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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
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Commission File Number 0-25498
CONCENTRA CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2827026
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 NORTH AVENUE
BURLINGTON, MA 01803-3301
(Address of principal executive offices)
(617) 229-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of August 12, 1997, there were issued and outstanding 5,542,834 shares of the
Registrant's Common Stock.
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CONCENTRA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements:
a) Condensed Consolidated Balance Sheets as of June 30, 1997 (unaudited)
and March 31, 1997................................................... 3
b) Condensed Consolidated Statements of Operations for the three months
ended June 30, 1997 and 1996 (unaudited)............................. 4
c) Condensed Consolidated Statements of Cash Flows for the three months
ended June 30, 1997 and 1996 (unaudited)............................. 5
d) Notes to Condensed Consolidated Financial Statements................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K........................................ 9
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, March 31,
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ASSETS 1997 1997
(Unaudited)
Current assets:
Cash and cash equivalents $ 5,723 $ 3,890
Marketable securities 147 203
Accounts receivable, net of allowance for doubtful accounts of $225
and $125, respectively 6,539 14,050
Other current assets 711 693
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Total current assets 13,120 18,836
Property and equipment, net 2,631 2,612
Capitalized software costs, net 1,899 1,878
Intangible assets, net 856 1,333
Other assets 465 372
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Total assets $ 18,971 $ 25,031
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,542 $ 1,551
Accrued expenses 3,415 4,123
Income tax payable 243 273
Deferred revenue 2,442 2,898
Current portion of capital lease obligations 347 423
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Total current liabilities 7,989 9,268
Capital lease obligations 684 611
Deferred revenue 58 84
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock - $.01 par value; 4,000,000 shares authorized, no
shares issued or outstanding -- --
Common stock - $.00001 par value; 40,000,000 shares authorized,
5,535,328 and 5,499,211 shares issued and outstanding at June 30,
1997 and March 31, 1997, respectively -- --
Additional paid-in capital 25,649 25,578
Accumulated deficit (15,039) (10,099)
Cumulative translation adjustment (370) (411)
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Total stockholders' equity 10,240 15,068
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Total liabilities and stockholders' equity $ 18,971 $ 25,031
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CONCENTRA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended
June 30,
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1997 1996
Revenues:
Software licenses $ 936 $2,839
Services 2,251 2,188
Related party software and services 546 89
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Total revenues 3,733 5,116
Operating expenses:
Cost of software licenses 1,000 429
Cost of services 1,689 662
Sales and marketing 4,063 2,846
Research and development 908 581
General and administrative 781 559
Restructuring charge 283 --
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Total operating expenses 8,724 5,077
Income (loss) from operations (4,991) 39
Interest income 66 95
Interest expense (26) (26)
Other (expense) income 21 (31)
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Income (loss) before income taxes (4,930) 77
Provision for income taxes 10 20
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Net income (loss) $(4,940) $ 57
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Net income (loss) per common and
common equivalent share $ (0.90) $ 0.01
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Weighted average number of common and
common equivalent shares outstanding 5,506 5,600
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CONCENTRA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
June 30,
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1997 1996
Cash flows from operating activities:
Net income (loss) $(4,940) $ 57
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 658 481
Foreign exchange (gain) loss (98) 31
Write off of intangible assets 372 --
Provision for bad debt 100 --
Valuation of marketable securities 55 --
Changes in operating assets and liabilities:
Accounts receivable 7,461 (203)
Other assets (105) (320)
Accounts payable (11) (153)
Accrued expenses (609) (615)
Deferred revenue (487) 456
Income taxes payable (30) (5)
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Net cash provided by (used in) operating activities 2,366 (271)
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Cash flows from investing activities:
Capitalized software costs (225) (370)
Purchase of property and equipment (175) (182)
Purchase of intangible assets (102) (21)
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Net cash used in investing activities (502) (573)
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Cash flows from financing activities:
Proceeds from exercise of stock options 71 12
Principal payments under capital lease obligations (94) (72)
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Net cash used in financing activities (23) (60)
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Effects of exchange rates on cash and cash equivalents (8) 26
Net increase (decrease) in cash and cash equivalents 1,833 (878)
Cash and cash equivalents at beginning of year 3,890 9,121
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Cash and cash equivalents at end of period $ 5,723 $ 8,243
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Supplemental disclosure of cash flow information:
Interest paid $ 26 $ 26
Income taxes paid $ 40 $ 25
Supplemental disclosure of non-cash investing and financing activities:
Equipment acquired under capital lease obligations $ 91 $ --
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CONCENTRA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Concentra Corporation (the "Company") and its wholly-owned foreign subsidiaries.
All significant intercompany transactions and balances have been eliminated. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
restructuring adjustments, necessary to present fairly such information. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission rules
and regulations. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997. Operating results for the three-month period ended June 30,
1997, may not necessarily be indicative of the results to be expected for any
other interim period or for the full year.
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
reporting period. Actual results could differ from those estimates.
Certain fiscal year 1997 balances have been reclassified to conform to
fiscal year 1998 presentation.
B. COMMITMENTS AND CONTINGENCIES
Line of Credit
The Company's demand line of credit of $2,500,000 expired on June 30, 1997.
At such date, the Company had no borrowings under this line of credit. This
line of credit contained financial covenants which consisted of minimum tangible
capital base, ratio of total liabilities to tangible capital base and debt
service coverage. The Company would not currently be in compliance with these
covenants and is negotiating with the commercial lender to extend and amend the
line of credit. The Company also had a $1,750,000 equipment line of credit,
collateralized by the equipment, which expired on March 31, 1997. The Company is
also negotiating with the commercial lender to extend and amend this line of
credit. There can be no assurance the Company will be successful in extending
and amending the lines of credit nor can there be any assurance that such
extended and amended lines of credit will be on similar terms as the existing
agreement. Additionally, there can be no assurance that alternative funding will
be available if required. As of June 30, 1997, the Company had borrowings under
the equipment line of credit of $1,413,000.
Consulting Arrangements
During fiscal 1996, the Company entered into a $5.0 million five-year
applications consulting services contract with a significant customer of the
Company. The five-year applications consulting services contract contains volume
pricing discounts subject to adjustments for increased costs. The Company has a
minimum commitment of $2,500,000 for outside applications services that will be
used by the Company over a five-year period. The minimum commitment of
$2,500,000 will be paid in five yearly payments commencing December 31, 1996.
These yearly payments are $250,000, $500,000, $550,000, $600,000 and $600,000
for the five calendar years beginning December 31, 1996, respectively. The
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Company's policy is to recognize the consulting service expenses as the expenses
are incurred. The Company believes that based on current forecasts the minimum
payment accruals will be utilized. However, given the significant sales
fluctuations which may occur in any given period, it is possible the minimum
commitment would not be met, thus requiring the Company to record a charge in
excess of the services utilized. At June 30, 1997, the Company had fully used
the minimum first-year commitment of $250,000.
C. RESTRUCTURING
The Company recorded a restructuring charge of approximately $283,000 in the
period ending June 30, 1997, consisting of severance costs associated with the
termination of seven employees as of June 30, 1997.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations include certain forward-looking statements about the Company's
business and new products, revenues, expenditures and operating and capital
requirements. In addition, forward-looking statements may be included in various
other Company documents to be issued in the future and in various oral
statements by Company representatives to security analysts and investors from
time to time. Any such statements are subject to risks that could cause the
actual results or needs to vary materially. The Company discusses such risks in
detail in its Annual Report on Form 10-K for the year ended March 31, 1997.
RESULTS OF OPERATIONS
TOTAL REVENUES. Substantially all of the Company's revenues are derived
from the licensing of software products and the performance of related services.
The Company's total revenues decreased 27% to $3.7 million for the three-month
period ended June 30, 1997, from $5.1 million for the three-month period ended
June 30, 1996. The decrease was primarily due to the decrease in software
license fees partially offset by an increase in related-party software license
fees.
SOFTWARE LICENSES. Software license fees decreased 67% to $0.9 million for
the three-month period ended June 30, 1997, from $2.8 million for the
three-month period ended June 30, 1996, and decreased as a percentage of
revenues to 25% from 55%. Contributing to the decrease was the delay of two
major software contracts.
SERVICES. Service fees increased 3% to $2.3 million for the three-month
period ended June 30, 1997, from $2.2 million for the three-month period ended
June 30, 1996, and increased as a percentage of revenues to 60% from 43%,
respectively. Service revenues are derived from customer support, consulting,
and training services. The increases were primarily due to higher support
revenues.
RELATED PARTY SOFTWARE AND SERVICES. Revenues from related parties
increased 513% to $0.5 million for the three-month period ended June 30, 1997,
compared to $89,000 for the same period ended June 30, 1996, and increased as a
percentage of revenue to 15% for the period ended June 30, 1997, from 2% for the
period ended June 30, 1996. The dollar and percentage increases were due to one
software license agreement with a related party.
COST OF SOFTWARE LICENSES. Cost of software licenses, consisting of the
amortization of capitalized software, license fees to third party suppliers and
software duplication and fulfillment costs, increased 133% to $1.0 million for
the three-month period ended June 30, 1997, from $0.4 million for the
three-month period ended June 30, 1996, and increased as a percentage of
software revenues to 107% from 15%. The dollar and percentage increases were
primarily due to a write off of an intangible asset amounting to $372,000 and
increased amortization of capitalized software.
COST OF SERVICES. Cost of services, consisting primarily of personnel costs
for customer support, training and applications consulting, increased 155% to
$1.7 million for the three-month period ended June 30, 1997, from $0.7 million
for the three-month period ended June 30, 1996, and increased as a percentage of
service revenues to 75% from 30%. The increases were due primarily to the
outsourcing of additional personnel at higher rates to support consulting
services and increased headcount. The Company expects the utilization of
outsourcing to decrease in the near future.
SALES AND MARKETING. Sales and marketing expenses, which include
distribution, pre-sales support and marketing costs, increased 43% to $4.1
million for the three-month period ended June 30, 1997, from $2.8
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million for the three-month period ended June 30, 1996. As a percentage of
revenues, sales and marketing expenses increased to 109% for the three-month
period ended June 30, 1997, compared to 56% for the comparable period in 1996.
The increases were primarily due to the transfer and addition of sales and
marketing employees and increased marketing and promotional activities, all of
which occurred in anticipation of increased selling activities.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of employee salaries and benefits and development costs, increased 56%
to $0.9 million for the three-month period ended June 30, 1997, from $0.6
million for the three-month period ended June 30, 1996, and increased as a
percentage of revenues to 24% from 11%. The increases were primarily due to the
addition of research and development employees associated with the development
of the Company's new product, Selling Point.
GENERAL AND ADMINISTRATIVE. General and administrative expenses, consisting
primarily of expenses associated with the finance, human resources and
administrative departments, increased 40% to $0.8 million for the three-month
period ended June 30, 1997, from $0.6 million for the three-month period ended
June 30, 1996, and increased as a percentage of revenues to 21% from 11%. The
increases were primarily due to higher legal costs and an increase in the bad
debt provision.
RESTRUCTURING. Restructuring expenses, consisting of severance costs
associated with the termination of seven employees, were $283,000 for the
three-month period ended June 30, 1997.
INTEREST INCOME. Interest income, consisting of interest from cash and cash
equivalents, for the three-month period ended June 30, 1997 and 1996, was
$66,000 and $95,000, respectively. The decrease was attributable to lower cash
balances during the current period.
INTEREST EXPENSE. Interest expense for the three-month period ended June
30, 1997, and June 30, 1996, remained constant at $26,000.
OTHER INCOME (EXPENSE). Other income (expense), consisting primarily of
foreign exchange gains (losses) on intercompany transactions, marking to market
certain trading securities, and recording of losses related to an investment in
another company, for the three-month period ended June 30, 1997, was income of
$21,000 compared with an expense of $31,000 for the three-month period June 30,
1996.
PROVISION FOR INCOME TAXES. The income tax provision for the three-month
period ended June 30, 1997, was $10,000. The income tax provision for the
three-month period ended June 30, 1996, was $20,000.
LIQUIDITY AND CAPITAL RESOURCES
In February 1995, the Company raised $17.7 million (net of expenses) from
an initial public offering ("IPO") of its common stock. Prior to the IPO, the
Company funded its operations primarily through cash generated from operations,
loans and three private equity transactions.
As of June 30, 1997, the Company had cash and cash equivalents of
approximately $5.7 million. The Company also had a line of credit with a
commercial lender. Under this line of credit, as amended, the Company had a
$2,500,000 unsecured working capital line of credit. This line of credit bore
interest at the bank's base lending rate and expired on June 30, 1997. At such
date, the Company had no borrowings under this line of credit. The line of
credit contained financial convenants which consisted of minimum tangible
capital base, ratio of total liabilities to tangible capital base and debt
service coverage. The Company would not currently be in compliance with these
covenants and is negotiating with the commercial lender to extend and amend the
line of credit. The Company also had a $1,750,000 equipment line of credit,
collateralized by the equipment, bearing interest at the bank's base lending
rate which expired on March 31, 1997. The Company is also currently in
negotiations with the commercial lender to extend and amend the equipment line
of credit. There can be no assurance that the Company will be successful in
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extending and amending the line of credit nor can there be any assurance that
such extended and amended line of credit will be on similar terms as the
existing agreement. Additionally, there can be no assurance that alternative
financing will be available if required. As of June 30, 1997, the Company had
borrowings under the equipment line of credit of $1,413,000.
During the three-month period ended June 30, 1997, the Company had a net
loss of $4.9 million, but increased cash by $1.8 million. The increase in cash
and cash equivalents was due primarily to $2.4 million provided by operating
activities. The Company's operating activities included a decrease in accounts
receivable of $7.5 million. Investing activities included capitalized software
costs of $0.2 million and the purchase of property and equipment for $0.2
million consisting primarily of computer equipment.
During fiscal 1996 the Company entered into a $5.0 million five-year
applications consulting services contract with a significant customer of the
Company. The five-year applications consulting services contract contains volume
pricing discounts subject to adjustments for increased costs. The Company has a
minimum commitment of $2,500,000 of outside applications services that will be
used by the Company over a five-year period. The minimum commitment of
$2,500,000 will be paid in five yearly payments commencing December 31, 1996.
These yearly payments are $250,000, $500,000, $550,000, $600,000 and $600,000
for the five calendar years beginning December 31, 1996, respectively. The
Company's policy is to recognize the consulting service expenses as the expenses
are incurred. The Company believes that based on current forecasts the minimum
payment accruals will be utilized. However, given the significant sales
fluctuations which may occur in any given period, it is possible that the
minimum commitment would not be met, thus requiring the Company to record a
charge in excess of the services utilized. At June 30, 1997, the Company had
fully used the minimum first-year commitment of $250,000.
The Company believes that existing sources of liquidity and anticipated
funds from operations will satisfy the Company's working capital and capital
expenditure requirements through at least fiscal 1998.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
+3.01 - Restated Certificate of Incorporation of the Registrant, as
amended to date.
++3.02 - Restated By-Laws of the Registrant.
++4.01 - Specimen Stock Certificate for Common Stock, $.00001 par value.
+++4.02 - Rights Agreement dated as of April 24, 1997, between the
Registrant and The First National Bank of Boston, as Rights Agent.
+++4.03 - Form of Certificate of Designations of the Voting Powers,
Preferences and Relative, Participating, Optional and Other
Special Rights, Qualifications, Limitations or Restrictions of
Series A Participating Cumulative Preferred Stock of the
Registrant
+++4.04 - Form of Right Certificate
++++27 - Financial Data Schedule
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+ Previously filed with the Registrant's Annual Report on Form 8-K for the
fiscal year ended March 31, 1997.
++ Previously filed as an Exhibit to the Registrant's Registration
Statement No. 33-86550.
+++ Previously filed as an Exhibit to the Registrant's Form 8-K dated April
24, 1997.
++++ Filed herewith.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated April 24, 1997 and
filed with the Securities and Exchange Commission on May 6, 1997, announcing the
declaration by the Board of Directors of the Company of a dividend of one Right
for each outstanding share of Common Stock, par value $0.00001 per share, of the
Company to holders of record of the Company's Common Stock on April 24, 1997. A
copy of the Rights Agreement dated as of April 24, 1997, between the Company and
The First National Bank of Boston, as Rights Agent, which contains a description
and the terms of the rights, was attached to the form 8-K as an exhibit.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONCENTRA CORPORATION
Date: August 14, 1997
By: /s/ Alex Braverman
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Alex Braverman
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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