-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E/sZU4oYMMyss8pChQ3QHAM2Pv7+KR4dcH4uH4DN/vL4ZqCmXhIdMpU3A/rHLnEj tkG1bzuAapL0YUED9W3z6A== 0000950123-97-003284.txt : 19970418 0000950123-97-003284.hdr.sgml : 19970418 ACCESSION NUMBER: 0000950123-97-003284 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19970417 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTRON SOFTWARE INC CENTRAL INDEX KEY: 0000947427 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 132966911 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-26358 FILM NUMBER: 97582491 BUSINESS ADDRESS: STREET 1: MEADOWS OFFICE COMPLEX STREET 2: 301 RT 17 NORTH CITY: RUTHERFORD STATE: NJ ZIP: 07070 BUSINESS PHONE: 2019353400 MAIL ADDRESS: STREET 1: MEADOWS OFFICE COMPLEX STREET 2: 301 ROUTE 17 NORTH CITY: RUTHERFORD STATE: NJ ZIP: 07070 10-K405/A 1 AMENDMENT NO. 1 TO FORM 10-K - YEAR END 12/31/95 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 COMMISSION FILE NUMBER: 0-26368 [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) (Registrant's telephone number, including area code) 201-935-3400 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. (X) The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of Common Stock on March 27, 1996 as reported on the Nasdaq National Market, was approximately $46.1 million. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 27, 1996, Registrant had outstanding 20,770,999 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 1996 Annual Meeting of Stockholders. ================================================================================ 2 EXPLANATORY NOTE This 10-K/A is being filed to amend the report on Form 10-K for the period ended December 31, 1995 (the "Original Report") and to report the restatement of certain financial information included in the Original Report. The Company has restated its consolidated financial statements for each of the four years ended December 31, 1995, for certain unaudited quarters in such periods and for each of the three unaudited quarters ended September 30, 1996. See Note 2 to the accompanying Consolidated Financial Statements. The Company believes that all material adjustments necessary to correct the Company's previously reported financial statements have been recorded. The restatements reflect revenue reversals and deferrals of sales previously recognized in the periods from the fourth quarter of 1992 through the third quarter of 1996. These revenue adjustments resulted in reductions of previously recorded bad debt provisions and increases in deferred revenue. Also included in the restated consolidated financial statements are certain operating expenses not previously recorded by the Company and the recording of certain expenses in different accounting periods. The net impact of these adjustments on the Company's revenues and net income (loss) for each of the five years ended December 31, 1996, is as follows:
Increase (Decrease) ------------------- Revenues Net Income (Loss) -------- ----------------- 1992...................... (868) (868) 1993...................... (694) (694) 1994...................... (2,485) (2,485) 1995...................... (2,724) (1,266) 1996...................... (1,126) 264
This 10-K/A includes only the changes necessary to reflect the restatement of the financial statements included in the Original Report and the matters addressed in Notes 2 and 5 of the Consolidated Financial Statements, and does not address any other developments subsequent to the date of the Original Report. For a discussion of other developments subsequent to the date of the Original Report, including, but not limited to, pending litigation against the Company, changes in management, recommendations of the Company's independent public accountants regarding financial and accounting procedures and controls, and delisting of the Company's common stock from the Nasdaq National Market, see the Registrant's most recent reports and documents filed with the Securities and Exchange Commission. 2 3 PART I ITEM 1. BUSINESS 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." GENERAL The Company designs, develops, markets and supports client/server financial, workflow and archival data management software solutions. The Company's financial software ("Computron Financials") consists of a full suite of modules with multi-currency and multi-language support capabilities, including general ledger, financial reporting, accounts payable, accounts receivable, fixed assets, purchase order and materials management, and inventory control. 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. PRODUCTS The Company designs, develops, markets and supports client/server financial, workflow and archival data management software solutions. 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 and (iii) Computron COOL--on-line access, retrieval and warehousing software for archival data typically stored off-line. 3 4 COMPUTRON FINANCIALS Computron Financials consists of a series of modules that are listed below: - -------------------------------------------------------------------------------- MODULE FEATURES - -------------------------------------------------------------------------------- COMPUTRON GENERAL LEDGER The Computron 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. - -------------------------------------------------------------------------------- COMPUTRON FINANCIAL REPORTING The Computron 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. - -------------------------------------------------------------------------------- COMPUTRON ACCOUNTS PAYABLE The Computron 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. - -------------------------------------------------------------------------------- COMPUTRON ACCOUNTS RECEIVABLE The Computron 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. - -------------------------------------------------------------------------------- COMPUTRON PURCHASE ORDER AND The Computron Purchase Order and Materials MATERIALS MANAGEMENT Management 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. - -------------------------------------------------------------------------------- COMPUTRON INVENTORY CONTROL The Computron Inventory Control module handles inventory control functions, including automatic pick tickets, automatic reorder, automatic cycle count and substitute item capabilities. - -------------------------------------------------------------------------------- COMPUTRON FIXED ASSETS The Computron 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. - -------------------------------------------------------------------------------- 4 5 - -------------------------------------------------------------------------------- MODULE FEATURES - -------------------------------------------------------------------------------- COMPUTRON TIME AND EXPENSE ACCOUNTING The Computron Time and Expense Accounting module handles tracking and accounting for time-based 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. - -------------------------------------------------------------------------------- COMPUTRON ENCUMBRANCE ACCOUNTING The Computron Encumbrance Accounting module enables public sector and non-for-profit accounting by enforcing strict controls over disbursements and purchasing commitments to ensure that they do not exceed budgeted amounts. - -------------------------------------------------------------------------------- COMPUTRON APPLICATION DEVELOPMENT TOOLSET The Computron Application Development Toolset module provides a graphical-based toolset enabling users to change application data models, presentation, rules, and logic/connectivity to other applications, 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, data and address formats of various countries, accounting standards and tax calculations, such as value-added taxation of various countries. 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 which 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. 5 6 The following table briefly describes the individual modules of Computron Workflow: - -------------------------------------------------------------------------------- MODULE FEATURES - -------------------------------------------------------------------------------- COMPUTRON WORKFLOW The Computron 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. - -------------------------------------------------------------------------------- COMPUTRON REPORT & QUERY The Computron Report & Query module allows sophisticated report writing, multiple data file integration, on-line review and data extraction in connection with Computron Workflow. - -------------------------------------------------------------------------------- COMPUTRON RECORDS MANAGEMENT The Computron 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, 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 distribute all or parts of the data on an easy-to-use basis. Computron COOL can function on a stand-alone basis and can be integrated with Computron Financials and Computron Workflow, as well as with the customers' own and third party applications. SERVICES As of December 31, 1995, the Company had 159 employees providing customer support and technical, consulting and training services. The Company's services are described below. 6 7 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. Major client support centers are also based in Hong Kong, London, Melbourne 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 enhancements released during the term of the contract. Maintenance fees are typically equal to 15% of the 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's education services group 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 Computron's headquarters 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, Computron's education services group 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, 7 8 direct mail, advertising, seminars, trade shows and ongoing customer communications programs. As of December 31, 1995, the Company's sales and marketing organization consisted of 123 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, Los Angeles, San Francisco and Washington, D.C., metropolitan areas. The Company's U.S. marketing efforts 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, Hong Kong, Indonesia, Poland, Singapore, Toronto and the United Kingdom. The Company has also established distribution arrangements with third parties in Australia, Indonesia, Malaysia, 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. 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 Andersen Consulting, Cap Gemini America, Price Waterhouse and Systems House Limited. 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 Digital Equipment Corporation, Hewlett-Packard, IBM 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 Computer Associates, 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 8 9 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 substantial development resources to develop additional modules for its products and the capability to support additional platforms, databases, GUIs, toolsets and emerging technologies. While the Company anticipates that certain new products and enhancements will be developed internally, the Company 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, 1995, the Company had 99 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. and SAP AG. The principal competitors for the Company's Computron Workflow and Computron COOL software are Wang Laboratories, Inc. ("Wang") 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. In exchange, Wang paid a non-refundable source code and fully paid-up license fee to the Company. The Company anticipates that Wang's COOL-based product may become a significant competitor to Computron COOL. 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 9 10 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 -- 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 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." 10 11 EMPLOYEES As of December 31, 1995, the Company had 431 full-time employees, including 99 in product development and engineering, 159 in customer service and support, 123 in sales and marketing, and 50 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. 11 12 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 Andreas Typaldos ...................... 50 Chief Executive Officer and Chairman of the Board Joseph Esposito ....................... 43 President, Worldwide Operations Richard Yonker ........................ 48 Vice President, Chief Financial Officer, Treasurer and Secretary Elias Typaldos ........................ 45 Vice President, Research and Development and Director Gennaro Vendome ....................... 49 Vice President, Enterprise Sales and Director William Simmons ....................... 49 Vice President, Client Services, Worldwide Alex Plavocos ......................... 49 Vice President, Marketing Carl Rosenberg ........................ 45 Vice President, Worldwide Sales Gregory Kopchinsky (1) ................ 44 Director Robert Migliorino (1) ................. 45 Director
- ----------------- (1) Member of the Audit and Compensation Committees. ANDREAS TYPALDOS, a founder of the Company, has been Chief Executive Officer and Chairman of the Board of Directors since the Company's formation in 1978 and was also the President until October 1994, Prior to founding the Company, Mr. A. Typaldos was the principal architect and manager of the MISTER WIZARD computer system of the AT&T Corp./New York Telephone Co. JOSEPH ESPOSITO joined the Company as President, Worldwide Operations in October 1994. From July 1991 to September 1994, Mr. Esposito held various senior management positions at Ross Systems, Inc., a software company, most recently as Vice President of Client Services. From 1979 to July 1991, Mr. Esposito held various senior management positions with Wang, which produces computing equipment, related peripheral devices and workflow/image management software. RICHARD YONKER joined the Company as Vice President, Chief Financial Officer, Treasurer and Secretary in December 1995. Prior to joining the Company, Mr. Yonker was Senior Vice President and Chief Financial Officer of Asyst Technologies, a semiconductor capital equipment company. From December 1992 to April 1994, Mr. Yonker was Vice President, Finance and Information Systems at the ASK Group, a software company. From 1981 to November 1992, Mr. Yonker held various international positions at Digital Equipment Corporation, including Europe-Finance Director. ELIAS TYPALDOS, a founder of the Company, has been Vice President, Research and Development and a director since the Company's formation in 1978. 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 was a project leader of the MISTER WIZARD computer system of the AT&T Corp./New York Telephone Co. WILLIAM SIMMONS joined the Company in May 1995 as Vice President, Client Services, Worldwide. Mr. Simmons was the Vice President of Business Development at Nationar, a financial services organization, from November 1993 to May 1995. Mr. Simmons served in various capacities, including President and 12 13 Chief Operating Officer, at Metering Services Incorporated ("MSI"), a software integrator working with the utility and communication industries, from 1987 to November 1993. Prior to joining MSI, Mr. Simmons held a number of sales, sales management, training and development positions at Xerox Corp. and Wang. 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. CARL ROSENBERG joined the Company in May 1994 as Vice President, North American Sales. Mr. Rosenberg was promoted to Vice President, Worldwide Sales in March, 1996. From January 1990 to May 1994, Mr. Rosenberg was Vice President and General Manager of the UNIX division of Information Builders Inc. 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. All of the current members of the Company's Board of Directors were elected to the Board of Directors in accordance with certain provisions of a voting agreement and the Company's Certificate of Incorporation. Two of the seats on the Company's Board of Directors are currently vacant. Mr. A Typaldos and Mr. E. Typaldos are brothers. RISK FACTORS LIMITED HISTORY OF PROFITABILITY; PRIOR LOSSES The Company incurred net losses of $2.4 million for 1994, and a net loss of $8.6 million for 1995. The Company also incurred a net loss for each of the years ended December 31, 1990, 1991, 1992, and 1993. As of December 31, 1995, the Company had an accumulated deficit of $17.5 million. There can be no assurance that the Company will be profitable in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 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 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 13 14 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 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. In recent years until 1995, the Company generally has had greater demand for its products in the fourth quarter. 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." 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 Wang 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. In exchange, Wang paid a non-refundable source code and fully paid-up license fee to the Company. The Company anticipates that Wang's COOL-based product may become a significant competitor to Computron COOL. 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 14 15 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." MANAGEMENT OF GROWTH The Company has recently experienced significant growth. This growth has placed a significant strain on the Company's management, administrative and operational resources and financial control systems. The Company has recently added a number of key officers, including Joseph Esposito, as President, Worldwide Operations, in October 1994 and Richard C. Yonker, as Chief Financial Officer, in December 1995. The Company's future results of operations will depend on its ability to continue to broaden its senior management group, and on the ability of its officers and key employees to continue to implement and improve its management, administrative and operational systems and to expand, train, manage and motivate its employee base. The Company's inability to manage growth effectively, should it occur, 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 results of operations. Following the audit of the Company's consolidated financial statements for 1994, the Company received a management letter from its independent public accountants, Arthur Andersen LLP, which enumerated material weaknesses in the Company's financial and accounting processes, controls, reporting systems and procedures. The Company's independent public accountants highlighted the Company's need for additional financial and accounting personnel with software industry experience. In addition, the Company's independent public accountants noted (i) the need for uniformity in the language of its contracts and recommended that the Company standardize the terms of its license agreements and expand its internal contract review and approval procedures , (ii) deficiencies in the organization of customer and contract files and recommended that the Company improve and standardize record keeping, (iii) the need for expanded and formalized accounts receivable collection procedures, (iv) the need for improved documentation and record keeping relating to consulting service projects, and (v) the need to develop policies and procedures to accurately identify the date when technological feasibility of developed software has been attained and to improve the documentation and record keeping for capitalized software development costs and to do so on a timely basis. 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. Arthur Andersen LLP has notified the Company that it intends to issue a material weakness letter in connection with their completion of the audit of the Company's financial statements for 1995. The matters to be discussed in the letter are expected to be substantially the same as those discussed above. In addition, they have recommended that the Company implement improved internal accounting control procedures approved by the audit 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. The Company believes that further additions to its financial and accounting staff, and improvements in financial and accounting controls, are needed to 15 16 correct such material weaknesses and to manage further growth, should it occur. The failure to implement such changes or to hire additional financial and accounting personnel on a timely basis could have a material adverse effect on the Company's business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Management." DEPENDENCE ON PRINCIPAL PRODUCTS Substantially all of the Company's revenues are derived from the licensing of Computron Financials, Computron Workflow and Computron COOL 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, 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." 16 17 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. 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 $4.4 million, $9.1 million, and $14.2 million, or 18.6%, 28.0%, and 26.9% of its total revenues, from customers outside of the United States in 1993, 1994 and 1995, 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. 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 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 17 18 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." 18 19 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 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 affiliated entities together beneficially own approximately 67.1% of the outstanding shares of Common Stock. As a result, these stockholders are able to exercise control over matters requiring stockholder approval, including the elect 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, including Andreas Typaldos, Chief Executive Officer and Chairman of the Board, could have a material adverse effect on the Company's business. The Company is a party to employment agreements with certain key personnel, including Andreas Typaldos. In addition, the Company is the beneficiary of $2.15 million in key-person life insurance on the life of Andreas Typaldos and is the beneficiary of key-person life insurance on the lives of certain other 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. See "Business-Employees" and "Management." 19 20 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 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. 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, Los Angeles, San Francisco, Toronto and Washington, D.C. metropolitan areas. The Company also leases sales and support offices outside of North America in Australia, Hong Kong, Indonesia, 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 None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Pursuant to a Written Action of Stockholders, dated March 24, 1995, the holders of a majority of the voting securities of the Company approved a change in the name of the Company. Pursuant to Written Action of Stockholders, dated June 15, 1995, the holders of a majority of the voting securities of the Company adopted the Company's 1995 Stock Option Plan. Pursuant to a Written Action of Stockholders, dated June 20, 1995, the holders of a majority of the voting securities of the Company (i) adopted the 20 21 Company's Amended and Restated By-Laws, (ii) waived their right of first offer, (iii) waived their registration rights, and (iv) approved the issuance of the shares in the Company's initial public offering. Pursuant to a Written Action of Stockholders, dated June 21, 1995, the holders a majority of the voting securities of the Company adopted the Third Amended and Restated Certificate of Incorporation. No matters were submitted to a vote of security holders during the fourth quarter of 1995. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the Nasdaq National Market under the symbol "CTRN." The following table lists the high and low sales prices for the periods set forth below:
PERIOD HIGH LOW ------ ---- --- Third quarter of 1995 ............. $21.00 $16.375 Fourth quarter of 1995 ............ $18.25 $13.50 First quarter of 1996 through March 27, 1996 .......................... $18.00 $ 6.375
As of March 27, 1996 the approximate number of record holders of the Company's Common Stock was 93. 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. 21 22 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the audited consolidated financial statements (as restated) of the Company. The consolidated statement of operations data for the years ended December 31, 1993, 1994 and 1995, and the consolidated balance sheet data for the years ended December 31, 1994 and 1995 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 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 and related notes thereto included elsewhere in this report.
(In thousands, except per share data) Years Ended December 31, ---------------------------------------------------------------- 1991 1992 1993 1994 1995 -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA (1): Revenues: License fees $ 8,728 $ 10,359 $ 12,694 $ 20,615 $ 33,766 Services 5,918 9,286 10,894 11,858 19,029 -------- -------- -------- -------- -------- Total revenues 14,646 19,645 23,588 32,473 52,795 Operating expenses: Cost of license fees 370 467 850 2,447 4,673 Cost of services 2,867 6,569 6,935 7,738 12,988 Sales and marketing 5,046 8,324 8,788 11,845 19,387 General and administrative 2,782 3,797 5,668 5,607 11,269 Product development and engineering 4,794 4,106 4,685 6,888 9,651 Purchased research and development -- -- -- -- 3,797 -------- -------- -------- -------- -------- Total operating expenses 15,859 23,263 26,926 34,525 61,765 -------- -------- -------- -------- -------- Operating income (loss) (1,213) (3,618) (3,338) (2,052) (8,970) Other income (expense) (43) 26 (203) (206) 742 -------- -------- -------- -------- -------- Loss before income taxes (1,256) (3,592) (3,541) (2,258) (8,228) Provision (benefit) for income taxes (474) (245) 323 150 350 -------- -------- -------- -------- -------- Net income (loss) $ (782) $ (3,347) $ (3,864) $ (2,408) $ (8,578) ======== ======== ======== ======== ======== Pro forma net (loss) per common share $ (.46) ======== Shares used in pro forma per common share computation 18,809 ========
As of December 31, ------------------------------------------------------------- 1991 1992 1993 1994 1995 ------- -------- -------- -------- ------- BALANCE SHEET DATA (1): Cash, cash equivalents and short-term investments $ 7,891 $ 7,235 $ 4,554 $ 16,302 $46,651 Working capital 6,852 434 1,619 7,688 40,450 Total assets 15,076 15,585 16,119 35,075 71,367 Total debt and capital lease obligations 2,030 3,345 5,183 6,496 820 Redeemable convertible preferred stock 6,688 11,144 14,611 40,038 -- Total stockholders' equity (deficit) 2,410 (3,592) (10,907) (28,782) 46,398
(1) The Consolidated financial data for 1992 through 1995 has been restated. See Note 2 of Consolidated Financial Statements. 22 23 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. 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. The Company has continued to expand its direct sales force and its indirect channels of distribution and in late 1994 began emphasizing indirect channels of distribution for Computron Workflow and Computron COOL. The Company's sales and marketing organization has grown from 67 employees at December 31, 1992 to 123 employees at December 31, 1995. The Company has also expanded its indirect channels of distribution by establishing relationships with systems integrators, distributors and third party service providers. The Company substantially increased its sales and marketing and product development and engineering expenses in 1994 and 1995 to complete the development, introduction, sale, marketing and support of its new products. 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 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" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Certain Factors Affecting Operating Results." The Company generated a net loss of $2.4 million in 1994, and a net loss of $8.6 million for 1995. The Company also incurred a net loss for each of the years ended December 31, 1990, 1991, 1992, and 1993. 23 24 As of December 31, 1995, the Company had an accumulated deficit of $17.5 million. There can be no assurance that the Company will be profitable in the future. 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 been insubstantial, since products are generally shipped as orders are received. Following the audit of the Company's consolidated financial statements for 1994, the Company received a management letter from its independent public accountants, Arthur Andersen LLP, which enumerated material weaknesses in the Company's financial and accounting processes, controls, reporting systems and procedures. The Company's independent public accountants highlighted the Company's need for additional financial and accounting personnel with software industry experience. In addition, the Company's independent public accountants noted (i) the need for uniformity in the language of its contracts and recommended that the Company standardize the terms of its license agreements and expand its internal contract review and approval procedures, (ii) deficiencies in the organization of customer and contract files and recommended that the Company improve and standardize record keeping, (iii) the need for expanded and formalized accounts receivable collection procedures, (iv) the need for improved documentation and record keeping relating to consulting service projects, and (v) the need to develop policies and procedures to accurately identify the date when technological feasibility of developed software 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 response to the independent public accountants concerns, the Company has taken a number of actions. It hired David A. Gerth, an executive with substantial software industry experience, as Chief Financial Officer in July 1995. The Company subsequently hired a corporate controller, a services financial analyst/controller and a consolidation accountant. When Mr. Gerth resigned due to family considerations, the Company hired Mr. Richard C. Yonker, an executive with substantial computer/technology industry experience, as Chief Financial Officer in December 1995. In addition, the Company began implementing more extensive financial and accounting processes, controls, reporting systems and procedures which are designed to address those material weaknesses. Specifically, in early 1995, the Company (i) began to develop standard contractual terms for its license agreements and expand its contract review and approval procedures, (ii) reorganized and centralized its customer files and consulting services contracts and standardized its record keeping procedures, and (iii) expanded and began to formalize its accounts receivable collection efforts. During 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. Arthur Andersen LLP has notified the Company that it intends to issue a material weakness letter in connection with their completion of the audit of the Company's financial statements for 1995. The matters to be discussed in the letter are expected to be substantially the same as those discussed above. In addition, they have recommended that the Company implement improved internal accounting control procedures approved by the audit 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. The Company believes that further improvements in its financial and accounting controls are needed to correct such material weaknesses and manage future growth, should it occur and concurs in such recommendations. The Company intends to further improve its financial and accounting controls and implement such recommendations during 1996. See "Business -- Risk Factors -- Management of Growth." 24 25 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, ----------------------------- 1993 1994 1995 ----- ----- ----- Revenues: License fees 53.8% 63.5% 64.0% Services 46.2 36.5 36.0 ----- ----- ----- Total revenues 100.0% 100.0 100.0 Costs and expenses: Cost of license fees 3.6 7.5 8.9 Cost of services 29.4 23.8 24.6 Sales and marketing 37.3 36.5 36.7 General and administrative 24.0 17.3 21.3 Product development and engineering 19.9 21.2 18.3 Purchased research and development -- -- 7.2 ----- ----- ----- Total costs and expenses 114.2 106.3% 117.0 ----- ----- ----- Operating loss (14.2) (6.3) (17.0) Other income (expense) (0.8) (0.6) 1.4 ----- ----- ----- Loss before income taxes (15.0) (6.9) (15.6) Provision for income taxes 1.4 0.5 0.7 ----- ----- ----- Net loss (16.4)% (7.4)% % (16.3)% ----- ----- -----
TOTAL REVENUES The Company's revenues are derived from license fees and services. Total revenues increased from $23.6 million in 1993 to $32.5 million in 1994 and $52.8 million in 1995 representing increases of 37.7% and 62.6%, respectively. The increase in 1994 was attributable primarily to significant growth in license fees and modest growth in services revenue. In 1995, both license fees and services revenue experienced significant growth. Separate individual customers accounted for 11.8% and 24.8% of Company's total revenues in 1993 and 1994, respectively. 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. The Company derived approximately $4.4 million, $9.1 million and $14.2 million, or 18.6%, 28.0% and 26.9% of its total revenues, from customers outside of the United States in 1993, 1994 and 1995, 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. License fees increased 62.4% from 1993 to 1994, and 63.8% from 1994 to 1995. These increases were attributable to increased market acceptance of the Company's products which resulted in an increased number of licenses of the Company's software, as well as increased average dollar amounts per order. In addition, license fee revenues for 1994 and 1995 included approximately $1.1 million and $2.8 million, 25 26 respectively, of resales of third-party software, primarily RDBMS software. 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. The Company's license fees in the fourth quarter of 1995 decreased to $4.9 million from $12.4 million in the fourth quarter of 1994. Licenses fee revenue for the fourth quarter of 1994 included a single $5.3 million license expansion agreement from an existing customer. Excluding this agreement, the number and dollar amount of license agreements were approximately the same for the fourth quarters of 1994 and 1995. 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 8.8% from 1993 to 1994, and 60.5% from 1994 to 1995. The increases in services revenue in 1994 and 1995 were attributable primarily to increased training and consulting services which resulted from increased licensing of the Company's products and increased maintenance revenues related to a larger installed base of the Company's products. COST OF LICENSE FEES Cost of license fees consists primarily of 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 typically remains relatively stable as a percentage of license fees. Cost of license fees increased from $.9 million in 1993 to $2.4 million in 1994 and were $4.7 million in 1995. These costs represented 6.7%, 11.9% and 13.8% of license fees in 1993, 1994 and 1995, respectively. The substantial dollar and percentage increase in cost of license fees as a percentage of license fees from 1993 to 1994 was due primarily to increased cost of license fees associated with third party software resold to customers in conjunction with the licensing of the Company's products and higher amortization of capitalized software development costs associated with products developed in 1992 and 1993. 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, and higher amortization of capitalized software development costs. The costs associated with third party software resold to customers was $0.4 million, $ 1.8 million and $ 3.3 million in 1993, 1994 and 1995, respectively. COST OF SERVICES Cost of services consists primarily of personnel costs for training, consulting and customer support and, starting in 1994, related travel costs, and costs of training third party service and support organizations for the Company's products. Total service costs increased from $6.9 million in 1993 to $7.7 million in 1994 and $13.0 million in 1995 and represented 63.7%, 65.3% and 68.3% of service revenues in 1993, 1994, and 1995, respectively. During these periods, the cost of services as a percentage of service revenues increased slightly as a result of the significant increase in personnel. The Company is in the process of significantly expanding its customer service resources, principally its consulting, telephone support, and account management staff in 1996, and anticipates that, as a result, the dollar cost of services expenditures will increase substantially, and that such expenses could increase as a percentage of total revenues in future periods. 26 27 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 $8.8 million in 1993 to $11.8 million in 1994 and $19.4 million in 1995, and represented 37.3%, 36.5%, and 36.7% of total revenues, respectively. In 1994 and 1995, the Company significantly increased its sales and marketing expense due primarily to substantial hiring and increased sales commissions, and advertising costs. Advertising costs and sales and marketing expenses decreased as a percentage of total revenues in 1994 and 1995 as compared to 1993 as a result of increased sales productivity. The Company anticipates that sales and marketing expenses will increase in the future, as it expands its sales and marketing activities. PRODUCT DEVELOPMENT AND ENGINEERING Product development and engineering expenses consist primarily of engineering personnel costs, costs of third party equipment and facilities and software for development purposes and costs of outside consultants hired by the Company to assist in its product development efforts. Product development and engineering expenses are generally charged to operations as incurred. However, certain software development costs are capitalized in accordance with Statement of Financial Accounting Standards No. 86. Such capitalized software development costs are generally amortized over periods not exceeding three years. Software product development and engineering expenses (net of capitalized software development costs) increased from $4.7 million in 1993 to $6.9 million in 1994 and $9.7 million in 1995 and represented 19.9%, 21.2% and 18.3% of total revenues, respectively. The Company capitalized software development costs of $1.0 million, $0.9 million and $1.5 million in 1993, 1994, and 1995, respectively. Gross product development and engineering expenses increased in 1994 and 1995 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 product development and engineering expenses to continue to increase. The rate of capitalization of software development cost 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 expensed $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 decreased from $5.7 million in 1993 to $5.6 million in 1994 and increased to $11.3 million in 1995 representing 24.0%, 17.3% and 21.3% of total revenues in those years, respectively. General and administrative expenses decreased in 1994 as compared to 1993 due primarily to a decrease in the provision for doubtful accounts which was partially offset by the hiring of additional financial, accounting and management personnel. 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, primarily 27 28 due to expenses resulting from being a publicly held company. The increase in the provision for doubtful accounts 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 not to continue their efforts to satisfy customer requests in order 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. While the Company anticipates continuing dollar increases in general administrative expenses, it expects such expenses as a percentage of total revenues to decrease over time. OTHER INCOME (EXPENSE) The Company incurred interest expense, in excess of interest income, of $203,000 and $206,000 in 1993 and 1994, respectively. Interest expense resulted primarily from bank borrowings and other credit liabilities available to the Company. In 1995, the Company recorded interest income, in excess of interest expense, of $742,000 resulting from the increase in the level of the Company's investment funds and the decrease in the amount of bank borrowings. INCOME TAXES PROVISION The Company's provision for income taxes was $0.3 million, $0.2 million and $0.4 million in 1993, 1994 and 1995, 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. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1995, the Company had cash, cash equivalents and short-term investments of $46.7 million and working capital of $40.4 million. As of December 31, 1995, the Company had the following facilities under its bank line of credit: (i) fully available $4.0 million revolving line of credit which expires on May 31, 1996 collateralized by the Company's accounts receivable (ii) a fully available $1.0 million secured equipment financing facility expiring on May 31, 1996, (iii) a fully available $2.0 million line of credit for letters of credit which expires on May 31, 1996 and (iv) $751,000 standby letters of credit collateralized by U.S. Treasury securities and certificates of deposit and maturing on July 31, 1996. In addition, the Company has various equipment loans outstanding with an aggregate balance of $428,000 at December 31, 1995 that bear interest at rates ranging from 7.3% to 9.5% and which matures from time to time. The Company's operating activities provided cash of $3.1 million in 1994 and used cash of $4.8 million in 1995. Net cash provided in 1994 was primarily composed of a significant increase in deferred revenue, principally due to significant payments received by customers for software not yet delivered and, to a lesser extent, services that had not yet been performed. Net cash used in 1995 was the result of the Company's net loss in 1995 and an increase in accounts receivable, which were offset in part, by increases in the provision for doubtful accounts and in accounts payable and accrued expenses. The Company's investing activities have used cash of $3.1 million and $4.3 million in 1994 and 1995, respectively, principally for purchases of equipment and capitalized software costs. 28 29 Cash provided by financing activities was $10.9 million and $ 38.9 million in 1994 and 1995, respectively. During 1994, cash provided by financing activities consisted primarily of net proceeds from the sale of Preferred Stock and amounts borrowed under the Company's secured bank line of credit. During 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. The Company has no significant capital commitments. The Company's aggregate minimum operating lease payments for 1996 and 1997 are expected to be approximately $2.9 million. The Company believes that its available cash and cash equivalents, together with investment income and cash flows from operations, will be sufficient to meet its cash requirements at least through 1996. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference herein from Part IV Item 14(a) (1) and (2). ITEM 9. CHANGES 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 "1996 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The Company incorporates herein by reference the information concerning executive compensation contained in the 1996 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 1996 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 1996 Proxy Statement. 29 30 PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K a) Consolidated Financial Statements: (Restated)
PAGE NO. ------------ Report of Independent Public Accountants ............................................... 33 Consolidated Balance Sheets at December 31, 1994 and 1995 .............................. 34-35 Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 .............................................................................. 36 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the years ended December 31, 1993, 1994 and 1995 ................ 37 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 ............................................................................. 38 Notes to Consolidated Financial Statements ............................................ 39
b) Consolidated Financial Statement Schedules: (Restated)
Report of Independent Public Accountants On Schedule..................................... 51 Schedule II - Valuation and Qualifying Accounts Years Ended December 31, 1993, 1994 and 1995......................................... 52
c) Reports on Form 8-K None. 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, as amended. 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 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 30 31 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 for Information Systems Services between the Company and Deutsche Bank AG. 10.15** Consulting Agreement between the Company and Canaan Capital Limited Partnership and Canaan Capital Offshore Limited Partnership, C.V. 11.1 Statement re: Computation of Per Share Earnings. 21.1 List of subsidiaries. ---------------------- ** Incorporated by reference to the Exhibits filed with the Company's Registration Statement on Form S-1, File No. 33-93990. 31 32 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 Research /s/ ELIAS TYPALDOS 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) 32 33 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, 1994 and 1995, as restated (See Note 2), and the related statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1995, as restated. 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 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. Subsequent to March 29, 1996 (the date of our original report), as further discussed in Note 5, 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, 1994 and 1995, as restated, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, as restated, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts April 16, 1997 33 34 COMPUTRON SOFTWARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, --------------------- 1994 1995 (Restated) (Restated) ASSETS Current Assets: Cash and cash equivalents $15,186 $45,119 Restricted cash -- 751 Short-term investments 1,116 781 Accounts receivables, less reserves of $2,202 in 1994 and $2,028 in 1995 13,581 15,441 Income tax receivable -- 1,369 Prepaid expenses and other current assets 588 691 ------- ------- Total current assets 30,471 64,152 ------- ------- Computer and office equipment 5,766 8,117 Furniture and fixtures 565 979 Leasehold improvements 122 338 ------- ------- 6,453 9,434 Less - accumulated depreciation and amortization 4,592 5,787 ------- ------- 1,861 3,647 ------- ------- Capitalized software development costs, net of accumulated amortization of $1,342 in 1994 and $2,232 in 1995 1,835 2,440 Amount due from officers 298 -- Other assets 610 1,128 ======= ======= $35,075 $71,367 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 34 35 COMPUTRON SOFTWARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
December 31, ------------------------ 1994 1995 (Restated) (Restated) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt $ 1,249 $ 351 Current portion of obligations under capital leases 211 202 Accounts payable 1,202 2,184 Accrued expenses 3,745 7,298 Note payable 4,000 -- Deferred revenue 12,376 13,667 -------- -------- Total current liabilities 22,783 23,702 -------- -------- Long-term liabilities: Long-term debt, less current portion 831 77 -------- -------- Obligations under capital leases, less current portion 205 190 -------- -------- Other liabilities -- 1,000 -------- -------- Commitments and contingencies (Notes 5 and 6) Series A redeemable 10 % convertible preferred stock, $ .01 par value, 1,050,000 shares authorized, issued and outstanding in 1994 25,554 -- -------- -------- Series B redeemable 6.5 % convertible preferred stock, $ .01 par value, authorized 1,500,000 shares, 1,466,946 shares issued and outstanding in 1994 14,484 -- -------- -------- Stockholders' equity (deficit): Preferred stock, $.01 par value, authorized 5,000,000 shares, no shares issued and oustanding -- -- Class B nonvoting common stock, $ .01 par value, authorized 15,000,000 shares; 7,900,000 shares issued and outstanding at December 31, 1994 79 -- Class A nonvoting common stock, $ .01 par value, authorized 15,000 shares; 8,400 shares issued and outstanding at December 31, 1994 -- -- Common stock, $ .01 par value, authorized 50,000,000 shares; 20,744,186 shares issued and outstanding at December 31, 1995 -- 207 Additional paid-in capital 1,633 63,796 Accumulated deficit (30,316) (17,524) Cumulative translation adjustment (178) (81) -------- -------- Total stockholders' equity (deficit) (28,782) 46,398 -------- -------- $ 35,075 $ 71,367 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 35 36 COMPUTRON SOFTWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31, --------------------------------------- 1993 1994 1995 (Restated) (Restated) (Restated) Revenues: License fees $ 12,694 $ 20,615 $ 33,766 Services 10,894 11,858 19,029 -------- -------- -------- Total revenues 23,588 32,473 52,795 -------- -------- -------- Operating expenses: Cost of license fees 850 2,447 4,673 Cost of services 6,935 7,738 12,988 Sales and marketing 8,788 11,845 19,387 General and administrative 5,668 5,607 11,269 Product development and engineering 4,685 6,888 9,651 Purchased research and development -- -- 3,797 -------- -------- -------- Total operating expenses 26,926 34,525 61,765 -------- -------- -------- Operating loss (3,338) (2,052) (8,970) -------- -------- -------- Interest income (expense): Interest income 152 290 1,238 Interest expense (355) (496) (496) -------- -------- -------- Total interest income (expense) (203) (206) 742 -------- -------- -------- Loss before provision for income taxes (3,541) (2,258) (8,228) Income tax provision 323 150 350 -------- ======== ======== ======== Net loss $ (3,864) $ (2,408) $ (8,578) ======== ======== ======== Pro forma net loss per common share (Note 1) $ (0.46) ======== Pro forma weighted average number of common shares (Note 1) 18,809 ========
The accompanying notes are an integral part of these consolidated financial statements. 36 37 COMPUTRON SOFTWARE, INC. CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (In thousands)
Redeemable Convertible Preferred Stock ----------------------------------------------------- ---------------------- Class A Series A Series B Common Stock ---------------------- ----------------------- ---------------------- Shares Amount Shares Amount Shares Amount Balance - December 31, 1992(1) 1,050 $ 11,144 -- $ -- 8 $ -- Net loss -- -- -- -- -- -- Cumulative translation adjustment -- -- -- -- -- -- Accretion on redeemable convertible preferred stock -- 3,467 -- -- -- -- ------ -------- ------ -------- ---- ---------- Balance - December 31, 1993(1) 1,050 14,611 -- -- 8 -- Sale of Series B Preferred Stock, net of related expenses -- -- 1,467 10,268 -- -- Net loss -- -- -- -- -- -- Cumulative 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 -- Net loss -- -- -- -- -- -- Cumulative 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) -- Sale of common stock, net of related expenses -- -- -- -- -- -- Exercise of stock options -- -- -- -- -- -- ------ -------- ------ -------- ---- ---------- Balance - December 31, 1995(1) -- $ -- -- $ -- -- ====== ======== ====== ======== ==== ==========
Stockholders' Equity (Deficit) ----------------------------------------------------------------------------------------- Additional Cumulative Class B Paid-in Accumulated Translation Common Stock Common Stock Capital Deficit Adjustment ------------------ ------------------ -------- --------- ----------- Shares Amount Shares Amount Balance - December 31, 1992(1) 7,900 $ 79 -- $ -- $ 1,897 $ (5,418) $(150) Net loss -- -- -- -- -- (3,864) -- Cumulative translation adjustment -- -- -- -- -- -- 16 Accretion on redeemable convertible preferred stock -- -- -- -- -- (3,467) -- ------ ---- ------ ---- -------- -------- ----- Balance - December 31, 1993(1) 7,900 79 -- -- 1,897 (12,749) (134) Sale of Series B Preferred Stock, net of related expenses -- -- -- -- (264) -- -- Net loss -- -- -- -- -- (2,408) -- Cumulative translation adjustment -- -- -- -- -- -- -- Accretion on redeemable convertible preferred stock -- -- -- -- -- (15,159) (44) ------ ---- ------ ---- -------- -------- ----- Balance - December 31, 1994(1) 7,900 79 -- -- 1,633 (30,316) (178) Net loss -- -- -- -- -- (8,578) -- Cumulative translation adjustment -- -- -- -- -- -- 97 Accretion on redeemable convertible preferred stock -- -- -- -- -- (1,836) -- Conversion of securities upon initial public offering (7,900) (79) 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) ====== ==== ====== ==== ======== ======== =====
(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. 37 38 COMPUTRON SOFTWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT SHARE DATA)
Years Ended December 31, ----------------------------------------- 1993 1994 1995 (Restated) (Restated) (Restated) ------- -------- -------- Cash flows from operating activities: Net loss $(3,864) $ (2,408) $ (8,578) ------- -------- -------- Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities - Depreciation and amortization 1,715 1,867 2,085 Provision for doubtful accounts 1,998 1,573 2,763 Changes in current assets and liabilities - Restricted cash -- -- (751) Accounts receivable (5,312) (7,771) (4,623) Income tax refunds receivable -- -- (1,369) Prepaid expenses and other current assets 192 (298) (103) Other liabilities 1,136 1,231 4,534 Deferred revenue 1,582 8,860 1,291 ------- -------- -------- Commitments and contingencies (Notes 5 and 6) (2,553) 3,054 (4,751) ------- -------- -------- Cash flows from investing activities: Other assets 32 (226) (220) Capitalized software development costs (1,014) (911) (1,495) Purchase of equipment and leasehold improvements (1,001) (1,062) (2,948) Short-term investments 146 (864) 335 ------- -------- -------- Net cash flows used in investing (1,837) (3,063) (4,328) ------- -------- -------- 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 Proceeds from long-term debt 2,668 2,529 -- Payments of long-term debt (809) (1,396) (5,652) Increase in other long-term liabilities -- -- 1,000 Principal payments under capital lease obligations (20) (200) (56) ------- -------- -------- Net cash flows provided by financing activities 1,839 10,937 38,915 ------- -------- -------- Foreign currency exchange rate effects 16 (44) 97 ------- -------- -------- Net increase (decrease) in cash and cash equivalents (2,535) 10,884 29,933 Cash and cash equivalents, beginning of year 6,837 4,302 15,186 ------- -------- -------- Cash and cash equivalents, end of year $ 4,302 $ 15,186 $ 45,119 ======= ======== ======== Supplemental disclosures of cash flow information and noncash financing activities: Cash paid during the year for - Interest $ 331 $ 501 $ 507 Income taxes 14 31 1,864 Capital lease obligations incurred -- 380 33
The accompanying notes are an integral part of these consolidated financial statements 38 39 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES The Company was incorporated as Computron Systems Company, Inc. under the laws of the State of Delaware in September 1978. The name of the Company was changed to Computron Technologies Corporation in February 1979 and subsequently changed to Computron Software, Inc. in May 1995. The Company designs, develops, markets and supports client/server financial, workflow and archival data management software solutions. (a) Principles of Consolidation The consolidated financial statements include the accounts of Computron Software, Inc.; its wholly owned subsidiaries located in Australia, Hong Kong, Singapore and the United Kingdom; and, a Polish joint venture in which the Company has a majority interest (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) service 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. See "Business--Risk Factors--Management of Growth". 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. 39 40 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) In connection with the completion of the December 31, 1995 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 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. (d) Cash and Cash Equivalents Cash equivalents are stated at cost, which approximates market, and consists of short-term, highly liquid investments with maturities of less than three months. (e) Short-term Investments Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS), No. 115, Accounting for Certain Investments in Debt and Equity Securities. At December 31, 1994 and 1995, short-term investments consist of U.S. Treasury bills, letters of credits and short-term bonds with maturities of greater than three months, but less than one year. Pursuant of SFAS No. 115, short-term investments are classified as held-to-maturity and are carried at amortized cost which approximates market value. (f) Equipment and Leasehold Improvements Equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets (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. (g) Software Development Costs In accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed, 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. During 1993, 1994, and 1995, capitalized software development costs amounted to $1,014, $911 and $1,495, 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. 40 41 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) (h) Income Taxes The Company provides for income taxes using applicable statutory rates based on reported income in the tax reporting entity. Deferred income taxes are provided for differences between the book value and tax basis of assets and liabilities. Such differences primarily relate to the allowance for doubtful accounts, software development costs and deferred revenue. The Company has not provided federal income taxes on undistributed foreign earnings as it is their intention to reinvest any such earnings in those operations. Effective January 1, 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes. The effect of such adoption in 1993 was not significant to the Company's consolidated financial position or results of operations. See Note 7 of Notes to Consolidated Financial Statements. (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. During 1993, one customer accounted for approximately 11.8%, of the Company's total revenues. In 1994, another 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. (k) Foreign Currency Translation Accounts of the Company's foreign subsidiaries are maintained in the functional currency in which the applicable entity operates. For amounts held in such accounts which are denominated in currencies other than the United States dollar, such amounts are translated at the following rates of exchange: assets and liabilities at year-end exchange rates; equity accounts at historical exchange rates and income and expense accounts at the average exchange rate for the applicable period. 41 42 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) (l) Pro forma net loss per common share For the year ended December 31, 1995, pro forma net loss per common share was based on the weighted average number of common shares outstanding during the year. 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. Historical net income (loss) per share data have not been presented for periods prior to the Company's initial public offering, as such information is not considered to be relevant or meaningful. (m) New accounting pronouncement The Financial Accounting Standards Board (FASB) has issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes an alternative to current accounting for compensation associated with stock issued to employees. Management does not intend to adopt the methods for measuring compensation related to stock options allowed by SFAS No. 123. Accordingly, this accounting pronouncement will not impact the Company's financial statements. (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. A summary of the impact of such restatements on the financial statements for the years ended December 31, 1992, 1993, 1994 and 1995 is as follows:
Years ended December 31, 1992 1993 - ------------------------ ---- ---- Previously As Previously As Reported Restated Reported Restated -------- -------- -------- -------- Total Revenue $ 20,513 $ 19,635 $ 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
42 43
Years ended December 31, 1994 1995 - ------------------------ ---- ---- Previously As Previously As Reported Restated Reported Restated -------- -------- -------- -------- Total Revenue $34,958 $32,473 $55,519 $52,795 Income (Loss) from operations 433 (2,052) (7,704) (8,970) Net Income (Loss) 77 (2,408) (7,312) (8,578) Net Income (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
(3) LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ------------ 1994 1995 Revolving line of credit secured by accounts receivable, bearing interest at the bank's prime rate and expiring on May 31, 1996 ................................................................. $ 4,000 $ -- Term loan, secured by accounts receivable, bearing interest at the bank's prime rate plus 1.25%, and repaid in November, 1995 ............... 1,056 -- 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 range from July, 1996 through July, 1997 ............................... 941 428 Other .......................................................................... 83 ------- ----- Total .......................................................................... 6,080 428 Less-current portion ........................................................... (5,249) (351) ------- ----- Long-term debt ................................................................. $ 831 $ 77 ======= =====
43 44 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (3) LONG-TERM DEBT - (CONTINUED) Maturities of long-term debt as of December 31, 1995 are as follows:
Years Ending December 31, ------------------------- 1996 ........................ $351 1997 ........................ 77 ---- $428 ====
Pursuant to the revolving line of credit, the Company is required to maintain a compensating balance of $200 and to maintain, among other things, working capital of at least $10,000, a maximum debt-to-worth ratio, as defined, of 1-to-1 and tangible net worth, as defined, of at least $13,000. The Company has a $1,000 secured equipment line of credit expiring on May 31, 1996. At December 31, 1995, the entire line was available. The Company's primary lender has authorized $2,000 to be available for letters of credit that mature on May 31, 1996. At December 31, 1995 there were $751 of outstanding letters of credit under this facility. The letters of credit are secured by U.S. Treasury securities and certificates of deposit. (4) 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 $1,212, $1,289 and $1,708 for the years ended December 31, 1993, 1994 and 1995, respectively. Scheduled future minimum rental payments required for all non-cancelable leases are as follows:
Capital Operating Years Ending December 31, Leases Leases - ------------------------- ------- --------- 1996 .................................. $247 $1,569 1997 .................................. 154 1,352 1998 .................................. 56 1,263 1999 .................................. 17 590 2000 .................................. 4 358 ---- ------ Total minimum lease payments .......... 478 $5,132 ====== Less-Amount representing interest . 86 ---- Present value of minimum lease payments 392 Less-Current portion .............. 202 ---- Noncurrent portion .................... $190 ====
44 45 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (5) 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 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. (6) RELATED PARTY TRANSACTIONS The Company has entered into employment agreements with certain executive officers. The agreements expire in December 1996 and provide for aggregate annual minimum payments of $726, plus Board-approved increases, with a minimum increase based on the annual consumer price index. The Company is the beneficiary of an aggregate of $5,950 in life insurance on the lives of these executives. 45 46 Advances to officers of the Company aggregated $298 at December 31, 1994. There were no advances to officers as of December 31, 1995. COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (7) 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. The components of loss before provision for income taxes is as follows:
YEARS ENDED DECEMBER 31, -------------------------------------- 1993 1994 1995 Domestic ......................... $(2,745) $(2,722) $(2,945) Foreign .......................... (796) 464 (5,283) ------- ------- ------- Total ................... $(3,541) $(2,258) $(8,228) ======= ======= =======
The provision for income taxes is as follows:
YEARS ENDED DECEMBER 31, ------------------------------------ 1993 1994 1995 Federal ...... .................... $168 $ 50 $150 State ........ .................... 5 10 100 Foreign ...... .................... 150 90 100 ---- ---- ---- Total .................... $323 $150 $350 ==== ==== ====
46 47 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (7) INCOME TAXES - (CONTINUED) 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, ----------------------------------- 1993 1994 1995 Federal income taxes (benefit) at 34% ............ $(1,204) $(768) $(2,798) ------- ----- ------- State income taxes, net of federal tax benefit.... 100 41 100 ------- Net operating loss and credits not benefited ..... 1,204 768 2,948 ------- ----- ------- Foreign income taxes ............................. 223 109 100 ======= ===== ======= $ 323 $ 150 $ 350 ======= ===== =======
The principal components of the Company's deferred tax assets are as follows:
DECEMBER 31, ---------------------- 1994 1995 Deferred revenue ............................... $ 394 $ 394 Non-deductible accruals and other .............. 769 1,008 Software development costs ..................... 615 (976) Depreciation ................................... 213 249 Allowance for doubtful accounts ................ (789) 1,102 Purchased research and development ............. -- 1,432 Research and development credit carryforwards .. 103 2,683 Net operating loss carryforwards ............... 2,508 662 Valuation allowance ............................ (3,813) (6,554) ======= ======= 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. 47 48 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (8) 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. (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 2,250,000 shares of Common Stock. 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 in Note 8 (a), is as follows:
NUMBER OF EXERCISE PRICE SHARES PER SHARE ---------- -------------- Granted during 1993 ....................... 320,475 $ 1.17 ---------- -------------- 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 ................ 930,619 $ 1.17 - 13.00 ========== ============== EXERCISEABLE, DECEMBER 31, 1995............ 310,323 $ 1.17 - 13.00 ========== ==============
All options vest in four annual installments. (9) PROFIT SHARING PLAN The Company's Profit Sharing Plan (the Plan) is a defined contribution plan. All employees with three months of service and who are at least 21 years of age are eligible to become participants in the Plan and 48 49 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (9) PROFIT SHARING PLAN (CONTINUED) may 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 $65, $74 and $160 for the years ended December 31, 1993, 1994 and 1995, 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, 1995, no additional contributions were made under the Plan. (10) 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 is 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 is obligated to pay royalties of up to $3,000 based on future sales of products using acquired technology. 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 ======
Included in other assets are amounts related to trademarks, customer lists and acquired technology which will be amortized over their estimated useful lives of 1 to 3 years. 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. 49 50 COMPUTRON SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) (11) 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, --------------------------------- 1993 1994 1995 United States.................. 81.4% 72.0% 73.1% ----- ----- ----- Europe ........................ 11.1 15.6 14.5 ----- ----- ----- Other ......................... 7.5 12.4 12.4 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
Revenues, income (loss) from operations and identifiable assets for the Company's United States, European and other international operations are as follows:
United States Europe Other Eliminations Consolidated ------------- ------ ----- ------------ ------------ YEAR ENDED DECEMBER 31, 1993 - ---------------------------- Revenues ......................... $ 19,806 $ 2,466 $ 1,366 $ (50) $ 23,588 Income (loss) from operations..... (2,439) 258 (1,147) (10) (3,338) Identifiable assets .............. 13,980 737 1,667 (265) 16,119 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
50 51 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/A 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 10-K/A 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, described in Note 2, after the restatement, 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 51 52 SCHEDULE II COMPUTRON SOFTWARE, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Balance at Charged to Amounts Balance at Beginning of Cost and Written End of Year Year Expenses Off ------------- ---------- -------- ----------- Year ended December 31, 1993 Allowances for returns and doubtful accounts .................. $ 477 1,998 (925) $1,550 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
52 53 EXHIBIT INDEX ------------- Exhibit Index Description ------------- ------------ 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. EX-11.1 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 COMPUTRON SOFTWARE, INC. Shares Used in Calculation of Pro forma net loss per common share (in thousands)
Year ended December 31, 1995 ----------------- Weighted average Class A Common Stock outstanding during the period, assuming conversion to Common Stock ................................. 441 Weighted average Class B Common Stock outstanding during the period, assuming conversion to Common Stock ................................. 11,850 Weighted average Series A Convertible Preferred Stock outstanding during the period, assuming conversion to Common Stock ..................... 3,260 Weighted average Series B Convertible Preferred Stock outstanding during the period, assuming conversion to Common Stock ..................... 2,277 Weighted average shares of Common Stock outstanding during the year .... 981 ======== 18,809 ========
53 EX-21.1 3 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 COMPUTRON SOFTWARE, INC. List of Subsidiaries Computron Technologies Europe Limited (incorporated in England and Wales) Computron Technologies Pacific Limited (incorporated in Hong Kong) Computron Technologies Pty. Limited (incorporated in Australia) Computron Technologies Singapore Private Limited (incorporated in Singapore) Computron Software (Canada) Inc. (incorporated in Canada) Computron-Rewicks Sp.z o.o. (80% owned, incorporated in Poland) 54 EX-23.1 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated April 16, 1997 included in this Form 10-K/A into the Company's previously filed Registration Statement File No. 333-11681. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Boston, Massachusetts April 16, 1997 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 45,870 781 17,469 2,028 0 64,152 9,434 5,787 71,367 23,702 0 0 0 64,003 (17,605) 71,367 33,766 52,795 4,673 37,048 24,717 2,763 496 (8,228) 350 (8,578) 0 0 0 (8,578) (0.46) (0.46)
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