effectively manage the end-to-end business process. Based on
e-Cellerator products, these solutions are fully Internet-deployable. They
enable users to access core functionality on an "anytime, anywhere" basis. PSA
Solutions can be licensed directly to medium and large organizations or can be
offered as a service hosted on an ASP.
Computron's client/server products, such as Computron Financials, continue
to be maintained, enhanced and upgraded. They are the back-office system of
choice for large information-centric, global organizations like AIG, Pfizer,
AOL, Deutsche Bank, Emery, TNT, Toys R Us, Ricoh and United Airlines.
Computron's client/server products have been particularly well received in those
organizations that have adopted an internal "shared services" approach to
back-office administration functions. Computron Financials have extensive
functionality and are able to handle large volumes of complicated business
transactions. They are designed to manage end-to-end business processes.
Computron Financials are integrated with a robust workflow engine that allows
organizations to track a wide range of business-process metrics. The Process
Design Workbench is a critical component of the solution. It enables
organizations to quickly tailor standard business process templates to meet
their own unique needs. The underlying "n-tier", client/server architecture is
highly scalable and able to meet the transaction volume needs of Fortune 100
organizations. In 1999, the Computron Workflow engine was enhanced to use
e-Cellerator products to enable access to core functionality over the Internet.
As a result, Computron Workflow can be used to automate business processes
across the Internet, thus extending the reach of end-to-end process control
outside of the walls of traditional bricks and mortar organizations.
In this emerging Net economy, with the virtual office becoming more
prevalent, Computron is well positioned to meet the business needs of
e-organizations. Computron's e-Cellerator products provide the ability to
leverage technology and disseminate business knowledge electronically throughout
the enterprise or across enterprises.
ORGANIZATION AND PRODUCTS
Effective January 1, 2000, Computron Software reorganized itself into three
LOBs: TransAXS Solutions, AXSPoint Solutions and PSA Solutions. Each of these
LOBs is responsible for its own global business strategy and its operations in
North America. Computron's international subsidiaries and distributors are
responsible for selling and marketing the products of these three LOBs into
their respective local markets.
TRANSAXS SOLUTIONS. Is responsible for developing and marketing e-commerce
solutions that enable organizations to share knowledge and conduct business more
effectively with their trading partners. This is referred to as Internet
Transaction Processing, or ITP. ITP allows organizations to securely conduct
business over the Internet, including contracting for services or the delivery
of products. TransAXS Solutions support the full business cycle from placing an
order for a service or product, through delivery and eventual payment and
reconciliation.
The flagship product will be TransAXS Commerce Manager, a full suite
solution designed to meet the growing needs of organizations in today's dynamic
Internet-driven business climate. The TransAXS Commerce Manager solution will
consist of a number of modules, the first of which is scheduled to ship to
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customers during the first quarter of 2000. Other modules are expected to become
available during the second half of 2000, and on into 2001.
The TransAXS Solutions LOB is also responsible for maintaining, supporting
and enhancing Computron's traditional client/server suite of world-class
back-office financial products and over 100 existing Computron North American
customers, including Pfizer, AIG, Toys 'R' Us, Ricoh, United Airlines and Emery.
The TransAXS Solutions LOB is working closely with existing customers to ensure
that TransAXS Commerce Manager will meet the e-commerce needs of global
organizations.
The TransAXS Solutions LOB currently markets its products and services
primarily through a direct sales force in the United States and directly and
indirectly in other parts of the world, and plans to expand through other
alliances. The TransAXS Solutions LOB conducts comprehensive marketing programs
in the United States, which include telemarketing, public relations, direct
mail, advertising, seminars, trade shows and ongoing customer communications
programs.
The TransAXS Solutions LOB's marketing efforts in the United States are
conducted by a direct sales force, which is located at the Company's
headquarters in Rutherford, New Jersey, and in the Chicago and Los Angeles
areas. In addition, the Company has established strategic alliances with
consulting, hardware, database and software vendors to enhance its marketing
efforts.
Outside of the United States, the TransAXS Solutions LOB utilizes the
Company's sales and support offices in Australia, Poland, Bulgaria, Singapore,
South Africa and the United Kingdom. In the past the Company has established
distribution arrangements with third parties around the world and continually
evaluates future third party arrangements. Currently, the TransAXS Solutions LOB
does not generate significant revenues from its distributors.
During 2000, the TransAXS Solutions LOB will look to establish agreements
with major ASP providers. Under these agreements TransAXS solutions will be
hosted and "rented" to end-user organizations. The TransAXS Solutions LOB
expects to take a share in this revenue stream. This distribution model will
allow TransAXS solutions to be marketed to a much wider audience of
organizations. Traditionally, Computron has focused on global 2000 sized
organizations, but an ASP model will allow a small to medium sized organization
to access the functionality of TransAXS solutions.
TRANSAXS SOLUTIONS:
This new family of solutions will be able to leverage and share some of the
core functional components of existing Computron products, such as Computron
Financials. The ability to utilize existing low-level components will enable
TransAXS solutions to have a powerful set of core business functionality, such
as multi-language and multi-currency, and the ability to handle complex
accounting requirements, and different forms of payment. As a result, the
TransAXS Commerce Manager Solution will have all the features of a powerful
e-commerce solution, backed by the solid functionality of a world-class, global
back-office suite of business products.
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MODULE FEATURES
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TRANSAXS PROCUREMENT.......... This solution allows organizations to procure products and
services over the Internet. The TransAXS Procurement
solution manages the end-to-end procurement cycle. It
enables users to purchase directly from world-class
electronic shopping experiences such as those offered by
OfficeDepot, Staples, and Amazon.com etc. It can also allow
the organization's purchasing function to maintain local
catalogs of products and services. The TransAXS Procurement
solution maintains full control of routing purchase orders
for approval and checking against budgets, all with a full
set of complex and flexible business rules. It is fully
integrated with Computron Financials and is designed to be
the electronic procurement system of choice for existing
Computron Financials' customers. The TransAXS Procurement
solution fully supports encumbrance rules, which is key to
federal, state and local government organizations. This
product has been made available in beta form and is expected
to be generally released in the first quarter of 2000.
TRANSAXS VENDOR............... This is a vendor self-service agent that will allow
suppliers to access vital information twenty-four hours a
day, seven days a week. Suppliers will be able to check the
status of payments and invoices, and even make changes to
information such as billing addresses, contact data, etc.
The TransAXS Vendor solution will allow suppliers to avoid
telephone tag and let them automatically keep their key
business information current. The TransAXS Vendor solution
is expected to improve customer service and significantly
reduce administrative overhead in the accounts payables
department. This product is currently in design and an
initial version is expected to be released for beta by the
third quarter of 2000.
TRANSAXS PAYMENT.............. This product will allow organizations to automate the
process of paying suppliers. It is designed to manage the
payables aspect of the TransAXS Procurement solution.
However, it will also handle traditional forms of payment,
including EFT, checks, etc. When coupled with the TransAXS
Procurement and TransAXS Vendor solutions, it will offer a
complete Internet approach to managing supplier
relationships. This product is currently in design and an
initial version is expected to be released for beta by the
third quarter of 2000.
TRANSAXS CUSTOMER............. This is a customer-service agent that will allow customers
to access vital information twenty four hours a day, seven
days a week. Customers will be able to check the status of
orders, shipments and even make changes to information such
as billing addresses and contact data, explain why payments
are on hold or question invoice amounts etc. The TransAXS
Customer solution will allow customers to avoid being cut
off from vital information outside normal business hours.
The TransAXS Customer solution is expected to improve
customer service and reduce administrative overhead in the
accounts receivable and customer service departments. This
product is currently in design and an initial version is
expected to be released for beta by the fourth quarter of
2000.
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MODULE FEATURES
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TRANSAXS BILLING.............. This product is a full billing system. In addition to
handling electronic billing, it will also support
traditional billing mechanisms and will thus be ideal for
organizations making the transition from traditional billing
approaches to Internet-based billing. The TransAXS Billing
solution will be able to handle very large volumes of
invoices in a very robust and secure environment. It will be
fully integrated with the TransAXS Customer solution. This
product is currently in design and an initial version is
expected to be released for beta by the fourth quarter of
2000.
TRANSAXS ANALYST.............. This is a central repository for storing business
performance information. It will include the ability to
design and produce business performance reports, such as
financial statements and profitability analysis reports. It
will also have the ability to publish these reports across
the Internet or through e-mail. The distribution of reports
will be able to be optionally tracked from a process
viewpoint and to require feedback and updates from
subscribers. This product is currently in design and an
initial version is expected to be released for beta by the
fourth quarter of 2000.
The vision for the TransAXS Commerce Manager solution includes a number of
other modules, including the TransAXS Shopper (an electronic store front to
interface to existing internal order entry systems), TransAXS Budget Manager (to
allow organizations to budget across organizational boundaries) etc. modules.
These products are scheduled for release during 2001 and beyond.
COMPUTRON FINANCIALS:
This is Computron's client/server suite of products. It is a world-class
suite of back-office administrative systems being used by some of the largest
organizations in the world. It is built on a highly scalable, component-based,
robust, n-tiered architecture.
MODULE FEATURES
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GENERAL LEDGER................ The General Ledger (GL) module provides comprehensive
financial accounting and management information across
multiple companies, currencies, and reporting calendars. It
stores and maintains financial, statistical, and budgetary
information for summary, comparison, calculation, inquiry,
and reporting. Computron believes that the product fulfills
statutory, consolidation, and management requirements and
offers benefits such as complete user control of all
functions and ledger structure, n-dimensions Geographical
Chart of Account structure, customization of Advanced User
Interface, and total integration with other Computron
applications and (via its own sophisticated interfacing tool
GENEX) with non-Computron software. Through the use of
various standard Computron utilities, data can also be
uploaded to and/or downloaded from external sources.
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MODULE FEATURES
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POWER INTERACTIVE............. Power Interactive is a set of components used to define GL
financial reports. Created in Visual Basic, Power
Interactive provides a traditional Windows look and feel
with standard icons, while allowing users report access and
drill down capability to virtually any data available in the
GL. Its components include the Power Interactive Definer and
Power Interactive Viewer. The Power Interactive Definer
allows the specification of a report using a graphical user
interface, without having to consider the details of the
actual report layout. Its Power Interactive Viewer component
is a user-friendly tool that facilitates end-user financial
report modifications and customizations. With Power
Interactive, users can define financial report data lines
and columns using the Definer, and use the Viewer to define
and/or view the layout. For performance and scalability, all
data is gathered on the server.
BUDGET CYCLE MANAGEMENT....... The Budget Cycle Management (BCM) module is workflow-based
and is designed to allow organizations to automate the ways
in which budget information is downloaded/uploaded,
disseminated and collected throughout the enterprise. It
provides the ability to track the status of each form,
reducing the frequent manual intervention involved in the
budget cycle process. With BCM, organizations in virtually
any industry can improve the overall quality and control of
the budgeting process, decrease wait time by speeding the
manual process, and reduce manual effort.
ACCOUNTS RECEIVABLE........... The Accounts Receivable module provides efficient and
comprehensive debtor management facilities, offering
complete financial accounting and management information, in
multiple currencies, to fulfill statutory and management
requirements and is suitable for Internet Service Providers
(ISPs), because of its ability to consolidate invoice line
details. It is parameter-driven for precise matching to user
requirements and offers users control of many functions
including the ledger structure. Users can create Call Back
Queue records based on data from the customer master,
customer statistics, and open item files using the Credit
Manager's workbench function. Additionally, Computron
Accounts Receivable has an optional Direct Invoicing module
that handles pick list generation, invoice generation, deal
pricing, and pricing and discount tables for goods and
services. It also provides comprehensive financial
accounting and management reporting and inquiry (statistical
and financial), in multiple currencies. It supports the EDI
820 and 823 requirements. Through the use of various
standard Computron utilities, data can be uploaded to and/or
downloaded from external sources.
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MODULE FEATURES
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ACCOUNTS PAYABLE.............. The Accounts Payable module is a sophisticated vendor
management system. It offers an easy-to-use method of
managing suppliers, vendors, and the purchasing cycle. It
embraces purchasing statistics, cash management forecasting,
employee advance and expense handling, EFT payment
capability, built-in invoice logging, BACS, tracking and
payment authorization procedures. It also provides
comprehensive financial accounting and management reporting
and inquiry (statistical and financial) in multiple
currencies. Through the use of various standard Computron
utilities, data can also be uploaded to and/or downloaded
from external sources.
EXPENSE CYCLE MANAGEMENT...... Expense Cycle Management (ECM) is a complete application
that integrates portions of Computron's financial modules
with workflow technology and is delivered with a graphical
process design wizard called the Process Design Workbench.
It comes with all of the workflow tasks necessary for
re-engineering the payment cycle, such as several scanning,
faxing and invoice capture tasks, tasks for indexing
documents, voucher approval routing options, EFT payments,
exception handling, and full online inquiry to the workflow
and financial data.
PURCHASE ORDER................ The Purchase Order module enables automated purchase order
processing, user-defined vendor evaluation and allows for
blanket and standard orders, transmission of purchase orders
through print, fax, or EDI 832, 850 and 855, critical
delivery flagging, and "contract near limit" warnings. It
provides sophisticated buyer sourcing that includes
automatic pick tickets and direct requisition to purchase
order processing. With the addition of Bids and Quotes in
Version 5.0, the buyer can manage competitive bids on both
current and historical data and record quotes received from
the vendors against the bid sent to them.
PROCUREMENT CYCLE
MANAGEMENT.................. Procurement Cycle Management (PCM) is a complete application
that integrates portions of Computron's financial modules
with workflow technology, including the Process Design
Workbench. It allows individual organizations to define the
procurement cycle process and provides a view of the current
processes, identifying areas that can be improved. By
coupling the value of workflow with Computron's standard
functional richness, PCM helps organizations decrease wait
time, reduce manual effort, and improve the control of the
procurement process. PCM can electronically create both
requisitions and purchase orders, and upon completion of an
online requisition, perform custom business rules, or
automatically route the requisition to a supervisor for
approval and release.
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MODULE FEATURES
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INVENTORY CONTROL............. The Inventory Control module is a highly flexible inventory
system with full integration to both Computron
Financials/Purchase Order and Computron Financials General
Ledger. This system features extensive inventory transaction
capabilities and detailed reporting functionality. Notable
features include Item Master File maintenance and inquiry
capability, Bill of Materials, full integration to Computron
Financials/Purchase Order through Requisition and Receiving,
Pick List processing, a full range of inventory transactions
including warehouse moves, transfers, issues, and returns,
inventory count capabilities and inventory reporting, and
costing methods. Through the use of various standard
Computron utilities, data can also be uploaded and/or
downloaded from external sources.
FIXED ASSETS.................. The Fixed Assets (FA) module tracks fixed assets, maintains
related financial and accounting records and provides for
flexible, unlimited depreciation calendars, user-defined
asset identification and make, model and number
descriptions. It can generate fixed asset information
directly for the Computron Financials/General Ledger. This
will produce the data required to update asset accounts,
accumulated depreciation accounts, depreciation expense
accounts, disposition gain or loss accounts, and relieve the
appropriate FA clearing accounts. This update can then be
posted directly to the Computron Financials/General Ledger
and with the integrated reconciliation of GL and FA, can be
easily monitored. Through the use of various standard
Computron utilities, data can also be uploaded and/or
downloaded from external sources.
ENCUMBRANCE ACCOUNTING........ The Encumbrance Accounting module enables public sector and
not-for-profit organizations to ensure that they do not
exceed budgeted amounts by enforcing strict controls over
disbursements and purchasing.
AXSPOINT SOLUTIONS. Is responsible for developing and marketing solutions
that enable organizations to electronically and securely share knowledge with
their trading partners. The AXSPoint Solutions LOB enables its customers to gain
and maintain competitive advantage by providing the foundation for delivering
information across the enterprise and throughout the value-network. This is
accomplished by:
- Using technology to capture, store, and present critical knowledge;
- Providing customers with Computron resources (people) who have domain
expertise in specific industries: banking/financial services and
utilities.
AXSPoint solutions are designed to allow direct and secure Internet access
to knowledge, thereby avoiding forcing trading partners to go through time
consuming and human capital-intensive telephone customer service "help desks" to
gain access to critical business information. AXSPoint solutions have been
deployed as self-service information systems, Internet report publishing and
distribution systems, Internet-enabled information reconciliation systems, and
transaction confirmation solutions.
AXSPoint Solutions are typically implemented in weeks with an emphasis on
providing rapid return on investment and minimizing project risks. Time to
market is a critical selling point that differentiates the Company's product
lines from competitive offerings. AXSPoint Solutions are an excellent way for an
organization to start receiving the benefits of the Internet without having to
completely re-engineer the way it does business.
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The AXSPoint Solutions LOB has 75 North American customers, and over 125
clients globally, including First Union, Deutsche Bank, Chicago Mercantile
Exchange, and Chase Manhattan. Most of these organizations use client/server
versions of Computron COOL-TM- software, but during 2000 the Company hopes to
upgrade many of these customers to e-Cellerator products-based AXSPoint family
of solutions.
The AXSPoint Solutions LOB currently markets its products and services
primarily through a direct sales force in the United States and other parts of
the world. The LOB targets large information-centric organizations that can
utilize self-service information systems to improve communications with their
customers and improve access to business intelligence. The AXSPoint Solutions
LOB is focused on specific industry verticals where it has domain expertise,
including banking/financial services and utilities. The business climate of
these industries includes regulatory compliance issues, active business
consolidation, and a requirement to retain/attract their customers as the
markets deregulate.
The AXSPoint Solutions LOB conducts comprehensive marketing programs in the
United States, which include telemarketing, public relations, direct mail,
advertising, seminars, trade shows and ongoing customer communications programs.
To ensure a high level of customer satisfaction, the LOB has launched a Client
Outreach Program with the primary goal of identifying vertical solutions
targeted to the top requirements of the client base.
The AXSPoint Solutions LOB's marketing efforts in the United States are
conducted by a direct sales force, which is located at the Company's
headquarters in Rutherford, New Jersey, and in Atlanta. In addition, the Company
has established strategic alliances with hardware, database and software vendors
to enhance its marketing efforts. The AXSPoint Solution LOB is able to offer its
clients highly flexible licensing schemes (including transactional and
percentage of savings models) to match the methods by which the customer needs
to measure the ROI of the investment in AXSPoint solutions.
Outside of the United States, the AXSPoint Solutions LOB utilizes the
Company's sales and support offices in Australia, Poland, Singapore, South
Africa and the United Kingdom. In the past the Company has established
distribution arrangements with third parties around the world and continually
evaluates future third party arrangements. Currently, the AXSPoint Solutions LOB
does not generate significant revenues from its distributors, however, it
recognizes that active involvement with potential channel partners is a key to
leveraging the assets of the LOB.
During 2000, the AXSPoint Solutions LOB will look to establish agreements
with major ASP providers. Under these agreements AXSPoint solutions will be
hosted and "rented" to end-user organizations. The AXSPoint Solutions LOB
expects to take a share in this revenue stream. This distribution model will
allow AXSPoint solutions to be used by a much wider audience of organizations.
Traditionally, Computron has focused on global 2000 sized organizations, but an
ASP model will allow any organization to access the functionality of the
AXSPoint solutions.
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AXSPOINT SOLUTIONS:
MODULE FEATURES
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AXSPOINT CENTRAL.............. Consists of a central repository for storing business
information, together with tools that allow information to
be published to the repository. The base system comes with
the ability to extract information from external report
files. These report files may be either internal reports or
report files received from third-party organizations such as
vendors, customers or business partners. Once information is
stored in the repository, users can gain access to this
information via a standard browser. The system will also
allow users to subscribe to information and receive
notifications or reports via email. The AXSPoint Central
solution also has the ability to extract information from
multiple sources. The repository can store historical views
of the same information and allows users to analyze data
from historical reports. This is an excellent tool to pull
information from reports generated from various sources and
give trading partners access to this information across the
Web.
AXSPOINT FUSION............... An upgrade to the AXSPoint Central solution, it allows the
repository to also access information in relational
databases and merge this information with data contained in
the central repository. It stores extracted relational data
inside the repository making it available to multiple users.
The AXSPoint Fusion solution also comes with powerful
analytical tools. The AXSPoint Fusion solution can either be
used as an ad-hoc analytical front end or as a tool to
develop more sophisticated business solutions.
AXSPOINT EXCHANGE............. The AXSPoint Exchange solution allows rapid development of
extranet, secured, access to knowledge that a corporation
wishes to share with its customers via Internet
self-service. This LOB expects to, in close cooperation with
major customers, build a number of industry specific
solutions, focused in the banking and utility verticals.
AXSPoint Exchange solutions are designed to meet specific
business needs, such as mortgage information processing or
self-service statement presentment. End-users access the
software via a standard web-browser and are authenticated
for page-level secured access to AXSPoint Central reports.
Users can search, view, or download reports as spreadsheets
or XML-tagged files for further analysis. These solutions
are designed using e-Cellerator products and can be combined
with the TransAXS Rules module to build complete
self-service applications.
AXSPoint web-centric solutions can rapidly take advantage of the Linux
operating system. The AXSPoint Exchange solution is being ported to Linux and is
currently available on Microsoft Windows NT and UNIX. XML is fast becoming a
universal language for exchanging business documents and information. During
2000 AXSPoint solutions are planned to become XML-aware and take advantage of
this emerging standard.
PSA SOLUTIONS. Is responsible for providing solutions to professional
services organizations (PSOs). This family of solutions allows PSOs to operate
virtually and globally across the Internet. PSOs are among the first of the
virtual workforces requiring the ability to connect a complex network of
clients, employees,
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contractors and partners in a truly global environment. The PSA Solutions LOB is
able to provide that connectivity across trading partners.
The PSA Solutions LOB has adopted a business partner strategy to provide a
full-suite solution whereby PSOs can benefit from the years of experience and
product breadth of all components of its solution. The PSA Solutions LOB's core
solutions allow PSOs to effectively and efficiently manage their revenue and
margin stream from anywhere in the world.
The PSA Solutions LOB has formed a strategic partnership with PlanView Inc.
who designs and markets a world-class suite of resource and project
management/scheduling tools. The ability to integrate third party tools and
products with the PSA Solutions LOB's family of solutions is a key component of
being able to offer an integrated full suite solution to PSOs. The PSA Solutions
LOB is also actively seeking other partnerships during 2000.
The PSA Solutions LOB's business partners also include the other Computron
LOBs. By using Computron's e-Cellerator products, the PSA Solutions LOB is able
to provide PSOs with world-class Internet transaction processing (ITP) and
Internet knowledge processing (IKP) systems tailored to the specific
requirements of PSOs.
The PSA Solutions LOB has 15 global customers, including Mercer Management
Consulting, Cap Gemini America, Sun Microsystems and America Online. These
organizations use client/server versions of Computron's PSA Time & Expense
(formerly known as TEAM) software, but during 2000 the Company hopes to migrate
many of these customers to e-Cellerator products-based PSA Solutions family of
solutions.
The PSA Solutions LOB currently markets its products and services primarily
through a direct sales force in the United States and directly and indirectly in
other parts of the world. The PSA Solutions LOB conducts comprehensive marketing
programs in the United States, which include telemarketing, public relations,
direct mail, advertising, seminars, trade shows and ongoing customer
communications programs.
The PSA Solutions LOB's marketing efforts in the United States are conducted
by a direct sales force, which is located at the Company's headquarters in
Rutherford, New Jersey. The PSA Solutions LOB has established strategic
alliances with hardware, database and software vendors.
Outside of the United States, the PSA Solutions LOB utilizes the Company's
sales and support offices in Australia, Poland, Singapore, South Africa and the
United Kingdom. In the past the Company has established distribution
arrangements with third parties around the world and continually evaluates
future third party arrangements. Currently, the PSA Solutions LOB does not
generate significant revenues from its distributors.
During 2000, the PSA Solutions LOB will look to establish agreements with
major ASP providers in the United States and the United Kingdom. Under these
agreements, the PSA Solutions LOB's solutions will be hosted and "rented" to
end-user organizations. PSA Solutions expects to take a share in this revenue
stream. This distribution model will allow the PSA Solutions LOB's solutions to
be used by a much wider audience of organizations. Traditionally, the PSA
Solutions LOB has focused on PSOs with in excess of 500 billable consultants,
but an ASP model will allow any sized organization to access the functionality
of the PSA Solutions LOB's solutions.
12
PSA SOLUTIONS:
MODULE FEATURES
- ------ --------
PSA TIME & EXPENSE............ The Time and Expense module gives business and practice
managers complete control over the process of recording and
billing time and expenses at every level (client,
engagement, project, office, responsible employee, etc.), as
well as multiple options for cost and billing rates,
contract billing and revenue recognition. Time and expense
information, editing, and billing facilities can all be
accessed from an industry standard browser permitting
up-to-the-minute accuracy and prompt invoicing of time and
expenses incurred on multiple levels of clients and/or
projects. This powerful management tool can be utilized in
increasing the productivity and profitability of all
chargeable time and services, as well as flexibility in
defining the billing rules for each client project. Along
with missing time alerts and remote time and expense
logging, the PSA Time & Expense solution delivers accurate
and timely management of employees and billing tasks, which
is particularly suitable for PSOs. Through the use of
various standard Computron utilities, information can also
be uploaded and/or extracted from external sources. For
example, information could be automatically updated from the
customer's in-house HR system.
PSA REVENUE CYCLE
MANAGEMENT (RCM)............ This module is a process-centric revenue management module
that allows PSOs to manage changes to their revenue stream
more effectively. Phase I of RCM, currently available,
automates the pre-billing approval process, which enables
organizations to manage their billing process more
efficiently. Phase II of RCM, scheduled for release in first
quarter of 2001, will manage the ways in which changes to
already recorded revenue are managed and approved throughout
the enterprise.
With RCM, organizations will be able to improve the quality
and control of revenue. RCM will enhance the practice
manager function by allowing fast and accurate access to
pertinent information for clear and quick decision-making.
PROJECT & RESOURCE
MANAGEMENT.................. This solution (available directly from PSA Solutions'
business partner, PlanView Inc.) allows project managers to
plan, staff and manage the projects under their
responsibility, and allows resource managers to forecast
resource requirements and to manage and schedule resources.
It also allows individual employees to update their skills
inventory and preferences for future assignments. It is
expected that these modules will be capable of full
integration with the PSA Time and Expense solution during
the second quarter of 2000.
PSA PROCUREMENT............... This solution is comprised of two components. The first
component will allow PSOs to secure project resources,
beyond their own staff, via the Internet. This component is
planned to be available in the third quarter of 2000.
13
MODULE FEATURES
- ------ --------
The second component is a version of the TransAXS
Procurement solution tailored to meet the needs of PSOs. The
PSA Procurement solution will allow customers to purchase
products and services from vendors. This module will allow
an organization to secure products and services over the
Internet and is planned to be available in the fourth
quarter of 2000.
PSA ANALYSIS.................. This is a central repository for storing business
performance information. It will include the ability to
design and produce business performance reports, such as
financial statements, profitability analysis and utilization
reports. It also will have the ability to publish these
reports across the Internet or through e-mail. The
distribution of reports will be able to be optionally
tracked from a process viewpoint and to require feedback and
updates from subscribers. This product is planned for fourth
quarter of 2000.
PSA CUSTOMER.................. This is a version of the TransAXS Customer solution designed
to meet the unique needs of PSOs. It will allow a customer
to request new projects, get status information on existing
projects, update contact and billing information, etc.--all
of which will provide an electronic means of communicating
with their professional services supplier. This product is
planned for the fourth quarter of 2000.
PSA PAYMENTS.................. A version of the TransAXS Payments solution tailored to meet
the unique needs of PSOs, especially in the area of managing
third-party contracted professional services. This product
is planned for the fourth quarter of 2000.
PSA VENDORS................... This is a version of the TransAXS Vendor solution tailored
for PSOs. It will allow third-party contractors to
electronically manage their profile and business
information. This product is planned for the fourth quarter
of 2000
COMPUTRON YORVIK
Yorvik software is a knowledge-based suite of integrated business
applications that addresses the maintenance, project management, inventory, and
purchasing operations. Its purpose is to provide the necessary tools, through
functional richness, to enable asset intensive, change-oriented organizations to
increase profitability by maximizing equipment uptime, increasing efficiencies
of large projects, reducing inventory costs and streamlining purchasing
processes. In addition to satisfying the needs of the above mentioned
operations, Yorvik software's internal workflow allows it to be configured to
satisfy many other types of work management projects, bringing added value to
these companies. Unlike the conventional Computerized Maintenance Management
Systems available today, Yorvik's software is a knowledge-based Work Management
System, which provides an integrated, single source best-of-breed, enterprise
asset management solution.
The added value Yorvik software offers an organization is internal workflow
for easily configurable systems, the functionality to support business process
reengineering, and an architecture that creates a fully integrated resource,
maintenance and materials management backbone. At the heart of this backbone is
a "virtual map" of the organization within the Yorvik Facility/Equipment
database. Yorvik software automates the planning and management process, gathers
all relevant resources, schedules multiple or individual job steps, and
generates reports including those related to cost control.
14
Computron Yorvik is based on a robust client/server technology. At this time
there are no immediate plans to migrate Computron Yorvik to Computron
e-Cellerator products. Yorvik development is currently focusing on building
value-added solutions to both Yorvik users and users of competitive software
solutions using Internet standard technologies such as Active Server, Java and
OLEDB.
ARCHITECTURE
At the heart of the Company's new e-commerce solutions are e-Cellerator
products, which utilize an open, Internet-ready, n-tier modular architecture
designed to adapt to new technological innovation and enable organizations to
capitalize on these innovations quickly and cost-effectively. The architecture
was created to simplify continuous process re-engineering (CPR) and allow
companies to achieve their goals of increased competitiveness and reduced costs.
E-Cellerator products allow Computron's business solutions to either be
installed on in-house computing resources or to be remotely hosted by
third-party ASPs. This in turn leads to rapid implementation times and reduced
project risks.
The e-Cellerator products are highly scalable, robust and able to handle the
very high levels of transaction volumes and availability demanded by e-commerce
solutions. These next generation products embrace the use of many third-party
e-commerce tools. E-Cellerator products have been designed by Computron to
enable the design and creation of e-commerce solutions that seamlessly glue
together disparate business processes and legacy systems across the Internet.
These products can access information through a variety of approaches and
extract information contained in multiple data sources. Information can be
extracted from computer reports, relational databases, HTML Internet pages, XML
documents, etc. E-Cellerator products can interface to legacy systems through
API calls and multiple messaging protocols, and can publish information via
e-mails, reports, direct updates, messages, HTML pages or XML documents.
Access to e-Cellerator products-based solutions is through Computron's AXS
Desk user interface. The AXS Desk interface is a technology that sits on a Web
server and allows a user to access certain functionality and information through
an intuitive, no training, HTML interface (e.g., a standard Web browser). For
more sophisticated users, there will be a Java applet-based interface that
offers many more features. The AXS Desk Designer module will allow customers to
construct and change Computron's Java-based applets using an industry standard
form design environment. Computron's traditional client/ server solutions, which
utilize an ultra thin Microsoft VB-based client, will be accessible through the
AXS Desk/C module.
Computron's e-Cellerator products support relational database management
systems (RDBMS) from vendors such as Microsoft Corporation (Microsoft SQL),
Oracle Corporation (Oracle), Sybase, Inc. (Sybase), and Informix Corporation
(Informix). Computron's solutions run on a variety of UNIX-based platforms--Sun
Microsystems, Inc. (Sun), Hewlett-Packard Corporation (HP) Tru64 UNIX and
International Business Machines Corporation (IBM), as well as Intel-based
servers running Windows NT. During 2000, Computron intends to support the Linux
operating system with certain of its products.
Computron's solutions are designed to take advantage of diverse
configurations and processing capabilities at the customer or ASP site. For
example, a Computron installation can be configured to execute discrete
application functions (components) on multiple application servers. Additional
application or database servers can be applied as users are added.
15
Other e-Cellerator products include:
TRANSAXS RULES................ This is a very powerful workflow design tool for developing
robust, mission critical, Internet-ready business
applications. It will allow Computron consultants to add
sophisticated rules and logic to extend and enhance the
customer's business processes. The ability to dynamically
add and modify these business rules is critical to achieving
and maintaining process transparency with trading partners.
Once deployed, customers will have the ability to modify and
enhance the business rules themselves.
TRANSAXS AGENT................ Utilizing many of the features of the TransAXS Rules
product, this module will allow Computron or a customer to
build intelligent self-service agents. The TransAXS Vendor
and TransAXS Customer solutions will be the first two
products to utilize this product.
TRANSAXS PROCESS MANAGER...... This module will allow organizations to monitor and manage
their business processes, whether totally automated or
including some manual processes. This tool will allow a
supervisor to monitor workloads by individual or by queue
and make adjustments on a real-time basis to ensure peak
performance and service levels.
EXTENSIVE USE OF OBJECT-ORIENTED DESIGN TECHNIQUES
Since 1990, Computron has relied heavily on object-oriented design
techniques. The results can be seen throughout the architecture. For example,
user interface controls and display components are treated as objects that can
be individually manipulated, customized, and extended by user organizations.
Computron uses the Java programming language as a tool to build its
products. However, e-Cellerator products go beyond the traditional, more
technical view of object-oriented design techniques. E-Cellerator products-based
solutions are built on an inventory of "business components", or logical
decompositions of discrete business processes. These business components are
combined with the TransAXS Rules product to build robust, adaptable business
processes. Further, a customer, using either traditional programming or
Computron's TransAXS re-configuration techniques, can easily extend these
components.
The Company believes that the benefits of object-orientation are becoming
increasingly apparent. Object-oriented applications tend to be more modular than
those developed with traditional methods, have cleaner interfaces, more shared
code, and fewer entry points. Developers work in a simpler development
environment that is less prone to error, and they produce applications that are
easy to maintain, enhance, and distribute across the network. As a result,
end-users get applications that are reliable, manageable, and easy to adapt to
changing business requirements. In addition, Computron's flexible e-Cellerator
products allow developers to achieve increased scalability and performance.
N-TIERED ARCHITECTURE
First-generation client/server systems utilized a two-tier architecture in
which presentation and application logic were combined on client workstations,
and data was stored on one or more servers.
Though the classic two-tier client/server architecture is surprisingly still
at the heart of many enterprise solutions, its limitations have been widely
acknowledged. For example, the two-tier model requires application logic to be
executed on individual client workstations, reducing performance dramatically.
16
When using the two-tier model, increasing network traffic limits the
Information Technology ("IT") organization's ability to eliminate bottlenecks by
increasing server resources, and increases the complexity of applications,
thereby reducing their reliability, and more importantly, their availability.
In contrast, Computron's architecture has, for many years, separated
application functions into multiple logical groupings or tiers. At the heart of
Computron's architecture are four tiers: PRESENTATION, PROCESS LOGIC,
APPLICATION LOGIC, and INFORMATION ACCESS tiers.
Computron's traditional four tiers may themselves be partitioned into
multiple physical tiers. For example, it will be possible to deploy presentation
services across the Internet or private intranets and extranets, using either
the AXS Desk/C module (presentation services on the client only) or the AXS Desk
module (presentation services on the client and the web server). Therefore, it
is more appropriate to define the Computron architecture as N-TIER.
During 1999, Computron has been extending its e-Cellerator products. The
revised architecture differs from Computron's traditional client/server
architecture in that it adds a "templates and components" infrastructure
deployed in an Internet Server tier. This provides for a rich, intuitive end
user experience, and reduces the need to upgrade and support client software,
since use is made of industry standard browsers. In addition, Computron has made
significant changes in the application and database tiers to better support high
volume Internet transaction traffic.
Many first-generation client/server and Internet products rely on the
database vendor's remote Structured Query Language (SQL) network software to
communicate with the server. In contrast, Computron believes that for a
multi-tiered product to perform efficiently in diverse network and system
environments, it is critical that communication among the tiers be efficient and
flexible. Computron believes that the communication service is a crucial piece
of the architecture because of its performance impact and because it defines the
extent to which application components can be distributed across different nodes
in the network. The remote SQL APIs provided by most relational database vendors
are useful for retrieving data from a remote database server, but they do not
support a generalized interface for interprogram communication.
In its data access tier, Computron is free to exploit the database access
mechanism that is most appropriate for that database, and not use a "least
common denominator" solution across RDBMS's. Computron's RDBMS interfaces are
custom coded, and are focused on high function, high reliability, high security,
high performance information access issues.
CUSTOMIZATION AND EXTENSIBILITY
With many e-commerce solutions, customers often require extensive changes to
obtain the capabilities they desire. Some architectures provide this capability
by requiring the customer to modify the product source code. These changes add
complexity and potential instability; there is no guarantee that customized
source code versions of the product will translate to newer versions. Customers
may later find themselves unable to utilize new features or technologies that
could provide a competitive advantage.
Computron's e-Cellerator products are designed to avoid this problem by
using components that can be customized and extended without modifying the
source code, including:
- Presentation/user interface
- Process logic
- Application logic
- Inquiry reporting
- Drill-down modules
17
- The relational information model
- Validation and rules
- Business components for integration with other systems
- Business process rules
PROCESS DRIVEN
End-to-end process management is being increasingly recognized as a critical
element in successful e-commerce solutions. For years, Computron has included
with its financial applications, a world-class product, Computron Workflow, as
an integral part of its business solutions. Computron's e-commerce solutions are
not merely integrated with workflow; they have been designed and built with a
workflow engine--TransAXS Rules.
The TransAXS Rules module enables Computron e-commerce solutions to bridge
and automate the process void that exists between organizations. Business
solutions constructed with e-Cellerator products are rules based, allow user
defined decision processing, manage business processes and documents, and are
able to operate across the Internet.
The TransAXS Rules module is used to build total business solutions. Since a
powerful workflow rules engine is integrated directly into the TransAXS Rules
runtime, organizations are able to extend the reach of Computron applications to
drive all facets of their business. Computron will enable companies to build
high-performance production oriented end-to-end process systems that directly
access line-of-business and horizontal application data sources in batch mode
and in real time without compromising information.
Computron believes that the TransAXS Rules module is capable of being
partitioned to a fine level of granularity, helping organizations increase
performance at low cost. It is capable of being implemented in global
environments characterized by high volumes, large user bases, complex
conditional routing and extensive exception handling.
MAINTAINING SECURITY
Computron's e-Cellerator products provide multiple levels of security,
including ways to define update versus read-only access within specific
transactions. An organization's security hierarchy exists both across systems
and within individual applications.
For information level security, Computron's applications support NO ACCESS,
READ-WRITE ACCESS and READ-ONLY ACCESS for business documents. This is defined
in a security maintenance function, and uses application based security schemes.
Computron's security extends the native security mechanisms built into UNIX or
Windows NT, as well as native RDBMS security on a PER USER, USER GROUP or
SYSTEM-WIDE basis.
Computron offers an additional security authorization server, targeted
toward self-service and self-deployable applications. Further, since Computron
leverages standard web server technologies, standard Internet security schemes,
such as SSL and RSA can be used to provide additional transactional security.
LOWERING TOTAL COST OF OWNERSHIP
Computron believes that there are many ways in which its products and
architecture lower the total cost of ownership for an organization. For example:
- Computron provides Implementation Certainty, a proven methodology for
assuring a smooth transition to, and rapid implementation of, its
software.
18
- Computron's architecture allows organizations to leverage existing
development environments, and partition applications for maximum
performance.
- By customizing the software outside of the source code, it is easier to
upgrade from one version of the software to another--a feature that lowers
internal support costs.
- New client forms, menus, and messages can be uploaded; reducing the
maintenance required for new release implementations.
- Computron supports multiple languages, including double-byte enablement
using the same code. Therefore, the same product can be implemented across
the company.
PROFESSIONAL SERVICES
The Company considers its Professional Services to be a major asset and key
differentiator from other vendors. With its twenty-four hours a day, seven days
a week client support, Implementation Certainty methodology, standard and
customized training, product certification, and its level of dedicated support,
Computron has created a professional services program to handle the needs of its
customers.
As of December 31, 1999, the Company had 140 employees worldwide providing
customer support, consulting and training services. To maintain a high standard
of service, the Company requests customer evaluations of service personnel on a
quarterly basis. Bonus compensation for these personnel is based, in part, on
the results of these reviews. The Company's services are described below.
CLIENT SUPPORT
Support for domestic U.S. clients is based out of the Company's corporate
headquarters in Rutherford, New Jersey. Client support centers are also based in
Toronto (for the Yorvik software), Johannesburg, London, Melbourne, Singapore,
Bulgaria, Sydney and Warsaw. Annual maintenance contracts are generally required
for the first year of a customer's use of the Company's products, and are
renewable on an annual basis. The maintenance contract entitles the customer to
any upgrades to licensed products released during the term of the contract.
Maintenance fees vary depending on the hours of hot-line support requested by
the customer, and typically range between 17% and 21% of the license fees.
The Company also provides management overview and product information
bulletins on an ongoing basis and periodic informational updates about installed
products. These bulletins generally answer commonly asked questions and provide
information about new product features. The Company also provides services for
the development of customized documentation about the customer's system to
reflect, among other things, user-defined modifications and specific business
logic and processes.
TECHNICAL SERVICES
The Company offers assistance in developing interfaces with third party
software or legacy systems. These services are designed to enable the
development of additional client-specific functionality. The Company also
provides network troubleshooting and assists its customers in deploying Internet
systems, RDBMS software and operating systems.
CONSULTING SERVICES
The Company's consulting services organization provides project assurance,
business systems review, technical design, functional design, business modeling,
system tailoring, system certification, change management and ongoing project
support in connection with customer implementation of the Company's products.
Similar services are also provided for upgrades to later versions of the
software and migrations to different operating platforms. The Company also
frequently works with third-party consultants and system
19
integrators to provide customers with a full range of installation,
customization and project management services.
EDUCATION SERVICES
The Company provides education services in North America through its
Instructional Services group. This group is responsible for the development and
delivery of training courses designed to familiarize users with the Company's
products. A standard schedule of courses is delivered at the Company's
facilities. A course catalog and schedule are provided to the Company's
customers. In addition to regularly scheduled classroom training, the Company
works with its customers to develop tailored training courses for delivery at
their site. The group also provides standard courses at the customer's location.
Training courses vary in length from one to five days. Education services are
also provided at the Company's international facilities including Australia,
Canada (for the Yorvik software), Poland, Singapore, South Africa and the United
Kingdom.
STRATEGIC ALLIANCES
The Company has established strategic alliances and relationships with a
number of organizations that it believes are important to the development,
sales, marketing, integration, and support of its products. The Company's
relationships with software and hardware vendors, systems integrators and
consulting firms provide marketing and sales leads to the Company's direct sales
force and expand the distribution of its products. The Company's strategic
alliances and relationships also assist the Company in keeping pace with the
technological developments of major software and hardware vendors. The Company
intends to continue to develop its strategic alliances with leading hardware and
software vendors, consulting firms, systems integrators and distributors in the
future. The Company provides education services for its strategic business
partners.
SYSTEMS INTEGRATORS AND CONSULTANTS
The Company has established non-exclusive, formal and informal relationships
with systems integrators and consultants who are active in the selection and
implementation of information systems, including, but not limited to certain big
five accounting firms. In addition, the Company has established relationships
with independent distributors. By providing technical, consulting and
integration services for the Company's products, these companies expand the
ability of the Company to service and implement its products.
HARDWARE VENDORS
The Company has developed non-exclusive, formal and informal relationships
with major hardware vendors such as Compaq Computer, Hewlett-Packard, IBM, and
Sun Microsystems, Inc. These hardware vendors provide sales leads and technical
support.
SOFTWARE VENDORS
The Company has established non-exclusive, formal and informal relationships
with third-party software vendors including Microsoft Corporation, Oracle
Corporation, MIS AG and WebMethods. These vendors may provide sales leads,
assist the Company in developing the capability of the Company's products to
inter-operate with third-party software and assist the Company in incorporating
new technologies.
PRODUCT DEVELOPMENT
The Company has a dedicated product development and engineering organization
and periodically releases new products and enhancements to existing products.
Product development efforts are directed at increasing product functionality,
improving product performance, providing support to existing products,
20
expanding the capabilities of the products to inter-operate with third-party
software and hardware and developing new products. In particular, the Company
has from time to time devoted substantial development resources to develop
additional modules for its products and the capability to support additional
platforms, databases, GUIs, toolsets and emerging technologies. While the
Company anticipates that certain new products and enhancements will be developed
internally, the Company has in the past and may continue to acquire or license
technology or software from third parties when appropriate.
There can be no assurance that the Company will be successful in developing
and marketing product enhancements or new products that respond to technological
change, changes in customer requirements, or emerging industry standards, that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of such products and
enhancements, or that any new products or enhancements that it may introduce
will achieve market acceptance. The inability of the Company, for technological
or other reasons, to develop and introduce new products or enhancements in a
timely manner in response to changing customer requirements, technological
change or emerging industry standards, would have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business--Risk Factors--New Products and Rapid Technological Change: Risk of
Product Defects, Development Delays and Lack of Market Acceptance."
As of December 31, 1999, the Company had 70 employees engaged in product
development and engineering.
COMPETITION
The e-commerce software market is intensely competitive and rapidly
changing. A number of companies offer products similar to the Company's products
and target the same customers as the Company. The Company believes its ability
to compete depends upon many factors within and outside its control, including
the timing and market acceptance of new products and enhancements developed by
the Company and its competitors, product functionality, performance, price,
reliability, customer service and support, sales and marketing efforts and
product distribution. The Company's TransAXS Solutions are positioned in a new,
highly dynamic market, and at this time it is unclear where the major
competition will come from. In addition, many of the traditional ERP software
providers have entered the e-commerce market place. In the Web-based procurement
market, products from Harbinger, Intellisys and Ariba are in competition with
the TransAXS Procurement Solution. The Company also expects new start-ups to
enter this very large untapped market. The traditional competitors for the
Company's client/server version of the AXSPoint Central product are Anacomp,
IBM, MicroBank, and FileNet Corporation. The principal AXSPoint Solutions'
competitors in the area of statement presentment include Mobius, Bluegill, and
Alysis. The principal competition to PSA Solutions are of two types: existing
vendors retooling their offerings for the newly defined PSA market and new
companies attempting to enter this new market. The first group includes
Peoplesoft, Lawson, Changepoint, Great Plains and others. The second group
includes companies such as Niku and Evolve. The primary competition for
Computron Financials are the financial applications software offered by SAP,
Oracle Corporation, PeopleSoft, Inc. and others. The principal competitors for
the Company's Computron Yorvik software are Project Software Development, Inc.
(PSDI), Indus International, Inc. (Indus) and others. See "Business--Risk
Factors--Intense Competition."
INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its proprietary technologies
as well as products from third parties, software vendors, hardware vendors, etc.
The Company regards its software as proprietary, and relies primarily on a
combination of contractual provisions and trade secrets, copyright and trademark
law to protect its proprietary rights. The Company has no patents or patent
applications pending, and existing trade secrets and copyright laws afford only
limited protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing
21
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. The Company
makes source code available to certain of its customers which may increase the
likelihood of misappropriation or other misuse of the Company's software. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States. There
can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies.
The Company does not believe that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. In addition, the
e-commerce field has recently seen an increase in the number of "business
method" patents issued, and infringement claims asserted based on such patents.
Any such claims, with or without merit, can be time consuming and expensive to
defend, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty and license agreements, if
required, may not be available on terms acceptable to the Company, or at all,
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company also licenses software from third parties which is incorporated
into its products. These licenses expire from time to time. In addition, the
Company generally does not have access to source code for the software supplied
by these third parties. Certain of these third parties are small companies that
do not have extensive financial and technical resources. If any of these
relationships were to be terminated or if any of these third parties were to
cease doing business, the Company may be forced to expend significant time and
development resources to replace the licensed software. Such an event would have
a material adverse effect upon the Company's business, results of operations and
financial condition.
The Company has obtained Federal registrations for its trademarks
"Computron" and "Yorvik," and its applications for Federal registrations for its
trademarks "TransAXS," "AXSPoint" and "Powering the Virtual Economy" are pending
in the United States. In addition, the Company has certain U.S. common law
rights, and rights under foreign laws in relation to its trademarks, service
marks and product names. Although the Company believes that the trademarks and
service marks it uses are distinct, there can be no assurance that the Company
will be able to register or protect such trademarks and service marks. See
"Business--Risk Factors--Dependence on Proprietary Rights; Risks of
Infringement."
EMPLOYEES
As of December 31, 1999, the Company had 305 full-time employees, 202 within
the United States and 103 outside the United States, including 70 in product
development and engineering, 140 in customer service and support, 49 in sales
and marketing, and 46 in finance, administration and executive management. The
Company's employees are not covered by any collective bargaining agreements. The
Company believes that its relations with its employees are good.
RISK FACTORS
HISTORY OF NET LOSSES
The Company incurred net losses of $13.6 million in 1997, $9.0 million in
1998 and $3.7 million in 1999. As of December 31, 1999, the Company had an
accumulated deficit of $75.7 million. There can be no assurance that the Company
will be profitable in the future.
22
POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;
SEASONALITY
The Company has experienced, and may in the future experience, significant
quarter to quarter fluctuations in revenues and results of operations. Such
fluctuations may result in volatility in the price of the Company's Common
Stock. Quarterly revenues and results of operations may fluctuate as a result of
a variety of factors, including the 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 customer budgets,
competitive conditions in the industry and general economic conditions. Further,
the license of the Company's products generally involves a significant
commitment of capital by the customer and may be delayed due to time-consuming
authorization procedures within an organization. For these and other reasons,
the sales cycles for the Company's products are typically lengthy and subject to
a number of significant risks over which the Company has little or no control,
including the customers' budgetary constraints and internal authorization
reviews. The Company has historically operated with little backlog, since its
products are generally shipped as orders are received. The Company has
historically recognized a substantial portion of its revenues in the last month
of a quarter, with these revenues frequently concentrated in the last week of
the quarter. License fees in any quarter are substantially dependent on orders
booked and shipped in the last month and last week of that quarter. Delays in
the timing of recognition of specific revenues may adversely and
disproportionately affect the Company's results of operations because a high
percentage of the Company's operating expenses are relatively fixed, planned
expenditures are based primarily on sales forecasts and only a small percentage
of the Company's operating expenses vary with its revenues. Accordingly, the
Company believes that period to period comparisons of results of operations are
not necessarily meaningful and should not be relied upon as an indication of
future results of operations. There can be no assurance that the Company will be
profitable in any future quarter.
The Company's business has experienced and is expected to continue to
experience significant seasonality, due in part to customer buying patterns.
These fluctuations are caused primarily by customer budgeting and purchasing
patterns, and by the Company's sales commission policies which generally
compensate sales personnel on the basis of quarterly and annual performance
quotas. The Company believes this pattern may continue in the future.
Due to the foregoing factors, the Company's operating results may be below
the expectations of public market analysts and investors, in some future
quarter. Such an event may have a material adverse effect on the price of the
Company's Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
MANAGEMENT CHANGES
In February 1997, the Company added a number of key officers, including its
President and Chief Executive Officer and its Executive Vice President and Chief
Financial Officer, and later in 1997 added a Senior Vice President of Operations
and Senior Vice President of Sales and Marketing. In December 1998, a new Senior
Vice President of Sales and Marketing was added. In July 1999, the Senior Vice
President of Operations departed from the Company. The responsibilities of this
position were assumed by existing internal management. No other changes were
made to the executive management. Failure to attract and maintain key management
and employee personnel could have material adverse effects on the quality of the
Company's products, and the Company's business and financial condition and
results of operations.
INTENSE COMPETITION
The electronic commerce software market is intensely competitive and rapidly
changing. A number of companies offer products similar to the Company's products
and target the same customers as the
23
Company. The Company believes its ability to compete depends upon many factors
within and outside its control, including the timing and market acceptance of
new products and enhancements developed by the Company and its competitors,
product functionality, performance, price, reliability, customer service and
support, sales and marketing efforts and product distribution. The Company's
TransAXS Solutions are positioned in a new, highly dynamic market, and at this
time it is unclear where the major competition will come from. In addition, many
of the traditional ERP software providers have entered the e-commerce market
place. In the Web-based procurement market, products from Harbinger, Intellisys
and Ariba are in competition with the TransAXS Procurement solution. The Company
also expects new start-ups to enter this very large untapped market. The primary
competition for Computron Financials is the financial applications software
offered by Oracle Corporation, PeopleSoft, Inc, JD Edwards, SAP and others. The
traditional competitors for the Company's client/server version of the AXSPoint
Central product are Anacomp, IBM, MicroBank, and FileNet Corporation. The
principal AXSPoint Solutions' competitors in the area of statement presentment
include Mobius, Bluegill, and Alysis. The principal competitors for the
Company's Computron Yorvik software are Project Software Development, Inc.
(PSDI), Indus International, Inc. (Indus) and others. Most of the Company's
competitors are substantially larger than the Company and have significantly
greater financial, technical, and marketing resources, and extensive direct and
indirect channels of distribution. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion and sale of their
products than the Company. The Company's products also compete with products
offered by other vendors, and with proprietary software developed by third-party
professional service organizations and management information systems
departments of potential customers. Due to the relatively low barriers to entry
in the software market, the Company expects additional competition from other
established and emerging companies as the electronic commerce software market
continues to develop and expand. The Company also expects that competition will
increase as a result of software industry consolidations. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
is likely to result in price reductions, reduced gross margins and loss of
market share, any of which would have a material adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures will not have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business--Competition."
DEPENDENCE ON PRINCIPAL PRODUCTS
Substantially all of the Company's revenues are derived from the licensing
of Computron Financials, Computron Workflow, Computron COOL-TM- software, and
fees from related services. These products and services are expected to continue
to account for most of the Company's revenues during 2000. Accordingly, the
Company's future results of operations will depend, in part, on achieving
broader market acceptance of these products and services and maintaining its
customer base, as well as the Company's ability to continue to enhance these
products and services to meet the evolving needs of its customers. In addition,
the Company needs to complete the development of, and gain market acceptance
for, its TransAXS Solutions, AXSPoint Solutions and PSA Solutions during 2000. A
reduction in demand or increase in competition in the market for elctronic
commerce software, or decline in sales of such products and services, could have
a material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Products."
24
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DEFECTS,
DEVELOPMENT DELAYS AND LACK OF MARKET ACCEPTANCE
The electronic commerce market is characterized by rapid technological
change, changes in customer requirements, frequent new product introductions and
enhancements and emerging industry standards. Such changes may or may not affect
the Company's software performance, customization, reporting functionality, or
other business objectives, and may or may not render the Company incapable of
meeting future customer software demands. The introduction of products embodying
new technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. Accordingly, the life cycles of the
Company's products are difficult to estimate. The Company's future success will
depend in part upon its ability to maintain its client/server products and to
develop and introduce new electronic commerce products that respond to evolving
customer requirements and keep pace with technological development and emerging
industry standards, such as new operating systems, hardware platforms,
interfaces and third party applications software. There can be no assurance that
the Company will be successful in developing and marketing product enhancements
or new products that respond to technological change, changes in customer
requirements, or emerging industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of such products and enhancements, or that any new
products or enhancements that it may introduce will achieve market acceptance.
The inability of the Company, for technological, financial or other reasons, to
develop, introduce and win market acceptance for new products or enhancements in
a timely manner in response to changing customer requirements, technological
change or emerging industry standards, would have a material adverse effect on
the Company's business, results of operations and financial condition.
Software products as complex as those offered by the Company often encounter
development delays and may contain undetected errors or failures when introduced
or when new versions are released. Such delays, errors or failures create a risk
that the software will not meet its stated functionality and could cause the
Company's future operating results to fall short of the published expectations
of certain public market financial analysts. From time to time, the Company
ports its products to various, new platforms, though no assurance can be given
concerning the successful development of the Company's software products on
these additional platforms or the performance characteristics of its
applications. In addition, the Company and its products and technologies rely
upon third-party products from hardware vendors, software vendors, RDBMS
vendors, tools vendors, reporting products, etc. Such dependencies may or may
not affect the Company's ability in the future to provide continued availability
and/or support for all Computron products. The Company has in the past
experienced delays in the development of software by third parties which
software is being licensed to and implemented by customers who are
simultaneously licensing and implementing the Company's products. Those delays
have resulted in delays in the development and shipment of the Company's
products. There can be no assurance that, despite testing by the Company and by
current and potential customers, errors will not be found in new products or
enhancements after commencement of commercial shipments, or that the Company
will not experience development delays, resulting in loss of or delay in market
acceptance of a new product or enhancement, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business--Product Development."
DEPENDENCE ON PROPRIETARY RIGHTS; RISKS OF INFRINGEMENT
The Company's success is heavily dependent upon its proprietary technology.
The Company regards its software as proprietary, and relies primarily on a
combination of contractual provisions and trade secrets, copyright and trademark
law to protect its proprietary rights. The Company has no patents or patent
applications pending, and existing trade secrets and copyright laws afford only
limited protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
25
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. The Company makes source code available to certain of its customers
which may increase the likelihood of misappropriation or other misuse of the
Company's software. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that the steps taken by the Company
to protect its proprietary rights will be adequate or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technologies.
The Company has obtained Federal registrations for its trademarks
"Computron" and "Yorvik," and its applications for Federal registrations for its
trademarks "TransAXS," "AXSPoint" and "Powering the Virtual Economy" are pending
in the United States. In addition, the Company has certain U.S. common law
rights, and rights under foreign laws in relation to its trademarks, service
marks and product names. Although the Company believes that the trademarks and
service marks it uses are distinct, there can be no assurance that the Company
will be able to register or protect such trademarks and service marks.
The Company does not believe that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. In addition, the
e-commerce field has recently seen an increase in the number of "business
method" patents issued, and infringement claims asserted based on such patents.
Any such claims, with or without merit, can be time consuming and expensive to
defend, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty and license agreements, if
required, may not be available on terms acceptable to the Company, or at all,
which could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Intellectual Property."
SECURITY RISKS
The Company's products provide security features designed to protect its
users' data from unauthorized retrieval or modification. Its built in security
features utilize the capabilities of its own applications, the client operating
system software, the Internet security features offered by Internet server
software providers, as well as the security features contained in the RDBMS
platforms on which the applications run. Computron's systems add additional
capabilities to those provided by the underlying security systems. Though the
Company is not aware of any violations of its application security architecture
within its installed base, and its security features are subject to constant
review and enhancement, no assurances can be given concerning the successful
implementation of security features and their effectiveness within a customer's
operating environment. In the event of an actual security breach, there may be a
material adverse effect on the Company's business, results of operations, and
financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company derived approximately $29.4 million, $29.9 million and
$21.9 million or 43.4%, 47.1% and 37.9% of its total revenues, from customers
outside of the United States in 1997, 1998 and 1999 respectively. Excluding
France and Germany, the Company derived approximately $16.6 million,
$18.0 million and $16.5 million or 30.3%, 34.9% and 31.5% of its total revenues,
from customers outside of the United States in 1997, 1998 and 1999,
respectively. The Company believes that its continued growth and profitability
will require expansion of its sales in its remaining international markets. The
Company intends to continue to expand its operations outside of the United
States, which will require significant management attention and financial
resources. There can be no assurance, however, that the Company will be able to
maintain or increase international market demand for its products and services.
Most of the Company's
26
international license fees and services revenue are denominated in foreign
currencies. Decreases in the value of foreign currencies relative to the U.S.
dollar could result in losses from foreign currency translations. The Company
does not currently hedge its foreign exchange exposure. With respect to the
Company's sales that are U.S. dollar-denominated, decreases in the value of
foreign currencies relative to the U.S. dollar could make the Company's products
less price competitive. Additional risks inherent in the Company's international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs of localizing products for
foreign countries, lack of acceptance of localized products in foreign markets,
longer accounts receivable payment cycles, difficulties in managing
international operations, potentially adverse tax consequences, restrictions on
repatriation of earnings, reduced legal protection of the Company's intellectual
property, and the burdens of complying with a wide variety of foreign laws.
There can be no assurance that such factors will not have a material adverse
effect on the Company's future international revenues and, consequently, on the
Company's business, results of operations and financial condition. In addition,
there are risks related to the Euro Currency conversion. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RELIANCE ON CERTAIN RELATIONSHIPS
The Company relies on relationships with a number of consultants, systems
integrators and software and hardware vendors to enhance its product development
and marketing and sales efforts, to implement the Company's software products
and to support its customers. These relationships, many of which are not the
subject of formal written agreements, provide marketing and sales leads to the
Company's direct sales force, assistance in the Company's product development
process and assistance in the service and implementation of the Company's
products. There can be no assurance that these companies, most of which have
significantly greater financial and marketing resources than the Company, will
not develop or market software products which compete with the Company's
products in the future or will not otherwise discontinue their relationships
with or support of the Company. The failure by the Company to maintain its
existing relationships, or to establish new relationships in the future, because
of a divergence of interests, acquisition of one or more of these third parties
or other reason, could have a material adverse effect on the Company's business,
product development, results of operations, and financial condition.
The Company also licenses software from third parties which is incorporated
into its products. These licenses expire from time to time. In addition, the
Company generally does not have access to source code for the software supplied
by these third parties. Certain of these third parties are small companies that
do not have extensive financial and technical resources. If any of these
relationships were to be terminated or if any of these third parties were to
cease doing business or terminate the support of these products, the Company may
be forced to expend significant time and development resources to try to replace
the licensed software with no assurances of success. Such an event would have a
material adverse effect upon the Company's business, results of operations and
financial condition. See "Business--Strategic Alliances," and "Intellectual
Property."
CONTROL BY EXISTING STOCKHOLDERS
The Company's executive officers, directors and affiliates together
beneficially own approximately 54% of the outstanding shares of Common Stock as
of March 15, 2000. As a result, these stockholders are able to exercise control
over matters requiring stockholder approval, including the election of
directors, and mergers, consolidations and sales of all or substantially all of
the assets of the Company. This may prevent or discourage tender offers for the
Company's Common Stock unless the terms are approved by such stockholders.
RELIANCE ON KEY PERSONNEL
The Company's future success will depend to a significant extent upon a
number of key management and technical personnel. The Company is a party to
employment agreements with certain key personnel.
27
The Company believes that its future success will also depend in large part upon
its ability to attract and retain highly skilled technical, management, sales
and marketing personnel. Competition for such personnel is intense, and the
services of qualified personnel are difficult to obtain and replace. There can
be no assurance that the Company will be successful in attracting and retaining
the personnel necessary to develop, market, service and support its products and
conduct its operations successfully. The inability of the Company to attract,
hire, assimilate or retain such personnel, or to increase revenues at a rate
sufficient to absorb the resulting increased expenses, would have a material
adverse effect on the Company's business, results of operations and financial
condition.
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been, and, in the future
could be, subject to significant fluctuations in response to variations in
quarterly operating results, the gain or loss of significant contracts, changes
in earning estimates by analysts, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
software and computer industries and other events or factors. In addition, the
stock market in general has experienced extreme price and volume fluctuations
which have affected the market price from many companies in industries similar
or related to that of the Company and which have been unrelated to the operating
performance of such companies. These market fluctuations may adversely affect
the market price of the Company's Common Stock.
ABSENCE OF DIVIDENDS
The Company has never paid or declared any cash dividends and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain any future earnings for use in its business.
28
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGEMENT EMPLOYEES
The current directors, executive officers and key management employees of
the Company as of March 9, 2000, are as follows:
NAME AGE POSITION
- ---- -------- --------
Elias Typaldos.............. 49 Chairman of the Board and Senior Vice President,
Research and Development
John A. Rade................ 65 President, Chief Executive Officer, and Director
Michael R. Jorgensen........ 47 Executive Vice President, Chief Financial Officer and
Treasurer
Gennaro Vendome............. 53 Vice President and Director
Rick Hartung................ 45 Senior Vice President, North America
Paul Abel................... 46 Vice President, Secretary and General Counsel
William G. Levering III..... 39 Vice President, Corporate Controller and Chief
Accounting Officer
Robert T. Hewitt............ 52 Senior Vice President, Corporate Operations
Thomas V. Manobianco........ 43 Vice President, Professional Services
Daniel H. Burch (2)......... 48 Director
Robert Migliorino (1)....... 50 Director
William E. Vogel (1)(2)..... 62 Director
Edwin T. Brondo (1)......... 52 Director
Eugene M. Weber (1)......... 49 Director
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
ELIAS TYPALDOS, a founder of the Company, has been Senior Vice President,
Research and Development and a director since the Company's formation in 1978,
and Chairman of the Board since March 1997.
JOHN A. RADE joined the Company as a Director, President and Chief Executive
Officer in February 1997. Prior to joining the Company, Mr. Rade, was from
April, 1995, a Vice President of American Management Systems, Inc. and was also
still active at S-Cubed International (now named Mergence Technology
Corporation), a company in the client server system development and consulting
market, which he founded in February 1990.
MICHAEL R. JORGENSEN joined the Company as Executive Vice President and
Chief Financial Officer, Treasurer and Secretary in February 1997. Prior to
joining the Company, from June 1993 to December 1996, Mr. Jorgensen was Senior
Vice President and Chief Financial Officer of Ground Round Restaurants, Inc., a
publicly-held chain of family restaurants. Prior to that, from March 1992, to
April 1993, he was Vice President/Finance-Middle East of Alghanim Industries.
Mr. Jorgensen was Chief Financial Officer of International Proteins Corporation
from May 1988 to September 1991. Prior to 1991, Mr. Jorgensen served in a senior
financial role with several multinational companies in the finance manufacturing
and information technology/software industry.
29
GENNARO VENDOME, a founder of the Company, has been a Vice President and
director since the Company's formation in 1978. Mr. Vendome was Treasurer of the
Company from 1981 until 1991 and Secretary of the Company from 1982 until 1991.
RICK HARTUNG joined the Company in December 1998 as Senior Vice President of
Sales and Marketing for North America, and was named Senior Vice President,
North America in July 1999. In 1998, prior to joining the Company, Mr. Hartung
was Vice President of Sales for Systems Consulting Company. From 1992 to 1997,
Mr. Hartung was Vice President of Sales for Marcam Corporation.
PAUL ABEL joined the Company in April 1997 as Secretary and Corporate
Counsel and was promoted to Vice President, Secretary and General Counsel in
June 1998. From October 1996 to March 1997, Mr. Abel served as Project Manager
for Charles River Computers, an IT systems integrator. From 1983 to
September 1996, Mr. Abel was an attorney with Matsushita Electric Corporation of
America, an electronic products manufacturer/distributor.
WILLIAM G. LEVERING III joined the Company as Revenue Controller in
June 1996, was promoted to Corporate Controller in February 1997 and became Vice
President, Corporate Controller in July 1998. The title of Chief Accounting
Officer was added to Mr. Levering's responsibilities in July 1999. Prior to
joining the Company, Mr. Levering was a Senior Manager with the international
accounting firm of KPMG LLP. Mr. Levering was employed by KPMG LLP from
August 1982 to June 1996 and is a Certified Public Accountant.
ROBERT T. HEWITT joined the Company as Vice President, Product Development
in April 1996, and was appointed to Senior Vice President, Corporate Operations
in July 1999. From June 1988 to April 1996, Mr. Hewitt was Senior Vice
President, Product Development at Financial Technologies International, Inc., a
software development company.
THOMAS V. MANOBIANCO joined the Company in January 1995 as a member of the
consulting organization. In February 1999 he became Vice President of
Professional Services. From January 1989 to January 1995, Mr. Manobianco was
employed by Andersen Consulting as a manager in the systems integration
practice.
DANIEL H. BURCH has been a director since October 1999. Mr. Burch is the
President and founder of MacKenzie Partners, Inc., a proxy solicitation and
mergers and acquisitions firm. From January 1990 to the founding of MacKenzie
Partners in February 1992, Mr. Burch was Executive Vice President at Dewe
Rogerson & Company, an investor and public relations firm.
ROBERT MIGLIORINO has been a director since 1991. Mr. Migliorino is a
founding partner of the venture capital partnership Canaan Partners, which
through its affiliates is a principal stockholder of the Company. Prior to
establishing Canaan Partners in 1987, he spent 15 years with General Electric
Co. in their Drive Systems, Industrial Control, Power Delivery, Information
Services and Venture Capital businesses.
WILLIAM E. VOGEL has been a director since August 1996. Since 1971,
Mr. Vogel has been Chief Executive Officer of Centennial Financial Group, Inc.,
which is in the health insurance business. He has also been the Chief Executive
Officer of W.S. Vogel Agency, Inc., a life insurance brokerage general agency,
since 1961.
EDWIN T. BRONDO has been a director since May 1997. Mr. Brondo is currently
Executive Vice President and Chief Financial Officer of Elligent Consulting
Group, Inc. Elligent may be deemed to be an affiliate of the Company by virtue
of the relationship of Elligent with a major stockholder of the Company.
Mr. Brondo was Chief Administrative Officer and Senior Vice President of First
Albany Companies, Inc. from June 1993 until December 1997. From June 1992 to
June 1993 he was a Financial Management Consultant at Comtex Information
Systems, Inc., a software consulting firm. He also held positions at Goldman,
Sachs & Co., Morgan Stanley & Co., Inc. and Bankers Trust Company.
30
EUGENE M. WEBER has been a director since October 1999. Mr. Weber is the
Managing Partner of Weber Capital Management, LLC, an investment management
firm, the successor to Bluewater Capital Management, Inc., which Mr. Weber
founded in 1995. From 1994 to 1995, Mr. Weber was an independent consultant to
Westpool Investment Trust plc, a stockholder of the Company, and from 1983 to
1994 he was with Weiss, Peck and Greer, LLC, an investment management firm,
becoming partner in 1987. Mr. Weber is a member of the Board of Directors of
Chyron Corporation, a designer and manufacturer of digital equipment for the
broadcast industry.
Each of the Directors shall be subject to re-election at the 2000 Annual
Stockholders meeting.
ITEM 2. PROPERTIES
FACILITIES
The Company's corporate headquarters are located in Rutherford, New Jersey
in leased facilities consisting of 48,800 square feet of office space occupied
under a lease expiring in December 2002 with an option to renew the lease for
one additional three-year period. The Company leases additional facilities and
offices, including facilities located in the Atlanta, Chicago, and Los Angeles
metropolitan areas, and Mississauga, Canada. The Company also leases sales and
support offices outside of North America in Australia, Bulgaria, Poland,
Singapore, South Africa and the United Kingdom. While the Company believes that
its facilities are adequate for its present needs, the Company periodically
reviews its needs. The Company believes that additional space, if needed, would
be available on commercially reasonable terms.
ITEM 3. 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
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
31
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock currently trades on the American Stock Exchange
under the symbol "CFW."
The following table lists the high and low sales prices for the periods set
forth below:
PERIOD HIGH LOW
- ------ ---------- ----------
1998
First quarter............................................... 3 1/8 2 1/8
Second quarter.............................................. 2 5/8 1 5/16
Third quarter............................................... 1 7/16 11/16
Fourth quarter.............................................. 1 7/8 11/16
1999
First quarter............................................... 1 7/16 1 5/16
Second quarter.............................................. 1 7/16 7/8
Third quarter............................................... 1 4/8
Fourth quarter.............................................. 4 3/8
As of March 15, 2000 the approximate number of record holders of the
Company's Common Stock was 700.
The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain any earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the years ended
December 31, 1995 (as restated), 1996, 1997, 1998 and 1999 have been derived
from the audited consolidated financial statements of the Company. The
consolidated statement of operations data for the years ended December 31, 1997,
1998 and 1999, and the consolidated balance sheet data as of December 31, 1998
and 1999 are derived from, and are qualified by reference to, the audited
consolidated financial statements, and the related notes thereto included
elsewhere in this report. The selected consolidated financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and
32
Results of Operations" and the consolidated financial statements of the Company
and related notes thereto included elsewhere in this report.
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA(1):
Revenues:
License fees................................ $33,766 $ 17,625 $ 20,372 $15,273 $11,468
Services.................................... 19,029 36,770 47,219 48,248 46,400
------- -------- -------- ------- -------
Total revenues.......................... 52,795 54,395 67,591 63,521 57,868
Operating expenses:
Cost of license fees........................ 4,673 2,634 2,004 3,824 1,955
Cost of services............................ 12,988 28,255 28,440 28,389 24,647
Sales and marketing......................... 19,387 24,181 16,654 14,970 12,064
Research and development.................... 9,651 11,872 10,996 10,568 7,600
General and administrative.................. 11,269 20,014 14,280 13,586 12,213
Restructuring costs......................... -- -- -- 1,025 --
Goodwill impairment......................... -- -- -- -- 573
Purchased research and development.......... 3,797 -- -- -- --
------- -------- -------- ------- -------
Total operating expenses................ 61,765 86,956 72,374 72,362 59,052
------- -------- -------- ------- -------
Operating loss................................ (8,970) (32,561) (4,783) (8,841) (1,184)
Other income (expense)
Costs related to settlement of class action
litigation................................ -- (758) (9,591) (74) --
Loss on sales of subsidiaries............... -- -- -- -- (2,242)
Other....................................... 742 1,572 745 (116) (580)
------- -------- -------- ------- -------
Total other income (expense).................. 742 814 (8,846) (190) (2,822)
------- -------- -------- ------- -------
Loss before income tax (provision) benefit and
extraordinary item.......................... (8,228) (31,747) (13,629) (9,031) (4,006)
Income tax (provision) benefit................ (350) (100) (16) (12) 508
------- -------- -------- ------- -------
Loss before extraordinary item................ (8,578) (31,847) (13,645) (9,043) (3,498)
Extraordinary loss on modification of debt.... -- -- -- -- (182)
------- -------- -------- ------- -------
Net loss...................................... $(8,578) $(31,847) $(13,645) $(9,043) $(3,680)
======= ======== ======== ======= =======
Basic and diluted loss per common share (1995
pro-forma).................................. $ (0.46) $ (1.53) $ (0.65) $ (0.38) $ (0.15)
------- -------- -------- ------- -------
Weighted average basic and diluted common
shares outstanding.......................... 18,809 20,787 20,834 23,963 23,914
======= ======== ======== ======= =======
33
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA(1):
Cash and cash equivalents, short-term investments
and restricted cash............................ $46,651 $23,884 $12,597 $8,865 $1,455
Working capital (deficiency)..................... 40,450 4,358 2,767 (6,317) (6,862)
Total assets..................................... 71,367 56,693 35,598 28,517 17,501
Deferred revenue................................. 13,667 18,551 9,078 9,558 8,534
Total long term debt and capital lease
obligations.................................... 267 97 23 2,229 2,425
Common stock subject to repurchase............... -- -- 5,000 -- --
Total stockholders' equity (deficit)............. 46,398 14,742 6,095 (2,375) (5,348)
- ------------------------
(1) The consolidated financial data for 1995 has been restated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
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."
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.
34
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."
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.
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 "Business--Risk Factors--Potential for Significant
Fluctuations in Operating Results; Seasonality."
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 1997 net loss includes
$9.6 million of costs related to class action litigation and related legal
expenses. The Company reached a final settlement in March 1998 whereby the
Company was required to pay $6 million in consideration (see Note 5 to the
Consolidated Financial Statements). The 1999 net loss includes a $2.2 million
loss on sales of subsidiaries.
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.
35
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 47.1% and
37.9% for 1998 and 1999, respectively of its total revenues outside the United
States, a significant portion of which is in Europe. Excluding the Company's
French and German subsidiaries, which were sold in 1999 (see Note 2 to the
Consolidated Financial Statements), the Company derived 30.3%, 34.9%, and 31.5%
of its revenue from outside the United States in 1997, 1998 and 1999,
respectively. 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.
YEAR 2000 COMPLIANCE
During 1999, the Company's critical and non-critical programs and systems
were reviewed, modified and replaced, where necessary, to ensure Year 2000
compliance by December 31, 1999. To date, the Company has not experienced any
disruption of its business or key systems as a result of the century change in
any of its domestic or international operations. Similarly, the Company has not
been informed of any Year 2000 related disruptions encountered by its customers
relating to their use of its software products.
Costs incurred for the evaluation, modification and replacement of the
Company's internal systems were approximately $80,000. Most costs incurred to
achieve Year 2000 compliance were, in fact, the same as those required as a
normal part of technology upgrades, a critical part of normal operations within
a technology-based organization. Accordingly, the Year 2000 effort did not have
a material impact on the Company's consolidated results of operations, liquidity
or financial condition.
36
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.
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998
------------------------------------------------- -------------------------------------------------
EXCLUDING DATA AS A EXCLUDING DATA AS A
AS FRANCE & FRANCE PERCENT OF AS FRANCE & FRANCE PERCENT OF
(IN MILLIONS) REPORTED GERMANY & GERMANY REVENUE REPORTED GERMANY & GERMANY REVENUE
- ------------- -------- ----------- ----------- ---------- -------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues:
License fees....... $ 20.4 $ 1.4 $19.0 34.6% $15.3 $ 2.9 $ 12.4 24.0%
Services........... 47.2 11.3 35.9 65.4 48.2 9.0 39.2 76.0
------ ----- ----- ----- ----- ----- ------ ------
Total revenues... 67.6 12.7 54.9 100.0 63.5 11.9 51.6 100.0
------ ----- ----- ----- ----- ----- ------ ------
Operating expenses:
Cost of license
fees............. 2.0 0.3 1.7 3.1 3.8 1.2 2.6 5.0
Cost of services... 28.4 8.6 19.8 36.1 28.4 6.1 22.3 43.2
Sales and
marketing........ 16.7 1.3 15.4 28.1 15.0 1.8 13.2 25.6
Research and
development...... 11.0 1.4 9.6 17.5 10.6 1.4 9.2 17.8
General and
administrative... 14.3 5.4 8.9 16.2 13.6 4.4 9.2 17.8
Restructuring
costs............ -- -- -- -- 1.0 0.7 0.3 0.6
------ ----- ----- ----- ----- ----- ------ ------
Total operating
expenses....... 72.4 17.0 55.4 100.9 72.4 15.6 56.8 110.1
------ ----- ----- ----- ----- ----- ------ ------
Operating loss....... (4.8) (4.3) (0.5) (0.9) (8.9) (3.7) (5.2) (10.1)
------ ----- ----- ----- ----- ----- ------ ------
Other income
(expense):
Costs related to
settlement of
class action
litigation....... (9.6) -- (9.6) (17.5) -- -- -- --
Interest income
(expense), net... 0.8 -- 0.8 1.5 (0.1) -- (0.1) (0.2)
------ ----- ----- ----- ----- ----- ------ ------
Other expense,
net............ (8.8) -- (8.8) (16.0) (0.1) -- (0.1) (0.2)
------ ----- ----- ----- ----- ----- ------ ------
Net loss............. $(13.6) $(4.3) $(9.3) (16.9)% $(9.0) $(3.7) $ (5.3) (10.3)%
====== ===== ===== ===== ===== ===== ====== ======
37
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------
EXCLUDING DATA AS A
AS FRANCE & FRANCE PERCENT OF
REPORTED GERMANY & GERMANY REVENUE
(IN MILLIONS) -------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED)
Revenues:
License fees...................................... $ 11.5 $ 0.5 $11.0 21.0%
Services.......................................... 46.4 4.9 41.5 79.0
------ ----- ----- -----
Total revenues.................................. 57.9 5.4 52.5 100.0
------ ----- ----- -----
Operating expenses:
Cost of license fees.............................. 2.0 0.2 1.8 3.4
Cost of services.................................. 24.6 3.4 21.2 40.4
Sales and marketing............................... 12.1 0.9 11.2 21.3
Research and development.......................... 7.6 0.4 7.2 13.7
General and administrative........................ 12.2 2.3 9.9 18.9
Goodwill impairment............................... 0.6 0.6 -- --
------ ----- ----- -----
Total operating expenses........................ 59.1 7.8 51.3 97.7
------ ----- ----- -----
Operating income (loss)............................. (1.2) (2.4) 1.2 2.3
------ ----- ----- -----
Other income (expense):
Loss on sales of subsidiaries..................... (2.2) (2.2) -- --
Interest income (expense)......................... (0.6) -- (0.6) (1.1)
------ ----- ----- -----
Other income (expense), net..................... (2.8) (2.2) (0.6) (1.1)
------ ----- ----- -----
Income (loss) before income tax benefit and
extraordinary item................................ (4.0) (4.6) 0.6 1.1
------ ----- ----- -----
Income tax (provision) benefit...................... 0.5 -- 0.5 1.0
------ ----- ----- -----
Income (loss) before extraordinary item............. (3.5) (4.6) 1.1 2.1
Extraordinary loss on modification of debt.......... (0.2) -- (0.2) (0.3)
------ ----- ----- -----
Net income (loss)................................... $ (3.7) $(4.6) $ 0.9 1.8%
====== ===== ===== =====
SALES OF SUBSIDIARIES
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 internally developed
proprietary software products and services in their respective countries. In May
and December, 1999, respectively, the operations in Germany and France were
sold.
Revenues for these subsidiaries were $12.7 million, $11.9 million and
$5.4 million for the years ended December 31, 1997, 1998 and 1999, respectively,
or 18.8%, 18.7% and 9.3% of total revenues. Revenues for 1999 include sales
through May 31 and November 30 for Germany and France, respectively ("reporting
periods"). The decrease in revenues was primarily the result of a reduction in
license sales in Germany and France and declines in product service revenues in
the France operation.
While operating expenses decreased from $17.0 million in 1997 to
$15.6 million in 1998 and to $7.8 million for the reporting periods in 1999,
expenses as a percentage of total revenues decreased from 133.9% in 1997 to
131.1% in 1998 and increased to 144.4% in 1999. This is primarily the result of
the decline in revenues without a proportional related reduction in costs.
As a consequence of the above, the Company's operations in France and
Germany incurred operating losses totaling $4.3 million, $3.7 million, and
$2.4 million in 1997, 1998 and 1999, respectively.
38
On June 1, 1999 and December 23, 1999, the Company sold its wholly-owned
subsidiaries located in Germany and France, respectively. The Company recorded a
loss of $2.2 million or $0.9 per share in connection with the sales (see Note 2
to the Consolidated Financial Statements).
Subsequent to the sale of the Germany and France operations, the remaining
operations, with the exception of the Yorvik operation in Canada, are solely
involved in the sales of internally developed products ("core products").
RESULTS OF OPERATIONS
The following discussions relate to changes in the results of operations,
excluding France and Germany, for the three years presented in the results of
operations table.
TOTAL REVENUES
The Company's revenues are derived from license fees and services. Total
revenues decreased from $54.9 million in 1997 to $51.6 million in 1998 and
increased to $52.5 million in 1999. This represents a decrease of 6.0% from 1997
to 1998 and an increase of 1.7% from 1998 to 1999. During 1998, total revenues
decreased primarily resulting from a decrease in license fees offset, in part,
by an increase in service revenues. Total revenues in 1999 increased slightly
resulting from an increase in service revenues offset by a decrease in license
revenue.
The Company derived approximately $16.6 million, $18.0 million and
$16.5 million or 30.3%, 34.9% and 31.5% of its total revenues, from customers
outside of the United States in 1997, 1998 and 1999, respectively. The Company
believes that its continued growth and profitability will require expansion of
its sales in its remaining international markets. 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 a fluctuations in the Company's revenues.
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.
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. License fees decreased 34.7% from
1997 to 1998, and 11.3% from 1998 to 1999. License revenue in 1997 included
$3.5 million from one customer or 18.4% of total license revenue for the year.
During 1998, no customer accounted for greater than 10% of total license
revenues. License revenues in 1999 included license revenue of $2.2 million from
one customer or 20.0% of total license revenues for the year. The decrease in
license revenues during 1999 was attributable to an industry wide slowdown in
customer license sales as a result of Year 2000 projects in process at many
organizations.
SERVICE REVENUES
Service revenues include 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. Service revenues increased
9.2% from 1997 to 1998, and 5.9% from 1998 to 1999. The increase in 1998 and
1999 was attributed primarily to a higher demand for service upgrades and
implementation services for the Company's core products in the U.S.
39
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. These elements can vary
substantially from period to period as a percentage of license fees.
Cost of license fees increased from $1.7 million in 1997 to $2.6 million in
1998 and decreased to $1.8 million in 1999. These costs represented 8.9%, 21.0%
and 16.4% of license fees in 1997, 1998 and 1999, respectively. The increase
from 1997 to 1998 was a result of the increased cost of documentation and the
purchase of additional third party hardware and software products resold to
customers. The decrease in 1999 was the result of decreased documentation costs.
COST OF SERVICES
Cost of services consists primarily of personnel costs for product quality
assurance, training, installation, consulting and customer support. Total
service costs increased from $19.8 million in 1997 to $22.3 million in 1998 and
decreased to $21.2 million in 1999 which represented 55.2%, 56.9% and 51.1% of
service revenues in 1997, 1998, and 1999, respectively. In 1998, cost of
services increased due to higher personnel costs, and increased bonuses from
higher utilization rates in the U.S., as well as commencement of operations in
South Africa during the year. The decrease during 1999 resulted from higher
utilization rates throughout the world, and a reduction in non-billable travel
related expenses.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses paid to sales and marketing personnel and travel and promotional
expenses. Sales and marketing expenses decreased from $15.4 million in 1997 to
$13.2 million in 1998, and $11.2 million in 1999, which represented 81.1%,
106.5% and 101.8% of total license fee revenues, respectively. Sales and
marketing expenses decreased substantially during 1998 and 1999 due primarily to
a decrease in personnel and advertising programs, partially offset by an
increase in commission expense in 1999. The Company continues to place
significant emphasis, both domestically and internationally, on client sales
through its own sales force.
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 on a straight
line basis over periods not exceeding three years.
Research and development expenses (net of capitalized software development
costs) decreased from $9.6 million in 1997 to $9.2 million in 1998 and
$7.2 million in 1999, which represented 17.5%, 17.8% and 13.7% of total
revenues, respectively. The Company capitalized software development costs of
none in 1997 and $0.3 million and $1.5 million in 1998, and 1999, respectively.
Research and development expenses decreased during 1998 mainly as a result of
decreased costs for the Yorvik product, partially offset by increased personnel
costs for its Financial, Workflow and COOL products. The decrease in 1999 was
primarily the result of an increase in capitalized software development costs, a
continued decrease in costs for the Yorvik product, and a decrease in use of
temps and non-employee consultants. The rate of capitalization of software
development costs may fluctuate depending on the mix and stage of development of
the Company's research and development projects.
40
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries of
administrative, executive and financial personnel and outside professional fees.
General and administrative expenses increased from $8.9 million in 1997 to
$9.2 million in 1998 and $9.9 million in 1999, representing 16.2%, 17.8% and
18.9% of total revenues in those years, respectively. General and administrative
expenses increased $0.3 million in 1998 primarily due to an increase in rent
expense due to the lease of additional space in the Rutherford, New Jersey
location. The increase in 1999 primarily represents an increase in rent, bonuses
and recruitment costs partially offset by a decrease in professional fees and
depreciation and amortization.
RESTRUCTURING COSTS
During its fiscal second quarter of 1998, the Company committed itself to a
plan whereby it eliminated 32 positions in the United States, which were
rendered redundant through a reengineering process, and eliminated 16 positions
outside the United States, which were servicing legacy products. Of the 48
positions eliminated, all were terminated prior to December 31, 1998 except as
follows: six people resigned prior to being terminated and one position was
terminated subsequent to December 31, 1998. Accordingly, the Company recorded a
net charge to operations in 1998 totaling approximately $1.0 million
($1.3 million in the second quarter of 1998, reduced in the third quarter of
1998 by $0.3 million for anticipated savings attributable to resignations)
reflecting the termination costs of those personnel. The Company incurred cash
outlays of $0.8 million and $0.2 million for the periods ended December 31, 1998
and 1999, respectively.
OPERATING INCOME (LOSS)
As a consequence of the above, the Company incurred operating losses of
$0.5 million, $5.2 million and operating income of $1.2 million for the years
1997, 1998 and 1999, respectively.
COSTS RELATED TO SETTLEMENT OF CLASS ACTION LITIGATION
Litigation and settlement costs of $9.6 million in 1997 were associated with
the class action civil suit, which included 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 (see Note 5 to the
Consolidated Financial Statements).
Costs for 1998 were minimal and there was no additional cost in 1999.
INTEREST INCOME (EXPENSE)
Interest income (expense) decreased to $(0.1) million in 1998 from $0.8 in
1997 due to a decrease in interest income of $0.4 million from lower cash
balances and an increase of $0.4 million of interest expense related to
borrowings under a credit facility with a bank (see Note 3 to the Consolidated
Financial Statements). Interest income (expense) increased to $(0.6) million in
1999 mainly as a result of a decrease in interest income from lower cash
balances and higher interest expense related to the revolving line of credit.
INCOME TAX (PROVISION) BENEFIT
The Company's income tax provision was immaterial in 1997 and 1998.
The Company recorded an income tax benefit in 1999 of $0.5 million from the
sale of a portion of expiring New Jersey state tax net operating loss
carryforwards to a third party.
41
EXTRAORDINARY LOSS ON MODIFICATION OF DEBT
In connection with the sale of its subsidiary in France, the Company
modified the outstanding term loan (see Note 3 to the Consolidated Financial
Statements) resulting in an extraordinary loss, net of taxes, in the amount of
$0.2 million for the write-off of deferred debt acquisition costs.
RESULTS OF OPERATIONS
As a consequence of the above, the Company incurred a net loss of
$9.3 million in 1997, $5.3 million in 1998 and net income of $0.9 million in
1999.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash and cash equivalents of
$1.2 million and restricted cash of $0.3 million and a working capital deficit
of $6.9 million. Included in the deficit is $8.5 million of deferred revenue. On
March 31, 1998, the Company entered into a three-year Loan and Security
Agreement ("Agreement") which provides maximum borrowings of up to $10 million.
The Agreement contains a revolving line of credit and a term loan (the "Initial
Term Loan"). The Initial Term Loan provided for $5 million available in one
drawdown which the Company borrowed on the closing date. The Initial Term Loan
was repayable in 36 monthly installments beginning May 1, 1998. 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 $0.6 million letter of credit outstanding at December 31,
1999. The net available amount under the revolving line of credit at
December 31, 1999 is approximately $2.9 million, of which no amounts were
outstanding.
Effective March 8, 1999, the Company amended the Agreement in order to
increase amounts available under the term loan portion of the Agreement 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 (see Note 3 to the Consolidated Financial Statements). No
amounts were drawn down in connection with the amendment.
Effective December 22, 1999, 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, a third term loan (the
"B Term Loan") in the original principal amount of $750,000, 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 and the B Term Loan, under Amendment No. 7, shall be made at
the Company's request at any time (i) in the case of an A Term Loan, on or after
December 22, 1999 but before September 30, 2002 and (ii) in the case of the B
Term Loan, on or after December 22, 1999 but before December 31, 2000. The
Second Term Loan provided for a one time borrowing which the Company executed on
the closing date. The A Term Loan loan bears interest at the rate of prime plus
1.5% and is payable in monthly installments of $100,000. The B Term Loan
provides for not more than three borrowings of increments of at least $250,000
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 December 31, 1999, eligible maintenance revenues
42
totaled approximately $9,224. Based on this limitation, the amount available at
December 31, 1999 under all of the term loans is $478.
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 used cash of $13.9 million in 1997,
$4.5 million in 1998 and provided cash of $0.6 million in 1999. Net cash used in
operating activities in 1998 was primarily the result of the net loss partially
offset by non-cash depreciation and amortization charges. Net cash provided by
operating activities in 1999 was primarily the result of the net loss offset by
non cash depreciation and amortization charges and included operating losses
totaling approximately $2.4 million associated with the Company's French and
German subsidiaries which were sold during 1999 (see Note 2 to the Consolidated
Financial Statements).
The Company's investing activities used cash of $1.0 million in 1997,
$1.2 million in 1998 and $2.2 million in 1999, respectively. Investing
activities in 1999 were principally for purchases of equipment totaling
$0.7 million and capitalized software costs totaling $1.5 million.
Cash provided by financing activities was $2.1 million in 1997,
$3.6 million in 1998 and cash used in financing activities was $0.4 million in
1999. During 1998, cash provided by financing activities included loan proceeds
of $5.0 million from a three-year loan agreement partially offset by repayments
of the term portion of the agreement. During 1999, cash used in financing
activities included repayments of the term portion of the loan agreement
totaling approximately $1.7 million offset by proceeds of $1.3 million from
modification of the loan agreement.
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 and financial resources
available to it 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 7A. 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 December 31, 1999. 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
December 31, 1999. Changes in the prime interest rate during fiscal 2000 will
have a positive or negative effect on the Company's interest expense. Each 1%
43
fluctuation in the prime interest rate will increase or decrease annual interest
expense for the Company by approximately $35,000, based on the debt outstanding
as of December 31, 1999. Further information specific to the Company's debt is
presented in Note 3 to the Consolidated Financial Statements.
YEAR OF MATURITY
ESTIMATED VARIABLE CARRYING ------------------------------
DESCRIPTION FAIR VALUE INTEREST RATE AMOUNT 2000 2001 2002
- ----------- ---------- ------------- -------- -------- -------- --------
(IN THOUSANDS)
Term loan............................. $3,522 10.0% $3,522 $1,100 $1,200 $1,222
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference herein
from Part IV Item 14(a) (1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates herein by reference the information concerning
directors and executive officers in its Notice of Annual Stockholders' Meeting
and Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year (the "2000 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates herein by reference the information concerning
executive compensation contained in the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates herein by reference the information concerning
security ownership of certain beneficial owners and management contained in the
2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates herein by reference the information concerning
certain relationships and related transactions contained in the 2000 Proxy
Statement.
44
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) CONSOLIDATED FINANCIAL STATEMENTS:
PAGE NO.
--------
Report of Independent Public Accountant..................... 41
Consolidated Balance Sheets at December 31, 1998 and 1999... 42
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... 43
Consolidated Statements of Comprehensive Loss for the years
ended December 31, 1997, 1998 and 1999.................... 44
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1997, 1998 and 1999...... 45
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... 46
Notes to Consolidated Financial Statements.................. 47
(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants On Schedule........ 58
Schedule II--Valuation and Qualifying Accounts:
Years Ended December 31, 1997, 1998 and 1999................ 59
(a)(3) EXHIBITS.
3.1* Fourth Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws of the Company.
4.1* Specimen Common Stock Certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation and Bylaws of the Company defining rights
of holders of Common Stock of the Company.
4.3# Form of Warrant
10.3* Employment Agreement between the Company and Elias Typaldos,
as amended.
10.4* Employment Agreement between the Company and Gennaro
Vendome, as amended.
10.6* 1995 Stock Option Plan.
10.7* Lease Agreement between the Company and Enterprise
Development Corporation.
10.9* License Agreement between the Company and Pfizer, Inc., as
amended.
10.12* Contract between the Company and Polish State Railways
Central Office of Purchasing and Sales Ferpol, a division of
Polish State Railways.
10.13 * Program License Contract between the Company and Deutsche
Bank AG.
10.14* General Agreement between the Company and Canaan Capital
Limited Partnership and Canaan Capital Offshore Limited
Partnership, C.V.
10.15** Severance Agreement between the Company and Joseph Esposito.
10.16** Employment Agreement between the Company and Michael
Jorgensen.
10.17*** Termination Agreement between the Company and Andreas
Typaldos.
45
10.18*** Consulting Agreement between the Company and Andreas
Typaldos.
10.19**** 1995 Stock Option Plan, as amended.
10.20# Securities Purchase Agreement.
10.21**** Employment Agreement between the Company and John Rade.
10.22**** Employment Agreement between the Company and William H.
Burke.
10.23**** Employment Agreement between the Company and Robert Hewitt.
10.24**** Amendment to Securities Purchase Agreement
10.25**** Amendment to Lease Agreement between the Company and
Enterprise Development Corporation.
10.26***** Loan and Security Agreement with Foothill Capital
Corporation dated March 31, 1998
10.27***** 1998 Stock Option Plan
10.28****** Amendment No. 1 to the Loan and Security Agreement.
10.29******* Amendment No. 2 to the Loan and Security Agreement.
10.30******** Amendment No. 3 to the Loan and Security Agreement.
10.31******** Amendment No. 4 to the Loan and Security Agreement.
10.32******** Amendment to the Employment Agreement between the Company
and John Rade.
10.33******** Employment Agreement between the Company and Rick Hartung.
10.34******** Employment Agreement between the Company and Gregory Groom.
10.35******** Software Assignment Agreement between the Company and
S-Cubed International Corporation.
10.36******** OEM License Agreement between the Company and S-Cubed
International Corporation.
10.37******** Consulting Services Agreement between the Company and
S-Cubed International Corporation.
10.38******** Value added Reseller Agreement between the Company and
S-Cubed International Corporation.
10.39******** Amendment No. 5 to the Loan and Security Agreement
10.40+ Amendment No. 6 to the Loan and Security Agreement
10.41+ Amendment No. 7 to the Loan and Security Agreement
10.42+ Amendment No. 8 to the Loan and Security Agreement
10.43++ Share Purchase Agreement, dated December 23, 1999, between
the Company and ADONIX relating to the sale of all of the
shares of Computron Software, S.A. (English translation)
21.1 List of Subsidiaries.
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule.
- ------------------------
+ Filed herewith
# Incorporated by reference to the Exhibits filed with the Company's
Form 8-K filed on January 8, 1998.
46
* Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-l, File No. 33-93990.
** Incorporated by reference to the Exhibits filed with the Company's
March 31, 1997 Form 10-Q.
*** Incorporated by reference to the Exhibits filed with the Company's
September 30, 1997 Form 10-Q.
**** Incorporated by reference to the Exhibits filed with the Company's 1997
Form 10-K
***** Incorporated by reference to the Exhibits filed with the Company's
March 31, 1998 Form 10-Q
****** Incorporated by reference to the Exhibits filed with the Company's
June 30, 1998 Form 10-Q
******* Incorporated by reference to the Exhibits filed with the Company's
September 30, 1998 Form 10-Q
********Incorporated by reference to the Exhibits filed with the Company's 1998
Form 10-K
++ Incorporated by reference to the Exhibits filed with the Company's
Form 8-K filed on December 23, 1999.
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1999:
On January 13, 2000, the Company filed a Report on Form 8-K relating to the
sale of its French subsidiary on December 29, 1999.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of
Rutherford, State of New Jersey, on this 30th day of March 2000.
COMPUTRON SOFTWARE, INC.
By: /s/ JOHN A. RADE
-----------------------------------------
John A. Rade
CHIEF EXECUTIVE OFFICER,
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities indicated on March 30, 2000.
SIGNATURE TITLE(S)
--------- --------
Chairman of the Board, Senior Vice President
/s/ (ELIAS TYPALDOS) Research and Development
-------------------------------------------
Chief Executive Officer, President and
(JOHN A. RADE) Director (Principal Executive Officer)
-------------------------------------------
Executive Vice President, Chief Financial
(MICHAEL R. JORGENSEN) Officer, and Treasurer (Principal Financial
------------------------------------------- Officer)
Vice President, Corporate Controller and Chief
/s/ (WILLIAM G. LEVERING III) Accounting Officer
-------------------------------------------
/s/ (GENNARO VENDOME) Vice President, and Director
-------------------------------------------
/s/ (DANIEL H. BURCH) Director
-------------------------------------------
/s/ (ROBERT MIGLIORINO) Director
-------------------------------------------
/s/ (WILLIAM E. VOGEL) Director
-------------------------------------------
/s/ (EDWIN T. BRONDO) Director
-------------------------------------------
/s/ (EUGENE M. WEBER) Director
-------------------------------------------
48
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders:
Computron Software, Inc.:
We have audited the accompanying consolidated balance sheets of Computron
Software, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, comprehensive loss, stockholders'
equity (deficit), and cash flows for each of the years in the three-year period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Computron
Software, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Short Hills, New Jersey
January 28, 2000
49
COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
-------------------
1998 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,009 $ 1,154
Restricted cash........................................... 4,856 301
Accounts receivable, net of allowance for doubtful
accounts of $2,192 and $1,315 at December 31, 1998 and
1999, respectively...................................... 11,172 11,153
Prepaid expenses and other current assets................. 2,309 954
------- -------
Total current assets.................................. 22,346 13,562
------- -------
Equipment and leasehold improvements, at cost:
Computer and office equipment............................. 12,641 11,605
Furniture and fixtures.................................... 1,510 1,204
Leasehold improvements.................................... 976 1,087
------- -------
15,127 13,896
Less--accumulated depreciation and amortization........... 11,957 12,052
------- -------
3,170 1,844
------- -------
Capitalized software development costs, net of accumulated
amortization of $4,439 and $4,998 at December 31, 1998 and
1999, respectively........................................ 1,024 2,002
Goodwill, net of accumulated amortization of $1,607 at
December 31, 1998......................................... 1,291 --
Other assets................................................ 686 93
------- -------
$28,517 $17,501
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt and capital lease
obligations............................................. $ 1,685 $ 1,105
Accounts payable.......................................... 4,513 3,083
Accrued expenses.......................................... 8,503 7,202
Due to shareholders....................................... 4,404 --
Other current liabilities................................. -- 500
Deferred revenue.......................................... 9,558 8,534
------- -------
Total current liabilities............................. 28,663 20,424
------- -------
Long-term liabilities:
Long-term debt and capital lease obligations, net of current
portion................................................... 2,229 2,425
------- -------
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;
23,913 shares and 23,923 shares issued and outstanding
at December 31, 1998 and 1999, respectively............. 239 239
Additional paid-in capital................................ 70,122 70,141
Accumulated deficit....................................... (72,059) (75,739)
Accumulated other comprehensive income (loss)............. (677) 11
------- -------
Total stockholders' deficit........................... (2,375) (5,348)
------- -------
$28,517 $17,501
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
50
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
Revenues: -------- -------- --------
License fees.............................................. $ 20,372 $15,273 $11,468
Services.................................................. 47,219 48,248 46,400
-------- ------- -------
Total revenues.......................................... 67,591 63,521 57,868
-------- ------- -------
Operating expenses:
Cost of license fees...................................... 2,004 3,824 1,955
Cost of services.......................................... 28,440 28,389 24,647
Sales and marketing....................................... 16,654 14,970 12,064
Research and development.................................. 10,996 10,568 7,600
General and administrative................................ 14,280 13,586 12,213
Goodwill impairment....................................... -- -- 573
Restructuring costs....................................... -- 1,025 --
-------- ------- -------
Total operating expenses................................ 72,374 72,362 59,052
-------- ------- -------
Operating loss.............................................. (4,783) (8,841) (1,184)
-------- ------- -------
Other income (expense):
Costs related to settlement of class action litigation.... (9,591) (74) --
Loss on sales of subsidiaries............................. -- -- (2,242)
Interest income........................................... 847 453 89
Interest expense.......................................... (61) (439) (450)
Other expense............................................. (41) (130) (219)
-------- ------- -------
Other expense, net........................................ (8,846) (190) (2,822)
-------- ------- -------
Loss before income tax (provision) benefit and extraordinary
item...................................................... (13,629) (9,031) (4,006)
Income tax (provision) benefit.............................. (16) (12) 508
-------- ------- -------
Loss before extraordinary item.............................. (13,645) (9,043) (3,498)
Extraordinary loss on modification of debt.................. -- -- (182)
-------- ------- -------
Net loss.................................................... $(13,645) $(9,043) $(3,680)
======== ======= =======
Basic and diluted net loss before extraordinary loss per
common share.............................................. $ (0.65) $ (0.38) $ (0.14)
======== ======= =======
Basic and diluted extraordinary loss per common share....... $ -- $ -- $ (0.01)
-------- ------- -------
Basic and diluted net loss per common share................. $ (0.65) $ (0.38) $ (0.15)
======== ======= =======
Weighted average basic and diluted common shares
outstanding............................................... 20,834 23,963 23,914
======== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
51
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Net loss.................................................... $(13,645) $(9,043) $(3,680)
Translation adjustment...................................... (526) (177) (307)
-------- ------- -------
Comprehensive loss........................................ $(14,171) $(9,220) $(3,987)
======== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
52
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
ACCUMULATED
COMMON OTHER TOTAL
STOCK ADDITIONAL COMPREHENSIVE STOCKHOLDERS'
------------------- PAID-IN ACCUMULATED INCOME EQUITY
SHARES AMOUNT CAPITAL DEFICIT (LOSS) (DEFICIT)
-------- -------- ---------- ----------- ------------- -------------
BALANCE--DECEMBER 31, 1996........... 20,801 $208 $63,879 $(49,371) $ 26 $14,742
Net loss............................. -- -- -- (13,645) -- (13,645)
Translation adjustment............... -- -- -- -- (526) (526)
Sale of common stock net of related
expenses........................... 2,937 30 5,478 -- -- 5,508
Issuance of common stock............. 25 -- -- -- -- --
Exercise of stock options............ 14 -- 16 -- -- 16
------ ---- ------- -------- ---- -------
BALANCE--DECEMBER 31, 1997........... 23,777 238 69,373 (63,016) (500) 6,095
Net loss............................. -- -- -- (9,043) -- (9,043)
Translation adjustment............... -- -- -- -- (177) (177)
Decrease in liability relating to
sale of common stock............... -- -- 131 -- -- 131
Issuance of common stock............. 119 1 595 -- -- 596
Exercise of stock options............ 17 -- 23 -- -- 23
------ ---- ------- -------- ---- -------
BALANCE--DECEMBER 31, 1998........... 23,913 239 70,122 (72,059) (677) (2,375)
Net loss............................. -- -- -- (3,680) -- (3,680)
Translation adjustment............... -- -- -- -- (307) (307)
Decrease in cumulative translation
adjustment due to sales of
subsidiaries....................... -- -- -- -- 995 995
Exercise of stock options............ 10 -- 19 -- -- 19
------ ---- ------- -------- ---- -------
BALANCE--DECEMBER 31, 1999........... 23,923 $239 $70,141 $(75,739) $ 11 $(5,348)
====== ==== ======= ======== ==== =======
The accompanying notes are an integral part of these consolidated financial
statements.
53
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Cash flows from operating activities:
Net loss.................................................... $(13,645) $(9,043) $(3,680)
Adjustments to reconcile net loss to net cash flows
provided by (used in) operating activities:
Non-cash class action litigation settlement costs......... 5,000 -- --
Depreciation and amortization............................. 3,340 3,733 2,624
Goodwill impairment....................................... -- -- 573
Provision for doubtful accounts........................... 300 114 263
Extraordinary loss on modification of debt................ -- -- 182
Loss on sale of equipment and leasehold improvements...... 27 9 10
Loss on sales of subsidiaries............................. -- -- 2,242
Changes in current assets and liabilities, net of divestures
Restricted cash........................................... (3,043) 1,274 4,303
Accounts receivable....................................... 8,406 185 (1,241)
Prepaid expenses and other current assets................. (1,321) 1,261 742
Accounts payable and accrued expenses..................... (3,872) (2,518) (120)
Due to shareholders....................................... -- -- (4,404)
Deferred revenue.......................................... (9,046) 510 (922)
-------- ------- -------
Net cash flows provided by (used in) operating activities... (13,854) (4,475) 572
-------- ------- -------
Cash flows from investing activities:
Decrease in other assets.................................. 223 705 99
Net proceeds from sale of German subsidiary............... -- -- 1,191
Net payment made on sale of French subsidiary............. -- -- (1,253)
Capitalized software development costs.................... -- (300) (1,537)
Purchase of equipment and leasehold improvements.......... (2,121) (1,739) (696)
Proceeds from sale of equipment and leasehold
improvements............................................ 75 112 --
Proceeds from redemption of short-term investments........ 868 -- --
-------- ------- -------
Net cash flows used in investing activities................. (955) (1,222) (2,196)
-------- ------- -------
Cash flows from financing activities:
Net proceeds from the sale of common stock................ 5,508 -- --
Proceeds from exercise of stock options................... 16 23 19
Proceeds from issuance of long term debt.................. -- 5,000 1,300
Payments of long-term debt and capital lease
obligations............................................. (461) (1,177) (1,684)
Payments related to acquisitions.......................... (2,946) -- --
Decrease in liabilities related to sale of common stock... -- 131 --
Payment of deferred financing costs....................... -- (350) --
-------- ------- -------
Net cash provided by (used in) financing activities......... 2,117 3,627 (365)
-------- ------- -------
Foreign currency exchange rate effects...................... (758) (201) (866)
-------- ------- -------
Net decrease in cash and cash equivalents................. (13,450) (2,271) (2,855)
Cash and cash equivalents, beginning of year................ 19,730 6,280 4,009
-------- ------- -------
Cash and cash equivalents, end of year...................... $ 6,280 $ 4,009 $ 1,154
======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for--
Interest................................................ $ 38 $ 373 $ 410
Income taxes............................................ 34 12 48
The accompanying notes are an integral part of these consolidated financial
statements.
54
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated under the laws of the State of Delaware in
September 1978. The name of the Company was changed from Computron Technologies
Corporation to Computron Software, Inc. in May 1995. 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. The Company also offers consulting, education and support
services in support of its customers' use of its software products.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Computron
Software, Inc.; its wholly owned subsidiaries located in Australia, Canada,
France, Germany, Poland, Singapore, South Africa and the United Kingdom
(collectively, the "COMPANY") (see Note 2 for discussion of the sales of two of
these subsidiaries in 1999). All significant intercompany transactions and
balances have been eliminated.
(b) 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 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.
The adoption in 1998 of SOP 97-2, which is effective for transactions
entered into in fiscal years beginning after December 15, 1997, did not have a
significant impact on the Company's revenue recognition policies.
(c) USE OF MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates. Significant assets,
liabilities and expenses with reported amounts based on estimates include
accounts receivable, capitalized software development costs, goodwill, accrued
expenses and pro forma compensation expense.
55
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(d) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
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. Restricted cash represents the amount of certificates of deposit
used as collateral for outstanding letters of credit in the same amount, and
also includes $4,404 at December 1998, which was used in connection with the
trust fund described in Note 5.
(e) COMPREHENSIVE LOSS
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," a new
accounting rule on reporting comprehensive income (loss). SFAS No. 130 requires
reporting of comprehensive income (loss), which includes net income (loss) and
all other non-owner changes in equity (deficit) during a period.
(f) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation expense is computed using the
straight-line method over the estimated useful lives of the assets (two to five
years). Leasehold improvements are amortized using the straight-line method over
the lesser of the remaining term of the lease or their estimated useful lives.
(g) SOFTWARE DEVELOPMENT COSTS
The Company capitalizes internally generated software development costs upon
the establishment of technological feasibility until the time when the product
is available for general release to customers. Research and development costs
are expensed as incurred.
During 1997, 1998 and 1999 capitalized software development costs amounted
to $0, $300, and $1,537, respectively. Annual amortization of software
development costs of $639, $705 and $559 for 1997, 1998, and 1999, respectively
was calculated as the greater of the amount computed using (a) the ratio of
actual revenue from a product to the total of current and anticipated related
revenues from the product or (b) the economic life of the product, estimated to
be three years, on a straight-line basis.
(h) IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," the Company monitors events
or changes in circumstances that may indicate carrying amounts of its long-lived
assets may not be recoverable. When such events or changes in circumstances are
present, the Company assesses the recoverability of its assets by determining
whether the carrying amount of its assets will be recovered through
undiscounted, expected future cash flows. Should the Company determine that the
carrying values of specific long-lived assets are not recoverable, the Company
would record a charge to reduce the carrying value of such assets to their fair
values. The Company considers various valuation factors, principally discounted
cash flows, to asses the fair values of long-lived assets.
(i) GOODWILL
Goodwill was the result of two acquisitions in 1996 and was amortized to
operations on a straight line method over the periods estimated to be benefited,
which was estimated at less than five years from the
56
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
date of acquisitions. During 1999, these subsidiaries were sold and as such no
goodwill remains in the consolidated financial statements as of December 31,
1999.
Pursuant to SFAS No. 121, the Company evaluated the recoverability of
goodwill and in September 1999 determined that due to the decline in legacy
product services revenue in the France operations and the inability for those
operations to generate any license revenue from products developed in the U.S.,
the undiscounted expected future cash flows would be insufficient to recover the
carrying amount of goodwill.
Accordingly, in the third quarter of 1999, the Company recorded a charge of
$573, or $0.02 per diluted common share, for the impairment of goodwill related
to the 1996 purchase of operations in France. Yearly amortization of such
goodwill was approximately $385. The France operation was sold in December 1999
(see Note 2).
(j) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities, and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that includes the
enactment date.
(k) CONCENTRATION OF CREDIT RISK
SFAS No.105, "Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit
Risk," requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains the majority of cash
balances with three financial institutions and its accounts receivable credit
risk is not concentrated within any geographic area. One customer represented
16.7% of gross accounts receivable at December 31, 1999. As of December 31 1998,
no one customer represented more than 10% of accounts receivable. There was no
single customer accounting for more than 10% of total revenues in 1997, 1998 or
1999. One customer accounted for 17.2% of license revenue in 1997, none in 1998
and 19.0% in 1999.
(l) FOREIGN CURRENCY TRANSLATION
The functional currency for most foreign subsidiaries is the local currency.
The cumulative effects of translating the balance sheet accounts from the
functional currency into the U.S. dollar at current exchange rates are included
in the cumulative translation adjustment in stockholders' equity (deficit).
(m) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance with the
provisions of the Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". SFAS No. 123, "Accounting for Stock-Based
Compensation", establishes a fair-value-based method of accounting for
stock-based compensation plans. The Company has adopted the disclosure-only
alternative under SFAS
57
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
No. 123, which requires the disclosure of the pro forma effects on earnings
(loss) and earnings (loss) per share as if the accounting prescribed by SFAS
No. 123 had been adopted, as well as certain other information.
(n) BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share is presented in accordance SFAS
No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 was effective for
financial statements for both interim and annual periods ended after
December 15, 1997.
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 for all periods presented.
The following represents the calculations of the basic and diluted net loss
per common share for the years ended December 31, 1997, 1998 and 1999.
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Net loss.................................................... $(13,645) $(9,043) $(3,680)
======== ======= =======
Weighted average basic and diluted common shares outstanding
during the year........................................... 20,834 23,963 23,914
======== ======= =======
Basic and diluted net loss per common share................. $ (0.65) $ (0.38) $ (0.15)
======== ======= =======
(o) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, restricted cash, accounts receivable, accounts
payable, accrued expenses, other current liabilities and debt reported in the
consolidated balance sheets equal or approximate fair values.
(p) DEFERRED REVENUE
Deferred revenues primarily relate to customer support agreements that have
been paid for by customers prior to the performance of those services and, to a
lesser extent, prepaid consulting and deferred license fees.
(2) 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 consolidated balance sheet. The Company recorded a combined
loss of $2,242 or 0.09 per share on these sales.
58
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth significant financial data for both
subsidiaries for comparison purposes. The 1999 amounts include results through
May 31, 1999 for the German subsidiary and November 30, 1999 for the French
subsidiary.
1997 1998 1999
-------- -------- --------
Revenues:
License fees.............................................. $ 1,435 $ 2,944 $ 527
Services.................................................. 11,283 8,951 4,897
------- ------- -------
12,718 11,895 5,424
------- ------- -------
Total operating expenses.................................... 16,994 15,589 7,866
------- ------- -------
Operating loss.............................................. (4,276) (3,694) (2,442)
Other expense, net.......................................... (33) (8) (3)
------- ------- -------
Net loss.................................................... $(4,309) $(3,702) $(2,445)
======= ======= =======
(3) LONG-TERM DEBT
The Company's long term debt consists of the following:
DECEMBER 31,
-------------------
1998 1999
-------- --------
Term loan................................................... $3,888 $3,522
Various installment loans................................... 3 --
------ ------
Subtotal.................................................. 3,891 3,522
Less: current portion..................................... 1,670 1,100
------ ------
Long-term debt, net of current portion...................... $2,221 $2,422
====== ======
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 December 31, 1999. The
net available amount under the revolving line of credit at December 31, 1999 is
approximately $2.9 million of which no amounts were outstanding. The Company was
in compliance with the covenants as of December 31, 1999.
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 (8.50% at December 31, 1999) plus 1.5%,
and was repayable in 36 monthly installments beginning May 1, 1998.
59
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
Amendment No. 7 also extends the termination date of the credit facility to
March 31, 2003, and establishes 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 December 31, 1999, eligible maintenance revenues
totaled approximately $9,224. Based on this limitation, the amount available at
December 31, 1999 under all of the term loans is $478.
Amendment No. 7 resulted in an extraordinary loss, net of taxes, in the
amount of $0.2 million for the write-off of deferred debt acquisition costs,
pursuant to the guidance in the Emerging Issues Task Force (EITF) Issue
No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt
instruments."
The amounts of long-term debt outstanding at December 31, 1999 maturing
during the next three years are as follows:
2000........................................................ $1,100
2001........................................................ 1,200
2002........................................................ 1,222
(4) LEASE OBLIGATIONS
The Company has equipment under capital leases, which is included in
equipment and leasehold improvements. Additionally, the Company leases office
space and equipment under non-cancelable operating leases. Rent expense charged
to operations in the accompanying consolidated statements of operations for
office space, vehicles and equipment under operating leases was $2,703, $2,562
and $2,370 for the years ended December 31, 1997, 1998 and 1999, respectively.
60
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Scheduled future minimum payments required for all non-cancelable leases are
as follows:
CAPITAL OPERATING
YEARS ENDING DECEMBER 31 LEASES LEASES
- ------------------------ -------- ---------
2000....................................................... $ 7 $1,977
2001....................................................... 3 1,604
2002....................................................... -- 1,314
2003....................................................... -- 37
2004....................................................... 3
--- ------
Total future minimum lease payments........................ 10 $4,935
======
Less-amount representing interest at rate of 15.285%..... 2
---
Present value of future minimum lease payments............. 8
Less current portion..................................... 5
---
Capital lease obligations, net of current portion.......... $ 3
===
(5) 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 directed the
trust to pay $4,404 in satisfaction of the timely claims made under the put, and
to return 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.
61
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(6) RELATED PARTY TRANSACTIONS
The Company has certain business relationships with an entity that was
founded by the President and Chief Executive Officer. The President and Chief
Executive Officer owns a majority beneficial equity interest in such entity.
During the years ended December 31, 1997, 1998 and 1999 the Company recorded as
expense approximately $641, $513 and $387 respectively, related to work
performed by this entity on behalf of the Company.
The Company entered into a Consulting Agreement dated September 29, 1997
with the Company's former chairman and principal stockholder. The Agreement
provides for consulting services during the period of December 1, 1997 through
November 30, 2000, in exchange for $300 for each of the first two years and $250
for the third year.
(7) INCOME TAXES
The components of income (loss) before income tax (provision) benefit and
extraordinary item are as follows:
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Domestic......................................... $ (6,517) $(4,896) $ 928
Foreign.......................................... (7,112) (4,135) (4,934)
-------- ------- -------
Total............................................ $(13,629) $(9,031) $(4,006)
======== ======= =======
Income tax (provision) benefit is as follows:
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
State............................................. $(16) $ -- $508
Foreign........................................... -- (12) --
---- ---- ----
Total............................................. $(16) $(12) $508
==== ==== ====
62
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
A reconciliation of Federal income tax benefit at the statutory rate of 34%
to income tax (provision) benefit reflected in the accompanying consolidated
statements of operations is as follows:
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Federal income tax benefit at 34%................... $4,634 $3,071 $1,362
State income taxes, net of Federal tax benefit...... 83 283 335
Change in valuation allowance....................... (3,278) (3,891) 3,220
Foreign tax rate differential....................... 284 569 (275)
Non-deductible expenses............................. (1,700) -- --
Reduction of foreign NOL's due to sale of
subsidiaries in
France and Germany................................ -- -- (3,490)
Reduction of state NOL's due to sale of New Jersey
NOL's............................................. -- -- (628)
Other, net.......................................... (39) (44) (16)
------ ------ ------
$ (16) $ (12) $ 508
====== ====== ======
The principal components of the Company's deferred taxes are as follows:
DECEMBER 31,
-------------------
1998 1999
-------- --------
Deferred tax assets:
Non-deductible accruals and other......................... $ 773 $ 888
Depreciation.............................................. 120 20
Allowance for doubtful accounts........................... 753 365
Purchased research and development........................ 1,426 1,215
Research and development credit carry-forwards............ 2,895 2,895
Net operating loss carry-forwards......................... 24,035 21,755
------ ------
Deferred tax asset...................................... 30,002 27,138
Less valuation allowance.................................... 29,592 26,372
------ ------
Net deferred tax asset.................................. 410 766
Deferred tax liability:
Software development costs.............................. 410 766
------ ------
Net deferred taxes.......................................... $ -- $ --
====== ======
At December 31, 1999, the Company had United States net operating loss
carry-forwards of approximately $35,757 which are available to offset future
Federal taxable income, if any, and which begin to expire in 2007. In addition,
foreign net operating loss carry-forwards aggregated approximately $20,626 at
December 31, 1999.
The asset and liability method requires that deferred tax assets be reduced
by a valuation allowance if, based on the weight of available evidence, it is
more likely than not that some portion or all of such assets will not be
realized. The Company has recorded a valuation allowance for its net deferred
tax assets and will continue to monitor the realizability of such assets.
Foreign subsidiaries have paid, and are expected to continue to pay, appropriate
taxes to their respective taxing authorities. It is the intention of the Company
63
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
to reinvest the earnings of its non-U.S. subsidiaries in those operations.
Accordingly, no Federal taxes have been provided on undistributed foreign
earnings.
During the year Computron was authorized by the New Jersey Economic
Development Authority ("NJEDA") in conjunction with the New Jersey Division of
Taxation to sell a portion of its New Jersey net operating losses for
consideration that is to be used to fund its research activities in the State of
New Jersey. For the State's fiscal year 2000 (July 1, 1999 to June 30, 2000),
Computron was authorized to sell $628 of its available tax benefit of $1,333
(related to tax years through 1997). Computron sold the entire yearly authorized
amount for consideration of $508. As of December 31, 1999, the New Jersey
remaining tax benefit in the amount of $705 is available to resell if the
program is extended by the NJDEA or will be available to offset New Jersey
future taxable income. In addition, the Company has available a State tax
benefit for the years 1998 and 1999 of $234.
(8) STOCKHOLDERS' EQUITY (DEFICIT)
(a) PRIVATE PLACEMENT
On December 31, 1997, the Company sold through a private placement, 2,937
shares of Common Stock and warrants to purchase 734 shares of the Company's
Common Stock, raising net proceeds of $5,508. These shares were subsequently
registered with the SEC. The registration was declared effective on May 7, 1998.
The warrants are exercisable at $3.00 per share, subject to adjustment, until
December 31, 2002.
(b) STOCK OPTION PLAN
Pursuant to the 1995 Stock Option Plan (the 1995 Plan), the Company may
grant statutory and non-statutory options to purchase an aggregate of up to
1,500 shares of Common Stock. During 1997 the Board of Directors and
stockholders amended and restated the 1995 Plan to increase the number of shares
issuable under the 1995 Plan to a total of 4,500 and the Company has
specifically reserved such shares. Options may be granted under the
discretionary option program to employees, consultants, independent advisors and
non-employee directors. Options are automatically granted to non-employee
directors under the automatic option grant programs. Options granted under the
discretionary grant program would have an exercise price of not less than 85% of
the fair market value of the Common Stock on the grant date. Options granted
under the automatic grant program would have an exercise price of 100% of the
fair market value on the grant date. All options granted under the 1995 Plan
expire ten years from the date of grant (or five years for statutory options
granted to 10% stockholders), unless terminated earlier. Options generally vest
over a four-year period, however, as of December 31, 1999, options to purchase
approximately 500 shares of common stock become immediately vested upon the
occurrence of certain events.
In April 1998, the Company adopted the 1998 Stock Option Plan (the 1998
Plan). Pursuant to the 1998 Plan, the Company may grant stock options or stock
appreciation rights to purchase an aggregate of up to 1,500 shares of Common
Stock. Options may be granted under the discretionary option program to
employees and consultants of the Company and its subsidiaries not to exceed 200
shares per person during any calendar year except that in the first year of
employment, the maximum grant will not exceed 400 shares per person.
Non-employee directors will receive an automatic grant of stock options to
purchase 20 shares of Common Stock upon date of commencement of service as a
non-employee director and; thereafter, 10 shares on the date of each annual
meeting of stockholders, provided that on, and as of, such date, such individual
has been a non-employee director for the previous twelve month period. No option
may have an exercise price less than the fair market value of the Common Stock
at the time of grant. As of
64
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, 1999, 120,000 options were issued to non-employee directors, and no
options were issued to employees under the 1998 plan.
A summary of stock option activity under the 1995 Plan is as follows:
NUMBER OF EXERCISE PRICE WEIGHTED AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- -------------- ----------------
BALANCE, DECEMBER 31, 1996............................ 762 $1.17- 13.00 $2.27
Granted............................................... 3,209 1.00- 3.62 1.89
Exercised............................................. (14) 1.17 1.17
Canceled.............................................. (124) 1.17- 13.00 4.95
------ ------------ -----
BALANCE, DECEMBER 31, 1997............................ 3,833 1.00- 13.00 1.84
Granted............................................... 1,853 0.87- 2.75 2.03
Exercised............................................. (17) 1.17- 1.90 1.42
Canceled.............................................. (1,485) 0.87- 13.00 2.62
------ ------------ -----
BALANCE, DECEMBER 31, 1998............................ 4,184 0.87- 13.00 1.75
Granted............................................... 519 0.50- 1.38 1.02
Exercised............................................. (10) 1.90 1.90
Canceled.............................................. (819) 0.87- 13.00 1.68
------ ------------ -----
BALANCE, DECEMBER 31, 1999............................ 3,874 0.50- 13.00 1.53
------ ------------ -----
Exercisable, December 31, 1999........................ 1,723 $0.81- 13.00 $1.61
------ ------------ -----
A summary of stock options outstanding and exercisable as of December 31,
1999, follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------ ------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE(YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- --------------------- ---------------- ----------- ----------------
$0.50 -- 3.13........ 3,871 7.16 $ 1.51 1,720 $ 1.59
13.00........ 3 5.58 $13.00 3 $13.00
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options granted in 1997, 1998 and 1999 using the
Black-Scholes option pricing model prescribed by SFAS No. 123.
65
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The assumptions used and the weighted average information for the years
ended December 31, 1997, 1998 and 1999 are as follows:
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- ---------- ----------
Risk-free interest rates.................................... 6.01% 5.50% 6.50%
Expected dividend yield..................................... -- -- --
Expected lives.............................................. 7 years 7 years 7 years
Expected volatility......................................... 50% 105% 177%
Weighted-average grant date fair value of options granted
during the period......................................... $1.17 $1.50 $0.82
Weighted-average remaining contractual life of
options outstanding....................................... 9.0 years 7.33 years 7.16 years
Weighted-average exercise price of 646, 1,269 and 1,723
options exercisable at December 31, 1997, 1998 and 1999,
respectively.............................................. $1.61 $1.62 $1.61
The effect of applying SFAS No. 123 would be as follows:
1997 1997 1998 1998 1999 1999
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
Net loss............................ $(13,645) $(13,987) $(9,043) $(9,972) $(3,680) $(4,709)
Basic and diluted net loss per
common share...................... $ (0.65) $ (0.67) $ (0.38) $ (0.42) $ (0.15) $ (0.20)
(9) PROFIT SHARING PLAN
The Company's Profit Sharing Plan (the Plan) is a defined contribution plan.
All employees with three months of service and who are at least 21 years of age
are eligible to become participants in the Plan and to make voluntary
contributions based on a percentage of their compensation within certain Plan
limitations.
The Plan falls under the provisions of Section 401(k) of the Internal
Revenue Code. Employees may elect to contribute a percentage of their pretax
salary, subject to statutory limitations, as well as certain percentages of
their after-tax salary, to the Plan. The Company was obligated to contribute 25%
of the employees' first 6% of pretax salary contribution through November 30,
1997. Beginning December 1, 1997, the Company increased its matching percentage
from 25% to 50% of the employees' first 6% of pretax salary contribution. The
Company's contributions charged to operations in the accompanying consolidated
statements of operations were approximately $160, $378 and $241 for the years
ended December 31, 1997, 1998 and 1999, respectively.
In addition, the Company may make additional contributions at the discretion
of the Board of Directors, which would be allocated among all participants in
proportion to each participant's compensation, as defined. As of December 31,
1999, no additional contributions were made under the Plan.
(10) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about reporting segments in interim financial
reports issued to
66
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 is
effective for financial statements for fiscal years beginning after
December 15, 1997. Financial statement disclosures for prior periods are
required to be restated.
As of December 31, 1999 the Company's operations were conducted in one
business segment. Beginning on January 1, 2000, the Company will be reorganized
into three separate business segments. Beginning with the Company's quarter
ending March 31, 2000, the Company will begin to disclose segment information in
accordance with SFAS 131. Historical segment information is not shown as it is
not practical to do so.
Revenues and long-lived assets for the Company's United States, United
Kingdom and other international operations are as follows:
UNITED UNITED
STATES KINGDOM OTHER CONSOLIDATED
-------- -------- -------- ------------
1997
Revenues(1)........................................... $39,733 $8,554 $19,304 $67,591
Long-lived assets..................................... 2,422 355 1,287 4,064
1998
Revenues(1)........................................... $34,958 $7,903 $20,660 $63,521
Long-lived assets..................................... 1,947 271 952 3,170
1999
Revenues(1)........................................... $36,854 $6,389 $14,625 $57,868
Long-lived assets..................................... 1,348 147 349 1,844
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(1) Revenues are attributed to locations based on location of sales office.
The Company does not believe there are any legal or other restrictions upon
the repatriation of international earnings to the parent company.
(11) RESTRUCTURING COSTS
During its fiscal second quarter of 1998, the Company committed itself to a
plan whereby it eliminated 32 positions in the United States, which were
rendered redundant through a reengineering process, and eliminated 16 positions
outside the United States, which were servicing legacy products. Of the 48
positions eliminated, all were terminated prior to December 31, 1998 except as
follows: six people resigned prior to being terminated and one position was
terminated subsequent to December 31, 1998. Accordingly, the Company recorded a
net charge to operations in 1998 totaling approximately $1.0 million
($1.3 million in the second quarter of 1998, reduced in the third quarter of
1998 by $0.3 million for anticipated savings attributable to resignations)
reflecting the termination costs of those personnel. As of December 31, 1998,
the Company had incurred cash outlays of $858. The remaining $167 included in
accrued expenses as of December 31, 1998 was satisfied through cash outlays
during 1999.
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders:
Computron Software, Inc.:
Under date of January 28, 2000, we reported on the consolidated balance
sheets of Computron Software, Inc. and subsidiaries as of December 31, 1998 and
1999, and the related consolidated statements of operations, comprehensive loss,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1999, as contained in the 1999 annual
report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule as listed in the accompanying index. This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this consolidated
financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule for each of
the years in the three year period ended December 31, 1999, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Short Hills, New Jersey
January 28, 2000
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SCHEDULE II
COMPUTRON SOFTWARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
BALANCE AT CHARGED TO AMOUNTS BALANCE
BEGINNING COSTS AND WRITTEN AT END
ALLOWANCE FOR DOUBTFUL ACCOUNTS: OF YEAR EXPENSES OFF OF YEAR
- -------------------------------- ---------- ---------- -------- --------
Year ended December 31, 1997.......................... $5,084 $ 300 $(2,328) $3,056
Year ended December 31, 1998.......................... $3,056 $ 114 $ (978) $2,192
Year ended December 31, 1999.......................... $2,192 $ 263 $(1,140) $1,315
RESTRUCTURING RESERVE:
- ------------------------------------------------------
Year ended December 31, 1998.......................... $ -- $1,025 $ 858(a) $ 167
====== ====== ======= ======
Year ended December 31, 1999.......................... $ 167 $ -- $ 167(a) $ --
====== ====== ======= ======
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(a) Cash payments to effect restructuring
69