- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarter ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 0-27048
-----------
MECON, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2702762
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
200 Porter Drive, Suite 100
San Ramon, California 94583
Registrant's telephone number, including area code: (510) 838-1700
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 has been subject to such
filing requirements for the past 90 days X Yes No
--- ---
The number of shares outstanding of the registrant's Common Stock on
November 13, 1997 was
6,083,330 shares
- --------------------------------------------------------------------------------
MECON, INC.
FORM 10-QSB
SEPTEMBER 30, 1997
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 (unaudited) and March 31, 1997
Consolidated Statements of Operations (unaudited) for the
Three and Six Month Periods Ended September 30, 1997 and 1996
Consolidated Condensed Statements of Cash Flows (unaudited) for the
Three and Six Month Periods Ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibits 11.1 Computation of Net Income (Loss) per Share
27.0 Financial Data Schedules
SIGNATURES
ITEM 1. FINANCIAL STATEMENTS
MECON, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
September 30, 1997 March 31, 1997
(unaudited)
----------------------------------
ASSETS
Current assets:
Cash and cash equivalents $11,099 $ 9,211
Securities available-for-sale, at market 2,455 4,467
Accounts receivable, net of allowances
of $404 and $555 respectively 2,996 2,542
Unbilled accounts receivable 707 886
Prepaid expenses 364 362
Other current assets 127 52
----------------------------------
Total current assets 17,748 17,520
Property and equipment, net 1,527 1,588
Software development costs, net 1,650 1,510
Other assets 13 13
----------------------------------
$20,938 $20,631
----------------------------------
----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,052 $ 1,134
Accrued salaries and benefits 366 452
Deferred revenue 1,733 1,058
----------------------------------
Total current liabilities 3,151 2,644
Long-term obligations, less current portion 24 25
----------------------------------
Total liabilities 3,175 2,669
----------------------------------
Stockholders' equity:
Preferred stock, $.001 par value 5,000,000
shares authorized; none issued and
outstanding - -
Common stock, $.001 par value; 50,000,000
shares authorized; 6,000,297, and 6,078,570
issued and outstanding at September 30,
and March 31,1997, respectively 6 6
Additional paid in capital 25,142 25,033
Accumulated deficit (7.385) (7,077)
----------------------------------
Total stockholders' equity 17,763 17,962
----------------------------------
$20,938 $20,631
----------------------------------
----------------------------------
See accompanying notes to consolidated financial statements
MECON, INC.
CONSOLIDATED STATEMENTS OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three months ended Six months ended
September 30, September 30,
-----------------------------------------
1997 1996 1997 1996
-----------------------------------------
Revenue:
Subscription and license $2,736 $3,472 $4,964 $5,974
Services 1,080 1,138 2,057 2,111
-----------------------------------------
Net revenue 3,816 4,610 7,021 8,085
Cost of revenue 1,442 1,500 2,687 2,711
-----------------------------------------
Gross profit 2,374 3,110 4,334 5,374
Operating costs:
Research and development 609 455 1,269 850
Sales and marketing 695 925 1,253 1,771
General and administrative 848 793 1,693 1,404
Reorganization and other special
charges - - 749 152
-----------------------------------------
Total operating costs 2,152 2,173 4,964 4,177
-----------------------------------------
Operating income (loss) 222 937 (630) 1,197
-----------------------------------------
Interest and other income, net 173 211 344 434
-----------------------------------------
Income (loss) before provision for
income taxes 395 1,148 (286) 1,631
-----------------------------------------
Provision for income taxes 20 402 20 572
-----------------------------------------
Net income (loss) $ 375 $ 746 $ (306) $1,059
-----------------------------------------
-----------------------------------------
Net income (loss) per share $ .06 $ 0.12 $(0.05) $ 0.17
-----------------------------------------
-----------------------------------------
Shares used in computing net income
(loss) per share 6,280 6,366 6,022 6,375
-----------------------------------------
-----------------------------------------
See accompanying notes to consolidated financial statements
MECON, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six months ended
September 30,
---------------------
1997 1996
---------------------
Net cash provided by (used in) operating activities $ 420 $(923)
---------------------
Cash flows from investing activities:
Purchase of securities available-for-sale (3,517) (43)
Proceeds from sale or maturities of securities
available-for-sale 5,529 -
Acquisition of property and equipment (234) (571)
Computer software development costs (418) (346)
---------------------
Net cash provided by (used in) investing
activities 1,360 (960)
---------------------
Cash flows from financing activities:
Repayment of bank borrowings - (1,936)
Proceeds from issuance of stock options and
employee purchase plan 108 245
---------------------
Net cash provided by (used in) financing
activities 108 (1,691)
---------------------
Net increase (decrease) in cash and cash
equivalents 1,888 (3,574)
Cash and cash equivalents at beginning of period 9,211 15,205
---------------------
Cash and cash equivalents at end of period $11,099 $11,631
---------------------
---------------------
See accompanying notes to consolidated financial statements
MECON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(1) BUSINESS OF THE COMPANY
MECON, Inc. (the Company) provides subscriptions to an information
database, licenses to software products, and consulting services to the
health care industry. These products and services improve performance and
reduce costs for health care organizations through the use of benchmark
information, processes, and tools.
(2) INTERIM FINANCIAL INFORMATION
The consolidated interim financial statements of the Company presented
herein have been prepared without audit pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, certain information
and notes required by generally accepted accounting principles have been
condensed or omitted. In the opinion of management, these statements include
all adjustments (all of which consist of normal recurring adjustments except
as otherwise noted herein) necessary to present fairly the Company's
financial position and results of operations for the interim periods
presented. These statements should be read in conjunction with the audited
financial statements and notes thereto for the fiscal year ended March 31,
1997 contained in the Company's Annual Report on Form 10-KSB. The results of
operations for the three and six months ended September 30, 1997 are not
necessarily indicative of the results of operations that may be expected for
the full year.
(3) MERGER OF MANAGED CARE INFORMATION SYSTEMS, INC.
On March 29, 1996, the Company merged with Managed Care Information
Systems, Inc. ("MCIS") in a pooling of interests transaction. In connection
with the merger, the Company exchanged 338,155 shares of its common stock for
all of the outstanding shares of MCIS, assumed 33,052 common stock options,
and assumed a note payable and accrued interest to a third party in the
amount of $2.5 million which was repaid during the first fiscal quarter of
1997. In addition, the Company recorded merger related charges during the
first fiscal quarter of 1997 totaling $152,000. Accordingly, all prior
period financial information has been restated.
(4) REORGANIZATION AND OTHER SPECIAL CHARGES
During the third quarter of fiscal 1997, the Company announced a plan to
reorganize its operations by centralizing the management of its product
development, sales and product support organizations to better achieve its
strategic growth objectives. In connection with the implementation of this
new corporate structure, the Company recorded pretax charges totaling
$1,459,000 that primarily included a $1,337,000 of reorganization charges,
and a $122,000 charge for an aborted acquisition. Included in the
reorganization costs were provisions for shutting down two of the Company's
satellite offices, employee reassignment and relocation, severance and
related benefits, asset writedowns and a provision for accounts receivable
that management believed would not be collectible. All amounts related to
this charge were paid by March 31, 1997, except that at March 31, 1997 there
was $249,000 accrued for the doubtful accounts provision. As of September
30, 1997, no accrual remained.
During the first quarter of fiscal 1998, the Company took action to
reduce its ongoing quarterly operating expense base. As a part of the expense
reduction effort, the Company decreased its workforce by 38 employees on
April 17, 1997 and incurred a $749,000 reorganization charge during the first
quarter of fiscal 1998. This charge was primarily comprised of employee
outplacement, severance and related benefits as well as employee
reassignment, relocation and additional costs associated with facility
shutdowns. The following table sets forth a description of the reorganization
expense for the six months ended September 30, 1997 and the liability at
September 30, 1997:
Accrual
Total Non-cash Accrued At
Reorganization Cost Expense Expense Expense Paid 9/30/97
- ------------------- ------- ------- ------- ---- -------
Salaries and termination benefits of
thirty-eight employees $634,000 $0 $634,000 $599,000 $35,000
Relocation and facilities shutdown 38,000 0 38,000 38,000 0
Professional fees 77,000 0 77,000 77,000 0
Total $749,000 $0 $749,000 $714,000 $35,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THE DISCUSSION AND ANALYSIS BELOW CONTAINS TREND ANALYSIS AND OTHER
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULTS OF THE RISK FACTORS SET FORTH UNDER
"CERTAIN FACTORS BEARING ON FUTURE RESULTS" BELOW AND ELSEWHERE IN THIS
REPORT.
OVERVIEW
MECON is a leading healthcare benchmarking solutions company. The
Company's proprietary data, family of premium quality, easy-to-use software
products and consulting services combine to produce and sustain optimum
performance in healthcare delivery systems. From its incorporation until
1989, MECON's revenue was primarily derived from consulting services for
acute care hospitals. Since 1990, the Company has transitioned into providing
a variety of products and services that employ its proprietary database
comprised of acute care hospitals' operational cost and key performance
information. For the six months ended September 30, 1997, approximately 71%
of the Company's revenues were derived from database subscriptions and
software licenses. Within the acute care segment of the hospital market,
MECON has marketed its product and services primarily to individual hospitals
with over 100 beds.
On March 29, 1996, the Company merged with Managed Care Information
Systems, Inc. ("MCIS") in a pooling of interests transaction. In connection
with the merger, the Company exchanged 338,155 shares of its common stock for
all of the outstanding shares of MCIS, assumed 33,052 common stock options,
and assumed a note payable and accrued interest to a third party in the
amount of $2.5 million. In addition, the Company recorded special charges of
$152,000 for merger-related costs in the first quarter of fiscal 1997.
Accordingly, all prior period financial information has been restated.
The following factors continue to contribute to the Company's performance
in the second quarter of fiscal 1998. On November 25, 1996, the Company
announced plans to complete the integration of MCIS, centralize management of
its product development, sales and product support organizations, increase
its investment in the development of new products and relocate its
headquarters to larger facilities to accommodate these changes. These
actions were intended to position the Company on a strong footing for
long-term growth. In connection with the implementation of this new
corporate structure, the Company recorded pretax charges of $1.5 million in
the third quarter of the fiscal 1997 that consisted of $1.3 million of
reorganization charges and a $122,000 charge for an aborted acquisition.
Included in the reorganization costs were provisions for shutting down two of
the Company's satellite offices, employee reassignment and reallocations,
severance and related benefits, asset writedowns and a provision for doubtful
accounts which was established as a reserve for returns, concessions and
uncollectible accounts. This reserve was established because the Company
believed its commitment to the development of new products would change the
strategic direction of its product lines.
As a result of these integration, reorganization and product transition
efforts, revenue and expenses for the third and fourth quarter of fiscal 1997
were adversely affected. Revenue was impacted by declined productivity in
the sales force that led to contract signing delays. The effect of such
delays was a shortfall in revenue recognized in both the third and fourth
quarters of fiscal 1997. This shortfall resulted in incurred operating
losses, and accordingly, the Company announced that it would take corrective
measures.
On April 17, 1997, the Company announced a number of strategic and
operational changes intended to improve the Company's financial performance.
As a first step, the Company renewed its strategic emphasis on its historical
strengths in benchmarking-based cost management solutions and refocused its
activities on the core markets served by the Company's MECON-PEERVIEW,
MECON-OPTIMIS, MECON-Action-Point and consulting services. The Company
believed that additional healthcare market sectors targeted by the Company's
increased investments in developing clinical outcomes and patient
satisfaction products did
represent growth opportunities for the Company. In the future, the Company
believed that continued efforts in these areas compromised both its
leadership position in benchmark-based cost management solutions and its
profitability.
Accordingly, the Company took action to reduce its ongoing quarterly
operating expense base. As a part of the expense reduction effort, the
Company decreased its workforce by 38 employees on April 17, 1997. This
reduction was made in an effort to reduce the Company's overall quarterly
expenses, and along with the Company's renewed focus on the core markets,
return the Company to profitability and growth. As a part of this expense
reduction effort, the Company incurred a reorganization charge of $749,000
during the first quarter of fiscal 1998. This charge was primarily comprised
of employee outplacement, severance and related benefits as well as employee
reassignment, relocation and additional costs associated with facility
shutdowns.
The Company's revenue has decreased primarily due to lower sales of
MECON-Action-Point as a result of the reorganization in the third quarter of
fiscal 1997. The Company's revenue is primarily derived from direct sales to
end users.
In conjunction with the April 17, 1997 reorganization, the Company's
original management team rejoined the Company and adopted a "back-to-basics"
strategy which included, among other tactics, selling the Company's existing
products into its existing customer base. During the six months ended
September 30, 1997, the Company's sales pipeline increased, and as a result,
achieved two consecutive quarters with sequential increases in the total
value of contracts signed. In the second quarter of fiscal 1998, the total
value of contracts signed increased 42% to $4.7 million compared to $3.3
million in the first quarter of fiscal 1998. Similarly, in the first quarter
of fiscal 1998, the total value of contracts signed increased 27% to $3.3
million compared to $2.6 million in the fourth quarter of fiscal 1997.
These sequential increases build the Company's backlog which is defined
as the total value of contracts that have not been recognized as revenue.
Backlog is then depleted by the revenue recognized during the period. As of
September 30, 1997, the Company's backlog increased 9% to $11.7 million
compared to $10.7 million at March 31, 1997.
Approximately 25% to 33% of the Company's quarterly revenue is derived
from backlog. The remaining 67% to 75% is generated from contracts signed
during that respective quarter. As a result of the sequential increase in
contract value signed during the first two quarters of fiscal 1998, the
Company achieved sequential revenue increases in the first and second
quarters of fiscal 1998 revenues. In the second quarter of fiscal 1998,
revenues increased 19% to $3.8 million compared to $3.2 million in the first
quarter of fiscal 1998. Similarly, in the first quarter of fiscal 1998,
revenues increased 28% to $3.2 million compared to $2.5 million in the fourth
quarter of fiscal 1997.
These sequential revenue increases, coupled with the expense reductions
achieved in the April 17, 1997 reorganization, have returned the Company to
profitable operations for the three months ended September 30, 1997.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net revenue for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------
1997 1996 1997 1996
----------------------------------------
Statements of Operations
Revenue:
Subscription and license........................... 72% 75% 71% 74%
Services........................................... 28% 25% 29% 26%
----------------------------------------
Net revenue...................................... 100% 100% 100% 100%
Cost of revenue...................................... 38% 33% 38% 34%
----------------------------------------
Gross profit......................................... 62% 67% 62% 66%
Operating costs:
Research and development........................... 16% 10% 18% 10%
Sales and marketing................................ 18% 20% 18% 22%
General and administrative......................... 22% 17% 24% 17%
Reorganization and other special charges........... - - 11% 2%
----------------------------------------
Total operating costs............................ 56% 47% 71% 51%
----------------------------------------
Operating income (loss).............................. 6% 20% (9%) 15%
Interest and other income, net....................... 5% 5% 5% 5%
----------------------------------------
Income (loss) before provision for income taxes...... 11% 25% (4%) 20%
Provision for income taxes........................... 1% 9% 0% 7%
----------------------------------------
Net Income (loss).................................... 10% 16% (4%) 13%
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUE
Revenue for the three months ended September 30, 1997 decreased 17% to
$3.8 million compared to $4.6 million for the comparable period in the prior
year. Subscription and license revenue for the three months ended September
30, 1997 decreased 23% to $2.7 million compared to $3.5 million for the
comparable period in the prior year and accounted for essentially all of the
revenue decrease. This decrease was primarily due to decreased revenue from
new MECON-Action-Point license fees. Service revenue for the three months
ended September 30, 1997 remained essentially unchanged at $1.1 million but
increased to 28% of total revenue compared to 25% for the comparable period
in the prior year. The company anticipates service revenue continuing to
increase as a percent of total revenues. This anticipated increase is
primarily due to the Company's current strategy of expanding customer support
services, such as training programs and consulting projects, that build
relationships with customers and enhance benefits customers derive from the
Company's products.
COST OF REVENUE
Cost of revenue for the three months ended September 30, 1997 decreased
4% to $1.4 million compared to $1.5 million for the comparable period for the
prior year primarily due to the reduction in staffing as a result of the
Company's reduction in workforce during the three months ended June 30, 1997
offset by higher amortization of software development costs related to the
company's MECON-PEERVIEW 4.0 product. Cost of revenue for the three months
ended September 30, 1997 included $157,000 in amortization expense from the
capitalization of software development costs compared to $24,000 for the
comparable period in the prior year. Cost of revenue for the three months
ended September 30, 1997 increased to 38% of total revenue compared to 33%
for the comparable period in the prior year, primarily due to higher fixed
costs associated with the amortization of software development costs.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended September
30, 1997 increased 34% to $609,000 compared to $455,000 for the comparable
period in the prior year, primarily due to the addition of technical and
programming personnel and facilities space related to new product
development. During the three months ended September 30, 1997 approximately
$175,000 was capitalized for internally developed software related to product
development compared to $178,000 for the comparable period in the prior year.
Research and development expenses for the three months ended September 30,
1997 increased to 16% of revenue compared to 10% for the comparable period in
the prior year, primarily due to an increased commitment to develop the next
generation of MECON-PEERVIEW, Version 5.0.
SALES AND MARKETING
Sales and marketing expenses for the three months ended September 30,
1997 decreased 25% to $695,000 compared to $925,000 for the comparable period
in the prior year. This decrease was primarily due to the reduction in
staffing in marketing as a result of the Company's reduction in workforce
during the three-months ended June 30, 1997 and a significant decrease in
advertising, tradeshow participation and travel. Sales and marketing
expenses for the three months ended September 30, 1997 decreased to 18% of
revenue compared to 20% for the comparable period in the prior year,
primarily due to personnel reductions in the marketing department and reduced
marketing activities.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended September
30, 1997 increased 7% to $848,000 compared to $793,000 for the comparable
period in the prior year, primarily due to increased management staffing,
depreciation and general expenses related to being a public company. General
and administrative expenses for the three months ended September 30, 1997
increased to 22% of revenue compared to 17% of revenue for the comparable
period in the prior year, primarily due to the aforementioned factors.
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996
REVENUE
Revenue for the six months ended September 30, 1997 decreased 14% to $7.0
million compared to $8.1 million for the comparable period in the prior year.
Subscription and license revenue for the six months ended September 30, 1997
decreased 17% to $5.0 million compared to $6.0 million for the comparable
period in the prior year and accounted for 91% of the revenue decrease. These
decreases were primarily due to decreased revenue from new MECON-Action-Point
license fees. Services revenue for the six months ended September 30, 1997
remained constant at $2.1 million but increased to 29% of total revenue
compared to 26% for the comparable period in the prior year. The company
anticipates service revenue continuing to increase as a percent of total
revenues. This anticipated increase is primarily due to the Company's current
strategy of expanding customer support services, such as training programs
and consulting projects, that build relationships with customers and enhance
benefits customers derive from the Company's products.
COST OF REVENUE
Cost of revenue for the six months ended September 30, 1997 remained
constant at $2.7 million. Although the Company did reduce its workforce in
the April 17, 1997 reorganization, the expense reduction related to the
reorganization was offset by increased amortization of software development
costs related to the company's MECON-PEERVIEW product. Cost of revenue for
the six months ended September 30, 1997 included $286,000 in amortization
expense from the capitalization of software development expenses compared to
$48,000 for the comparable period in the prior year. Cost of revenue for the
six months ended September 30, 1997 increased to 38% of total revenue
compared to 34% for the comparable period in the prior year, primarily due to
higher fixed costs associated with the amortization of software development
costs.
RESEARCH AND DEVELOPMENT
Research and development expenses for the six months ended September 30,
1997 increased 53% to $1.3 million compared to $850,000 for the comparable
period in the prior year, primarily due the addition of technical and
programming personnel and facilities space related to new product
development. During the six months ended September 30, 1997, $415,000 was
capitalized for internally developed software related to product development
compared to $346,000 for the comparable period in the prior year. Research
and development expenses for the six months ended September 30, 1997
increased to 18% of total revenue compared to 10% for the comparable period
in the prior year primarily due to an increased commitment to develop the
next generation of MECON-PEERVIEW, Version 5.0.
SALES AND MARKETING
Sales and marketing expenses for the six months ended September 30, 1997
decreased 28% to $1.3 million compared to $1.8 million for the comparable
period in the prior year, primarily due to the Company's reduction in
workforce during the three-months ended June 30, 1997 and a significant
decrease in advertising, tradeshow participation and travel. Sales and
marketing expenses for the six months ended September 30, 1997 decreased to
18% of revenue compared to 22% for the comparable period in the prior year,
the Company's reduction in workforce during the three-months ended June 30,
1997 and a significant decrease in advertising, tradeshow participation and
travel.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the six months ended September
30, 1997 increased 21% to $1.7 million compared to $1.4 million for the
comparable period in the prior year, primarily due to increased staffing,
facilities expenses and infrastructure expenses related to a public company's
operations. General and administrative expenses for the six months ended
September 30, 1997 increased to 24% of revenue compared to 17% for the
comparable period in the prior year, primarily due to the aforementioned
factors.
REORGANIZATION AND OTHER SPECIAL CHARGES
The reorganization charge incurred during the six months ended September
30, 1997 was primarily comprised of employee outplacement, severance and
related benefits as well as employee reassignment, relocation and additional
costs associated with facility shutdowns. Of the total $749,000
reorganization costs incurred, $714,000 was paid during the six months ended
September 30, 1997 and $35,000 remained accrued and unpaid at September 30,
1997.
LIQUIDITY AND CAPITAL RESOURCES
Over the past three years, the Company has financed its operations
primarily through sales of preferred and common stock. On December 7, 1995,
the Company completed an initial public offering of 2,000,000 shares of its
common stock. The offering yielded $23 million in net proceeds to the
Company. At September 30, 1997, the Company's cash, cash equivalents and
securities available-for-sale decreased by $100,000 to $13.6 million compared
to $13.7 million at March 31, 1997 primarily as a result of the cash payments
made related to the charge incurred in connection with the Company's
corporate reorganization. The Company generated $420,000 of cash flow from
operating activities for the six months ended September 30, 1997 compared to
cash used of $923,000 in the comparable period in the prior year. This
improvement was primarily due to increased cash collections. The Company
reduced its days of sales outstanding (DSO) in accounts receivable to 71 days
at September 30, 1997 from 84 days at September 30, 1996. This improvement
increased cash collections by approximately $500,000 during the three months
ended September 30, 1997 compared to the same period in the prior year.
As of September 30, 1997, the Company had net working capital of $14.6
million, including cash, cash equivalents and securities available-for-sale
of $13.6 million. Given the Company's strong cash position as of September
30, 1997, the Company has elected to have no outstanding debt facilities.
The Company currently has no material commitments for capital expenditures.
The Company believes that with its access to financing sources, strong
cash position, and lack of debt, it will be able to adequately fund its cash
requirements for at least the next twelve months.
The Company has a history of operating losses and uncertain
profitability. The Company has incurred net losses in fiscal 1995, 1996, 1997
and the first quarter of fiscal 1998. In view of the Company's prior
operating history, there can be no assurance that the Company will be able to
achieve profitability on a quarterly or annual basis, or that it will be able
to sustain or increase its revenue growth in future periods. The Company
urges review of all risk factors that could cause actual results to differ
materially from those projected in any forward-looking statements made by the
Company. Readers should carefully review such risk factors set forth in the
Company's filings with the Securities and Exchange Commission.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS No. 128), which requires the presentation of basic earnings per share
(EPS) and, for companies with complex capital structures, diluted EPS. SFAS
No. 128 is effective for annual and interim periods ending after December 15,
1997; earlier application is not permitted. The Company expects that adoption
of this statement will not have a material impact on earnings per share as
presented in the accompanying consolidated financial statements.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were approved at the Company's Annual Meeting of
Stockholders held on August 12, 1997:(a) The following directors were
elected:
Directors Votes For Votes Withheld
--------- --------- --------------
Vasu R. Devan 5,398,810 251,521
Raju Rajagopal 5,398,810 251,521
William H. Kimball 5,398,220 252,111
Walter G. Kortschak 5,398,810 251,521
Richard McCann 5,398,810 251,521
(b) The Stockholders approved the following proposals:
Number of Common Shares Voted
Proposal For Against Abstain No Vote
- -------- --- ------- ------- -------
Ratification of appointment
of KPMG Peat Marwick LLP
as independent accountants 5,476,345 169,136 4,850 0
Amendment to the 1995
Director Option Plan to increase the
number of shares of Common
Stock reserved for issuance
thereunder by 50,000 shares 5,171,361 444,756 16,382 17,832
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibits 11.1 Computation of Net Income (Loss) per Share
Exhibits 27.0 Financial Data Schedules
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1997.
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.
MECON INC.
(Registrant)
Date: 11/14/97 /s/ Vasu Devan
--------------
Vasu R. Devan
President and Chief Executive Officer
Date: 11/14/97 /s/ David J. Allinson
---------------------
David J. Allinson
Chief Financial Officer