Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1996
COMMISSION FILE NUMBER: 0-26368
[COMPUTRON LOGO]
COMPUTRON SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2966911
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 ROUTE 17 NORTH RUTHERFORD, NEW JERSEY 07070
(Address of principal executive offices) (Zip Code)
201-935-3400
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(Title of Class)
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 April 4, 1997
as reported on the OTC Bulletin Board, was approximately $10.8 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 April 4, 1997, Registrant had outstanding 20,903,680 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 1997 Annual Meeting of Stockholders.
2
PART I
ITEM 1. BUSINESS
This Report contains statements of a forward-looking nature 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
The Company designs, develops, markets and supports n-tier, Internet-enabled
client/server financial, workflow, computer output to laser disk (COLD)
solutions and maintenance and work management software. The Company's financial
software ("Computron Financials") consists of a full suite of modules with
multi-currency and multi-national support capabilities, including general
ledger, financial reporting, accounts payable, accounts receivable, fixed
assets, purchase order, inventory control, time and expense accounting
management and encumbrance. The Company's workflow management software
("Computron Workflow") enables organizations to automate and optimize labor
intensive processes (such as customer service, accounts payable/receivable
processing and claims processing). The Company's Computer Output On-Line
software ("Computron COOL") provides on-line access, retrieval and warehousing
of archival enterprise data typically stored off-line, as well as document image
management. Computron Workflow and Computron COOL can be used in conjunction
with Computron Financials or as stand-alone applications. The Company's
maintenance and work management software ("Computron Maintenance and Work
Management Software") is an integrated planning and work management tool that
automates the planning and management process for routine/emergency maintenance
and large-scale turnaround (overhaul) of strategic equipment and facilities.
Computron's complete product line is Year 2000 compliant.
PRODUCTS
The Company designs, develops, markets and supports n-tier, Internet-enabled
client/server financial, workflow, COLD solutions, and maintenance and work
management software. The Company's interrelated product families include (i)
Computron Financials -- a full suite of financial and accounting modules, (ii)
Computron Workflow--workflow, productivity, process management and reengineering
support software, (iii) Computron COOL (COLD)--on-line access, retrieval and
warehousing software for archival data typically stored off-line, and (iv)
Computron Maintenance and Work Management Software-- a suite of client/server
maintenance management, project management, materials management, and
procurement modules. Computron's complete product line is Year 2000 compliant.
3
COMPUTRON FINANCIALS
Computron Financials consists of a series of modules that are listed below:
- --------------------------------------------------------------------------------
MODULE FEATURES
- --------------------------------------------------------------------------------
GENERAL LEDGER The General Ledger module enables the
collection and reporting of accounting
information and permits
multi-dimensional chart of account
structures, multiple reporting period
processing, parallel posting,
user-defined management reporting and
unlimited reporting levels.
- --------------------------------------------------------------------------------
FINANCIAL REPORTING The Financial Reporting module
consolidates and reports enterprise
data on a user-defined basis (by
organization, product, cost, revenue,
demographics and other bases) and
provides executive information
functions.
- --------------------------------------------------------------------------------
ACCOUNTS PAYABLE The Accounts Payable module manages
payments made to vendors and other
third parties, enables automation of
accounts payable processing and
permits user-definition, on-line
vendor review, voucher preparation,
receiving payment and advance payment
handling and multiple invoice approval
methods.
- --------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE The Accounts Receivable module enables
users to optimize the management of
accounts receivable and provides
customizable and split payment terms,
customer profiles, recurring item
processing and deposit and prepayment
management.
- --------------------------------------------------------------------------------
PURCHASE ORDER The Purchase Order Module enables
automated purchase order processing,
user-defined vendor evaluation and
allows for blanket and standard
orders, on-line printing of purchase
orders, critical delivery flagging,
"contract near limit" warnings and
early/late and over/under shipment
reports.
- --------------------------------------------------------------------------------
INVENTORY CONTROL The Inventory Control module handles
inventory control functions, including
automatic pick tickets, automatic
reorder, automatic cycle count and
substitute item capabilities.
- --------------------------------------------------------------------------------
FIXED ASSETS The Fixed Assets 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.
- --------------------------------------------------------------------------------
3
4
- --------------------------------------------------------------------------------
MODULE FEATURES
- --------------------------------------------------------------------------------
TIME AND EXPENSE ACCOUNTING The Time and Expense Accounting module
handles tracking and accounting for
time-based professional billing and
expenses through the use of
user-defined codes, with multi-level
time and expense tracking,
customizable billing memos, flexible
billing rate options and automated
integration with accounts payable and
accounts receivable processing.
- --------------------------------------------------------------------------------
ENCUMBRANCE ACCOUNTING The Encumbrance Accounting module
enables public sector and
not-for-profit accounting by enforcing
strict controls over disbursements and
purchasing commitments to ensure that
they do not exceed budgeted amounts.
- --------------------------------------------------------------------------------
APPLICATION DEVELOPMENT TOOLSET The Application Development Toolset
module provides a graphical-based
toolset enabling users to extend
application data models, presentation,
rules, and business rules, and manages
customization of menu, user
preferences, security and other
processing related characteristics.
- --------------------------------------------------------------------------------
Computron Financials incorporates numerous international features, including
multi-currency and multi-national support capabilities and the ability to
support the numeric and date presentation, accounting standards and tax
calculations, such as value-added taxation of various countries. Computron
Financials are workflow and Internet-enabled and are Year 2000 compliant.
COMPUTRON WORKFLOW
Computron Workflow automates various labor intensive functions throughout large
organizations (such as customer service, accounts payable processing, accounts
receivable processing and claims processing). Computron Workflow can be used as
a stand-alone application or in conjunction with Computron Financials or
third-party applications. Computron Workflow is designed to improve the
productivity and efficiency of business processes within large organizations
that handle substantial quantities of transactions and activities on a
proceduralized basis. Computron Workflow enables users to develop systems that
automate their document processing and procedure, including on-line routing of
documents or transactions and customized sequencing of processing tasks
throughout an organization. Computron Workflow can be used in a wide variety of
applications in the process-based, transactional or labor intensive areas within
an organization, including (i) industry-independent functions, such as accounts
receivable and accounts payable processing, customer service, legal compliance
and order processing and (ii) industry-specific functions, such as claims
processing, membership or new account creation, loan origination and servicing
and brokerage account processing. Computron Workflow is Internet-enabled and
Year 2000 compliant.
4
5
The following table briefly describes the individual modules of Computron
Workflow:
- --------------------------------------------------------------------------------
MODULE FEATURES
- --------------------------------------------------------------------------------
WORKFLOW The Workflow module enables on-line,
real-time management review and
optimization of business processes,
allows for the fine-tuning and
adjustment of process handling and the
audit and supervision of productivity,
and handles standard business and
industry-specific processes.
- --------------------------------------------------------------------------------
REPORT & QUERY The Report & Query module allows
sophisticated report writing, multiple
data file integration, on-line review
and data extraction in connection with
Workflow.
- --------------------------------------------------------------------------------
RECORDS MANAGEMENT The Records Management module provides
batch or individual document scanning
and storage and is able to handle
document input from a variety of
formats and sources, including fax
transmissions and optical character
recognition-based systems, and handles
user-defined query and retrieval
functions.
- --------------------------------------------------------------------------------
COMPUTRON COOL
Computron COOL software enhances access to data available throughout an
enterprise by complementing on-line data with information that is typically
stored off-line in the report output of various computing systems or stored on
microfiche or on paper. Computron COOL accesses data that is found in reports
produced by the various computer systems found in an enterprise, regardless of
whether the reports were produced by a mainframe, legacy, personal computer, or
client/server computer system and regardless of the application that generated
the reports. Computron COOL can function as a substitute for computer output to
microfiche, an on-line report viewer, a facility for downloading information
from paper reports into spreadsheets and other applications, or a data
warehousing support tool, as well as a tool kit for "relating" information
extracted from disparate data sources.
Computron COOL software accesses data in report format from the user's existing
systems, and then indexes, compresses, and saves the data on magnetic storage or
optical disks. Computron COOL software then enables users throughout an
enterprise to retrieve the data simultaneously, to search the data on-line, as
well as download the data to spreadsheets or word processing documents, and to
print, fax, or otherwise make available all or parts of the data on an
easy-to-use basis on LAN, WAN, Intranet and Internet. Computron COOL can
function on a stand-alone basis and can be integrated with Computron Financials,
Computron Workflow, and Computron Maintenance and Work Management software, as
well as with the customers' own and third- party applications. Computron COOL is
Year 2000 compliant.
5
6
COMPUTRON MAINTENANCE AND WORK MANAGEMENT SOFTWARE
Computron's Maintenance and Work Management Software consists of four integrated
modules, each designed to help plan and manage specific requirements. The
following table briefly describes the individual modules:
- --------------------------------------------------------------------------------
MODULE FEATURES
- --------------------------------------------------------------------------------
Maintenance Management The Maintenance Management module enables the
planning, scheduling, and management of
critical, routine maintenance tasks, such as
daily, recurring, preventive, and predictive
maintenance work.
- --------------------------------------------------------------------------------
Project Management Project Management is best suited for managing
complex long-term jobs, such as plant shutdowns
or capital projects, that typically include
several sub-projects, diverse resources, and
thousands of tasks. Project Management's power
and sophisticated algorithms can process all the
variables involved, determine an optimized work
schedule, and help monitor progress and costs
along the way.
- --------------------------------------------------------------------------------
Materials Management Materials Management enables the automation of
inventory and warehousing functions and their
integration with planning and purchasing
processes.
- --------------------------------------------------------------------------------
Procurement Procurement helps users identify the necessary
material, services, and equipment from the
correct vendor at an optimized cost. It
provides control over the timing of purchases
because it is fully integrated with the other
Maintenance and Work Management modules.
- --------------------------------------------------------------------------------
Computron Maintenance and Work Management Software is an open systems
client/server suite of applications that is portable across all major hardware
and software platforms and is Year 2000 compliant. The system features a
Facility/Equipment Database that enables companies to manage their major
physical assets, such as facilities and equipment, and offers "drag and drop"
computer assisted scheduling (CAS) capabilities.
SERVICES
As of December 31, 1996, the Company had 162 employees providing customer
support and technical, consulting and training services. The Company's services
are described below.
CUSTOMER SUPPORT
Support for the domestic U.S. clients is based out of the Company's corporate
headquarters in Rutherford, New Jersey, with hotline access between the hours of
8:00 a.m. and 9:00 p.m. Eastern time. The Company also offers an option for
"7X24" support (24 hour support, seven days a week). Major client support
centers are also based in Essen, London, Melbourne, Paris, Singapore and Sydney.
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 also entitles the customer to any product
6
7
enhancements released during the term of the contract. Maintenance fees are
typically equal to 15% of the fees from products under license.
The Company also provides product information bulletins on an ongoing basis and
periodic informational updates about the products installed. 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 customizing the Company's software or
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 client/server systems, RDBMS software, operating systems
and telecommunications programs. Such services are generally not directly
related to the implementation of the Company's products but relate to effective
enterprise-wide solutions.
CONSULTING SERVICES
The Company's consulting services organization provides project assurance,
business systems review, technical design, functional design, business modeling,
system building, system tailoring, system certification, change management and
ongoing project support. The Company also frequently works with third-party
consultants and system integrators to provide customers with a full range of
installation, customization and project management services.
EDUCATION SERVICES
The Company provides education services through a third-party agreement with Cap
Gemini America (CGA). Under this agreement, CGA is responsible for the
development and delivery of training courses designed to familiarize users with
Computron's products. A standard schedule of courses is delivered at CGA's
facilities with additional courses delivered at other domestic and international
locations on a periodic basis. A course catalog and schedule are provided to the
Company's customers. In addition to regularly scheduled classroom training, CGA
works with each customer 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.
SALES AND MARKETING
The Company 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 Company conducts comprehensive marketing programs in the
United States which include telemarketing, public relations, direct mail,
advertising, seminars, trade shows and ongoing customer communications programs.
As of December 31, 1996, the Company's sales and marketing organization
consisted of 93 employees.
The Company'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 Atlanta, Boston, Chicago, Dallas, San Francisco and
Washington, D.C., metropolitan areas. The Company's U.S. marketing efforts
7
8
are supported by independent distributors and systems integrators. In addition,
the Company has established strategic alliances with hardware and software
vendors.
Outside of the United States, the Company maintains sales and support offices in
Australia, Canada, France, Germany, Poland, Singapore, and the United Kingdom.
The Company has also established distribution arrangements with third parties in
Australia, Malaysia, Mexico, the Netherlands, and South Africa.
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 and support of its products. The Company's relationships with software
and hardware vendors, systems integrators and consulting firms, many of which
are not the subject of formal written agreements, 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 via the Computron Academy.
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, Andersen
Consulting, Cap Gemini America, Coopers & Lybrand L.L.P., KPMG, and MCI
Systemhouse. 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 relationships with major hardware vendors such as
Compaq, Data General, Digital Equipment Corporation, Hewlett-Packard, IBM,
Seimens Nixdorf, and Sun Microsystems. These hardware vendors provide sales
leads, technical support and, in some cases, have funded the cost of porting the
Company's products to their hardware.
SOFTWARE VENDORS
The Company has established relationships with third-party software vendors
including Informix, Microsoft, Oracle and Sybase. These vendors provide sales
leads, assist the Company in developing the capability of the Company's products
to interoperate 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
has periodically released new products and enhancements to existing products.
Product development efforts are directed at increasing product functionality,
improving product performance and expanding the capabilities of the products to
interoperate with third-party software and hardware. In particular, the Company
is devoting
8
9
substantial development resources to develop additional modules for its products
and the capability to support additional platforms, databases, GUIs, toolsets
and emerging technologies, such as Intranet/Internet web-based access to
applications. While the Company anticipates that certain new products and
enhancements will be developed internally, the Company may 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, 1996, the Company had 136 employees engaged in product
development and engineering.
COMPETITION
The financial applications and business 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 primary competition
for Computron Financials are the financial applications software offered by
Oracle Corporation, PeopleSoft, Inc., SAP AG, and others. The principal
competitors for the Company's Computron Workflow and Computron COOL software are
Eastman Kodak Company ("Kodak"), which acquired the software division of Wang
Laboratories, Inc. ("Wang") , FileNet Corporation, and others. The Company has
entered into an agreement with Wang pursuant to which Wang has the right to
license Computron COOL software to third parties under its own private label and
modify such software. 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 for entry in the
software market, the Company expects additional competition from other
established and emerging companies as the client/server applications 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
9
10
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 -- Risk Factors -- Intense Competition."
INTELLECTUAL PROPERTY
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 contract, copyright and trademark law, trade secrets,
confidentiality agreements and contractual provisions 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 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 is not aware 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. 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 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.
Although the Company has certain common law rights in relation to its
trademarks, service marks and product names, it does not have any trademark or
service mark registrations. The Company has two pending applications for
"COMPUTRON." A number of corporations and businesses have trademarks and service
marks which are similar to or identical to "COMPUTRON." Although the Company
believes that its "COMPUTRON" mark and other trademarks and service marks are
distinct, there can be no
10
11
assurance that the Company will be able to register or protect its trademarks
and service marks. See "Business -- Risk Factors -- Dependence on Proprietary
Rights; Risks of Infringement."
EMPLOYEES
As of December 31, 1996, the Company had 454 full-time employees, 250 within the
United States and 20 outside the United States, including 136 in product
development and engineering, 162 in customer service and support, 93 in sales
and marketing, and 63 in finance and administration. 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 OPERATING AND NET LOSSES
The Company incurred net losses of $2.4 million for 1994, $8.6 million for 1995
and $31.8 million for 1996, and expects to report a net loss for the quarter
ended March 31, 1997. As of December 31, 1996, the Company had an accumulated
deficit of $49.4 million. There can be no assurance that the Company will be
profitable in the future. The Company has restated previously reported results
for the years ended December 31, 1992, 1993, 1994 and 1995, including certain
unaudited quarters therein and for each of the three unaudited quarters ended
September 30, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 to the Consolidated Financial
Statements.
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 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 customer budgets, competitive conditions
in the industry and general economic conditions. Further, the license of the
Company's products generally involves a significant commitment of capital and
may be delayed due to time-consuming authorization procedures within an
organization. For these and other reasons, the sales cycles for the Company's
products are typically lengthy and subject to a number of significant risks over
which the Company has little or no control, including customers' budgetary
constraints and internal authorization reviews. The Company has historically
operated with little backlog, since its products are generally shipped as orders
are received. The Company has historically recognized a substantial portion of
its revenues in the last month of a quarter, with these revenues frequently
concentrated in the last week of the quarter. License fees in any quarter are
substantially dependent on orders booked and shipped in the last month and last
week of that quarter. Delays in the timing of recognition of specific revenues
may adversely and disproportionately affect the Company's results of operations
because a high percentage of the Company's operating expenses are relatively
fixed, and planned expenditure such as continued expansion of the Company's
sales force, are based primarily on sales forecasts and only a small percentage
of the Company's operating expenses vary with its revenues. Accordingly, the
Company believes that period to period comparisons of results of operations are
not necessarily meaningful and should not be relied upon
11
12
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 patters
and by the Company's sales commission policies which compensate sales personnel
on the basis of quarterly and annual performance quotas. The Company believes
this pattern may continue in the future.
Due to the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. Such an event would have a material adverse effect on
the price of the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations.
DELISTING FROM NASDAQ AND MARKET ILLIQUIDITY; NO ASSURANCE OF RELISTING ON
NASDAQ
In January 1997, the Company announced that information had come to the
attention of the Board of Directors that may impact previously issued financial
statements and the Company's independent public accountants withdrew their
reports on the Company's previously reported financial statements. The Nasdaq
Stock Market subsequently delisted the Company's Common Stock from quotation on
the Nasdaq National Market System ("Nasdaq"). Trading in the Common Stock of the
Company is now being conducted on the over-the-counter market in the "pink
sheets" and on the NASD's "Electronic Bulletin Board." Consequently, the
liquidity of the Company's Common Stock has been seriously impaired which may
result in lower prices for the Company's Common Stock than might otherwise be
obtained and could also result in a larger spread between the bid and asked
prices for the Company's Common Stock.
In addition, since the Common Stock is delisted from trading on Nasdaq and the
trading price of the Common Stock is less than $5.00 per share, trading in the
Common Stock is also subject to the requirements of Rule 15g-9 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under such
rule, broker/dealers who recommend such low-priced securities to persons other
than established customers and accredited investors must satisfy special sale
practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser's
written consent prior to the transaction. The Securities Enforcement Remedies
and Penny Stock Reform Act of 1990 also requires additional disclosure in
connection with any trades involving a stock defined as a penny stock
(generally, according to recent regulations adopted by the Securities and
Exchange Commission, any equity security not traded on an exchange or quoted on
Nasdaq that has a market price of less than $5.00 per share, subject to certain
exceptions), including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. Such requirement could severely limit the liquidity of the Company's
Common Stock.
The Company has restated its previously reported financial statements and the
independent public accountants have reissued their reports. The Company intends
to appeal the Nasdaq Stock Market's decision to delist the Company's stock from
Nasdaq although there can be no assurance that the Nasdaq Stock Market will
approve the Company's appeal.
LITIGATION
During 1996, the Company and certain of its current and former officers and
directors were named as defendants in six civil suits filed as class actions on
behalf of individuals claiming to have purchased Computron Common Stock during
the time period from August 24, 1995, through April 1, 1996. The suits
12
13
were filed in the United States District Court for the District of New Jersey
and have been consolidated by court order into one suit captioned In re
Computron Software, Inc. Securities Litigation, Master File No-96-1911 (AJL).
See "Item 3. Legal Proceedings".
Since discovery has not yet commenced, the Company is unable to assess the
likelihood of an adverse result in the class action lawsuits. There can be no
assurances as to the outcome of such lawsuits. The inability of the Company to
resolve the claims that are the basis for the lawsuits or to prevail in any
related litigation could result in the Company being required to pay substantial
monetary damages for which the Company may not be adequately insured, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In any event, the Company's defense of such
lawsuits, even if the outcome is favorable to the Company, has resulted and will
continue to result in substantial costs to the Company.
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, financial condition and results of operations or cash
flows.
MANAGEMENT CHANGES
During the past three years the Company has experienced significant growth. This
growth has placed a significant strain on the Company's management,
administrative and operational resources and financial control systems.
Simultaneously, the Company has experienced significant turnover of executive
management. The Company has recently added a number of key officers, including
its President and Chief Executive Officer, Executive Vice President and Chief
Financial Officer and Vice President, Finance and Administration, in February
1997. The Company's future results of operations will depend, in part, on its
ability to strengthen its senior management group, and on the ability of its
officers and key employees to improve its management, administrative,
operational and financial reporting systems and to expand, train, manage and
retain its employee base. The Company's inability to manage these issues
effectively could have a material adverse effect on the quality of the Company's
products, the Company's ability to retain key personnel and the Company's
business and financial condition and results of operations.
REPORTING, OPERATING AND CONTROL ENVIRONMENT
Following the audits of the Company's consolidated financial statements for 1994
and 1995, the Company received management letters from its independent public
accountants, Arthur Andersen LLP, which enumerated material weaknesses in the
Company's financial and accounting processes, controls, reporting systems and
procedures. The Company's independent public accountants highlighted the
Company's need for additional financial and accounting personnel with software
industry experience. In addition, the Company's independent public accountants
noted (i) the need for uniformity in the language of its contracts and
recommended that the Company standardize the terms of its license agreements and
expand its internal contract review and approval procedures , (ii) deficiencies
in the organization of customer and contract files and recommended that the
Company improve and standardize record keeping, (iii) the need for expanded and
formalized accounts receivable collection procedures, (iv) the need for improved
documentation and record keeping relating to consulting service projects, and
(v) the need to develop policies and procedures to accurately identify the date
when technological feasibility of developed software has been attained and to
improve the documentation and record keeping for capitalized software
development costs and to do so on a timely basis. In addition, in the 1995
letter, the Company's independent public accountants recommended that the
Company implement improved internal accounting control procedures approved by
the Audit
13
14
Committee of the Board of Directors and reorganize and upgrade the contracts
administration processes, procedures and personnel to ensure proper revenue
recognition and financial reporting.
In connection with the completion of the December 31, 1996 audit, the
independent public accountants have informed the Company that their management
letter will again communicate material weaknesses similar to those material
weaknesses included in the 1994 and 1995 management letters. In addition to
certain material weaknesses previously included in the 1994 and 1995 management
letters, the independent public accountants noted various other internal
deficiencies. The Company has hired senior executives with software industry
experience, including a Chief Executive Officer, a Chief Financial Officer, a
Vice President, Finance and Administration, and a corporate Controller. The
Company expects to hire additional professionals during the remainder of 1997 as
part of a plan to strengthen the Company's management and internal controls.
There can be no assurance that the Company will be successful in implementing
such plan. See Note 1(c) to the Consolidated Financial Statements.
INTENSE COMPETITION
The financial applications and business 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 primary competition
for Computron Financials are the financial applications software offered by
Oracle Corporation, PeopleSoft, Inc. and SAP AG. The principal competitors for
the Company's Computron Workflow and Computron COOL software are Kodak and
FileNet Corporation. The Company has entered into an agreement with Wang
pursuant to which Wang has the right to license Computron COOL software to third
parties under its own private label and modify such software. Most of the
Company's competitors are substantially larger than the Company and have
significantly greater financial, technical and marketing resources and
established, 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
client/server applications 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."
14
15
DEPENDENCE ON PRINCIPAL PRODUCTS
Substantially all of the Company's revenues are derived from the licensing of
Computron Financials, Computron Workflow, Computron COOL, Maintenance and Work
Management and fees from related services. These products and services are
expected to continue to account for substantially all of the Company's revenues
for the foreseeable future. Accordingly, the Company's future results of
operations will depend, in part, on achieving broader market acceptance of these
products and services, as well as the Company's ability to continue to enhance
these products and services to meet the evolving needs of its customers. A
reduction in demand or increase in competition in the market for financial
applications or business software, or decline in sales of such products and
services, could have a material adverse effect on the Company business, results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business-Products."
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DEFECTS,
DEVELOPMENT DELAYS AND LACK OF MARKET ACCEPTANCE
The financial applications and business software market is characterized by
rapid technological change, changes in customer requirements, frequent new
product introductions and enhancements and emerging industry standards. The
introduction of products embodying new technologies and 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
enhance its current products and to develop and introduce new 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
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.
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. 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."
15
16
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 contract, copyright and trademark law, trade secrets,
confidentiality agreements and contractual provisions 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 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.
Although the Company has certain common law rights in relation to its
trademarks, service marks and product names, it does not have any trademark or
service mark registrations. The Company has two pending applications for
"COMPUTRON." A number of corporations and businesses have trademarks and service
marks which are similar to or identical to "COMPUTRON." Although the Company
believes that its "COMPUTRON" mark and other trademarks and service marks are
distinct, there can be no assurance that the Company will be able to register or
protect its trademarks and service marks.
The Company is not aware 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. 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."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company derived approximately $9.1 million, $14.2 million, and $21.3 million
or 28.0%, 26.9%, and 39.2% of its total revenues, from customers outside of the
United States in 1994, 1995, and 1996, respectively. The Company expects that
such revenues will continue to represent a significant percentage of its total
revenues in the future. The Company believes that its continued growth and
profitability will require expansion of its sales in international markets. The
Company intends to continue to expand its operations outside of the United
States and enter additional international markets, which will require
significant management attention and financial resources. During 1996, the
Company acquired the operations, customers and products of AT&T ISTEL, in Essen,
Germany, and the Financial Software Service Division of Generale de Service
Informatique, in Paris, France. 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 international license fees and
services revenue are
16
17
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 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
EXPANSION OF INDIRECT CHANNELS
An integral part of the Company's strategy is to expand indirect marketing
channels using systems integrators and to increase the proportion of the
Company's customers licensed through such indirect channels. The Company is
currently investing, and intends to continue to invest, significant resources to
develop indirect marketing channels. There can be no assurance that the Company
will be able to attract and retain systems integrators that will be able to
market the Company's products effectively and will be qualified to provide
timely and cost-effective customer support and service. The Company's agreements
with such third parties are generally not exclusive and many of those third
parties also market competitive products. In many cases, these agreements may be
terminated by either party at any time without cause. The inability to attract
and retain systems integrators could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business-Sales and Marketing" and "Strategic Alliances."
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,
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 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
17
18
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 senior management, directors and affiliates together beneficially
own approximately 65.6% of the outstanding shares of Common Stock. 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 loss of the services of one or
more key employees could have a material adverse effect on the Company's
business. The Company is a party to employment agreements with certain key
personnel. In addition, the Company is the beneficiary of key-person life
insurance on the lives of certain key personnel. 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 and 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.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW
The Company's Fourth Amended and Restated Certificate of Incorporation
authorizes the Board of Directors to issue, without stockholder approval,
5,000,000 shares of Preferred Stock with voting, conversion and other rights and
preferences that could materially and adversely affect the voting power or other
rights of the holders of Common Stock. Although the Company has no current plans
to issue any shares of Preferred Stock, the issuance of Preferred Stock or of
rights to purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal. In addition, the possible issuance of Preferred Stock
could discourage a proxy contest, make more difficult the acquisition of a
substantial block of the Company's Common Stock or limit the price that
investors might be willing to pay in the future for shares
18
19
of the Company's Common Stock. Certain provisions of the Company's by-laws and
of Delaware law applicable to the Company could delay or make more difficult a
merger, tender offer or proxy contest involving the Company.
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
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGEMENT EMPLOYEES
The directors, executive officers and key management employees of the Company
are as follows:
NAME AGE POSITION
Elias Typaldos .......... 46 Chairman of the Board and Vice President,
Research and Development
John A. Rade ............ 62 President, Chief Executive Officer, and
Director
Michael R. Jorgensen .... 45 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
Gennaro Vendome ......... 50 Vice President, Enterprise Sales and
Director
Alex Plavocos ........... 50 Vice President, Marketing
William H. Burke ........ 35 Vice President, Finance and Administration
Gregory Kopchinsky (1) .. 45 Director
Robert Migliorino (1) ... 46 Director
Michel Berty ............ 57 Director
William Vogel ........... 59 Director
- -------------------
(1) Member of the Audit and Compensation Committees.
ELIAS TYPALDOS, a founder of the Company, has been 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, 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 September 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.
GENNARO VENDOME, a founder of the Company, has been Vice President, Enterprise
Sales and a 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. Prior to joining the Company, Mr. Vendome
19
20
was a project leader of the MISTER WIZARD computer system of the AT&T Corp./New
York Telephone Co.
ALEX PLAVOCOS joined the Company in June 1994 as Vice President, Marketing.
From July 1991 to June 1994, Mr. Plavocos was Director of Corporate Marketing
for Information Builders Inc., a software company. Mr. Plavocos held various
marketing positions with Applied Data Research/Computer Associates, a
software company, from November 1983 to June 1991.
WILLIAM H. BURKE joined the Company as Vice President, Finance and
Administration in February 1997. Prior to joining the Company, Mr. Burke was a
Senior Manager with the international accounting firm of Arthur Andersen LLP,
specializing in technology related industries. Mr. Burke was employed by Arthur
Andersen from January 1985 to February 1997, and is a Certified Public
Accountant.
GREGORY KOPCHINSKY has been a director since 1994. Mr. Kopchinsky is a
partner of the venture capital partnership Canaan Partners, which through its
affiliates is a principal stockholder of the Company. Mr. Kopchinsky joined
Canaan Partners as a General Partner in 1990. From 1984 to 1990, he was a
Vice President at J.P. Morgan with principal responsibility for private debt
and equity financings. Prior to joining J.P. Morgan, Mr. Kopchinsky was an
attorney with Davis Polk & Wardwell specializing in complex financing
transactions.
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.
MICHEL BERTY has been a director since August 1996. Since September, 1992, Mr.
Berty has been the Chairman and Chief Executive Officer of CAP Gemini America
(CGA), the U.S. subsidiary of The CAP Gemini Group, a leading international
information technology consulting organization. Prior to that, Mr. Berty was
General Secretary at Cap Gemini Sogeti Group, from 1986 to September 1992.
WILLIAM VOGEL has been a director since August 1996. Since 1971, Mr. Vogel
has been Chief Executive Officer of Centennial Financial Group, Inc., which
is the parent of Centennial Life Insurance Company. He has also been the
Chief Executive Officer of W.S. Vogel Agency, Inc. since 1961.
Messrs. Typaldos, Vendome, Kopchinsky and Migliorino were elected to the
Board of Directors at the 1996 Annual Stockholders meeting. Messers. Rade,
Berty and Vogel were appointed to fill vacancies by the Board of Directors.
Each of the Directors shall be subject to reelection at the 1997 Annual
Stockholders meeting.
ITEM 2. PROPERTIES
FACILITIES
The Company's corporate headquarters are located in Rutherford, New Jersey in
leased facilities consisting of 40,000 square feet of office space occupied
under a lease expiring in December 1998 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, Boston, Chicago, San
Francisco, Dallas, Mississauga and Toronto Canada and Washington, D.C.
metropolitan areas. The Company also leases sales and support
20
21
offices outside of North America in Australia, France, Germany, , Poland,
Singapore, and the United Kingdom. While the Company believes that its
facilities are adequate for its present needs, the Company is consistently
reviewing its needs and may add facilities in the future. The Company believes
that additional space would be available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
During 1996, the Company and certain of its current and former officers and
directors were named as defendants in six civil suits filed as class actions on
behalf of individuals claiming to have purchased Computron Common Stock during
the time period from August 24, 1995, through April 1, 1996. The suits were
filed in the United States District Court for the District of New Jersey and
have been consolidated by court order into one suit captioned In re Computron
Software, Inc. Securities Litigation, Master File No-96-1911 (AJL). A Second
Amended Consolidated Complaint was filed on August 9, 1996. The complaint
asserts claims under Sections 11 and 15 of the Securities Act of 1933, Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, Rule 10b-5
of the Securities and Exchange Commission promulgated thereunder, and state law,
and seeks unspecified compensatory damages, attorneys' fees and costs. By a
Notice of Motion, dated September 9, 1996, defendants moved to dismiss the
Second Amended Consolidated Complaint for failure to state a claim upon which
relief can be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure and for failure to plead their claims with particularity, as required
by Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities
Litigation Reform Act of 1995. During the pendency of the Company's motion to
dismiss, the Company announced that information had come to the attention of the
Board of Directors that may impact previously issued financial statements and
the Company's independent public accountants withdrew their reports on the
Company's previously reported financial statements. By order of the Court, the
Company's motion to dismiss was withdrawn and all discovery and other
proceedings in the action were stayed. The Court has scheduled a conference on
April 21, 1997 to discuss case management. The Company intends to vigorously
defend itself against the suits.
Since discovery has not yet commenced, the Company is unable to assess the
likelihood of an adverse result in the class action lawsuits. There can be no
assurances as to the outcome of such lawsuits. The inability of the Company to
resolve the claims that are the basis for the lawsuits or to prevail in any
related litigation could result in the Company being required to pay substantial
monetary damages for which the Company may not be adequately insured, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In any event, the Company's defense of such
lawsuits, even if the outcome is favorable to the Company, has resulted and will
continue to result in substantial costs to the Company.
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, 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 1996.
21
22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock was traded on Nasdaq under the symbol "CTRN" from
August 24, 1995 until January 27, 1997. Thereafter, the Company's Common Stock
has traded on the over-the-counter market in the "pink sheets" and on the NASD's
"Electronic Bulletin Board". The following table lists the high and low sales
prices for the periods set forth below:
PERIOD HIGH LOW
------ ---- ---
Third quarter of 1995 .............. $ 21 $ 16 3/8
Fourth quarter of 1995 ............. 18 1/4 13 1/2
First quarter of 1996 .............. 18 6 1/8
Second quarter of 1996 ............. 6 1/8 4 1/4
Third quarter of 1996 .............. 5 1/8 3 1/2
Fourth quarter of 1996 ............. 3 1/2 1 1/2
As of April 4,1997, the approximate number of record holders of the Company's
Common Stock was 111.
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, 1992, 1993, 1994, 1995 and 1996 have been derived from the audited
consolidated financial statements of the Company, as restated. The consolidated
statement of operations data for the years ended December 31, 1994, 1995 and
1996, and the consolidated balance sheet data for the years ended December 31,
1995 and 1996 are derived from, and are qualified by reference to, the audited
consolidated financial statements, as restated, and the related notes thereto
included elsewhere in this report. The selected consolidated financial
22
23
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company, as restated, and related notes
thereto included elsewhere in this report.
(In thousands, except per share data)
Years Ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
STATEMENT OF OPERATIONS DATA (1):
Revenues:
License fees $ 10,359 $ 12,694 $ 20,615 $ 33,766 $ 17,625
Services 9,286 10,894 11,858 19,029 36,770
-------- -------- -------- -------- --------
Total revenues 19,645 23,588 32,473 52,795 54,395
Operating expenses:
Cost of license fees 467 850 2,447 4,673 2,634
Cost of services 6,569 6,935 7,738 12,988 28,255
Sales and marketing 8,324 8,788 11,845 19,387 24,181
General and administrative 3,797 5,668 5,607 11,269 20,772
Research and development 4,106 4,685 6,888 9,651 11,872
Purchased research and development -- -- -- 3,797 --
-------- -------- -------- -------- --------
Total operating expenses 23,263 26,926 34,525 61,765 87,714
-------- -------- -------- -------- --------
Operating loss (3,618) (3,338) (2,052) (8,970) (33,319)
Other income (expense) 26 (203) (206) 742 1,572
-------- -------- -------- -------- --------
Loss before income taxes (3,592) (3,541) (2,258) (8,228) (31,747)
Provision (benefit) for income taxes (245) 323 150 350 100
-------- -------- -------- -------- --------
Net loss $ (3,347) $ (3,864) $ (2,408) $ (8,578) $(31,847)
======== ======== ======== ======== ========
Net loss per common share (1995 pro-forma) $ (.46) $ (1.53)
======== ========
Shares used in net loss per common share
computation (pro-forma 1995) 18,809 20,787
======== ========
As of December 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- ------- -------
BALANCE SHEET DATA (1):
Cash, cash equivalents, short-term
investments and restricted cash $ 7,235 $ 4,554 $ 16,302 $46,651 $23,884
Working capital 434 1,619 7,688 40,450 4,358
Total assets 15,585 16,119 35,075 71,367 56,693
Total debt and capital lease obligations 3,345 5,183 6,496 820 2,005
Redeemable convertible preferred stock 11,144 14,611 40,038 -- --
Total stockholders' equity (deficit) (3,592) (10,907) (28,782) 46,398 14,742
(1) The consolidated financial data for 1992 through 1995 has been restated. See
Note 2 of Consolidated Financial Statements.
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, as restated, and is qualified in its
entirety by reference thereto.
23
24
This Report contains statements of a forward-looking nature 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 product, 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 Maintenance and Work
Management Software.
During 1996, the Company acquired the Financial Services Division of Generale de
Service Informatique (GSI) based in Paris, France, and AT&T Istel and Co., GMBH,
in Essen, Germany. These operations primarily provide software services in their
respective countries.
The Company's revenues are derived from license fees and services. Revenues for
services and training are recognized upon performance of the services. 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 and certain factors which may affect the Company's
operating results, see "Business - Risk Factors -- Potential for Significant
Fluctuations in Operating Results; Seasonality".
Following the December 31, 1994 audit, the Company received a management letter
from its independent public accountants that identified material weaknesses in
the Company's internal control environment. During 1995, the Company experienced
significant turnover of its senior financial and accounting personnel which
management believes delayed the implementation of certain improvements and
resulted in material weaknesses in these same areas. The December 31, 1995 audit
resulted in material adjustments to the fourth quarter's revenues and expenses.
24
25
Upon completion of the December 31, 1995 audit the Company again received a
management letter from its independent public accountants that identified
material weaknesses similar to those material weaknesses included in the 1994
management letter. In addition, the independent public accountants recommended
that the Company implement an internal accounting control plan, approved by the
Audit Committee of the Board of Directors, which addresses these weaknesses and
reorganize and upgrade the contracts administration processes, procedures,
controls and personnel to ensure proper revenue recognition and financial
reporting. See "Business--Risk-Factors--Reporting, Operating and Control
Environment" for a more complete discussion of these weaknesses.
In connection with the completion of the December 31, 1996 audit the independent
public accountants have informed the Company that their management letter will
again communicate material weaknesses similar to those material weaknesses
included in the 1994 and 1995 management letters. In addition to certain
material weaknesses previously included in the 1994 and 1995 management letters,
the independent public accountants noted various other internal control
deficiencies.
The Company has restated its consolidated financial statements for each of the
four years in the period ended December 31, 1995 and certain unaudited quarters
therein and for each of the three unaudited quarters ended September 30, 1996.
See Note 2 of Consolidated Financial Statements. The Company incurred net losses
of $2.4 million for 1994, $8.6 million for 1995, and $31.8 million for 1996, and
expects to report a loss for the quarter ended March 31, 1997. As of December
31, 1996, the Company had an accumulated deficit of $49.4 million. There can be
no assurance that the Company will be profitable in the future.
In response to the independent public accountant's concerns and as a result of
turnover in its accounting and finance departments, the Company has hired senior
executives with software industry experience, including a Chief Executive
Officer, a Chief Financial Officer, a Vice President, Finance and
Administration, and a corporate Controller. The Company expects to hire
professionals during the remainder of 1997 as part of a plan to strengthen the
Company's management and internal controls.
25
26
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain operating data
as a percentage of total revenues:
Years Ended December 31,
------------------------------
1994 1995 1996
------ ------ ------
Revenues:
License fees 63.5 % 64.0 % 32.4 %
Services 36.5 36.0 67.6
------ ------ ------
Total revenues 100.0 100.0 100.0
Costs and expenses:
Cost of license fees 7.5 8.9 4.8
Cost of services 23.8 24.6 51.9
Sales and marketing 36.5 36.7 44.5
General and administrative 17.3 21.3 38.2
Product development and engineering 21.2 18.3 21.8
Purchased research and development -- 7.2 --
------ ------ ------
Total costs and expenses 106.3 117.0 161.2
------ ------ ------
Operating loss (6.3) (17.0) (61.2)
Other income (expense) (0.6) 1.4 2.9
------ ------ ------
Net loss before income taxes (6.9) (15.6) (58.3)
Provision for income taxes 0.5 0.7 0.2
------ ------ ------
Net loss (7.4)% (16.3)% (58.5)%
====== ====== ======
TOTAL REVENUES
The Company's revenues are derived from license fees and services. Total
revenues increased from $32.5 million in 1994 to $52.8 million in 1995 and $54.4
million in 1996 representing increases of 62.6% and 3.0%, respectively. The
increase in 1995 was attributable primarily to significant growth in license
fees and services revenue. In 1996, services revenue experienced significant
growth due in large part to the acquisition of operations in France and Germany.
Such operations contributed $9.7 million of total revenues since their
respective dates of acquisition. License fees declined significantly in 1996 due
in part to uncertainties caused by the Company's failure to meet earnings
expectations, the Company's pending litigation, and turnover of executive
management. Separate individual customers accounted for 24.8% and 10.0% of the
Company's total revenues in 1994 and 1995, respectively. No customer accounted
for 10% or more of total revenues during 1996.
The Company derived approximately $9.1 million , $14.2 million, and $21.3
million or 28.0%, 26.9%, and 39.2% of its total revenues, from customers outside
of the United States in 1994, 1995 and 1996, respectively. The Company expects
that revenues derived from such customers will continue to represent a
significant percentage of its total revenues in the future.
LICENSE FEES
License fees include revenues from software license agreements entered into
between the Company and its customers with respect to both the Company's
products and third party products resold by the Company.
26
27
License fees increased 63.8% from 1994 to 1995. The increase in 1995 was
attributable to increased market acceptance of the Company's products. License
fees decreased 47.8% from 1995 to 1996, although license fees increased 55% to
$7.7 million during the quarter ended December 31, 1996 as compared to $4.9
million during the quarter ended December 31, 1995. The 1996 decrease was
attributable, in part, to uncertainties caused by the Company's failure to meet
earnings expectations, the Company's pending litigation, and turnover of
executive management. For 1995, license fee revenues included the payment to the
Company of a non-refundable source code and fully paid-up license fee in the
amount of approximately $3.7 million pursuant to the Company's agreement with
Wang.
SERVICES REVENUE
Services revenue includes fees from software maintenance agreements, training,
installation and consulting services. Maintenance fees, including first year
maintenance, are billed separately and are recognized ratably over the period of
the maintenance agreement. Training and consulting service revenues are
recognized as the services are performed. Services revenue increased 60.5% from
1994 to 1995, and 93.2% from 1995 to 1996. The increases in services revenue in
1995 and 1996 were attributable primarily to increased training and consulting
services which resulted from the increased number of customers licensing the
Company's products and increased maintenance revenues related to a larger
installed base of the Company's products, as well as the acquisitions in France
and Germany discussed above. Service revenues totaling $9.7 million reported
from the Company's acquired operations in France and Germany accounted for 54.7%
of the $17.7 million growth reported in 1996.
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 product media, duplication, manuals and
shipments. The first two elements can vary substantially from period to period
while the third element remains relatively stable as a percentage of license
fees.
Cost of license fees increased from $2.4 million in 1994 to $4.7 million in 1995
and decreased to $2.6 million in 1996. These costs represented 11.9%, 13.8%, and
14.9% of license fees in 1994, 1995 and 1996, respectively. The dollar cost of
license fees increased from 1994 to 1995, primarily as a result of increased
costs associated with third party software resold to customers, increased
royalties paid to third parties, and higher amortization of capitalized software
development costs. The cost of license fees as a percentage of revenue increased
from 1995 to 1996 due primarily to decreased license revenue without a
corresponding decrease in the amortization of capitalized software development
costs.
COST OF SERVICES
Cost of services consists primarily of personnel costs for training, consulting
and customer support and related travel costs, and costs of training third party
service and support organizations for the Company's products. Total service
costs increased from $7.7 million in 1994 to $13.0 million in 1995 and $28.3
million in 1996 and represented 65.3%, 68.3% and 76.8% of service revenues in
1994, 1995, and 1996, respectively. During these periods, the cost of services
as a percentage of service revenues increased as a result of increases in
personnel costs without corresponding price increases and an increase in
non-chargeable management staff. The Company significantly expanded its customer
service resources, including telephone support, account management staff and
third party-consulting in 1996, and as a result
27
28
the dollar cost of services expenditures increased substantially. Approximately
$7.4 million of the increase of cost of services for 1996 related to the
Company's recent acquisitions in France and Germany.
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 increased from $11.8 million in 1994 to
$19.4 million in 1995 and $24.2 million in 1996, and represented 36.5%, 36.7%,
and 44.5% of total revenues, respectively. In 1994, 1995, and early 1996 the
Company significantly increased its sales and marketing expense due primarily to
substantial hiring and increased sales commissions, and advertising costs.
Approximately $4.4 million of the $4.8 million increase relates to increased
sales and marketing expenses in the Company's foreign locations, of which $0.8
million is attributable to newly acquired operations.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of research and development
personnel costs, costs of equipment, facilities and third party software
development costs. Research and development expenses are generally charged to
operations as incurred. However, certain software development costs are
capitalized in accordance with Statement of Financial Accounting Standards No.
86. Such capitalized software development costs are generally amortized over
periods not exceeding three years.
Software research and development expenses (net of capitalized software
development costs) increased from $6.9 million in 1994 to $9.7 million in 1995
and $11.9 million in 1996 and represented 21.2%, 18.3% and 21.8% of total
revenues, respectively. The Company capitalized software development costs of
$0.9 million, $1.5 million and $1.1 million in 1994, 1995, and 1996,
respectively. Gross research and development expenses increased in 1995 and 1996
due primarily to the hiring and training of additional software engineers to
develop and enhance the Company's existing products and to develop new products.
The Company expects research and development expenses to continue at historical
levels. 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 and as a result of acquisitions.
PURCHASED RESEARCH AND DEVELOPMENT
In 1995, the Company charged to expense $3.8 million related to in-process
research and development acquired in the fourth quarter of 1995. Purchased
research and development represents the estimated fair value of development
projects which have not yet reached technological feasibility and have no future
alternative use.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries of
administrative, executive and financial personnel, provision for doubtful
accounts and outside professional fees. General and administrative expenses
increased from $5.6 million in 1994 to $11.3 million in 1995 and increased to
$20.8 million in 1996, representing 17.3%, 21.3% and 38.2% of total revenues in
those years, respectively. The $5.7 million increase in general and
administration expenses in 1995, as compared to 1994, was due primarily to
increases in the provision for doubtful accounts of $1.2 million, increases in
payroll and benefits expenses associated with an increase of executive, finance
and administrative personnel in 1995, increased depreciation expense, and
increased professional fees. The increase in the provision for doubtful accounts
28
29
for 1995 compared to 1994 was due to a number of factors including increased
revenues, continued deterioration in the aging of accounts receivable,
implementation of an expanded accounts receivable review process, specific
write-offs on certain major accounts which were renegotiated or settled,
management's decision to discontinue efforts to collect certain overdue amounts
and the decision not to support certain legacy and proprietary platforms.
Fluctuations in the provision for doubtful accounts are expected to vary in
relation to the net accounts receivable balance due to the concentration of
orders towards the end of each quarter, the receipt of payments in accordance
with contract terms and the aging of specific account balances.
General and administrative expenses increased by $9.5 million from 1995 to 1996,
primarily due to the following increases, acquisitions in France and Germany
($1.7 million), provision for doubtful accounts ($2.1 million), taxes and
insurance ($1.6 million) and professional fees ($2.2 million) related to ongoing
litigation and the restatement of previously reported financial results. The
remaining increase of $1.9 million relates to other increases including
severance and other costs relating to turnover of senior management.
OTHER INCOME (EXPENSE)
The Company incurred interest expense, in excess of interest income, of $.2
million in 1994. Interest expense resulted primarily from bank borrowings and
other credit liabilities available to the Company. In 1995 and 1996, the Company
recorded interest income, in excess of interest expense, of $.7 million , and
$1.6 million respectively, resulting from the increase in the level of the
Company's investment funds and the decrease in the amount of bank borrowings.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes was $0.2 million, $0.4 million and $0.1
million in 1994, 1995 and 1996, respectively. These amounts are based on the
federal statutory rate of 34% and reflect the impact of state and foreign income
taxes and the utilization of net operating loss and credit carryforwards.
RESULTS OF OPERATIONS
As a consequence of the above, the Company incurred a net loss of $2.4 million
in 1994, $8.6 million in 1995 and $31.8 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash, cash equivalents, restricted cash
and short-term investments of $23.9 million and working capital of $4.4 million.
Included in the calculation of working capital is deferred revenue of $18.6
million at December 31, 1996. As of December 31, 1996, the Company maintained a
$9 million line of credit with a bank pursuant to a credit agreement and a
pledge agreement dated July 26, 1996. By terms of the revolving line of credit,
which is fully secured by the pledge of $10 million in certificates of deposit,
the Company is required to comply with quarterly and annual financial statement
reporting requirements. The Company's primary lender has authorized $5 million
to be available for letters of credit that mature on July 31, 1998. At December
31, 1996, approximately $6.9 million was available under the credit line. At
December 31, 1996 there were $3.025 million of outstanding letters of credit
under this facility.
29
30
In March 1997, the Company was advised by the bank that it was in technical
default of the line of credit covenants, and that the line would not be
available for future issuance of standby letters of credit or advances under the
line of credit. The Company has requested that the technical defaults be waived,
that the credit line be permanently reduced, and that the related pledge
agreement be permanently reduced to the extent of any amounts in excess of
amounts required to fully secure outstanding letters of credit.
The Company's operating activities used cash of $4.8 million in 1995 and $17.3
million in 1996. Net cash used in 1995 and 1996 was the result of the Company's
net losses in 1995 and 1996 and increases in accounts receivable, which were
offset in part, by increases in the provision for doubtful accounts,
depreciation and amortization, accounts payable and accrued expenses and
deferred revenue.
The Company's investing activities have used cash of $4.3 million and $5.6
million in 1995 and 1996, respectively, principally for purchases of equipment
and capitalized software costs, as well as, the Company's acquisitions of
operations in France and Germany during 1996.
Cash provided by (used in) financing activities was $38.9 million and $(2.6)
million in 1995 and 1996, respectively. During 1995, cash provided by financing
activities consisted primarily of net proceeds from the Company's initial public
offering, which were primarily offset by the repayment of $5.7 million of
long-term debt. During 1996, cash used in financial activities related
principally to the repayment of debt associated with acquisitions.
The Company has no significant capital commitments. The Company's aggregate
minimum operating lease payments for 1997 and 1998 will be approximately $2.8
million and $2.4 million, respectively. The Company believes that its available
cash and cash equivalents, together with cash flows from operations, will be
sufficient to meet its cash requirements at least through 1997.
During 1996, the Company and certain of its current and former officers and
directors were named as defendants in six civil suits filed as class actions on
behalf of individuals claiming to have purchased Computron Common Stock during
the time period from August 24, 1995, through April 1, 1996. The suits were
filed in the United States District Court for the District of New Jersey and
have been consolidated by court order into one suit captioned In re Computron
Software, Inc. Securities Litigation, Master File No-96-1911 (AJL). See "Item 3.
Legal Proceedings".
Since discovery has not yet commenced, the Company is unable to assess the
likelihood of an adverse result in the class action lawsuits. There can be no
assurances as to the outcome of such lawsuits. The inability of the Company to
resolve the claims that are the basis for the lawsuits or to prevail in any
related litigation could result in the Company being required to pay substantial
monetary damages for which the Company may not be adequately insured, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In any event, the Company's defense of such
lawsuits, even if the outcome is favorable to the Company, has resulted and will
continue to result in substantial costs to the Company.
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).
30
31
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 "1997 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates herein by reference the information concerning
executive compensation contained in the 1997 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 1997
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 1997 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS
ON FORM 8-K
a) Consolidated Financial Statements:
PAGE NO.
--------
Report of Independent Public Accountants ........................................ 34
Consolidated Balance Sheets at December 31, 1995 (restated) and 1996 ............ 35-36
Consolidated Statements of Operations for the years ended December 31, 1994
(restated), 1995 (restated), and 1996 ........................................... 37
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit) for the years ended December 31, 1994 (restated),
1995 (restated), and 1996 ....................................................... 38
Consolidated Statements of Cash Flows for the years ended December 31, 1994
(restated), 1995 (restated) and 1996 ............................................ 39
Notes to Consolidated Financial Statements ...................................... 40
31
32
b) Consolidated Financial Statement Schedules:
Report of Independent Public Accountants On Schedule ................ 54
Schedule II - Valuation and Qualifying Accounts:
Years Ended December 31, 1994 (restated), 1995 (restated) and 1996 .. 55
c) Reports on Form 8-K filed in the fourth quarter of 1996:
Form 8-K dated November 27, 1996: Item 5. Other Events-Announcement
of the resignation of Andreas Typaldos as an officer and director
of the Company.
d) 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.
10.1* Series B Preferred Stock Purchase Agreement, as amended.
10.2* Employment Agreement between the Company and Andreas
Typaldos.
10.3* Employment Agreement between the Company and Elias
Typaldos, as amended.
10.4* Employment Agreement between the Company and Gennaro
Vendome, as amended.
10.5* 1992 Stock Option Plan.
10.6* 1995 Stock Option Plan.
10.7* Lease Agreement between the Company and Enterprise
Development Corporation.
10.8* Loan and Security Agreement between the Company and PNC
Bank (formerly Midlantic National Bank), as amended.
10.9* License Agreement between the Company and Pfizer, Inc.,
as amended.
10.10* OEM Software License and Distribution Agreement between
the Company and Wang Laboratories, Inc.
10.11* Amendment and Clarification Agreement between the Company
and Wang Laboratories, Inc.
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 CVCanaan Capital Offshore Limited
Partnership, C.V.
11.1 Statement re: Computation of Per Share Earnings.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule.
- --------------------
* Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1, File No. 33-93990.
32
33
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 16th day of April 1997.
COMPUTRON SOFTWARE, INC.
By: /s/ ELIAS TYPALDOS
---------------------------------------------------
Elias Typaldos
Chairman of the Board, Vice President Research
and Development
Pursuant to the requirements of the Securities Exchange Act of 1934 this report
has been signed by the following persons in the capacities indicated on April
16, 1997.
Signature Title(s)
Chairman of the Board, Vice President
/s/ ELIAS TYPALDOS Research and Development
- ---------------------------------------
(Elias Typaldos)
Chief Executive Officer, President and
/s/ JOHN A. RADE Director (Principal Executive Officer)
- ---------------------------------------
(John A. Rade)
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary (Principal
/s/ MICHAEL R. JORGENSEN Financial and Accounting Officer)
- ---------------------------------------
(Michael R. Jorgensen)
Vice President Enterprise Sales and
s/ GENNARO VENDOME Director
- ---------------------------------------
(Gennaro Vendome)
/s/ MICHEL BERTY Director
- ---------------------------------------
(Michel Berty)
/s/ GREGORY KOPCHINSKY Director
- ---------------------------------------
(Gregory Kopchinsky)
/s/ ROBERT MIGLIORINO Director
- ---------------------------------------
(Robert Migliorino)
/s/ WILLIAM VOGEL Director
- ---------------------------------------
(William Vogel)
33
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computron Software, Inc.:
We have audited the accompanying consolidated balance sheets of Computron
Software, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1995
and 1996, and the related statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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.
As further discussed in Note 6, several legal complaints have been filed by
certain stockholders against the Company and certain of its current and former
officers and directors, the outcome of which are uncertain at this time.
Management believes that the inability of the Company to resolve the claims that
are the basis for the lawsuits or to prevail in any related litigation could
result in the Company being required to pay substantial monetary damages for
which the Company may not be adequately insured, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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, 1995, and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 16, 1997
34
35
COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31,
------------------------
1995 1996
(Restated)
ASSETS
Current Assets:
Cash and cash equivalents $45,119 $19,730
Short-term investments 781 1,073
Restricted cash 751 3,081
Accounts receivables, less reserves of $2,028 in 1995
and $3,360 in 1996 15,441 20,340
Prepaid expenses and other current assets 2,060 1,988
------- -------
Total current assets 64,152 46,212
------- -------
Equipment and leasehold improvements, at cost:
Computer and office equipment 8,117 10,249
Furniture and fixtures 979 1,436
Leasehold improvements 338 300
------- -------
9,434 11,985
Less - accumulated depreciation and amortization 5,787 7,598
------- -------
3,647 4,387
------- -------
Capitalized software development costs, net of
accumulated amortization of $2,232
in 1995 and $3,095 in 1996 2,440 2,068
Goodwill, net of amortization of $535 in 1996 -- 2,580
Other assets 1,128 1,446
------- -------
$71,367 $56,693
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
35
36
COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31,
------------------------
1995 1996
(Restated)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital leases $ 553 $ 506
Accounts payable 2,184 3,975
Accrued expenses 7,298 17,420
Note payable -- 1,402
Deferred revenue 13,667 18,551
-------- --------
Total current liabilities 23,702 41,854
-------- --------
Long-term liabilities:
Long-term debt and capital leases, less current portion 267 97
-------- --------
Other liabilities 1,000 --
-------- --------
Commitments and contingencies (Notes 5 and 6)
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000
shares, no shares issued and outstanding -- --
Common stock, $ .01 par value, authorized 50,000
shares; 20,744 shares and 20,801 shares
issued and outstanding at December 31, 1995 and
1996, respectively 207 208
Additional paid-in capital 63,796 63,879
Accumulated deficit (17,524) (49,371)
Cumulative translation adjustment (81) 26
-------- --------
Total stockholders' equity 46,398 14,742
-------- --------
$ 71,367 $ 56,693
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
36
37
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31,
-------------------------------------------
1994 1995 1996
(Restated) (Restated)
Revenues:
License fees $ 20,615 $ 33,766 $ 17,625
Services 11,858 19,029 36,770
-------- -------- --------
Total revenues 32,473 52,795 54,395
-------- -------- --------
Operating expenses:
Cost of license fees 2,447 4,673 2,634
Cost of services 7,738 12,988 28,255
Sales and marketing 11,845 19,387 24,181
General and administrative 5,607 11,269 20,772
Research and development 6,888 9,651 11,872
Purchased research and development -- 3,797 --
-------- -------- --------
Total operating expenses 34,525 61,765 87,714
-------- -------- --------
Operating loss (2,052) (8,970) (33,319)
-------- -------- --------
Other income (expense):
Interest income 290 1,238 1,654
Interest expense (496) (496) (100)
Other -- -- 18
-------- -------- --------
Total other income (expense) (206) 742 1,572
-------- -------- --------
Loss before provision for income taxes (2,258) (8,228) (31,747)
Income tax provision 150 350 100
-------- -------- --------
Net loss $ (2,408) $ (8,578) $(31,847)
======== ======== ========
Net loss per common share, pro forma 1995 $ (0.46) $ (1.53)
======== ========
Weighted average number of common
shares, pro forma 1995 18,809 20,787
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
37
38
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
Redeemable Convertible
Preferred Stock Stockholders' Equity (Deficit)
------------------------------------------- -----------------------------------------
Class A Class B
Series A Series B Common Stock Common Stock
------------------- ------------------- ----------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ -------- ------ -------- ------ ------ ------ -------
BALANCE - DECEMBER 31, 1993(1) 1,050 $ 14,611 -- $ -- 8 $ -- 7,900 $ 79
Sale of Series B Preferred Stock, net
of related expenses -- -- 1,467 10,268 -- -- -- --
Net loss -- -- -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- -- --
Accretion on redeemable convertible
preferred stock -- 10,943 -- 4,216 -- -- -- --
------ -------- ------ -------- ---- ----- ------ -------
BALANCE - DECEMBER 31, 1994(1) 1,050 25,554 1,467 14,484 8 -- 7,900 79
Net loss -- -- -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- -- --
Accretion on redeemable convertible
preferred stock -- 1,171 -- 665 -- -- -- --
Conversion of securities upon initial
public offering (1,050) (26,725) (1,467) (15,149) (8) -- (7,900) (79)
Sale of common stock, net of related
expenses -- -- -- -- -- -- -- --
Exercise of stock options -- -- -- -- -- -- -- --
------ -------- ------ -------- ---- ----- ------ -------
BALANCE - DECEMBER 31, 1995(1) -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- -- --
Exercise of stock options -- -- -- -- -- -- -- --
------ -------- ------ -------- ---- ----- ------ -------
BALANCE - DECEMBER 31, 1996 -- $ -- -- $ -- -- $ -- -- $ --
====== ======== ====== ======== ==== ===== ====== =======
Stockholders' Equity (Deficit)
-----------------------------------------------------------
Additional Cumulative
Paid-in Accumulated Translation
Common Stock Capital Deficit Adjustment
---------------- ---------- ----------- -----------
Shares Amount
------ ------ ---------- ----------- -----------
BALANCE - DECEMBER 31, 1993(1) -- $ -- $ 1,897 $(12,749) $(134)
Sale of Series B Preferred Stock, net
of related expenses -- -- (264) -- --
Net loss -- -- -- (2,408) --
Translation adjustment -- -- -- -- (44)
Accretion on redeemable convertible
preferred stock -- -- -- (15,159) --
------ ------ -------- -------- -----
BALANCE - DECEMBER 31, 1994(1) -- -- 1,633 (30,316) (178)
Net loss -- -- -- (8,578) --
Translation adjustment -- -- -- -- 97
Accretion on redeemable convertible
preferred stock -- -- -- (1,836) --
Conversion of securities upon initial
public offering 17,829 178 18,569 23,206 --
Sale of common stock, net of related
expenses 2,795 28 43,450 -- --
Exercise of stock options 120 1 144 -- --
------ ------ -------- -------- -----
BALANCE - DECEMBER 31, 1995(1) 20,744 207 63,796 (17,524) (81)
Net loss -- -- -- (31,847) --
Translation adjustment -- -- -- -- 107
Exercise of stock options 57 1 83 -- --
------ ------ -------- -------- -----
BALANCE - DECEMBER 31, 1996 20,801 $ 208 $ 63,879 $(49,371) $ 26
====== ====== ======== ======== =====
(1) THE CONSOLIDATED FINANCIAL DATA FOR 1992 THROUGH 1995 HAS BEEN RESTATED.
SEE NOTE 2 OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
The accompanying notes are an integral part of these
consolidated financial statements.
38
39
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
Years Ended December 31,
-------------------------------------
1994 1995 1996
(Restated) (Restated)
Cash flows from operating activities:
Net loss $ (2,408) $ (8,578) $(31,847)
Adjustments to reconcile net loss to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 1,867 2,085 4,634
Provision for doubtful accounts 1,573 2,763 4,803
Loss on sale of equipment and leasehold improvements -- -- 72
Changes in current assets and liabilities, net of acquisitions -
Restricted cash -- (751) (2,330)
Accounts receivable (7,771) (4,623) (7,329)
Prepaid expenses and other current assets (298) (1,472) 487
Accounts payable and accrued expenses 1,231 4,534 9,604
Deferred revenue 8,860 1,291 4,615
-------- -------- --------
Net cash flows provided by (used in) operating activities 3,054 (4,751) (17,291)
-------- -------- --------
Cash flows from investing activities:
Other assets (226) (220) (324)
Capitalized software development costs (911) (1,495) (1,088)
Purchase of equipment and leasehold improvements (1,062) (2,948) (2,162)
Acquisitions of businesses, net of cash acquired -- -- (2,116)
(Increase) decrease in short-term investments (864) 335 105
-------- -------- --------
Net cash flows used in investing (3,063) (4,328) (5,585)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of redeemable convertible
preferred stock 10,004 -- --
Net proceeds from the sale of common stock -- 43,478 --
Proceeds from exercise of stock options -- 145 84
Proceeds from long-term debt 2,529 -- --
Payments of long-term debt (1,396) (5,652) (401)
Repayments of notes payable -- -- (1,042)
Increase (decrease) in other long-term liabilities -- 1,000 (1,000)
Principal payments under capital lease obligations (200) (56) (216)
-------- -------- --------
Net cash provided by (used in) financing activities 10,937 38,915 (2,575)
-------- -------- --------
Foreign currency exchange rate effects (44) 97 62
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 10,884 29,933 (25,389)
Cash and cash equivalents, beginning of year 4,302 15,186 45,119
-------- -------- --------
Cash and cash equivalents, end of year $ 15,186 $ 45,119 $ 19,730
======== ======== ========
Supplemental disclosures of cash flow information
and noncash financing activities:
Cash paid during the year for -
Interest $ 501 $ 507 $ 89
Income taxes 31 1,864 38
Capital lease obligations incurred 380 33 43
The accompanying notes are an integral part of these
consolidated financial statements
39
40
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT 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,
develops, markets and supports client/server financial, workflow, archival data
management and maintenance software solutions.
(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, Hong Kong, Poland, Singapore, and the United Kingdom
(collectively, the "Company"). All significant intercompany transactions and
balances have been eliminated.
(b) Revenue Recognition
The Company recognizes revenue from noncancelable software licenses upon product
shipment, provided collection is probable and no significant vendor and
post-contract customer obligations remain at the time of shipment. The Company
accounts for insignificant vendor obligations by deferring a portion of the
revenue and recognizing it when the related services are performed.
Post-contract support (maintenance) 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.
(c) Reporting, Operating and Control Environment; 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 and
liabilities with reported amounts based on estimates include accounts
receivable, capitalized software development costs and deferred revenues.
Following the December 31, 1994 audit, the Company received a management letter
from its independent public accountants that identified material weaknesses in
the Company's internal control environment. During 1995, the Company experienced
significant turnover of its senior financial and accounting personnel which
management believes delayed the implementation of certain improvements and
resulted in material weaknesses in these same areas. The December 31, 1995 audit
resulted in material adjustments to the fourth quarter's revenues and expenses.
Upon completion of the December 31, 1995 audit, the Company again received a
management letter from its independent public accountants that identified
material weaknesses similar to those material weaknesses included in the 1994
management letter. In addition, the independent public accountants recommended
that
40
41
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(c) Reporting, Operating and Control Environment; Management Estimates -
(Continued)
the Company implement an internal accounting control plan, approved by the Audit
Committee of the Board of Directors, which addresses these weaknesses and
reorganize and upgrade the contracts administration processes, procedures,
controls and personnel to ensure proper revenue recognition and financial
reporting. See "Business--Risk Factors--Reporting, Operating and Control
Environment".
In connection with the completion of the December 31, 1996 audit, the
independent public accountants have informed the Company that their management
letter will again communicate material weaknesses similar to those material
weaknesses included in the 1994 and 1995 management letters. In addition to
certain material weaknesses previously included in the 1994 and 1995 management
letters, the independent public accountants noted various other internal control
deficiencies.
As discussed in Note 2, the Company restated its consolidated financial
statements for each of the four years in the period ended December 31, 1995 and
certain unaudited quarters therein and for each of the three unaudited quarters
ended September 30, 1996.
(d) Cash, Cash Equivalents, Restricted Cash and Short-term Investments
Cash equivalents are stated at cost, which approximates market, and consists of
short-term, highly liquid investments with 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. At December 31,
1995 and 1996, short-term investments consist of U.S. Treasury bills,
certificates of deposit, and short-term bonds with maturities of greater than
three months, but less than one year. Short-term investments are classified as
held-to-maturity and are carried at amortized cost which approximates market
value.
(e) 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 (three 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.
(f) Software Development Costs
The Company capitalizes software development costs upon the establishment of
technological feasibility until the time when the product is available for
general release to customers.
41
42
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
During 1994, 1995, and 1996, capitalized software development costs amounted to
$911, $1,495 and $1,088, respectively. Software development costs are amortized
over 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) over the economic life of the product, estimated to be three
years, on a straight-line basis.
(g) Goodwill
In 1996, the Company implemented SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This standard
prescribes the method for asset impairment, evaluation for long-lived assets and
certain identifiable intangibles that are either held and used or to be disposed
of. Goodwill is the result of the two acquisitions in 1996 and is charged to
earnings on a straight-line method over the periods estimated to be benefited,
currently not exceeding five years.
(h) Income Taxes
The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is measured based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates.
(i) Post-Retirement Benefits
The Company has no obligation for post-retirement benefits.
(j) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains the majority of cash
balances with three financial institutions and its accounts receivable credit
risk is not concentrated within any geographic area. There were no accounts
receivable from a single customer which exceeded 10 percent of total accounts
receivable as of December 31, 1995. One customer represented 14.3% of accounts
receivable at December 31, 1996.
In 1994, one customer accounted for approximately 24.8% of total revenues.
During 1995, Polish State Railways Central Office of Purchasing and Sales
Ferpol, a division of Polish State Railways, accounted for approximately 10.0%
of total revenues. There were no customers accounting for more than 10% of
revenues in 1996.
42
43
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(k) 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
cumulative translation adjustment in stockholders equity (deficit). The U.S.
dollar is used as the functional currency for the subsidiary in Poland as their
economy is highly inflationary.
(l) Pro Forma Net Loss per Common Share
The net loss per common share is based on the weighted average number of common
shares outstanding during the period. The pro forma weighted average number of
common shares assumes that all series of Redeemable Convertible Preferred Stock
and Class A and Class B Common Stock had been converted to Common Stock as of
the original issuance dates and that shares of Common Stock related to options
issued during the period from August of 1994 to August 1995 were outstanding,
computed in accordance with the treasury stock method. Historical net loss per
share for periods prior to the Company's initial public offering have not been
presented as such information is not considered to be relevant or meaningful.
(2) RESTATED FINANCIAL RESULTS
On January 27, 1997, the Company announced that certain new information had come
to the attention of its Board of Directors and its independent public
accountants that may impact previously reported financial results. As a result,
the Company restated its consolidated financial statements for each of the four
years in the period ended December 31, 1995, and certain unaudited quarters
therein and for each of the three unaudited quarters ended September 30, 1996.
In the opinion of management, all material adjustments necessary to correct the
financial statements have been recorded.
The restatements reflect revenue reversals and deferrals of sales previously
recognized in the periods from the fourth quarter of 1992 through the third
quarter of 1996. These revenue adjustments resulted in reductions of
previously reported bad debt provisions and increases in deferred revenue.
Also included in the restated consolidated financial statements are certain
operating expenses not previously recorded by the Company and the recording of
certain expenses in different accounting periods.
43
44
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
A summary of the impact of such restatements on the financial statements for the
years ended December 31, 1992, 1993, 1994, 1995 and the unaudited nine months
ended September 30, 1996 is as follows:
Years ended December 31, 1992 1993
Previously As Previously As
Reported Restated Reported Restated
----------------------------------------------
Total Revenue $20,513 $19,645 $24,282 $23,588
Loss from operations (2,750) (3,618) (2,644) (3,338)
Net Loss (2,479) (3,347) (3,170) (3,864)
Total Assets 16,453 15,585 17,302 16,119
Deferred Revenue 1,934 1,934 3,137 3,516
Years ended December 31, 1994 1995
Previously As Previously As
Reported Restated Reported Restated
----------------------------------------------
Total Revenue $34,958 $32,473 $55,519 $52,795
Net income (Loss)
from operations 433 (2,052) (7,704) (8,970)
Net Income (Loss) 77 (2,408) (7,312) (8,578)
Net Loss per share .00 (.13) (.39) (.46)
Total Assets 36,681 35,075 73,045 71,367
Deferred Revenue 9,935 12,376 10,474 13,667
Unaudited
September 30, 1996
Nine months ended Previously As
Reported Restated
----------------------
Total Revenue $36,846 $34,677
Loss from operations (22,905) (24,786)
Net Loss (21,333) (23,214)
Net Loss per share (1.03) (1.12)
Total Assets 60,542 58,483
Deferred Revenue 11,423 16,404
(3) ACQUISITIONS
On April 10, 1996, the Company acquired the Financial Service Division of
Generale de Service Informatique (GSI) based in Paris, France. The acquisition
was effective April 1, 1996. The purchase price of 15,463 French Francs
(approximately $3,000) was payable $1,500 at closing and the remainder in a
non-interest bearing note payable in nine equal monthly installments beginning
April 30,
44
45
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
1996. In addition, approximately $101 of acquisition related costs were
capitalized. On June 30, 1996, the Company acquired AT&T ISTEL and Co. GmbH, in
Essen, Germany. The purchase price was approximately $1,200 payable $400 at
closing and the balance payable in six months. Approximately $110 of acquisition
related costs were capitalized.
These acquisitions have been accounted by using the purchase method of
accounting. Accordingly, the 1996 financial statements include the accounts of
these companies since the dates of acquisition. Pro forma results of operations
have not been presented as the amounts would not be significant.
The following is additional supplemental cash flow information relating to the
aforementioned acquisitions:
Fair value of assets acquired ................... $ 7,221
Liabilities assumed .......................... 2,887
-------
Net value of assets acquired ................. 4,334
Cash paid at closing ......................... 1,895
-------
Notes payable at closing ..................... $ 2,439
=======
(4) LONG-TERM DEBT
DECEMBER 31,
-------------
1995 1996
Various installment loans secured by computer equipment, payable
in aggregate monthly installments of $70 including interest at rates
ranging from 7.3% to 9.5%. Maturity dates through July, 1997 .......... $428 $370
Less current-portion .................................................... 351 349
---- ----
Long-term debt .......................................................... $ 77 $ 21
==== ====
The Company maintained a $9,000 line of credit with a bank pursuant to a credit
agreement and a pledge agreement dated July 26, 1996. By terms of the revolving
line of credit, which is secured by the pledge of $10,000 in certificates of
deposits the Company is required to comply with quarterly and annual financial
statement reporting requirements. The Company's primary lender has authorized
$5,000 to be available for letters of credit that mature on July 31, 1998. At
December 31, 1996, approximately $6,900 was available under the credit line. At
December 31, 1996 there were $3,025 of outstanding letters of credit under this
facility.
In March 1997, the Company was advised by the bank that it was in technical
default of the line of credit covenants, and that the line would not be
available for future issuance of standby letters of credit or advances under the
line of credit. The Company has requested that the technical defaults be waived,
that the credit line be permanently reduced, and that the related pledge
agreement be permanently reduced to the extent of any amounts in excess of
amounts required to fully secure outstanding letters of credit.
45
46
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(5) LEASE OBLIGATIONS
The Company has property 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 leased
office space, vehicles and equipment was $1,289, $1,708 and $2,669 for the years
ended December 31, 1994, 1995 and 1996, respectively.
Scheduled future minimum rental payments required for all non-cancelable leases
are as follows:
Capital Operating
Years Ending December 31, Leases Leases
-------- ---------
1997 ....................................... $ 186 $ 2,753
1998 ....................................... 70 2,379
1999 ....................................... 21 1,485
2000 ....................................... 4 692
2001 ....................................... -- 499
----- -------
Total minimum lease payments ............... 281 $ 7,808
=======
Less-Amount representing interest ...... 48
-----
Present value of minimum lease payments .... 233
Less-Current portion ................... 157
-----
Noncurrent portion ......................... $ 76
=====
(6) CONTINGENCIES
During 1996, the Company and certain of its current and former officers and
directors were named as defendants in six civil suits filed as class actions on
behalf of individuals claiming to have purchased Computron Common Stock during
the time period from August 24, 1995, through April 1, 1996. The suits were
filed in the United States District Court for the District of New Jersey and
have been consolidated by court order into one suit captioned In re Computron
Software, Inc. Securities Litigation, Master File No-96-1911 (AJL). A Second
Amended Consolidated Complaint was filed on August 9, 1996. The complaint
asserts claims under Sections 11 and 15 of the Securities Act of 1933, Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, Rule 10b-5
of the Securities and Exchange Commission promulgated thereunder, and state law,
and seeks unspecified compensatory damages, attorneys' fees and costs. By a
Notice of Motion, dated September 9, 1996, defendants moved to dismiss the
Second Amended Consolidated Complaint for failure to state a claim upon which
relief can be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure and for failure to plead their claims with particularity, as required
by Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities
Litigation Reform Act of 1995. During the pendency of the Company's motion to
dismiss, the Company announced that information had come to the attention of the
Board of Directors that may impact previously issued financial statements and
its independent public accountants withdrew their reports on the Company's
previously reported financial statements. By order of the Court, the Company's
motion to dismiss was withdrawn and all discovery and other proceedings in the
action were stayed. The Court has scheduled a conference on April 21, 1997 to
discuss case management. The Company intends to vigorously defend itself against
the suits.
46
47
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Since discovery has not yet commenced, the Company is unable to assess the
likelihood of an adverse result in the class action lawsuits. There can be no
assurances as to the outcome of such lawsuits. The inability of the Company to
resolve the claims that are the basis for the lawsuits or to prevail in any
related litigation could result in the Company being required to pay substantial
monetary damages for which the Company may not be adequately insured, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In any event, the Company's defense of such
lawsuits, even if the outcome is favorable to the Company, has resulted and will
continue to result in substantial costs to the Company.
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, financial condition and results of operations or cash
flows.
(7) RELATED PARTY TRANSACTIONS
The Company is the beneficiary of an aggregate of approximately $4,000 in life
insurance on the lives of certain executives.
The Company has certain business relationships with a company that the President
and Chief Executive Officer founded and still retains a majority equity interest
therein. During the years ended December 31, 1995, and 1996, the Company
recorded as expense approximately $425, and $675, respectively, related to work
performed by this entity on behalf of the Company.
(8) INCOME TAXES
The components of loss before provision for income taxes is as follows:
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
Domestic .......... $(2,722) $(2,945) $(22,933)
Foreign ........... 464 (5,283) (8,814)
------- ------- --------
Total ....... $(2,258) $(8,228) $(31,747)
======= ======= ========
The provision for income taxes is as follows:
YEARS ENDED DECEMBER 31,
------------------------------
1994 1995 1996
Federal ............... $ 50 $150 $ 0
State ................. 10 100 73
Foreign ............... 90 100 27
---- ---- ----
Total ........... $150 $350 $100
==== ==== ====
47
48
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
A reconciliation of federal income taxes at the statutory rate of 34% to income
taxes reflected in the accompanying consolidated statements of operations is as
follows:
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
Federal income taxes (benefit) at 34% ........ $(768) $(2,798) $(10,794)
State income taxes, net of federal
tax benefit ................................ 41 100 73
Net operating loss and credits
not benefited .............................. 768 2,948 10,794
Foreign income taxes ......................... 109 100 27
----- ------- --------
$ 150 $ 350 $ 100
===== ======= ========
The principal components of the Company's deferred tax assets are as follows:
DECEMBER 31,
---------------------
1995 1996
Deferred revenue ............................. $ 394 $ --
Non-deductible accruals and other ............ 1,008 2,105
Software development costs ................... (976) (827)
Depreciation ................................. 249 237
Allowance for doubtful accounts .............. 1,102 1,639
Purchased research and development ........... 1,432 1,648
Research and development credit
carryforwards .............................. 2,683 2,720
Net operating loss carryforwards ............. 662 10,636
Valuation allowance .......................... (6,554) (18,158)
------- --------
Net deferred tax asset ..................... $ -- $ --
======= ========
SFAS No. 109 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 to reinvest the earnings
of its non-U.S. subsidiaries in those operations. Accordingly, no federal taxes
have been provided on undistributed foreign earnings.
(9) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Initial Public Offering
In August 1995, the Company completed an initial public offering of common
stock, raising net proceeds of approximately $43,478. Upon closing of the
offering, the outstanding shares of Series A and Series B Preferred Stock and
Class A and Class B Common Stock were converted into an aggregate of 17,828,676
shares of common stock. The Company is authorized to issue up to 50,000,000
shares of common stock and 5,000,000 shares of undesignated Preferred Stock.
48
49
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(b) Stock Option Plan
In June 1995, the Company adopted the 1995 Stock Option Plan (the 1995 Plan).
Pursuant to the 1995 Plan, the Company may grant statutory and nonstatutory
options to purchase an aggregate of up to 1,500,000 shares of Common Stock. On
January 31, 1997, the Board of Directors amended the 1995 Plan to increase the
number of shares issuable over the term of the Plan to a total of 3,500,000.
Such increase is subject to stockholder approval. Options under the 1995 Plan
may be granted under both discretionary and automatic option grant programs.
Options granted under the discretionary grant program will 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 will have an exercise price of
100% of the fair market value on the grant date. All options granted under the
1992 and 1995 Plan must be exercised within ten years of the date of grant.
A summary of stock option activity under the plan, after retroactively
reflecting the conversion of Class B Common Stock into shares of common stock as
discussed above, is as follows:
NUMBER
OF EXERCISE PRICE
SHARES PER SHARE
---------- --------------
BALANCE, DECEMBER 31, 1993 .............. 320,475 $1.17
Granted ................................. 888,076 1.17 - 3.33
Canceled ................................ (117,638) 1.17 - 1.90
---------- ------------
BALANCE, DECEMBER 31, 1994 .............. 1,090,913 1.17 - 3.33
Granted ................................. 136,725 13.00
Exercised ............................... (121,261) 1.17 - 1.90
Canceled ................................ (175,758) 1.17 - 13.00
---------- -------------
BALANCE, DECEMBER 31, 1995 .............. 930,621 1.17 - 13.00
Exercised ............................... (58,373) 1.17 - 1.90
Canceled ................................ (110,134) 1.17 - 13.00
----------
BALANCE, DECEMBER 31, 1996 .............. 762,114 $1.17-$13.00
========== ============
EXERCISABLE, DECEMBER 31, 1996 .......... 428,898 $1.17-$13.00
========== ============
Substantially all options outstanding at December 31, 1996, vest in four annual
installments.
49
50
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(9) STOCKHOLDERS' EQUITY (DEFICIT)
(b) Stock Option Plan
On March 3, 1997, the Board of Directors granted to certain officers and
directors, options to purchase 530,000 shares of common stock with an exercise
price of $1.00 per share, the fair market value on the date of grant. In
addition, the Board of Directors approved the granting to certain officers,
options to purchase 400,000 shares of common stock at $1.00 per share, subject
to stockholder approval to increase the number of eligible shares available to
be issued. These options generally vest over one to four years and a substantial
amount become immediately vested upon the occurrence of certain events.
(c) Accounting for Stock-Based Compensation
The Company accounts for its stock-based compensation under accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to employees. In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes a fair-value-based
method of accounting for stock-based compensation plans. The Company has adopted
the disclosure-only alternative under SFAS No. 123, which required the
disclosure of the pro forma effects on earnings and earnings per share as if the
accounting prescribed by SFAS No. 123 had been adopted, as well as certain other
information.
The Company has computed the pro forma disclosures required under SFAS No. 123
for all stock options granted in 1995 and 1996 using the Black-Scholes option
pricing model prescribed by SFAS No. 123.
The assumptions used and the weighted average information for the years ended
December 31, 1996 and 1995 are as follows:
Years ended December 31,
1996 1995
-------- --------
Risk-free interest rates ....................... 6.01% 6.01%
Expected dividend yield ........................ -- --
Expected lives ................................. 5 years 5 years
Expected volatility ............................ 50% 50%
Weighted-average grant date fair value of
options granted during the period ............ -- $ 6.91
Weighted-average exercise price ................ $ 2.27 $ 2.79
Weighted-average remaining contractual life
of options outstanding ....................... 7.25 years 8.35 years
Weighted-average exercise price of 455,298
and 301,881 options exercisable at
December 31, 1996 and 1995, respectively ..... $ 1.82 $ 1.49
50
51
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The effect of applying SFAS No. 123 would be as follows:
1996 1996 1995 1995
As Reported Pro forma As Restated Pro forma
----------- --------- ----------- ---------
Net loss $(31,847) $(32,059) $(8,578) $(8,790)
Net loss per share $ (1.53) $ (1.54) $ (0.46) $ (0.47)
(10) 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 is obligated to contribute 25% 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 $74, $160 and $242 for the years ended December 31, 1994,
1995, and 1996, respectively.
In addition, the Company may make additional contributions at the discretion of
the Board of Directors and such contributions would be allocated among all
participants in proportion to each participant's compensation, as defined. As of
December 31, 1996, no additional contributions were made under the Plan.
(11) PURCHASED RESEARCH AND DEVELOPMENT
In December 1995, the Company obtained all rights, title, license and interests
in certain software source coding and documentation in exchange for $3,375 and
direct costs of $200. The purchase price was payable as follows: $1,225 due and
paid upon signing, $400 due January 1996, and $250 due in seven quarterly
installments starting April 1996. In addition, the Company was obligated to pay
royalties of up to $3,000 based on future sales of products using acquired
technology. During March 1997, the parties agreed to eliminate the payment of
these additional royalties in exchange for approximately $300. The purchase
price was allocated based on the fair value of the assets acquired as follows:
Other assets .......................... $ 375
Purchased research and development .... 3,200
-------
$ 3,575
=======
51
52
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(11) PURCHASED RESEARCH AND DEVELOPMENT - CONTINUED
Included in other assets are amounts related to trademarks, customer lists and
acquired technology which have been fully amortized at December 31, 1996. The
amount allocated to purchased research and development represents the fair value
of projects that had not yet reached technological feasibility and did not have
a future alternative use as determined by an independent appraisal. This amount
was charged to expense as of the acquisition date. In addition, the Company has
acquired the rights to certain software which the Company intends to develop
further for commercial sale. Purchased research and development includes $597,
which represents the estimated fair value of projects that have not yet reached
technological feasibility and have no future alternative use.
(12) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
The Company does not believe there are any legal or other restrictions upon the
repatriation of international earnings to the parent company.
Domestic and export sales by destination as a percentage of total revenues are
as follows:
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
United States ............... 72.0% 73.1% 60.8%
Europe ...................... 15.6 14.5 27.6
Other ....................... 12.4 12.4 11.6
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
Revenues, income (loss) from operations and identifiable assets for the
Company's United States, Europe and other international operations are as
follows:
United
States Europe Other Eliminations Consolidated
---------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
Revenues $ 25,841 $ 3,629 $ 3,003 $ $ 32,473
Income (loss) from operations (2,669) 601 16 (2,052)
Identifiable Assets 32,364 1,476 1,251 (16) 35,075
YEAR ENDED DECEMBER 31, 1995
Revenues $ 46,212 $ 2,742 $ 3,841 $ -- $ 52,795
Income (loss) from operations (5,037) (2,878) (1,055) -- (8,970)
Identifiable Assets 71,497 2,070 2,333 (4,533) 71,367
52
53
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(12) FINANCIAL INFORMATION BY GEOGRAPHIC AREA - CONTINUED
YEAR ENDED DECEMBER 31, 1996
Revenues $ 35,121 $ 14,992 $ 4,282 $ -- $ 54,395
Income (loss) from operations (26,038) (2,951) (4,330) -- (33,319)
Identifiable Assets 55,948 16,237 1,531 (17,023) 56,693
(13) NEW ACCOUNTING STANDARD
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share, SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock. This statement is effective for fiscal years ending after December 15,
1997 and early adoption is not permitted. When adopted, the statement will
require restatement of prior years' earnings per share. the company will adopt
this statement for its fiscal year ended December 31, 1997. In addition, the
Company believes that the adoption of SFAS No. 128, including the effect on
prior periods, will not have a material effect on its financial statements.
53
54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Computron Software, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Computron Software, Inc. included in this
Form 10-K and have issued our report thereon dated April 16, 1997. Our audit was
made for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The schedule listed in Item 14(b) of this Form 10K
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, after the restatement described in
Note 2, fairly states in all material respects, the supplemental financial data
required to be set forth therein, in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 16, 1997
54
55
SCHEDULE II
COMPUTRON SOFTWARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 and 1996
Balance at Charged to Balance at
Beginning Cost and Amounts End of
of Year Expenses Written Off Year
---------- ----------- ----------- ----------
Year ended December 31, 1994
Allowance for returns and
doubtful accounts ................... $1,550 1,573 (921) $2,202
Year ended December 31, 1995 (Restated)
Allowance for returns and
doubtful accounts ................... $2,202 2,763 (2,937) $2,028
Year ended December 31, 1996
Allowances for returns and
doubtful accounts .................. $2,028 4,803 (3,471) $3,360
55
56
EXHIBIT INDEX
-------------
Exhibit
No. Description
------- -----------
3.2 Amended and Restated Bylaws of the Company.
11.1 Statement re: Computation of Per Share Earnings.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule.